Cinema City International N.V. (a limited liability company (naamloze vennootschap) incorporated under the laws of the Netherlands, with its corporate seat in Amsterdam) Offering of 15,664,352 Shares with a nominal value of i0.01 per Share A3.4.1 Based on this document (the “Prospectus”), 15,664,352 ordinary shares in Cinema City International N.V. (“Cinema City” or A3.5.1.2 the “Issuer”), a limited liability company (naamloze vennootschap) incorporated under the laws of the Netherlands, with its A3.4.2 corporate seat in Amsterdam, are offered, of which 10,000,000 newly issued ordinary shares (the “New Shares”) are offered for subscription by the Issuer and 5,664,352 existing ordinary shares (the “Sale Shares” and together with New Shares, the “Firm A1.5.1.1 Shares”) are offered for sale by (i) Israel Theatres Limited (the “Affiliated Shareholder”), the parent company of I.T. International A1.5.1.4 Theatres Limited, the Issuer’s majority shareholder (the “Principal Shareholder”), and (ii) a senior member of management and an affiliated person (together with the Affiliated Shareholder, the “Selling Shareholders”). The Issuer will receive the net proceeds from the sale of the New Shares. The Selling Shareholders will receive the net proceeds from the sale of the Sale Shares. The Offer Shares (as defined below) offered in this offering (the “Offering”) constitute a minority interest in the Issuer. The Offering consists of a public offering in Poland and an international offering by way of a private placement to certain institutional investors outside of Poland. The Offer Shares have not been and will not be registered under the United States Securities Act of 1933, as A3.6.3 amended (the “US Securities Act”), or with any securities regulatory authority of any state or any jurisdiction in the United States. A3.5.1.9 The Offer Shares are being offered only outside the United States in accordance with Regulation S of the US Securities Act (“Regulation S”) and may not be offered or sold within the United States or to, or for the account or benefit of, US persons (as defined in Regulation S) except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the US Securities Act. See: “Selling Restrictions”. The Firm Shares are being offered, as specified in this Prospectus, subject to cancellation or modification of such Offering and subject to certain other conditions. The Prospectus constitutes a prospectus in the form of a single document within the meaning of Article 3 of the Directive 2003/71/EC of the European Parliament and of the Council of the European Union (the “Prospectus Directive”) and has been prepared in accordance with Article 3 of the Dutch Securities Act 1995 (Wet toezicht effectenverkeer 1995, the “Dutch Securities Act”). This Prospectus has been filed with, and was approved on 17 November 2006 by, the Netherlands Authority for the Financial Markets (the “AFM”), which is the Dutch competent authority for the purpose of the relevant implementing measures of the Prospectus Directive in the Netherlands. The Issuer will be authorised to carry out the Offering to the public in Poland once the Polish Financial Supervisory Commission (the “FSC”), which is the Polish competent authority for the purposes of the relevant implementing measures of the Prospectus Directive in Poland, has informed the Issuer that the AFM provided the FSC with a certificate of approval of this Prospectus, which is equivalent with authorising the Offering to the public in Poland. See: “Risk Factors” for a description of factors to be taken into account when considering whether to invest in the Offer Shares. Prior to the Offering there was no public market for the shares of the Issuer. Application will be made based on this A3.5.1.3 Prospectus to admit and list all of the Issuer’s shares (“Shares”) authorised and issued as at the Settlement Date (as defined A3.5.3.1 below), including the Firm Shares and the Overallotment Shares (as defined below), plus 930,000 Shares that have been A3.5.3.2 authorised and that may be issued from time to time under the Company’s employee stock incentive plan, to trading on the A3.6.1 Warsaw Stock Exchange (the “WSE”) (the “Admission”). The date on which trading of the Firm Shares on the WSE will A3.6.2 commence is expected to be on or about 8 December 2006 (the “Listing Date”). Delivery of the Firm Shares to investors’ securities accounts is expected to be made on or about 7 December 2006 (the “Settlement Date”). Prospective retail investors in Poland A3.4.7 (other than “U.S. persons” as defined in Regulation S under the US Securities Act) may subscribe for the Firm Shares during a period which is expected to commence on or about 24 November 2006 and is expected to end on or about 30 November 2006, whereas selected prospective institutional investors in Poland (other than “U.S. persons” as defined in Regulation S under the US Securities Act) may subscribe for the Firm Shares during a period that is expected to commence on or about 1 December 2006 and is expected to end on or about 4 December 2006. The Maximum Price per Offer Share will be determined by the Issuer and the Affiliated Shareholder, with the agreement of the Lead Manager (as defined below) on or about 23 November 2006, based on (i) an assessment of the current and anticipated situation of the Polish and international capital markets, and (ii) an assessment of the growth prospects, risk factors and other information relating to the Company’s activities. The offer price per Offer Share (the “Offer Price”) and the final number of the Offer Shares will be determined jointly by the Issuer and the Affiliated Shareholder, with the agreement of Bank Austria Creditanstalt AG (“CA IB” or the “Lead Manager” and, together with ING Bank N.V., the “Managers”) on or about 30 November 2006 (the “Pricing Date”) and will be announced in a press release soon thereafter and in the same manner as this Prospectus. The Offer Price will be determined based on the following criteria and rules: (i) size and price A3.5.4.1 sensitivity of demand from the Institutional Investors as gauged during the book-building process, (ii) the current and anticipated A3.5.4.2 situation on the Polish and international capital markets and (iii) assessment of the growth prospects, risk factors and other A3.5.4.3 information relating to the Company’s activities contained in this Prospectus. If the Offering is cancelled or postponed prior to final allotments of the Firm Shares to investors on or about 4 December 2006 (the “Allotment Date”), all subscriptions for the Firm Shares will be disregarded and any subscription payments made will be returned without interest or other compensation. All dealings in the Firm Shares prior to settlement and delivery are at the sole risk of the parties concerned. In addition, the Principal Shareholder has granted to the Managers an option exercisable for up to 30 days following the Allotment Date to purchase up to an additional 2,349,652 Shares (the “Overallotment Shares” and together with the Firm Shares, the “Offer Shares”), the maximum number of which is equal to 15% of the number of Firm Shares being offered in the Offering, solely to cover overallotments, if any, made in connection with the Offering and short positions resulting from stabilisation transactions. Such stabilisation shall be conducted in accordance with the rules set out in the European Commission Regulation (EC) No. 2273/2003 of 22 December 2003 implementing Directive 2003/6/EC of the European Parliament and of the Council of the European Union as regards exemptions for buy-back programmes and stabilisation of financial instruments. Offer Price: To be determined in PLN A3.4.4 Maximum Price: To be determined in PLN and announced on or about 23 November 2006 A3.5.3.1 CA IB Securities S.A. will act as Offeror (the “Offeror”) for the offering and listing of the Shares on the WSE. Global Coordinator, Bookrunner and Lead Manager

Co-Lead Manager

The date of this Prospectus is 17 November 2006.

TABLE OF CONTENTS

IMPORTANT INFORMATION ...... ii SUMMARY ...... 1 SUMMARY FINANCIAL AND OPERATING DATA ...... 8 RISK FACTORS...... 10 EXCHANGE RATE INFORMATION ...... 18 USE OF PROCEEDS ...... 20 DIVIDEND POLICY ...... 21 PRINCIPAL AND SELLING SHAREHOLDERS ...... 22 CAPITALISATION AND INDEBTEDNESS ...... 23 SELECTED FINANCIAL INFORMATION ...... 24 OPERATING AND FINANCIAL REVIEW ...... 26 DESCRIPTION OF THE COMPANY ...... 40 INFORMATION ON THE INDUSTRY AND MARKETS ...... 61 DIRECTORS AND EMPLOYEES ...... 67 RELATED PARTY TRANSACTIONS ...... 75 DESCRIPTION OF THE SHARES AND CORPORATE RIGHTS AND OBLIGATIONS ...... 76 SELLING RESTRICTIONS ...... 90 THE WARSAW STOCK EXCHANGE ...... 92 CERTAIN TAX CONSIDERATIONS ...... 95 THE OFFERING ...... 103 PLACING AND UNDERWRITING ...... 108 LEGAL MATTERS ...... 109 INDEPENDENT AUDITORS ...... 110 GENERAL INFORMATION ...... 111 INDEX TO FINANCIAL STATEMENTS ...... F-1 ANNEX I DEFINITIONS ...... A-1 ANNEX II ARTICLES OF ASSOCIATION ...... B-1

i IMPORTANT INFORMATION Capitalised terms used in this Prospectus and not otherwise defined herein have the meaning ascribed to such terms in Annex I “Definitions”. Prospective investors are expressly advised that an investment in the Offer Shares entails financial risk and that they should therefore read this Prospectus entirely and, in particular “Risk Factors” when considering an investment in the Offer Shares. The contents of this Prospectus are not to be construed as legal, financial or tax advice. Each prospective investor should consult his, her or its own legal adviser, independent financial adviser or tax adviser for legal, financial or tax advice. No person is or has been authorised to give any information or to make any representation in connection with the Offering, other than as contained in this Prospectus, and, if given, or made, any other information or representation must not be relied upon as having been authorised by the Issuer, or by the Managers.

Responsibility

The Issuer accepts responsibility for the information contained in this Prospectus. To the best of the Issuer’s A3.1.1 knowledge and belief, having taken all reasonable care to ensure that such is the case, the information contained in this Prospectus is in accordance with the facts and contains no omission likely to affect its import. The delivery of A3.1.2 this Prospectus at any time after the date hereof will not, under any circumstances, create any implication that there has been no change in the Issuer’s affairs since the date hereof. Neither the Managers nor the legal advisors to the A1.1.1 Company accept responsibility whatsoever for the contents of this Prospectus, or for its transaction, or for any other statement made or purported to be made by any of them or on their behalf in connection with the Issuer. The A1.1.2 Managers and the legal advisors to the Company accordingly disclaim all and any liability whether arising in tort or contract which they might otherwise have in respect of this Prospectus or any such statement.

Notice to Prospective Investors The distribution of this Prospectus and the Offering of the Offer Shares in certain jurisdictions may be restricted by law. This Prospectus may not be used for, or in connection with, and does not constitute, any offer to sell, or an invitation to purchase, any of the Offer Shares offered hereby in any jurisdiction in which such offer or invitation would be unlawful. Persons in possession of this Prospectus are required to inform themselves about and to observe any such restrictions, including those set out under “Selling Restrictions”. Any failure to comply with these restrictions may constitute a violation of the securities laws of any such jurisdiction. As a condition to the purchase of any Offer Shares in the Offering, each purchaser will be deemed to have made, or in some cases be required to make, certain representations and warranties, which will be relied upon by the Issuer, the Managers and others. The Issuer and the Affiliated Shareholder reserve the right, in their sole and absolute discretion, to reject any purchase of Offer Shares that the Issuer, the Affiliated Shareholder, the Managers or any agents believe may give rise to a breach or a violation of any law, rule or regulation. See: “Selling Restrictions”. The Offer Shares have not been approved or disapproved by the US Securities and Exchange Commission, any State securities commission in the United States or any other US regulatory authority, nor have any of the foregoing passed upon or endorsed the merits of the Offering or the accuracy or adequacy of this Prospectus. Any representation to the contrary is a criminal offence in the United States.

Presentation of Financial and Other Information In this Prospectus, “Cinema City” or the “Issuer” refers to Cinema City International N.V. and the “Company” refers to Cinema City and its subsidiaries, unless the context requires otherwise. The Company maintains its financial statements (the “IFRS Financial Statements”) in accordance with International Financial Reporting Standards, as adopted by the European Union (“IFRS”) and as applicable in the respective years, as well as in accordance with article 362.9 of the Netherlands Civil Code. The IFRS Financial Statements comprise (i) the audited consolidated financial statements as at and for the years ended 31 December 2005, 2004, and 2003 (the “Annual Audited Financial Statements”) and (ii) the unaudited consolidated financial statements as at and for the six-month periods ended 30 June 2006 and 2005 (the “Interim Financial Statements”), which are included elsewhere in this Prospectus. Certain figures contained in this Prospectus, including financial information, have been subject to rounding adjustments. Accordingly, in certain instances the sum of the numbers in a column or a row in tables contained in this Prospectus may not conform exactly to the total figure given for that column or row.

ii In this Prospectus, references to “Euros”, “EUR” or “A” are to the lawful currency of the European Economic and Monetary Union, of which the Netherlands is a member. References to “US dollars”, “USDs”, “US$”, “$” or “U.S. Dollars” are to the lawful currency of the United States. References to “Złoty” or “PLN” are to the lawful currency of the Republic of Poland. References to “New Israeli Shekel” or “NIS” are to the lawful currency of the State of Israel. References to “Koruna” or “CZK” are to the lawful currency of the Czech Republic. References to “Lev” or “BGN” are to the lawful currency of the Republic of Bulgaria. References to “Forint” or “HUF” are to the lawful currency of the Republic of Hungary. Certain industry terms and other terms used in this Prospectus are explained in Annex I “Definitions”.

Market, Economic and Industry Data All references to market, economic or industry data, statistics and forecasts in this Prospectus consist of estimates compiled by professionals, organisations, analysts, publicly available information, or the Issuer’s knowledge of its sales and markets.

Certain statistical data relating to the Hungarian and Czech cinema industries have been derived from A1.6.5 published reports produced by the Hungarian National Film Office and the Czech Film Commission, respectively. A3.10.4 A1.23.2 Certain statistical data relating to the Israeli and Central European cinema industry has been extracted or derived from Cinemagoing Central Europe 2006, a report published by Dodona Research (“Dodona”), a specialist research organisation for the cinema industry; from periodic subscription-based electronic releases received by the Company in the period from 2003 to the present from Screen Digest (“Screen Digest”), a specialist in business intelligence, research and analysis on global audiovisual media; from periodic subscription-based electronic releases received by the Company in the period from 2003 to the present from Media Salles, an initiative of the European Union’s Media Programme with the support of the Italian Government (“Media Salles”); and from periodic subscription-based electronic releases received by the Company in the period from 2003 to the present from the Motion Picture Association of Israel (“MPA”). Certain statistical data relating to the Polish cinema industry have been extracted or derived from information available in October 2006 on the website owned and operated by ES Media, www.boxoffice.pl (“ES Media”). Certain statistical data relating to the United States and the global film industry have been extracted or derived from International Theatrical Snapshot 2005, a report published by the Motion Picture Association of America (“MPAA”).

Industry publications generally state that their information is obtained from sources they believe to be reliable A1.23.2 but that the accuracy and completeness of such information is not guaranteed and that the projections they contain A3.10.4 are based on a number of significant assumptions. The Issuer has relied on the accuracy of such data and statements without carrying out an independent verification thereof and therefore cannot guarantee its accuracy and completeness. The information obtained from the sources cited in this Prospectus has been accurately reproduced and, as far as the directors of the Issuer are aware and have been able to ascertain from information published by the cited sources, no facts have been omitted which would render the information reproduced inaccurate or misleading. Where third party information has been used in this Prospectus, the source of such information has been identified.

In this Prospectus, the Issuer makes certain statements regarding the Company’s competitive position and A1.6.5 market leadership. The Issuer believes these statements to be true, based on market data and industry statistics regarding the competitive position of certain of the Company’s competitors.

Documents Incorporated by Reference No documents or content of any website are incorporated by reference into this Prospectus or enumerate the documents or information that is incorporated by reference into this Prospectus.

Forward-Looking Statements Some of the statements in some of the sections in this Prospectus include forward-looking statements which reflect the Issuer’s current views with respect to future events and financial performance. Statements which include the words “intend”, “plan”, “project”, “expect”, “anticipate”, “will” and similar statements of a future or forward- looking nature identify forward-looking statements. All forward-looking statements address matters that involve risks and uncertainties. Accordingly, there are or will be important factors that could cause the Issuer’s actual results to differ materially from those indicated in these

iii statements. These factors include, but are not limited to, those set out under “Risk Factors”, which should be read in conjunction with the other cautionary statements that are included elsewhere in this Prospectus. If one or more of these or other risks or uncertainties materialise, or if the Issuer’s underlying assumptions prove to be incorrect, actual results may vary materially from those projected in this Prospectus. Apart from any continuing obligations under the Dutch Securities Act, the Polish Act on Offerings, or WSE Corporate Governance Rules to which the Issuer is subject to, the Issuer undertakes no obligation to publicly update or review any forward-looking statement contained in this Prospectus, whether as a result of new information, future developments or otherwise.

iv SUMMARY A3.4 A3.4.1 This summary should be read only as an introduction to this Prospectus and contains information included elsewhere in this Prospectus and any decision to invest in the Offer Shares should be based on consideration of all A3.4.2 information contained in this Prospectus as a whole, including the IFRS Financial Statements. No civil liability will attach to the Issuer in respect of this summary (including financial highlights) or any translation thereof, unless it is misleading, inaccurate or inconsistent when read together with the other parts of this Prospectus. Where a claim relating to the information contained in this Prospectus is brought before a court in a Member State, the plaintiff may, under the national legislation of the Member State where the claim is brought, be required to bear the costs of translating this Prospectus before the legal proceedings are initiated.

Information on the Company A1.5.1 The Company is the largest operator of multiplex cinemas in Central and Eastern Europe based on number screens, with 335 screens, in 35 multiplex cinemas and seven IMAX» theatres in Poland, Hungary, the Czech Republic and Bulgaria. In addition to Central and Eastern Europe, the Company is one of two leading motion picture exhibitors in Israel based on the number of screens, operating 131 screens in 23 multiplex cinemas. In total, the Company operates 466 screens in 58 multiplex cinemas, including seven IMAX» theatres. In 2005, the Company had total revenues of A108.2 million. In the first six months of 2006, the Company had total revenues of A75.5 million. The Company also distributes films in Israel, Poland and Hungary and has strong relationships with international film companies, having acted as the exclusive motion picture distributor for The Walt Disney Company (“Disney”) in Israel, through its subsidiary Buena Vista International Inc (“Buena Vista”), for almost 50 years, and more recently in Poland and Hungary. The Company has exclusive rights to develop IMAX» theatres in Poland, the Czech Republic, Hungary, Bulgaria and Romania. In addition, in connection with its theatre development, the Company is engaged in real estate activities in Central and Eastern Europe. In Israel, the Company engages in video and DVD rental and sales and, since May 2006, this business has been operated through a joint venture operating the Blockbuster» franchise in which the Company has a 50% participation. The Company has continued to be engaged in significant expansion within Central and Eastern Europe. From late 2004 to mid-2006, the Company opened 11 multiplex theatres, including three IMAX» facilities, primarily in Poland. Over the next two years, the Company plans to open approximately 286 new multiplex screens (216 of which the Company has contractual commitments in respect of), including two IMAX» theatres, at sites throughout the territories in which it operates, including its first three projects in Romania. The Company is the largest cinema operator in Poland based on the number of screens and in 2005 had a multiplex box office market share of 38% according to ES Media and Company estimates. The Company has a particularly strong presence in Warsaw, with a total cinema admissions market share of 65% in 2005, according to ES Media and the Company’s estimates. The Company has the largest cinema network in Hungary based on the number of screens with 12 theatres and 86 screens and had a market share of approximately 22% in 2005, based on admissions, according to the Hungarian National Film Office and the Company’s estimate. The Company is one of largest operators in the Czech cinema market based on the number of screens and has four sites in Prague with 32 screens and an IMAX» theatre in Prague. As of the end of September 2006, the Company is the largest cinema operator in Israel based on number of screens with 23 theatres and 131 screens. In 2005, the Company had a 32% market share based on admissions, according to MPA, and the Company’s estimates. The Company recently commenced operations in Bulgaria with the July 2006 opening of 12 multiplex screens and one IMAX» theatre in the “Mall of Sofia”, the first modern shopping mall in Bulgaria, with offices, shopping areas, a supermarket, restaurants and cafes and an underground parking lot for 700 cars. The Company developed this project as part of its real estate activities. In addition to theatre ticket sales, the Company derives revenue from the following sources: • concession sales (12.3% of 2005 consolidated sales), which consist of the sale of products such as food and beverages at the theatres; • advertising (9.7% of 2005 consolidated sales), which consists of the provision of full service on-screen and off-screen marketing, delivering cinema-media planning services, organising promotional events and developing posters, stickers and various other marketing materials;

1 • film distribution (14% of 2005 consolidated sales), which consists of the provision of services connected with the initial positioning and marketing of the film in a market, followed by distribution to the cinemas that will show the film; • real estate activities (12.1% of 2005 consolidated sales), which consist primarily of the purchase and sale of real estate properties; • video and DVD rentals and sales (4.5% of 2005 consolidated sales consisting primarily of activities conducted by the Company’s 50/50 joint venture with the Israeli Blockbuster» franchisee); and • the operation of the Company’s two entertainment centres in Poland (less than 1% of 2005 consolidated sales), which include bowling alleys, video game arcades, billiards, internet cafes and bars.

Information on the Industry

The motion picture industry continues to grow on a global basis. According to the MPAA, global box office revenues have increased by 46% from $15.9 billion in 2000 to an estimated $23.2 billion in 2005. The Company believes the following market trends will drive the continued growth and strength of its industry and the markets in which it operates: • the development of modern multiplexes; • greater diversity in film genres, including the development of more “locally” produced films; • increased importance of drawing in wider audiences in international markets to ensure the commercial success of film releases; • increased studio spending on the production and marketing of new film releases; and • growing cinema admissions in historically underserved markets.

Competitive Strengths The Company believes that it benefits from the following competitive strengths: • Strong market positions. For many years the Company has been one of the two market leaders in Israel in the movie exhibition business, based on revenue. It has already leveraged its operational capabilities and standardised practices to become the leading theatre operator in Poland and one of the main theatre operators in Hungary, the Czech Republic and Bulgaria, based on revenue, and can further leverage these to develop new markets that the Company believes to be high growth, such as Romania. • Presence in high growth markets. The Company’s growth focus is in countries that it believes have high growth potential. Penetration of movie screens per capita, admissions per capita, and the number of modern multiplexes relative to single screen theatres in Central and Eastern Europe is substantially lower than in the European Union and the US, which the Company believes is an indication of future growth potential. The Company believes that the movie industry in this region will continue to develop rapidly as disposable incomes increase and older, single screen theatres are replaced with modern multiplex facilities. • Experienced management team. The Company believes that it has benefited from the extensive expe- rience of its management team. The Greidinger family has been in the cinema industry since 1929 and the Company’s senior management team collectively has more than 100 years of experience in the movie theatre industry and related real estate industry. This includes experience in all elements of the industry, such as film distribution, real estate and project development, exhibition, advertising, as well as operating experience in other movie distribution channels. The Company believes that as a result of this experience its management has strong insight relating to planning and site development, marketing and advertising and distribution activities. • Diversified revenue base within its industry. The Company generates revenues from a number of sources, including ticket sales for movie exhibitions, concessions, advertising, movie distribution, video and DVD rental and sales, and real estate development and trading. The Company also receives revenue from sponsorship arrangements, including, for example, Orange plc sponsoring the Company’s IMAX» theatres in Poland. The Company believes that these diverse operations maximise use of its infrastructure and help reduce the inherent cyclicality and seasonality of the movie exhibition business.

2 • Strong cash flow and liquidity. The Company’s main customers are cinema attendees who typically pay in cash thereby eliminating significant accounts receivable in its core theatre operations business, reducing the Company’s working capital requirements and minimising bad debt provisions. • Exclusivity with the Imax Corporation. The Company has an exclusive agreement with the Imax Corporation to develop IMAX» theatres in Poland, the Czech Republic, Hungary, Bulgaria and Romania. The Company currently operates five IMAX» theatres in Poland, one in the Czech Republic and one in Sofia, Bulgaria. The Company has plans for the development of two further IMAX» theatres by the end of 2007. The Company believes that, in addition to the high-margin revenues generated by these IMAX» theatres, its exclusive relationship with the Imax Corporation enables the Company to acquire better theatre site locations by offering an exclusive and attractive product to property developers. • Distribution relationships with Disney (through Buena Vista). The Company distributes films in Israel, Poland and Hungary. The Company has been an exclusive distributor for Disney for almost 50 years in Israel and, since February 2003 and September 2005, in Poland and Hungary, respectively. In addition, it distributes new releases from New Line, Weinstein Co., Revolution and Spyglass, as well as other independent movie producers. The distribution operations represent a natural vertical add-on business, providing natural synergies including the ability to actively advertise and promote movies in the Company’s markets. • High-quality multiplex facilities. The Company believes that the development and maintenance of high- quality theatre facilities is critical to its continued success. In constructing new theatres, the Company applies a standardised interior design and technologies and these multiplex theatres include wide screens, digital surround systems, high-quality projection equipment, comfortable seating, computerised reserved seating ticketing systems, and full service concessions. The Company believes that its high-quality facilities provide a preferred destination and entertainment experience for moviegoers. The Company aims to enable moviegoers to complement their movie experience with other leisure and social activities by building its movie theatres within other shopping, leisure and entertainment facilities. • Standardised, flexible and cost effective approach to developing multiplex theatre sites. The Company has developed a standardised yet flexible cost effective approach to multiplex construction, which the Company believes has contributed to its track record of on-time and on-budget construction. Whenever the Company seeks to develop a new theatre, an experienced team applies a standardised design that is adapted to the requirements of the particular site, which enables the Company to achieve cost savings. In addition, as a result of its experience, the Company is able to respond quickly to developers of other commercial properties that include a cinema. The Company believes that this has earned it a reputation as a reliable multiplex operator which strengthens its ability to secure prime site locations and provides it with a competitive advantage over other exhibitors submitting bids. Moreover, the Company is now in a position where it is frequently approached by property developers who perceive it as a desirable cinema anchor for a complex. • Customised information technology and reporting systems. Management closely monitors the Compa- ny’s operations and cash flows through daily reports generated from customised information technology and reporting systems connected with each theatre. The Company believes that these systems help to enhance its ability to maximise revenue, cost control and efficiently manage theatre circuits. The real-time information available on these systems allows management to make immediate adjustments to movie schedules, prolong runs or increase the number of screens on which successful movies are played and substitute films when gross receipts cease to meet expected goals.

Business Strategy Key elements of the Company’s strategy include: • Consolidate its position in its existing markets: The Company aims to consolidate its position as the leading operator of multiplex cinemas in Poland by significantly expanding its operations and to enhance its position as a leading operator in Hungary, the Czech Republic and Bulgaria. To that end, since the end of 2004, the Company has developed nine theatres, of which two are IMAX» theatres, in Poland. The Company plans to add up to 21 new theatres in its existing markets in the next two years, of which ten are expected to be in Poland, two in Israel, one in Hungary and four in each of Bulgaria and the Czech Republic. • Expand into other Central and Eastern European Markets. The Company aims to expand its operations in new markets in Central Eastern Europe, leveraging the business model that it has developed and

3 implemented in Poland, the Czech Republic Hungary and Bulgaria. To that end, the Company has commenced activities in Romania, where the Company plans to build four new theatres and will consider new opportunities in other Central and Eastern European countries as they arise. • Leverage leading market position to secure premium high traffic locations. As part of its development strategy, the Company will continue to seek to locate its theatres within strategically desirable destinations, such as shopping malls and entertainment complexes. Where the Company is unable to find suitable opportunities within an existing or planned development, it will continue to selectively purchase property to develop on its own. • Generate earnings through real estate development and trading. The Company intends to continue to participate in real estate development in the future, primarily in connection with its theatre expansion programme, and to identify and implement projects that provide it with a stable mix of leased and owned properties. The aim of this strategy is to allow the Company to selectively leverage the success of multiplexes into real estate and cinema-related entertainment centres. • Continue to grow, attract and retain customer base. As the Company is operating in markets with relatively low admissions per capita, it aims to encourage the development of a vibrant movie going culture. The Company intends to grow its customer base through loyalty programmes, such as loyalty cards and bonus schemes, together with the effective use of online booking and other marketing and promotion tools. The Company is constantly re-evaluating and analysing its customer viewing patterns through its information systems in order to tailor its programming to satisfy customer requirements. • Further develop its film distribution channels in countries where it operates The Company aims to grow its film distribution operations as its penetration of new markets through theatre operations develops. The distribution operations represent a natural vertical add-on business, providing natural synergies including the ability to actively advertise and promote movies in the Company’s markets. • Maximise revenue opportunities through cinema related operations. The Company will continue to pursue additional revenue growth opportunities by developing and expanding ancillary revenue streams, such as concession, sponsoring and advertising revenues. The Company believes that further opportunities exist to expand its sponsorship arrangements across both multiplexes and IMAX» theatres. With these ancillary revenue streams, the Company aims to improve margins and reduce its exposure to the cyclicality of the theatre business.

Risk Factors An investment in the Offer Shares involves risks that could affect the value of the Offer Shares negatively, including risks relating to the Company’s business and industry, its corporate structure, and the trading market of the Offer Shares. See “Risk Factors.”

Controlling Shareholder Following completion of the Offering, the Greidinger family will maintain indirect control of the Principal Shareholder, through its shareholding in Israel Theatres Limited. More than 75% of the shares in Israel Theatres Limited are held primarily by Mr Moshe Greidinger and Mr Israel Greidinger and, to a lesser extent, their sisters, Ms Rebecca Greidinger and Ms Merav Greidinger.

4 Summary of the Offering The Issuer ...... Cinema City International N.V. The Offering...... TheOffering comprises the offer of 15,664,352 Firm Shares, includ- ing the subscription offer by the Issuer of 10,000,000 New Shares, and the sale offer by the Selling Shareholders of 5,664,352 Sale Shares, together constituting a minority interest in the Issuer, by way of a A3.5.2.1 public offering to retail and institutional investors in Poland that are not U.S. persons (as defined in Regulation S) and an international private placement to institutional investors that are not U.S. persons (as defined in Regulation S) in certain jurisdictions outside Poland and the United States. The Selling Shareholders ...... TheSelling Shareholders consist of (i) Israel Theatres Limited, which is the parent company of the Principal Shareholder, selling Offer Shares that ITIT originally acquired from certain former minority shareholders of the Issuer (and that if subsequently transferred to Israel Theatres Limited) to whom Israel Theatres Limited will dis- tribute a portion of the net proceeds of the sale of the Sale Shares sold by it, (ii) a senior member of management and (iii) a person affiliated with the Company. Assuming all the Firm Shares are subscribed for and sold in the Offering and full exercise of the Overallotment Option, the Principal Shareholder will own 64.5% of the Issuer’s share capital immediately after the Offering. Offer Shares ...... Shares of the Company of nominal value A0.01 each. The final number of Offer Shares to be offered will be determined by the Issuer and the Affiliated Shareholder, with the agreement of the Lead Manager, prior to the opening of the subscription period for Institutional Investors on or about 30 November 2006 based on interest from investors and will be announced in a press release and in the same way as this Prospectus.

Maximum Price ...... TheMaximum Price per Offer Share will be determined by the Issuer A3.5.3.1 and the Affiliated Shareholder, with the agreement of the Lead Manager, on or about 23 November 2006, based on (i) an assessment of the current and anticipated situation of the Polish and international capital markets, and (ii) an assessment of the growth prospects, risk factors and other information relating to the Company’s activities. Offer Price ...... TheOfferPrice will be determined by the Issuer and the Affiliated Shareholder, with the agreement of the Lead Manager, prior to the opening of the subscription period for Institutional Investors (as defined in Annex I hereto) on or about 30 November 2006 (the “Pricing Date”) and will be announced in a press release and in the same manner as this Prospectus. The Offer Price will be determined based on the following criteria and rules: (i) size and price sensitivity of demand from the Institutional Investors as gauged during the book- building process, (ii) the current and anticipated situation on the Polish and international capital markets and (iii) assessment of the growth prospects, risk factors and other information relating to the Company’s activities contained in this Prospectus. The Offer Price for Retail Investors will not exceed the Maximum Price. The Offer Price for Institutional Investors may exceed the Maximum Price. Allotment Date ...... Allotment will occur following the subscription period for Institu- tional Investors, and is expected to take place on or about 4 December 2006, subject to acceleration or extension of the timetable for the Offering at the discretion of the Company and the Affiliated Share- holder, with the agreement of the Lead Manager. Overallotment Option ...... ThePrincipal Shareholder granted to the Managers an option (the “Overallotment Option”), exercisable for up to 30 days following the

5 Allotment Date, to purchase up to an additional 2,349,652 Overallot- ment Shares, the maximum number of which is to 15% of the number of Firm Shares, solely to cover overallotments, if any, made in connection with the Offering and short positions resulting from stabilisation transactions. See “The Offering.”

Listing and Trading ...... Application will be made by the Issuer to list all of the Issuer’s authorised and issued shares as at the Settlement Date on the WSE, including the Firm Shares and the Overallotment Shares, if any, plus 930,000 Shares that have been authorised for issuance from time to time under the Company’s Employee Stock Incentive Plan. Trading of the Shares on the WSE is expected to commence on or about 8 December 2006. Prior to the Offering, there was no public market for the Issuer’s Shares.

Dividends ...... AllShares, including the Firm Shares and the Overallotment Shares, carry full dividend rights if and when declared from the date the holder acquires such shares.

Delivery, Settlement and Payment ..... Delivery of the Shares is expected to be made on or about 7 December 2006 to Investors’ securities accounts upon payment of the total Offer Price, through the book-entry facilities of the Polish National Depos- itory of Securities (the “NDS”) in accordance with their normal settlement procedures applicable to IPOs of equity securities.

Voting Rights ...... Each Share entitles its holder to one vote at the Issuer’s General Meeting of Shareholders.

Use of Proceeds ...... Theestimated net proceeds payable to the Company if it sells all of the New Shares to be sold by it in the Offering will be announced in a press release on the Pricing Date.

The Company intends to utilise the net proceeds from the New Shares to finance the development of its business in Central and Eastern Europe and Israel and, to the extent funds are not otherwise invested in this manner, for other general corporate purposes, including the redemption of debt.

The Selling Shareholders will receive the net proceeds from the sale of the Sale Shares. The Affiliated Shareholder will distribute a portion of the proceeds among certain former minority shareholders of the Issuer in accordance with a prescribed formula.

Lock-up ...... Each of the Issuer, the Principal Shareholder and the Selling Share- A3.7.3 holders have agreed that, without the prior written consent of the Lead Manager, it or he will not, subject to certain exceptions, during the 180 days period after the Allotment Date (the “Lock-up Period”) issue, offer, sell, contract to sell, pledge or otherwise transfer or dispose of, or announce the proposed sale of, any Shares or other equity securities or securities linked to the Issuer’s share capital, and the Issuer has agreed with the Managers to reasonably procure that any beneficiary of the Employee Stock Incentive Plan (as defined below) who receives any options, shares or other securities of the Issuer in connection with the Employee Stock Incentive Plan will not offer, sell, contract to sell, pledge or otherwise transfer or dispose of any such options, shares or other securities during the Lock-up Period, provided, however, that (i) the Issuer may, in connection with its Employee Stock Incentive Plan, issue options or other securities or contracts whose value is linked to the value of the Issuer’s shares; and (ii) members of the Company’s management may exercise any options granted to them under the Employee Stock Incentive Plan but any shares of the Issuer thus acquired may not be offered, sold, contracted to sell, pledged or

6 otherwise transferred or disposed of during the Lock-up Period by such persons or on their behalf. Form of Shares...... TheIssuer will apply for registration of all of the Issuer’s Shares, including the Offer Shares, with the NDS. It is expected that on or soon after the Settlement Date, all of the Issuer’s Shares, including the Firm Shares, and any Overallotment Shares, issued in connection with full or partial exercise of the Overallotment Option on the Allotment Date, will exist in book-entry form.

ISIN Code ...... NL0000687309 A3.10.1 Lead Manager ...... Bank Austria Creditanstalt AG Managers ...... Bank Austria Creditanstalt AG and ING Bank N.V. Polish Offeror ...... CAIBSecurities S.A. Selling Restrictions ...... TheOfferShares have not been and will not be registered under the US Securities Act or with any securities regulatory authority of any state or any jurisdiction in the United States and subject to certain excep- tions, may not be offered or sold within the United States or to, or for the account or benefit of, US persons (as defined in Regulation S) except in certain transactions exempt from the registration require- ments of the US Securities Act. See: “Selling Restrictions”.

7 SUMMARY FINANCIAL AND OPERATING DATA A1.20..1 The following tables set out summary consolidated financial and operating data for the Company as at and for the three years ended 31 December 2005 (the “Summary Annual Financial Information”), and as at and for each of the six-month periods ended 30 June 2005 and 2006, respectively (the “Summary Interim Financial Information”). The Summary Annual Financial Information has been extracted from the Annual Audited Financial Statements, without material adjustment, and should be read in conjunction with, and is qualified in its entirety by reference to, the Annual Audited Financial Statements and the notes thereto included in this Prospectus. The Summary Interim Financial Information has been extracted from the Interim Financial Statements, without material adjustment, and A1.20.4.3 should be read in conjunction with, and is qualified in its entirety by reference to, the Interim IFRS Financial Statements and the notes thereto included in this Prospectus, and the information in the section titled “Operating and Financial Review”. The IFRS Financial Statements have been prepared in accordance with IFRS adopted by the European Union and as applicable in the respective years. The Annual Financial Statements have been audited by KPMG Accountants N.V., the Netherlands. See “Important Information Presentation of Financial and Other Information” and “Independent Auditors”.

Six months ended Year ended 31 December 30 June 2003 2004 2005 2005(1) 2006 (audited, except operating data) (unaudited) (B’000, except per share data and number of shares) Income Statement Data: Revenues ...... 95,783 98,938 108,181 51,058 75,501 Operating costs ...... (85,696) (83,696) (90,867) (42,209) (62,333) Gross margin ...... 10,087 15,242 17,314 8,849 13,168 General and administrative expenses . . (4,630) (4,504) (5,387) (2,520) (3,302) Operating profit ...... 5,457 10,738 11,927 6,329 9,866 Financial income ...... 3,476 4,454 2,198 1,423 251 Financial expenses ...... (4,082) (5,581) (4,951) (3,146) (2,360) Gain/(loss) on disposals and write-off of other investments ...... (231) (1,204) (151) 4 (1) Write-off of IPO costs(2) ...... — (1,765) — — — Net result from associates ...... — — (103) — — Income taxes ...... (756) (1,549) (1,198) (198) (231) Net income before minority interests . . 3,864 5,093 7,722 4,412 7,525 Minority interests in result of consolidated subsidiaries ...... (270) 247 188 33 273 Net income attributable to equity holders of the parent company ... 3,594 5,340 7,910 4,445 7,798 Weighted average number of equivalent shares ...... 35,059,648 38,539,535 40,724,000 40,724,000 40,724,000 Net earnings per ordinary share (basic and diluted) of A0.01 each ...... 0.10 0.14 0.19 0.11 0.19 Balance Sheet Data: Assets: Current assets ...... 37,118 38,000 31,873 32,859 27,100 Fixed assets ...... 141,005 151,479 170,148 158,797 165,798 Total assets ...... 178,123 189,479 202,021 191,656 192,898 Liabilities: Current liabilities ...... 29,488 34,214 42,872 35,975 41,852 Long-term liabilities ...... 96,713 95,365 86,443 89,902 76,197 Total liabilities...... 126,201 129,579 129,315 125,877 118,049 Shareholders’ equity ...... 51,869 60,074 73,117 66,018 75,520 Minority interests ...... 53 (174) (411) (239) (671)

8 Six months ended Year ended 31 December 30 June 2003 2004 2005 2005(1) 2006 (audited, except operating data) (unaudited) (B’000, except per share data and number of shares) Cash Flow Data: Cash flows from operating activities . . 10,866 11,051 14,616 2,383 19,304 Cash flows from investing activities. . . (13,804) (14,542) (13,470) (6,157) (14,399) Cash flows from financing activities . . 6,110 2,653 (624) 4,306 (4,117) Effect of changes in consolidation .... — — (69) (69) — Operating Data: Theatres ...... 49 53 55 58 Screens(3) ...... 352 379 422 466 Seats ...... 70,845 76,062 86,685 94,306

(1) Restated to reflect the change of functional currencies for operations in Central Europe in the year 2005. (2) Consists of fees and expenses incurred in connection with the IPO process that was postponed in 2004. (3) Includes four, four, and five IMAX» screens as at 31 December 2003, 2004, and 2005, respectively, and seven as at 30 June 2006.

9 RISK FACTORS A1.4 A3.2 Prior to making an investment decision in respect of the Offer Shares, prospective purchasers should consider carefully the following risks and other information in this Prospectus. If any of the following risks actually occurs, the Company’s business, financial condition and operating results could be adversely affected. As a result, the trading price of the Offer Shares could decline, perhaps significantly.

Risks Related to the Company’s Business and Industry A lack of motion picture production and poor performance of motion pictures would have a negative effect on film attendance The Company’s ability to operate successfully depends upon the availability, diversity and appeal of motion pictures, its ability to license motion pictures and the performance of these motion pictures in the Company’s markets. The Company licenses first-run motion pictures, the success of which depends upon their quality, as well as on the marketing efforts of the major film studios and distributors. Poor performance of these films or disruption in the production of, or changes in, the licensing terms of the films, or a reduction in the marketing efforts of the major film studios and distributors, would have a negative effect on film attendance and adversely affect the Company’s business, financial condition and results of operations. In addition, a significant change in the type and breadth of motion pictures offered by film studios may adversely affect attendance levels of various demographic bases of moviegoers, which could adversely affect the Company’s business, financial condition and results of operations. Furthermore, local production of movie product plays an increasingly important role in each country’s box office success. Lack of locally produced movies could have a material adverse effect on the Company’s business, financial condition and results of operations individually in each country in which it operates. The Company has made substantial investments in IMAX» screens in recent years. However, there are uncertainties relating to the future commercial viability of the IMAX» format. The popularity of IMAX» has historically been limited, as the expense and logistics of producing IMAX» films have dictated shorter running times compared to conventional movies. Therefore, the majority of films produced in this format have been documentaries, which tend to draw smaller audiences than feature films. Although in recent years there has been an increasing number of feature films produced for or converted to the IMAX» format, there can be no assurance studios will continue to be interested in producing an increasing number of films for the IMAX» format. There can be no assurance that a reduction in the production of successful IMAX» format films would not have a negative effect on film attendance and adversely affect the Company’s business, financial condition and results of operations.

The Company is subject to uncertainties relating to its future expansion plans, including its ability to identify suitable site locations The Company has significantly expanded its operations in recent years through new theatre construction. The Company intends to continue to pursue a strategy of expansion that will involve the development of new theatres in favourable locations. The Company may not be able to develop theatres with desirable demographic characteristics or to either lease the space on favourable terms or construct new theatres in the desired locations. Therefore, there can be no assurance that the Company’s expansion strategy will result in improvements to its business, financial condition or profitability. There is significant competition for potential site locations and development opportunities. As a result of such competition, the Company may not be able to acquire attractive site locations or such development opportunities. Even if the Company does identify and secure suitable sites, developing or constructing new theatres poses a number of risks, including construction cost overruns and delays. Additionally, the market potential of new theatre sites cannot be precisely determined and newly constructed theatres may not perform to the Company’s expec- tations. Theatres may face competition from unexpected sources, and the markets in which such theatres are located may deteriorate over time. Furthermore, the Company’s expansion programme may require financing in addition to the portion of the net proceeds from its sale of shares and internally generated funds that the Company would use for such purpose. The Company cannot assure investors that financing will be available to it on acceptable terms.

The Company is subject to risks related to the development of real estate The success of the Company’s strategic expansion plan is dependent on its ability to develop theatres in favourable locations with advantageous lease terms. There can be no assurance that the Company will be able to

10 locate or develop theatres in regions with desirable demographic characteristics or, at particular sites within these regions, acquire all necessary permits to construct the projects or lease the space on favourable terms. The failure of the Company to develop theatres in favourable locations, to secure all permits necessary to complete construction works or to lease theatres on advantageous terms could result in an inability to fully implement its strategic development plan. It typically takes eight to 24 months to open a theatre on a site from the time construction commences. Until such properties are developed and leased, they will not generate any cash flow to the Company. Moreover, the availability of attractive site locations can be adversely affected by changes in national, regional and local economic climate, local conditions such a scarcity of space or an increase in demand for real estate in the area, demographic changes, changes in real estate, zoning or tax laws. As a result of the foregoing, there can be no assurance that the Company will be able to obtain attractive site locations on terms it considers acceptable or that the Company’s site selection will result in improvements to the business, financial condition or profitability of the Company. The Company’s strategy focuses on the development of new theatres. In connection with such development, it either enters into an agreement with a property owner/developer who oversees almost all of the construction and completion of a theatre, or the Company oversees the construction and completion itself. Accordingly, the Company may be dependent upon third party developers, including developers of shopping malls, for the development of theatres, including completion of those theatres that are currently under construction. There can be no assurance that such developers will successfully develop new properties in a timely manner or at the expected cost.

A prolonged economic downturn could have a material adverse effect on the Company’s business and results of operations by reducing consumer spending in its industry The Company depends on consumers to spend discretionary funds on leisure activities. Movie theatre attendance, and spending at the Company’s entertainment centres, may be affected by prolonged, negative trends in the general economy that adversely affect consumer spending. Any reduction in consumer confidence or disposable income in general may affect the demand for motion pictures and leisure activities or severely impact the motion picture production industry, which, in turn, could adversely affect the Company’s business, financial condition and results of operations.

A deterioration in relationships with film distributors could adversely affect the Company’s ability to obtain commercially successful films The Company relies on other film distributors for a significant portion of the motion pictures shown in its theatres. The film distribution business is highly concentrated, with a few major film distributors accounting for the vast majority of the top grossing films. In general, distributors license films to exhibitors on a theatre-by-theatre and film-by-film basis. Consequently, the Company is required to negotiate licences for each film and for each theatre. The Company cannot assure investors that it will be able to negotiate favourable licensing terms for all first-run films. A deterioration in the Company’s relationship with any of the major international film distributors could adversely affect its ability to negotiate film licences and its ability to obtain commercially successful films and, therefore could adversely affect the Company’s business, financial condition and results of operations.

An increase in the use of alternative film distribution channels, such as home theatre video and the Internet, and other competing forms of entertainment may drive down movie theatre attendance and limit ticket prices The Company faces competition for patrons from a number of alternative motion picture distribution channels, such as home theatre video, pay-per-view, cable television, DVD, syndicated and broadcast television and the Internet. In addition, in recent years, commercial television has rapidly developed and has become very popular both in Central and Eastern European countries and Israel. The Company also competes with other forms of entertainment for its patrons’ leisure time and disposable income, such as concerts, amusement parks and sporting events. The expansion of such alternative entertainment could have a material adverse effect on movie theatre attendance in general and, therefore, upon the Company’s business, financial condition and results of operations.

The Company is subject to uncertainties related to new technologies, including the potentially high costs of re-equipping theatres To compete with other theatre operators, the Company must adopt technical advancements in sound and projection technologies, and satisfy its audience’s changing demands regarding comfort and amenities. In addition, changes in film production may require the Company to update its equipment. In particular, digital cinema is at an early stage in the film industry. There are multiple parties seeking to replace traditional 35mm film with the

11 projection of digital images. Although the Company believes that there remain significant obstacles to the roll-out of such technology, including the look and feel of digital images and industry opposition to the required investment, it is likely that the industry will adopt digital cinema in the future. As a result of any such change, the Company may incur substantial expenses, which could have an adverse effect on its business, financial condition and results of operations.

Changes in laws could adversely affect the Company The Company’s theatres are subject to various regulations in the countries in which they operate, such as fire and safety requirements, environmental regulations, labour laws, land use restrictions and taxes. If the theatres do not comply with these requirements, the Company may incur governmental fines or private damage awards. New, or amendments to existing, laws, rules, regulations, or ordinances could require significant unanticipated expenditures or impose restrictions on the use of the subject locations. Any such changes could have a negative effect on the Company’s business, financial condition and results of operation.

The Company’s results of operations may fluctuate on a seasonal basis and may be unpredictable The Company’s revenues have generally been seasonal because of the way major film distributors release films. Historically, the most marketable films have been released during the summer and the late-November through December holiday season. The Company believes that theatre attendance has become less affected by seasonal fluctuations as films are more evenly distributed during the year. In addition, the motion picture exhibition industry can also be impacted in the short term by weather factors: attendance tends to increase during those periods when the weather is less conducive to outside activities. Poor performance of these films, or a disruption in the release of films during these periods, could adversely affect the Company’s results for the entire fiscal year. An unexpected blockbuster film during other periods can alter the traditional seasonal trend. The timing of movie releases can therefore have a significant effect on the Company’s results of operations, and its results for one quarter are not necessarily indicative of the results for any other quarter.

The loss of services of one or more members of the Company’s senior management team could adversely affect the Company’s business, results of operations and its ability to effectively pursue its business strategy The Company’s success depends upon the continued contributions of Mr Moshe Greidinger, its President and Chief Executive Officer, Mr Amos Weltsch, its Executive Vice President and Chief Operating Officer, and Mr Israel Greidinger, its Executive Vice President and Chief Financial Officer. The loss or unavailability to the Company of such officers for an extended period of time could have a material adverse effect upon the Company’s business, financial condition and results of operations, and may prevent it from effectively pursuing its business strategy. To the extent that the services of such officers are unavailable to the Company for any reason, the Company will be required to hire other personnel to manage and operate the Company. The Company cannot assure that it would be able to identify qualified personnel to manage and operate the Company or to employ such persons on acceptable terms. Under the terms of the distribution agreements between the Company’s subsidiaries, Forum Film (Israel), Forum Film (Poland), Forum Film (Hungary) and Buena Vista, a Disney company, Buena Vista has the right to terminate any of these agreements in the event that Mr Moshe Greidinger ceases to be directly involved in the business of Forum Film Israel, Forum Film Poland or Forum Film (Hungary), as the case may be. The Company also relies, to a great extent, on the contribution of its local managers, especially in Poland. The inability to attract and retain qualified local managers could have a material adverse effect on the Company’s business, financial condition and results of operation.

The Company may not be able to sustain and grow ancillary revenue streams The Company intends to continue to develop its ancillary revenue streams, such as advertising, sponsorship, promotions, rental and DVD sales and real estate. The Company’s ability to achieve its business objectives may depend in part on its success in increasing these revenue streams. In particular, video and DVD rental industries have experienced declining sales over recent years, resulting from competition and the introduction of new technologies into the market. Such trends have impacted the Company’s video and DVD rental businesses, particularly in Israel, and the Company believes that this trend may continue to have a negative impact on the Company. To address this issue in part, the Company recently entered into a joint venture in Israel with the local Blockbuster» franchise owner to create the largest video and DVD rental operation in Israel. The Company cannot assure that it will be able to effectively generate additional ancillary revenues and its inability to do so could have an adverse effect on the Company’s business, financial condition and results of operations.

12 Covenants in debt agreements concluded by the Company may restrict its ability to borrow and invest, which could affect flexibility to operate and ability to expand To finance the development of its business in Central and Eastern Europe and Israel, the Company needed and may need to incur debt. To obtain loans, the Company has been, and may be required to, secure such loans by granting security over its significant assets such as shares held in its subsidiaries or real estate owned by the Company. Such credit/loan facilities may provide restrictive covenants that may limit the Company’s flexibility to operate. In addition, any onerous collateral requirements may limit the Company’s ability to raise additional funds. Some of the current debt facilities of the Company contain covenants that impose operating and financial restrictions, including restrictions on the Company’s ability to incur and extend loans, credit and other debt financing; encumber any assets; distribute profits; acquire shares in other entities; change the character of business activities; dispose of shares; change ownership and/or control of the Company; effect merger or any other reorganisation; dispose, transfer and/or lease assets; distribute dividends or profits; receive credits from other banks, among others. Events beyond the Company’s control could prevent it from complying with these covenants and result in a breach of any such obligation, thus triggering an event of default.

The Company is subject to additional risks relating to its operations in Israel Although the Company is focused on future growth in Central and Eastern Europe, the Company’s business began in Israel, and Israel continues to be one of its key markets. For the first six months of 2006, 17.9% of the Company’s revenues were attributable to its operations in Israel. These Israeli operations subject the Company to additional risks relating to the political and military situation in that country. Since the establishment of Israel in 1948, a state of hostility has existed, varying in degree and intensity, between Israel and certain Arab countries and Israel and the Palestinians. Although Israel has entered into agreements with some of these countries and with the Palestinian Authority and various declarations have been signed in connection with efforts to resolve some of the hostilities, it is not clear whether a full resolution of these problems will be achieved. To date, Israel has not entered into a peace treaty with Lebanon or Syria, with whom Israel shares its northern borders, nor with certain Arab countries with whom a state of hostility exists. The operations of the Company and the price of the Shares could be materially adversely affected if major hostilities involving Israel or other countries in the Middle East should occur, and such hostilities impacted movie admissions. Most recently, in July 2006, Israel and Hezbollah, which is based in southern Lebanon, engaged in direct armed conflict. Hezbollah launched thousands of missiles on Israel’s northern cities, which forced the Company to close some of its northern operations for a period of time. The Company sustained no direct damage from the attacks, and its overall Israeli operations were not materially adversely affected during the period of the conflict. Although there has been a United Nations backed ceasefire since 14 August 2006 and through to the end of October there has been no significant direct confrontation between Israel and Hezbollah, there can be no assurance that hostilities will not resume and/or escalate, and that such violence could not have an adverse effect on the Company’s business, financial condition and results of operations.

Political, economic and legal risks associated with countries in emerging markets, including Central and Eastern Europe, could adversely affect the Company’s financial condition and results of operation The majority of the Company’s revenues are attributable to operations in Central and Eastern Europe. Part of the Company’s growth strategy envisages expanding its network into countries in South-Eastern Europe, partic- ularly Bulgaria and Romania. Investors in these emerging markets should be aware that these markets are subject to greater risk than more developed markets, including, in some cases significant political, economic and legal risks, which could have a significant negative impact on, among other things, gross domestic product, foreign trade and the economies of each of the emerging markets in general. Accordingly, investors should exercise particular care in evaluating the risks involved and must decide for themselves whether, in the light of those risks, an investment in the Shares is appropriate. Generally, investment in emerging markets is suitable only for sophisticated investors who fully appreciate the significance of the risks involved and investors are urged to consult with their own legal and financial advisors before making an investment in the Shares. Investors should also note that emerging economies such as those in Central and Eastern Europe are subject to rapid change and that the information set out in this Prospectus may become outdated relatively quickly.

Accession to the European Union in May 2004 by a number of Central European countries, including Hungary, the Czech Republic and Poland, may lead to uncertainty in the regulatory environment in which the Company operates Many countries in Central Europe, including Hungary, the Czech Republic and Poland, are undergoing changes in legislation due to their accession to membership of the European Union in May 2004. As a result of these changes, there is a lack of an established practice under many tax and other regulatory regimes in these countries.

13 New regulations are subject to ambiguous and frequently changing interpretations by the regulatory authorities of these countries. Consequently, companies operating in this region may face tax and other regulatory compliance- related risks which may be less predictable than in countries with more mature regulatory systems.

The Company’s operations may be subject to limitations imposed by antimonopoly regulations The Company has a substantial market share in a number of markets in which it operates. Although the Company believes that all its operations are in compliance with applicable antimonopoly regulations in all of the jurisdictions in which it operates, there can be no assurance that the Company’s market share in some jurisdictions will not result in the initiation of proceedings or investigations by the relevant antimonopoly authorities. If any proceedings or investigations were to be adversely determined against the Company, it could be prohibited from engaging in certain activities that are regarded as restricting competition and/or financial penalties could be imposed on the Company. Such prohibitions or financial penalties could have an adverse affect on the Company’s business, financial condition or results of its operations. In addition, any potential acquisitions by the Company may be subject to closer scrutiny of the antimonopoly authorities who may assess that such acquisition would restrict competition on a given market and in turn they could prohibit such acquisition. Such decisions could adversely affect the Company’s ability to expand through acquisitions.

The Company faces competition that may adversely affect its business Within Central and Eastern Europe, the Company faces competition from a number of well-established theatre operators and distributors. Although the Company believes that there is a general undersupply of screens both within Poland, the Company’s largest market, and within the rest of Central and Eastern Europe, this undersupply is expected to decrease in the future as the Company and its competitors open additional theatres, particularly multi- screen multiplexes. There are no significant barriers to entry into the film exhibition industry, and the expected increase in the number of screens may result in excess capacity in those areas, which may harm attendance at the Company’s theatres and adversely affect its ability to license films. In Israel, the Company is one of two primary movie exhibitors. Together with its main competitor, the Company operates 23 out of 54 multiplexes in Israel as at 30 June 2006. However, the Company continues to face strong competition in Israel from new entrants to the market, particularly more modern megaplex theatres, in addition to its primary competitor. Moreover, the expected increase in demand for megaplex theatres may require the Company to upgrade or replace existing facilities, which would require additional capital investment, in order to effectively compete. There can be no assurance that the Company will successfully maintain its market share in the future.

The Company could be negatively affected if certain copyright claims against it are successful Pursuant to Polish copyright law, screenplay authors, authors of other literary and musical works, film directors, directors of photography, and artistic performers, have the right to the royalties for the use of their material in films screened in cinemas in Poland. The obligation to pay these royalties rests with the cinema operators, who must make payment to collecting societies. The Company does not have any agreements with collecting societies regarding the payment of such royalties and does not pay royalties, on the basis that currently the Polish collecting societies are not entitled to collect such royalties on behalf of non-Polish authors, in particular authors based in the United States, which is the origin of most the films that the Company exhibits in its theatres in Poland. Currently, the Company is subject to the court proceedings initiated by Zwiazek Autorów i Kompozytorów (“ZAIKS”), a Polish collection society representing screenplay authors and authors of other literary and musical works used in audiovisual works that are exhibited in Poland. No other collection society has brought any claim against the Company. The Company cannot entirely exclude the possibility that other collection societies may bring claims against it for authors’ rights to royalties and that courts will find their claims justified. In Poland, claims for payment of royalties are subject to a ten-year statute of limitations. If courts find that present and/or future claims are justified, the payment of past and future royalties in Poland could have an adverse affect on the Company’s business, financial condition and results of operations.

Terms of leases and lease renewal A substantial part of the Company’s theatres are on property that is leased. The majority of leases are long- term, with the average term being 10 years from the date of grant (assuming the exercise of all renewal options with defined terms and excluding leases which renew periodically until terminated or which have no defined end date). The leases often provide for automatic renewal for periods of five to fifteen years, provided that the Company remains in compliance with the terms of the lease. Notwithstanding compliance, there is no guarantee that the

14 Company will be able to renew these leases on commercially acceptable terms. If the Company is unable to do so, the potential loss of prime theatre locations could have an adverse effect on the Company’s business and results of operations. In addition, in certain circumstances the Company may wish to close a theatre but will be unable to terminate the associated lease cost-effectively, which could also have an adverse effect on the Company’s business and the results of its operations.

The Company is subject to currency-related and interest rate risks Fluctuations in the value of the Euro against other currencies have in the past had, and may have in the future, an adverse effect on the Company’s results of operations. The Company’s operations are conducted in several countries whose currency is not the Euro. The results of these operations are reported in the relevant foreign currencies and then converted into euros at applicable exchange rates for inclusion in the Company’s consolidated financial statements. A decline in the value of these currencies compared to the Euro would have a negative effect on the Company’s results of the operations. The Company also encounters currency exchange risks to the extent that it incurs operating expenses in a currency other than that in which it has obtained financing or those in which it generates revenues. Substantially all of the Company’s indebtedness bears interest at variable rates, exposing the Company’s financing costs to market-driven fluctuations on the Warsaw Interbank Offer Rate (“WIBOR”), the Euro Interbank Offer Rate (“EURIBOR”) and the London Interbank Offer Rate (“LIBOR”). The Company does not currently enter into hedging transactions in order to manage its exposure to foreign exchange, currency and interest rate risks. The Company cannot assure prospective investors that any hedging transaction that it may enter into in order to protect against such risks will be successful or that shifts in currency exchange rates generally will not have a material adverse effect on the Company’s financial condition or results of operations. See “Operating and Financial Review — Liquidity and Capital Resources — Quantitative and Qualitative Disclosures about Market Risk”.

Uninsured and underinsured losses The Company will use its discretion in determining amounts, coverage limits and deductibility provisions of insurance, with a view to maintaining appropriate insurance coverage on its assets at market standard costs and on customary terms. This may result in insurance coverage that, in the event of a substantial loss, would not be sufficient to pay the full current market value or current replacement cost of its assets.

Risks Related to the Company’s Corporate Structure The interests of the Company’s controlling shareholder may conflict with those of minority shareholders ITIT, holds a majority of the Shares in the Company and will remain the majority shareholder following completion of the Offering. A majority of the shares in ITIT are directly and indirectly held by members of the Greidinger family. ITIT will be able to control the governing bodies and operations of the Company. In particular, ITIT will influence the appointment of all members of the Issuer’s Supervisory Board and Management Board, as well as have the ability to determine all matters submitted to a vote of the Issuer’s shareholders, including approval of significant corporate transactions, such as amendments to the Company’s articles, mergers and the sale of all or substantially all of its assets. Dutch law does not provide minority shareholders with any right to proportional representation on the Supervisory Board (equivalent to the “group voting” procedure under Polish law), although in accordance with the Dutch Corporate Governance Code the Supervisory Board members should be independent, except for one. The Company currently has two non-independent members of the Supervisory Board, which is a deviation from the Code. However the current composition in which four out of six Supervisory Board members are independent complies with the WSE Corporate Governance Rules. Such concentration of voting power could have the effect of deterring or preventing a change in control of the Company that might otherwise be beneficial to its shareholders. In addition, the majority shareholder could take other actions that might be desirable to it but not to other shareholders.

The Issuer is not in full compliance with the Dutch Corporate Governance Code and the WSE Corporate Governance Rules and does not expect to be in full compliance in the near future Whilst the Issuer’s corporate governance structure complies with the principles of Dutch law, the Issuer deviates in several respects from the best practice provisions set forth in the Dutch Corporate Governance Code (“Code”) and the WSE Corporate Governance Rules contained in the “Best Practices in Public Companies in 2005”. However, the Issuer believes that in most important aspects the Issuer complies with such codes and the Issuer’s deviations result from specifics of the Dutch law or the Polish market practice, or from the conflict between the

15 Dutch and Polish corporate governance regulations. The Issuer has adopted a policy that, whenever the Code and the WSE Corporate Governance Rules contain conflicting provisions, the Issuer will, to the extent practicable, comply with the regulations of the WSE, as this is the main market on which the Issuer’s Shares will be listed. See “Description of the Shares and Corporate Rights and Obligations — Dutch Corporate Governance” and “Description of the Shares and Corporate Rights and Obligations — Polish Corporate Governance”.

Exercise of certain shareholders’ rights and tax treatment for non-Dutch investors in a Dutch company may be more complex and costly

The Issuer is a company organised and existing under the law of the Netherlands. Accordingly, the Issuer’s corporate structure as well as rights and obligations of the Issuer’s shareholders may be different from the rights and obligations of shareholders in Polish companies listed on the WSE.

The exercise of certain shareholders’ rights for non-Dutch investors in a Dutch company may be more difficult and costly than the exercise of rights in a Polish company. Resolutions of the General Meeting of Shareholders may be taken with majorities different from the majorities required for adoption of equivalent resolutions in Polish companies. Action with view of declaring a resolution invalid must be filed with, and will be reviewed by a Dutch court, in accordance with the law of the Netherlands.

Investors in the Issuer’s Shares may also be subject to Dutch taxation of dividends received from the Company. Although Poland and the Netherlands have a tax treaty which provides protection against double taxation, there can be no assurance that such treaty will continue to remain in force. See “Certain Tax Considerations”.

Risks Relating to Trading in the Shares

The Issuer may be unable to list its Shares on the WSE

The admission of the Issuer’s Shares to trading on the WSE requires that the Financial Supervisory Commission (the “FSC”) receive a certificate from the AFM confirming that this Prospectus has been approved in the Netherlands, that the Polish National Depository for Securities (the “NDS”) register the Issuer’s Shares and that the management board of the WSE approves that the Issuer’s Shares are listed and traded on the WSE. The Issuer intends to take all the necessary steps to ensure that the Issuer’s Shares are admitted to trading on the WSE as soon as possible. However, there is no guarantee that all of the aforementioned conditions will be met and that the Issuer’s Shares will be admitted to trading on the WSE on the date expected or at all.

Trading in the Issuer’s Shares on the WSE may be suspended

The WSE management board has the right to suspend trading in shares of a listed company if the company fails to comply with the regulations of the WSE (such as specific disclosure requirements) or if such suspension is necessary to protect the interests of market participants. Moreover, trading may be suspended upon the request of the Company or of the FSC in the case of the latter if (i) investors’ interests, or (ii) the orderly stock exchange trading, or (iii) the security of stock exchange trading are endangered. There can be no assurance that trading in the Issuer’s Shares will not be suspended. However, currently the Issuer has no reasons to believe that such a suspension may occur. Any suspension of trading would adversely affect the Issuer’s share price.

The Issuer’s Shares may be excluded from trading on the WSE

If a company listed on the WSE fails to fulfil certain requirements or obligations under the applicable laws and regulations of the WSE and/or if the orderly stock exchange trading, the safety of trading thereon or the investors’ interests are endangered, the company’s securities can be excluded from trading on the WSE. This may be the case: (i) if transferability of shares is restricted, (ii) if shares cease to exist in a book-entry form (iii) upon the FSC request or (iv) if shares are excluded from trading on a regulated market by a relevant supervisory authority. There can be no assurance that such a situation will not occur in relation to the Issuer’s Shares.

If a company listed on the WSE fails to fulfil certain requirements under applicable laws, in particular, the requirements referred to in Art. 96 of the Act on Offerings, the FSC has the authority to impose a fine on the company and/or to exclude the company’s securities from trading on a regulated market. There can be no assurance that such a situation will not occur in relation to the Issuer’s Shares, however, currently there is no reason to believe that such a situation will occur in the future.

16 The marketability of the Issuer’s Shares may decline and the market price of the Issuer’s Shares may fluctuate and decline below the Offer Price

The Issuer cannot assure that the marketability of the Issuer’s Shares will improve or remain consistent. The market price of the Issuer’s Shares at the time of the Offering may not be indicative of the market price for the Issuer’s Shares after the Offering has been completed. The market price of the Issuer’s Shares may fluctuate widely, depending on many factors beyond the Issuer’s control. These factors include, amongst other things, actual or anticipated variations in operating results and earnings by the Company and/or its competitors, changes in financial estimates by securities analysts, market conditions in the industry and in general the status of the securities market, governmental legislation and regulations, as well as general economic and market conditions, such as recession. The market price of the Issuer’s Shares is also subject to fluctuations in response to further issuance of shares by the Issuer, sales of Shares by the Issuer’s major shareholders, the liquidity of trading in the Issuer’s Shares and capital reduction or purchases of Shares by the Issuer as well as investor perception. As a result of these or other factors, the Issuer cannot assure that the public trading market price of the Issuer’s Shares will not decline below the Offer Price.

The Issuer will have a limited free float, which may have a negative effect on the liquidity, marketability or value of its Shares

Prior to the Offering, the Principal Shareholder owns more than 86.10% of the Issuer’s outstanding Shares and immediately after the Offering the Principal Shareholder will own approximately 64.49%, provided that all Firm Shares are placed with investors and that the Overallotment Option is exercised in full. Consequently, the free float of Shares held by the public will be limited. Furthermore, the Issuer does not have any agreement with the Selling Shareholders and the Principal Shareholder that restricts them from increasing their ownership percentage of the Issuer’s Shares, although they are not planning to subscribe for the New Shares in the Offering.

There is no prior market for the Shares and therefore no assurance can be given regarding the future development of such market

The lack of a prior public market for the Shares may have a negative effect on the ability of shareholders to sell their Shares or the price at which the holders may be able to sell their Shares. If a market for the Shares were to develop, the Shares could trade on prices that may be higher or lower than the Offer Price, depending on many factors. Therefore, there can be no assurance as to the liquidity of any trading in the Shares or that an active market for the Shares will develop.

Future sales of Shares may adversely affect the prevailing market price

After this Offering, the Company will have an aggregate of 124,276,000 Shares authorised but unissued (the “Authorised Shares”). In general, the Company may issue all of these Shares without any action or approval by shareholders. The Company, the Principal Shareholder and the Selling Shareholders have agreed with the Lead Manager that neither the Company, the Principal Shareholder nor the Selling Shareholders will sell any of their remaining shares (other than in the Overallotment Option, if any) for a period of 180 days following the Allotment Date. After the end of this period, the Company, the Principal Shareholder and the Selling Shareholders may freely sell shares (to the extent that they hold any Shares at the relevant time). Sales of substantial amounts of shares, whether by the Company, the Selling Shareholders or any other Shareholders, or the perception that such sales could occur, could adversely affect the market value of the Shares and could adversely affect the Company’s ability to raise capital through future capital increases.

In addition, 930,000 shares of the Authorised Shares may be issued to members of the Company’s management A1.21.1.5 and its employees in connection with its Employee Stock Incentive Plan. The Company may also acquire Shares in A1.17.3 the open market to satisfy part or all of any requirements for Shares upon exercise of any options issued as part of the Employee Stock Incentive Plan. Although the Issuer has agreed with the Managers to reasonably procure that any beneficiary of the Employee Stock Incentive Plan (as defined below) who receives any options, shares or other securities of the Issuer in connection with the Employee Stock Incentive Plan will not offer, sell, contract to sell, pledge or otherwise transfer or dispose of any such options, shares or other securities during the Lock-up Period, the issuance of stock options, or the announcement of the intention to do so in connection with the Employee Stock Incentive Plan, or otherwise, could have an adverse effect on the trading price of the Shares. In addition, the issuance of shares, options to acquire them, the exercise of any options, or the Company’s acquisition of Shares in the open market in connection with the Employee Stock Incentive Plan after expiration of the Lock-up Period could also have an adverse effect on the trading price of the Shares.

17 EXCHANGE RATE INFORMATION

The reporting currency of the Company is the Euro. However, with theatre operations and property holdings in Poland, Bulgaria, the Czech Republic, Hungary, and Israel, a significant portion of its revenues are received in Polish Zloty (“PLN”), Bulgarian Lev (“LEV”), Czech Koruna (“CZK”), Hungarian Forint (“HUF”) and the New Israeli Shekel (“NIS”). Fluctuations in the value of PLN, LEV CZK, HUF and NIS have had a material impact on the Company’s financial condition and results of operations.

Polish Zloty per Euro

The table below shows the low, high, average and period end exchange rates expressed in Polish Zloty per Euro for the periods stated. The average is computed using the exchange rate quoted by Bloomberg at the close of each business day of each period indicated.

Year ended 31 December Low High Average Period End (PLN per B) 2003 ...... 3.98 4.72 4.40 4.72 2004 ...... 4.05 4.91 4.53 4.09 2005 ...... 3.82 4.28 4.03 3.86 2006 (through 31 October 2006) ...... 3.73 4.14 3.92 3.89

Source: Bloomberg.

As at 10 November 2006, the exchange rate between the Polish Zloty and the Euro was PLN 3.84 = A1.00.

Czech Koruna per Euro

The table below shows the low, high, average and period end exchange rates expressed in Czech Koruna per Euro for the periods stated. The average is computed using the exchange rate quoted by Bloomberg at the close of each business day of each period indicated.

Year ended 31 December Low High Average Period End (CZK per B) 2003 ...... 31.17 35.15 34.08 32.41 2004 ...... 30.40 33.51 31.95 30.51 2005 ...... 28.86 30.55 29.80 29.00 2006 (through 31 October 2006) ...... 27.94 29.08 28.45 28.35

Source: Bloomberg.

As at 10 November 2006, the exchange rate between the Czech Koruna and the Euro was CZK 28.06 = A1.00.

Hungarian Forint per Euro

The table below shows the low, high, average and period end exchange rates expressed in Hungarian Forint per Euro for the periods stated. The average is computed using the exchange rate quoted by Bloomberg at the close of each business day of each period indicated.

Year ended 31 December Low High Average Period End (HUF per B) 2003 ...... 234.39 272.75 253.18 246.33 2004 ...... 243.51 269.30 252.11 246.19 2005 ...... 241.42 255.93 248.54 252.62 2006 (through 31 October 2006) ...... 247.79 284.93 266.39 262.20

Source: Bloomberg.

As at 10 November 2006, the exchange rate between the Hungarian Forint and the Euro was HUF 261.16 = A1.00.

18 New Israeli Shekel per Euro The table below shows the low, high, average and period end exchange rates expressed in New Israeli Shekel per Euro for the periods stated. The average is computed using the exchange rate quoted by Bloomberg at the close of each business day of each period indicated.

Year ended 31 December Low High Average Period End (NIS per B) 2003 ...... 4.80 5.53 5.13 5.53 2004 ...... 5.40 5.93 5.58 5.88 2005 ...... 5.40 5.88 5.58 5.45 2006 (through 31 October 2006) ...... 5.33 5.86 5.62 5.46

Source: Bloomberg. As at 10 November 2006, the exchange rate between the New Israeli Shekel and the Euro was NIS 5.53 = A1.00.

Bulgarian Lev per Euro In Bulgaria the currency board system in place is with the Bulgarian Lev (“BGN”) pegged to A1= BGN 1.95583. Previously, the Bulgarian currency was pegged to the German Mark (“DEM”), which was changed to Euro after the Euro’s introduction on 1 January 1999.

19 USE OF PROCEEDS A3.8.1 A3.3.4 The estimated net proceeds payable to the Company if it sells all of the New Shares to be sold by it in the Offering will be announced in a press release on the Pricing Date. The Company intends to utilise the proceeds from the New Shares to finance the development of its business in Central and Eastern Europe and Israel and, any funds which are not invested in this manner, for other general corporate purposes. Pending application of the funds in this manner, the Company may apply the net proceeds of the Offering to the reduction of its interest expense by the redemption of debt.

20 DIVIDEND POLICY A1.20.7 A1.20.7.1 The Company’s current dividend policy is to use profits for the development of the Company, rather than for A3.4.5 the distribution of dividends and it has not paid a dividend in the last three years. However, the Company does not rule out paying dividends in the future depending on its financial performance, cash flows and the results of the investment projects currently underway. The Management Board, with prior approval of the Supervisory Board, shall determine which portion of net profits for the year shall be reserved. It is the General Shareholders Meeting that then decides how any remaining net profit is to be allocated, including, whether to pay any dividends and the level of such dividends, if any.

21 PRINCIPAL AND SELLING SHAREHOLDERS A1.18.3 A3.7.1 The following table sets out the interests of the Principal Shareholder and the Selling Shareholders in the A3.7.2 Company’s Shares immediately prior to and immediately following the Offering. A3.3.3 Shares owned prior to Shares owned after the Offering the Offering(4) Shareholder Number % Number % I.T. International Theatres Limited(1) ...... 35,059,648 86.10 32,709,996 64.49 Israel Theatres Limited(1) ...... 4,940,352 12.13 0 0 Amos Weltsch(2) ...... 600,000 1.47 0 0 Mark Segall(3) ...... 124,000 0.30 0 0 Total ...... 40,724,000 100.00 32,709,996 64.49

(1) Controlled indirectly by various members of the Greidinger family. See “Directors and Employees — Directors’ Interests”. For the business address of this Selling Shareholder, see “The Offering — General”. (2) Chief Operating Officer of the Company. For the business address of this Selling Shareholder, see “The Offering — General”. (3) Financial advisor to the Company for the past four years. For the business address of this Selling Shareholder, see “The Offering — General”. (4) Assuming full exercise of the Overallotment Option given to the Managers consisting of 2,349,652 Shares.

The 4,940,352 shares being sold by Israel Theatres Limited represent the shares purchased by ITIT in February A1.18.1 2006 (and subsequently transferred to Israel Theatres Limited, ITIT’s parent company) from certain minority shareholders with an understanding that, market conditions permitting, upon an initial public offering of the Issuer’s Shares, Israel Theatres Limited would sell such shares in such initial public offering and distribute a portion of the proceeds among these persons in accordance with a prescribed formula. The Company’s shares are not listed on any market. ITIT, the parent company of the Company, listed its shares on Nasdaq Europe Stock Exchange (formerly, EASDAQ) in March 1999. Upon the closing of EASDAQ in 2003, ITIT became a private company.

As the Issuer has only one class of shares outstanding, all of which have equal voting rights, none of the Issuer’s A1.18.2 shareholders have different voting rights from any other shareholders, other than the greater or lesser voting power inherent in their percentage ownership in the Issuer’s share capital.

22 CAPITALISATION AND INDEBTEDNESS A1.10.1 A3.3.2 The following table sets out the capitalisation and indebtedness of the Company on a consolidated basis as at A1.20.4.3 31 December 2005 and as at 30 September 2006. The information contained in this table has been extracted from management accounts and is not audited. The information in this table should be read in conjunction with “Operating and Financial Review” and the IFRS Financial Statements included in this Prospectus.

As at As at 31 December 2005 30 September 2006 (B ’000) (B ’000) (audited) (unaudited) Liabilities: Current debt: Guaranteed and secured(1)...... 18,299 24,843 Unguaranteed/unsecured ...... 24,573 19,388 Total current debt ...... 42,872 44,231

Long term debt, net of current portion: Guaranteed(1) ...... 73,888 71,247 Unguaranteed/unsecured ...... 12,555 10,640 Total long-term liabilities ...... 86,443 81,887

Shareholders’ equity: Stated share capital ...... 407 407 Premium on share capital ...... 43,553 43,553 Retained earnings ...... 24,999 35,286 Accumulated currency translation gains ...... 4,158 753 Total shareholders’ equity...... 73,117 79,999 Minority interest ...... (411) (844) Total capitalisation and indebtedness...... 202,021 205,273

(1) Relates to amounts borrowed under three loan agreements involving Cinema City Poland sp. z o.o. and other Polish subsidiaries of the Issuer and certain Polish banks that are guaranteed by the Issuer and certain Polish subsidiaries and that are secured by mortgages on certain of the Company’s real estate properties in Poland, pledges of assets and shares in certain Polish subsidiaries provided as security. These loan agreements are described in “Operating and Financial Review — Liquidity and Capital Resources”.

As at As at 31 December 2005 30 September 2006 (B ’000) (B ’000) (audited) (unaudited) Net Indebtedness: Cash and cash equivalents ...... 5,167 12,072 Liquidity ...... 5,167 12,072

Current bank debt ...... 8,322 13,931 Current portion of non current debt ...... 9,977 10,912 Current financial debt ...... 18,299 24,843

Net current financial indebtedness ...... 13,132 12,771

Non current bank loans ...... 73,888 71,247 Non current financial indebtedness ...... 73,888 71,247

Net financial indebtedness...... 87,020 84,018

Other than as disclosed in the tables above in relation to data as at 30 September 2006, there has not been any A1.20.9 significant change in the Company’s financial or trading position since 30 June 2006.

23 SELECTED FINANCIAL INFORMATION

The following tables set out selected consolidated financial and operating information for the Company as at A1.3.2 and for the three years ended 31 December 2005, 2004 and 2003 (the “Selected Annual Financial Information”), and as at and for each of the six-month periods ended 30 June 2005 and 2006, respectively (the “Selected Interim Financial Information”). The Selected Annual Financial Information has been extracted from the Annual Audited IFRS Financial Statements, without material adjustment, and should be read in conjunction with, and is qualified in its entirety by reference to, the Annual Audited IFRS Financial Statements and the notes thereto included in this Prospectus. The Selected Interim Financial Information has been extracted from the Interim IFRS Financial A1.20.4.3 Statements and should be read in conjunction with, and is qualified in its entirety by reference to, the Interim IFRS Financial Statements and the notes thereto included in this Prospectus, and the information in the section titled “Operating and Financial Review”. The IFRS Financial Statements have been prepared in accordance with IFRS adopted by the European Union and as applicable in the respective years. The Annual IFRS Financial Statements have been audited by KPMG Accountants N.V., the Netherlands. See “Important Information — Presentation of Financial and Other Information” and “Independent Auditors”. A1.3.1

Six months ended 30 Year ended 31 December June 2003 2004 2005 2005(1) 2006 (audited, except operating data) (unaudited) (B’000, except per share data and number of shares) Income Statement Data: Revenues ...... 95,783 98,938 108,181 51,058 75,501 Operating costs ...... (85,696) (83,696) (90,867) (42,209) (62,333) Gross margin ...... 10,087 15,242 17,314 8,849 13,168 General and administrative expenses ...... (4,630) (4,504) (5,387) (2,520) (3,302) Operating profit...... 5,457 10,738 11,927 6,329 9,866 Financial income ...... 3,476 4,454 2,198 1,423 251 Financial expenses ...... (4,082) (5,581) (4,951) (3,146) (2,360) Gain/(loss) on disposals and write-off of other investments ...... (231) (1,204) (151) 4 (1) Write-off of IPO costs(2) ...... — (1,765) — — — Net result from associates ...... — — (103) — — Income taxes ...... (756) (1,549) (1,198) (198) (231) Net income before minority interests ...... 3,864 5,093 7,722 4,412 7,525 Minority interests in result of consolidated subsidiaries ...... (270) 247 188 33 273 Net income attributable to equity holders of the parent company ...... 3,594 5,340 7,910 4,445 7,798 Weighted average number of equivalent shares ...... 35,059,648 38,539,535 40,724,000 40,724,000 40,724,000 Net earnings per ordinary share (basic and diluted) of A 0.01 each . . . 0.10 0.14 0.19 0.11 0.19 Balance Sheet Data: Assets: Current assets ...... 37,118 38,000 31,873 32,859 27,100 Fixed assets: ...... 141,005 151,479 170,148 158,797 165,798 Total Assets ...... 178,123 189,479 202,021 191,656 192,898 Liabilities: Current liabilities ...... 29,488 34,214 42,872 35,975 41,852 Long-term liabilities ...... 96,713 95,365 86,443 89,902 76,197 Total liabilities ...... 126,201 129,579 129,315 125,877 118,049 Shareholders’ Equity ...... 51,869 60,074 73,117 66,018 75,520 Minority interests...... 53 (174) (411) (239) (671) Cash Flow Data: Cash flows from operating activities ...... 10,866 11,051 14,616 2,383 19,304 Cash flows from investing activities...... (13,804) (14,542) (13,470) (6,157) (14,399) Cash flows from financing activities ...... 6,110 2,653 (624) 4,306 (4,117) Effect of changes in consolidation ...... — — (69) (69) —

24 Six months ended 30 Year ended 31 December June 2003 2004 2005 2005(1) 2006 (audited, except operating data) (unaudited) (B’000, except per share data and number of shares) Operating Data: Theatres ...... 49 53 55 — 58 Screens(3) ...... 352 379 422 — 466 Seats ...... 70,845 76,062 86,685 — 94,306

(1) Restated to reflect the change of functional currencies for operations in Central Europe in the year 2005. (2) Consists of fees and expenses incurred in connection with the initial public offering process that was postponed in 2004. (3) Includes 4, 4, and 5 IMAX» screens as at 31 December 2003, 2004, and 2005, respectively, and 7 as at 30 June 2006.

25 OPERATING AND FINANCIAL REVIEW The following discussion and analysis generally relates to the Company’s historical financial condition and results of operations and should be read in conjunction with its financial statements and related notes included elsewhere in this document. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Actual results may differ materially from those anticipated in forward-looking statements as a result of a number of factors, including, but not limited to those set forth under “Risk Factors” and elsewhere in this document.

Overview The Company is the largest operator of multiplex cinemas in Central and Eastern Europe based on number of screens, with 335 screens in 35 multiplex cinemas and seven IMAX» theatres in Poland, Hungary, the Czech Republic and Bulgaria. In addition to Central and Eastern Europe, the Company is one of the two leading motion picture exhibitors in Israel, operating 131 screens in 23 multiplex cinemas. In total the Company operates 466 screens in 58 multiplex cinemas, including seven IMAX» theatres. In 2005, the Company had total revenues of A108.2 million and in the first six months of 2006, the Company had total revenues of A75.5 million. Other than as disclosed in “Capitalisation and Indebtedness”, there has been no significant change in the financial or trading positions of the Company since 30 June 2006.

Factors Affecting Results of Operations A1.12.1 A1.12.2 Factors Affecting Operating Revenue A1.6.3 The Company generates operating revenue principally from its theatre operations (including box office A1.9.2.1 receipts and concessions, on-screen and off-screen advertising, and sponsorship sales), film distribution activities, video and DVD sales and rentals and other sources, including real estate activities. The following table sets forth a breakdown of the Company’s sales by category of activity for the periods indicated.

Six months ended Year ended 31 December 30 June 2003 2004 2005 2005 2006 (B’000) % (B’000) % (B’000) % (B’000) % (B’000) % (audited) (unaudited) Theatre operations ...... 72,252 76.4 75,313 76.1 73,641 68.1 32,726 64.1 47,452 62.8 Film distribution ...... 13,427 14.0 15,991 16.2 15,138 14.0 5,439 10.7 11,668 15.5 Video & DVD sales and rentals ...... 7,771 8.1 5,664 5.7 4,877 4.5 2,452 4.8 2,056 2.7 Other ...... 2,333 1.5 1,970 2.0 14,525 13.4 10,441 20.4 14,325 19.0 95,783 100 98,938 100 108,181 100 51,058 100 75,501 100

The Company’s revenues from theatre operations are primarily affected by changes in film attendance and average admissions and concession sales per patron. Attendance is primarily affected by the commercial appeal of the films released during the period reported, and to a certain extent by seasonality fluctuations and the weather. Advertising revenues are generated from on-screen advertising, off-screen advertising and sponsorship sales. Screen advertising rates are primarily fixed at either the theatre or country levels and are typically charged either on a per period or per patron basis. Off-screen advertising sales are generated by the provision of promotional facilities and are negotiated on a case-by-case basis. Sponsorship sales are generated from agreements under which the Company allows the sponsor to associate its name with a theatre, an element of a theatre or a product offered at the theatre.

26 The following table sets forth a breakdown of the Company’s revenues from theatre operations for the periods indicated.

For the year ended December 31 For the six months ended June 30 2003 2004 2005 2005 2006 (B ’000) (%) (B ’000) (%) (B ’000) (%) (B ’000) (%) (B ’000) (%) (audited) (audited) (audited) (unaudited) (unaudited) Admissions: Multiplex ...... 48,114 66.6 50,782 67.4 45,495 61.8 21,233 64.9 30,417 64.1 IMAX»...... 5,265 7.3 4,120 5.5 4,319 5.9 2,088 6.4 2,248 4.7 Concessions ...... 12,371 17.1 13,283 17.6 13,342 18.1 5,735 17.5 8,472 17.9 Advertising ...... 6,502 9.0 7,128 9.5 10,485 14.2 3,670 11.2 6,315 13.3 Total ...... 72,252 100 75,313 100 73,641 100 32,726 100 47,452 100

The Company also generates revenues from film distribution. The Company licenses films to cinemas and typically receives revenue based upon a gross receipts formula, which is negotiated on a movie-by-movie basis in advance of distribution. The fees are generally related to the anticipated performance of the movie based on the Company’s experience and, when available, the film’s results in other markets. Under such a formula, the Company receives a specified percentage of box office receipts, with the percentage declining over the term of the run. The Company also receives revenue from distribution of some portion of its films on DVDs and video cassettes, from which revenues are generated from the sale of the DVDs or videos to various distributors. The Company also receives revenue from distribution of some portion of its films to television, the fees for which are negotiated on a basis of the period for which the show is screened. Real estate sales are generated mainly by lease of real estate held by the Company in conjunction with its entertainment activities, or the sale of such real estate that in some cases is held as short-term investment. Revenue from DVD sales and rentals consist mainly of historical revenue from the sale and rental of videos and DVDs and since May 2006, the Company’s 50% interest in the joint venture operating the Blockbuster» franchise in Israel.

Factors Affecting Operating Expenses The Company’s principal operating expenses consist of operating costs and general and administrative expenses. The Company’s operating costs consist of costs associated with theatre operations (mainly film rental, concession supplies, salaries and wages, and leases), film distribution (mainly royalties), DVD sales and rentals (mainly video and DVD purchases), and depreciation and amortisation expenses allocable to each business segment. The following table sets forth the Company’s principal operating costs and general and administrative expenses for the periods indicated.

For the year ended December 31 For the six months ended June 30 2003 2004 2005 2005 2006 (B ’000) (%) (B ’000) (%) (B ’000) (%) (B ’000) (%) (B ’000) (%) Operating costs: Theatre operations ...... 58,088 67.7 55,627 66.5 58,077 63.9 26,301 62.3 35,080 56.3 Film distribution ...... 11,958 13.9 12,959 15.5 12,349 13.6 4,682 11.1 11,062 17.7 DVD sales and rentals ...... 5,259 6.1 3,548 4.2 3,454 3.8 1,768 4.2 1,579 2.5 Depreciation and amortisation . . 10,391 12.3 10,659 12.7 12,096 13.3 5,515 13.1 6,430 10.3 Other(1) ...... — — 903 1.1 4,891 5.4 3,943 9.3 8,182 13.2 Total operating costs ...... 85,696 100 83,696 100 90,867 100 42,209 100 62,333 100 General and administrative expenses ...... 4,630 4,504 5,387 2,520 3,302

(1) Consists mainly of real estate development costs. Operating costs related to theatre operations consist mostly of film rental costs, expenses relating to concession supplies, salaries and wages, and facility lease expenses. Film rental costs and expenses relating to concession supplies tend to vary with changes in associated revenues. The Company purchases concession supplies to replace units sold. Although salaries and wages include a fixed component of cost (i.e. the minimum staffing cost to operate a theatre facility during non-peak periods), salaries and wages move in some relation to revenues as theatre staffing

27 is adjusted to handle attendance volume. Conversely, theatre facility lease expense is primarily a fixed cost at the theatre level as the Company’s facility leases generally require a fixed monthly minimum rent payment. Most of the lease agreements contain extra payment provisions above basic annual rent if very high sales volume is achieved, but this provision has rarely been activated. Facility lease expense as a percentage of revenues is also affected by the number of leased versus owned facilities. Utilities and other costs include certain costs that are fixed, such as property taxes, certain costs which are variable, such as liability insurance, and certain costs that possess both fixed and variable components, such as utilities, repairs and maintenance and security services. Operating costs related to film distribution consist principally of the licensing fee the Company pays to the film studio/international distributor, which is based on either a long-term distribution agreement or a per movie agreement. Both types of agreements are usually based on a percentage licence fee to be paid to the film studios. Occasionally, a minimum payment can be applied. The Company also incurs costs related mainly to advertising, while such expenses are normally covered by the fee collected from the movie theatre, prior to payment of the license. Operating costs related to DVD sales and rentals consist principally of the purchase of cassettes and DVDs. Operating costs related to depreciation and amortisation expense consist principally of those allocable directly to each of the Company’s principal operating activities of theatre operations, film distribution, video and DVD sales and rentals, and real estate. They relate mostly to assets used in movie theatres and video shops and machines. Depreciation and amortisation expense not allocable to specific operating activities are included under “general and administrative expenses”. General and administrative expenses is comprised of costs associated mainly to the Company’s headquarters in each of the territories it operates (including Amsterdam), such as office rental, wages, salaries, computer systems and other ordinary general and administrative expenses. They also include a performance bonus paid to manage- ment board members and other members of local management.

Current Trading and Prospects; Trends

The Company’s management expects that the third and fourth quarters of 2006 will continue to see growth in A1.12.1 operating profit, revenues and net income consistent with recent growth, barring exceptional, unanticipated A1.12.2 developments in the Company’s industry or in the countries in which it operates. In particular, preliminary results indicate that operating profit, revenues, and net income have increased in line with the Company’s expectations in the third quarter of 2006 relative to the same period in 2005, driven primarily by continued growth in admissions and the growth in the number of screens operated by the Company.

Trends For a description of Company-specific trends that may affect its results for at least the current financial year, see “Description of the Company” and for a description of industry-related trends that may affect its results, see “Information on the Industry and Markets”. There has been no significant change in the Company’s financial or trading position since 30 June 2006 (the date to which the last financial information has been published).

Restructuring of the Consolidated Financial Statements 31 December 2003 Cinema City is a direct 86.10% subsidiary of ITIT, an Israeli company. Historically, Cinema City’s film exhibition, distribution and video rental operations in Israel, as well as the assets related to these operations, were divided among ITIT and other subsidiaries of ITIT. However, during 2003, ITIT restructured its operations to contribute its Israeli operations to Cinema City in exchange for additional shares in the Company. Upon completion of the restructuring, Cinema City became the holder, through various subsidiaries, of all the business operations of ITIT in Europe and Israel. Prior to 2003, the Cinema City operated as a holding company of the European cinema activities of the group. During the financial year 2003, the Company was involved in a restructuring (the “Restructuring” — for a more detailed explanation reference is made to Note 1 to the IFRS Financial Statements). At the end of the financial year 2003, as part of the Restructuring, all activities, assets, (including those of the Company’s other subsidiaries) and liabilities of the Company that were previously not performed and owned by the Company, were transferred to the Company as a contribution in kind. Since completion of the restructuring, Cinema City has operated as the parent company of the entire group, including the Israeli activities.

28 The restructuring formally ended in March 2004 when the legal proceedings were completed, which included a change of the Company’s Articles of Association. The amendments to the Articles of Association included, amongst others, a change of the Company’s legal structure from a private limited liability company (“B.V.”) to a limited liability company (“N.V.”) under Dutch law, a name change from I.T. International Cinemas B.V. to Cinema City International N.V. and an increase in the Company’s authorised share capital.

As a consequence of the restructuring, the annual audited consolidated financial statements of the Company for the year ended 31 December 2003 present the ownership and operation of the business of ITIT and Cinema City as a single consolidated entity. In addition, prior to 2003, the Company’s financial information was presented in U.S. Dollars. Up to and including the financial year ended 31 December 2004, the functional currency of the operations in Central Europe was the Euro. The Company’s management was of the opinion, at that time, that the Euro better reflected the economic substance of the underlying event and circumstances and thus the Euro was considered to be the relevant currency for the Central European subsidiaries.

Restatement of the Consolidated Financial Statements 30 June 2005

In 2005, the Company’s management considered that with the growth of the size of the operations and activities of the Company in Central Europe, the local Central European currencies showed an increasingly more significant impact on the Company in comparison to the Euro. In addition, a transition from local currencies into the Euro by the relevant Central European countries is less likely to happen in the near future than was previously expected. Therefore, starting the financial year ended 31 December 2005, the functional currencies of those Central European countries became the respective local currencies rather than the Euro. Since this change of functional currency was not reflected in the interim report for the half year ended 30 June 2005, the comparative figures relating to the six months ended 30 June 2005 have been restated to reflect the aforementioned change of functional currencies. Please see note 2B to the audited annual consolidated financial statements as of and for the year ended 31 December 2005 for more details on the currency.

Comparative Discussion of Historical Results A1.9.2.2 A1.9.2.3 Six-month periods ended 30 June 2006 and 30 June 2005

Other than as described below and under “— Liquidity and Capital Resources”, there has been no significant change in the financial or trading positions of the Company since 31 December 2005.

Revenue. Revenue increased by 47.8% from A51.1 million for the six months ended 30 June 2005 to A75.5 million during the six months ended 30 June 2006.

Theatre revenue increased by 44.8% from A32.8 million for the six months ended 30 June 2005 to A47.5 million for the six months ended 30 June 2006. The increase in theatre revenues was a result of an increase in overall admissions because of the greater quality of films being available for showing, particularly in Poland, which saw the success during the first six months of 2006 of two locally produced films, compared to a relatively weak supply of movies in the same period in 2005, and was also due in part to the negative effect of the Pope’s death on movie attendance in Poland in April 2005. The increase in theatre revenue is also partially attributable to the greater capacity in terms of seats and screens in the first half of 2006 relative to the same period in 2005 resulting from the new cinemas opened during the course in 2005 and in the first half of 2006.

Distribution revenue increased by 116.7% from A5.4 million for the six months ended 30 June 2005 to A11.7 million for the six months ended 30 June 2006. The increase was mainly due to increase in the distribution activity in Poland due to a strong supply of movies, and due to the first time contribution of Forum Film Hungary, a new subsidiary of the Company that is distributing films in Hungary and commenced its operations only in the middle of 2005.

Video and DVD revenue decreased by 16% from A2.5 million for the six months ended 30 June 2005 to A2.1 million for the six months ended 30 June 2006. The decrease was primarily a result of decrease in DVD rentals during the first part of the year. In May 2006, the Company merged its video and DVD retail operations in Israel with Blockbuster, and it is now only including in its results 50% of the 50/50 joint venture revenue.

Other revenue increased by 37.5% from A10.4 million for the six months ended 30 June 2005 to A14.3 million for the six months ended 30 June 2006. The increase in other revenue was primarily attributable to the increase in revenue from real estate activities.

29 Operating costs. Operating costs increased by 47.6% from A42.2 million during the six months ended 30 June 2005 to A62.3 million during the six months ended 30 June 2006. This net increase resulted from the effects of: • an increase in theatre operating costs primarily due to the increase in revenue from theatre operations, as described above, and the opening of new cinemas, mainly in Poland. Theatre operating costs as a percentage of revenue from theatre operations decreased from 80.4% for the six months ended 30 June 2005 to 73.9% for the six months ended 30 June 2006; • an increase in film distribution operating costs as a result of the increase in film distribution revenue as described above. Film distribution operating costs as a percentage of revenue from film distribution increased from 86.1% for the six months ended 30 June 2005 to 94.8% for the six months ended 30 June 2006. This increase is mainly due to the relative proportion that the Central Europe distribution activity contributes to the overall distribution activity of the Company; • a slight decrease in operating costs related to video and DVD sales and rentals as a result of the decrease in revenue as described above. Operating costs related to video and DVD sales and rentals as a percentage of revenue for the same segment, however, increased from 72.1% for the six months ended 30 June 2005 to 76.8% for the six months ended 30 June 2006; and • depreciation and amortisation expenses increased by 16.4% from A5.5 million for the six months ended 30 June 2005 to A6.4 million for the six months ended 30 June 2006. This is due to the operation of the Company’s new multiplex screens opened during 2005 and 2006. General and administrative expenses. General and administrative expenses increased by 32% from A2.5 million during the six months ended 30 June 2005 to A3.3 million during the six months ended 30 June 2006. General and administrative expenses as a percentage of total revenue decreased to 4.4% for the six months ended 30 June 2006, from 4.9% for the six months ended 30 June 2005. Operating profit. As a result of the factors described above, operating profit increased by 57.1% from A6.3 million during the six months ended 30 June 2005 to A9.9 million during the six months ended 30 June 2006. Financial income/expenses. The balance of financial income and expenses resulted in a net expense of A2.1 million during the six months ended 30 June 2006 compared to a net expense of A1.7 million during the six months ended 30 June 2005. This net increase is mainly due to the net effect of: (i) an increase in average borrowings in local currencies throughout 2005 due to the financing of the development plan in Poland and Israel and (ii) a reduction in interest collected from non-consolidated subsidiaries explained by the sale of the Sadyba Best Mall. Gain/loss on disposals and write-off of other investments. Gain/loss on disposals and write-off of other investments were insignificant in both the six months ended 30 June 2005 and the same period in 2006. Income tax. Income tax was fairly stable at approximately A0.2 million for each of the two six-month periods ended 30 June 2005 and 2006. Minority interests in result of consolidated subsidiaries. For the six months ended 30 June 2005, the Company had a net share in losses of its consolidated subsidiaries of A33,000, while for the six months ended 30 June 2006, it had a net share in losses of A273,000. Net income. Principally as a result of the factors described above, the Company’s net income attributable to equity holders increased by 77.3% from A4.4 million for the six months ended 30 June 2005 to A7.8 million for the six months ended 30 June 2006.

Years ended 31 December 2005 and 31 December 2004 Revenues. Revenues increased by 9.4% from A98.9 million for the year ended 31 December 2004 to A108.2 million for the year ended 31 December 2005. Theatre revenue decreased by 2.3% from A75.3 million for the year ended 31 December 2004 to A73.6 million for the year ended 31 December 2005. The decrease in theatre revenue was primarily a result of a decrease in admissions because of a weak supply of movies in 2005 compared to 2004, a year that had movies with particularly strong appeal to audiences such as Lord of the Rings, Harry Potter and Passion of the Christ, and also to the negative effect of the Pope’s death in April 2005 on movie attendance in Poland. The effects of decreased admissions was partly offset by the contribution of new cinema screens opened in 2004 and 2005. Distribution revenue decreased by 5.6% from A16.0 million for the year ended 31 December 2004 to A15.1 million for the year ended 31 December 2005, mainly due to the weak supply of movies in 2005 as mentioned above.

30 Video and DVD sales and rentals revenue decreased by 14% from A5.7 million for the year ended 31 December 2004 to A4.9 million for the year ended 31 December 2005. This is primarily as a result of a weak supply of movies in 2005 compared to 2004 and the effects of the growing popularity of the video-on-demand home film viewing. Other revenues increased by 625% from A2.0 million for the year ended 31 December 2004 to A14.5 million for the year ended 31 December 2005. The increase in other revenues was primarily attributable to an increase in revenue from real estate activities. Both the sale of the second 50% of the Sadyba Best Mall in Poland and the sale of 50% of the Company’s interest in the Sofia mall in Bulgaria were the main reasons for this increase. Operating costs. Operating costs increased by 8.6% from A83.7 million for the year ended 31 December 2004 to A90.9 million for the year ended 31 December 2005. Primarily this increase is the net effect of: • an increase in theatre operating costs primarily due to the opening of new cinemas mainly in Poland. Theatre operating costs as a percentage of theatre revenue increased to 78.9% for the year ended 31 December 2005, from 73.9% for the year ended 31 December 2004; • a decrease in distribution operating costs as a result of the decrease in revenues as described above. Distribution operating costs as a percentage of distribution revenue increased to 81.6% for the year ended 31 December 2005, from 81.0 % for the year ended 31 December 2004; • a decrease in video and DVD operating costs as a result of the decrease in video and DVD sales and rental revenue as described above. Video operating costs as a percentage of total video and DVD sales and rental revenue increased to 70.8% for the year ended 31 December 2005, from 62.6% for the year ended 31 December 2004; and • depreciation and amortisation expenses increased by 13.1% from A10.7 million for the year ended 31 December 2004 to A12.1 million for the year ended 31 December 2005. This is due to the operation of the Company’s new multiplex screens opened during 2004 and 2005. General and administrative expenses. General and administrative expenses increased by 20% from A4.5 million for the year ended 31 December 2004 to A5.4 million for the year ended 31 December 2005. The increase is primarily due to the opening of new cinemas mainly in Poland and the opening of new distribution business in Hungary in 2005. Operating profit. As a result of the factors described above, operating profit increased by 11.2% from A10.7 million for the year ended 31 December 2004 to A11.9 million for the year ended 31 December 2005. Financial income/expenses. The balance of financial income/expenses resulted in an increase of A1.7 mil- lion in net financial expense, from a net financial expense of A1.1 million for the year ended 31 December 2004 to a net financial expense of A2.8 million for the year ended 31 December 2005. This net increase is mainly due to the total effects of: (i) an increase in average borrowings in local currencies throughout 2005 due to the financing of real estate development plans in Poland and in Israel; (ii) a reduction in interest collected from non-consolidated subsidiaries explained by the sale of the Sadyba Best Mall; (iii) changes in currency results; and (iv) an increase in the borrowing costs of the loans denominated in USD — such loans were fully repaid before the end of the six months ended 30 June 2005. Gain/loss on disposals and write-off of other investments. Gain/loss on disposals and write-off of other investments changed from a loss of A1.2 million for the year ended 31 December 2004 to a loss of A0.2 million for the year ended 31 December 2005. The loss in 2004 was primarily related to an impairment of video and DVD movies for the 12 months ended 31 December 2004, explained by a shorter estimated life time of video and DVD movies that are kept for rental purposes. Write-off of IPO costs. There were no costs written off in this respect for the year ended 31 December 2005, while for the year ended 31 December 2004, expenses in the amount of A1.8 million were written off relating to the Company’s plans for an IPO, which was postponed. Income tax. Income tax decreased by 20% from A1.5 million for the year ended 31 December 2004 to A1.2 million for the year ended 31 December 2005. The income tax charge as a percentage of profit before income tax was 18.4% in 2004 (excluding the costs associated with the IPO process that was postponed) and 13.4% in 2005. Minority interest in result of consolidated subsidiaries. Minority interests for each of the years ended 31 December 2005 and 31 December 2004 comprised a share in loss of approximately A0.2 million. Net income. As a result of the factors described above, net income attributable to equity holders increased by 49% from A5.3 million for the year ended 31 December 2004 to A7.9 million for the year ended 31 December 2005.

31 Excluding the effects of the costs associated with the IPO process that was postponed in 2004, net income increased by 11.3% from A7.1 million for the year ended 31 December 2004.

Years ended 31 December 2004 and 31 December 2003 Revenues. Revenues increased by 3.3% from A95.8 million for the year ended 31 December 2003 to A98.9 million for the year ended 31 December 2004. This increase was primarily attributable to a A3.1 million increase in theatre revenue and a A2.6 million increase in distribution revenue. These increases were partially offset by a A2.1 million decrease in video and DVD sales and rental revenue. The increase in theatre revenue reflects an 11% increase in admissions in Central and Eastern Europe, which was driven by a strong supply of popular films in 2004. It was also driven by the first full year of results in 2004 of new screens opened in 2003, as well as the addition of four additional screens in May 2004 and 23 new screens in November and December of that year. Theatre revenues include A0.8 million of compensation received by the Company in lieu of loss of revenues during the first Iraq war from the Israeli government. Increased theatre revenue was partially offset by the weakening of the New Israeli Shekel by 8.8% against the Euro. The increase in distribution revenues was mainly due to the first full year of operation of Forum Film Poland, the Company’s new subsidiary engaged in the business of distributing movies in Poland. In addition, revenues from the distribution of movies to theatres in Israel also increased, although the devaluation of the New Israeli Shekel against the Euro limited this growth. Video and DVD sales and rentals revenue decreased due to the Company’s discontinuation of its CD music shop business in Israel in 2003, as 2004 was the first full year without this business. The decrease was also partially attributable to the effect of the devaluation of the New Israeli Shekel against the Euro. The period-to-period decrease in real estate and other revenue, which mainly includes the Company’s real estate development revenue, was mainly attributable to higher revenue achieved in 2003 as a result of the Company’s sale of part of its property in Sofia in July 2003. Operating costs. Operating costs decreased by 2.3%, from A85.7 million for the year ended 31 December 2003 to A83.7 million for the year ended 31 December 2004. This decrease was primarily attributable to: •aA1.8 million decrease in theatre operating costs related to the restructuring, which began in 2003, as well as a reduction in rent expenses partly denominated in U.S. Dollars. Theatre operating costs as a percentage of theatre revenue decreased to 73.9% during the year ended 31 December 2004, from 80.4% during the year ended 31 December 2003; and •aA1.7 million decrease in video and DVD operating costs due to the discontinuance of the CD music shops; partially offset by: •aA1.0 million increase in distribution costs reflecting the full year results of Forum Film Poland, which was not in operation during the first half of 2003; and •aA0.3 million increase in depreciation and amortisation expenses attributable to the operation of the Company’s new multiplex screens opened during 2003 and 2004. General and administrative expenses. General and administrative expenses remained stable at approxi- mately A4.6 million for each of the years ended 31 December 2003 and 2004. Operating profit. As a result of the foregoing, operating profit increased by 94.5%, from A5.5 million for the year ended 31 December 2003 to A10.7 million for the year ended 31 December 2004. Financial income/expenses. The balance of financial income/expenses resulted in a net increase of A0.5 million in financial expense, resulting mainly from: • an increase in financial expenses of A1.5 million, or 36.7%, from A4.1 million for the year ended 31 December 2003 to A5.6 million for the year ended 31 December 2004. The increase was primarily attributable to an increase in currency exchange losses caused primarily by fluctuations in the value of the Euro relative to other currencies used in the Company’s operations; offset by • an increase in financial income of A1.0 million, or 28.1%, from A3.5 million for the year ended 31 December 2003 to A4.5 million for the year ended 31 December 2004. This increase was due to an

32 increase in currency exchange gains arising from the appreciation of the Euro relative to other currencies used in the Company’s operation. Gain/loss on disposals and write-off of other investments. Gain/loss on disposals and write-off of other investments changed from a loss of A0.2 million for the year ended 31 December 2003 to a loss of A1.2 million for the year ended 31 December 2004. The loss in 2004 was primarily related to an impairment charge in respect of video and DVD movies for the 12 months ended 31 December 2004, explained by a shorter estimated lifetime of video and DVD movies that are kept for rental purposes. Previously, these items were depreciated in four years whereas the Company has estimated their economic lifetime to be two years. The effect of the shortened lifetime was presented as an impairment write-off. The loss in 2003 was primarily related to a capital loss on disposal of property equipment and other assets. Write-off of IPO costs. In 2004, expenses in the amount of A1.8 million were written off relating to the Company’s plans for an IPO, which was postponed. Income taxes. Income tax increased by 87.5% from A0.8 million for the year ended 31 December 2003 to A1.5 million for the year ended 31 December 2004. The increase is primarily attributable to the increase in taxable income in Israel, offset to some extent by a reduction, effective 1 January 2004, in the statutory income tax rate in Hungary from 18% to 16%, in Poland from 27% to 19% and in Bulgaria from 23.5% to 19.5%. Minority interests in result of consolidated subsidiaries. Minority interests for the year ended 31 December 2003 resulted in a share of profit of A0.3 million in comparison to a share in losses of A0.2 million in 2004. The minority interest related to a subsidiary that realised a net loss in 2004 mainly as a result of a write-off of A0.9 million in the video division of the group. Further explanation on this impairment is provided above under “Gain/loss on disposals and write-off of other investments”. Net income. As a result of the foregoing factors, net income attributable to equity holders of the parent company increased by 47.2%, from A3.6 million for the year ended 31 December 2003 to A5.3 million for the year ended 31 December 2004. Excluding the write-off of IPO costs, net income increased by 97.2% from A3.6 million during the year ended 31 December 2003 to A7.1 million during the year ended 31 December 2004.

Liquidity and Capital Resources A1.10.1 Historically, the Company’s primary sources of liquidity have been cash generated from operations and borrowings under its loan facilities, while its principal funding requirements consist of cash necessary to fund its operations, debt service, and maintenance and expansion capital expenditures.

In the opinion of the Company, its working capital (i.e. its ability to access cash and other available liquid A3.3.1 resources) is sufficient to meet its present requirements for at least 12 months from the date of this Prospectus. There A1.10.5 can be no assurance, however, that the Company’s business will generate sufficient cash from operations or that future borrowing will be available under existing debt facilities or otherwise for these purposes. The Company’s future operating performance will be subject to future economic conditions and to financial, business and other factors, many of which are beyond the Company’s control. See “Risk Factors”.

Cash Flow A1.10.2 The Company funds its day-to-day operations principally from the cash flow provided by its operating activities. The time between the Company’s receipt of cash, including the collection of VAT, from theatre operations and the payment of related expenses and VAT (paid to the tax authorities between 15 and 45 days from the date of collection), allows the Company to operate from a negative working capital position. The following table sets forth the Company’s cash flows for the periods indicated.

Year ended Six months ended 31 December 30 June 2003 2004 2005 2005 2006 (audited) (unaudited) (B’000) Cash flow provided by operating activities ...... 10,866 11,051 14,616 2,383 19,304 Cash flow used in investing activities ...... (13,804) (14,542) (13,470) (6,157) (14,399) Cash flow provided by/used in financing activities...... 6,110 2,653 (624) 4,306 (4,117) Effects of changes in consolidation ...... — — (69) (69) —

(1) Restated to reflect the change of functional currencies for operations in Central Europe as of the year 2005.

33 Six months ended 30 June 2006 and 30 June 2005 Cash flow provided by the Company’s operating activities totalled A19.3 million and A2.4 million during the periods ended 30 June 2006 and 2005, respectively. The increase was primarily the consequence of improvement of operational results in the first six months of 2006 relative to the same period in 2005, and the negative effect on operating cash flow for the first six months of 2005 resulting from the creation of an account receivable in June 2005. Cash flow used in investing activities totalled A14.4 million and A6.2 million for the periods ended 30 June 2006 and 2005, respectively. This increase was the result of greater capital expenditures on property and equipment made in the six months ended 30 June 2006 than in the same period in 2005. Cash flow used in financing activities totalled A4.1 million for the six months ended 30 June 2006 and cash flow provided by financing activities for the six months ended 30 June 2005 was A4.3 million. This difference is primarily attributable to the repayment of long-term bank loans in the first six months of 2006.

Years ended 31 December 2005 and 31 December 2004 Cash flow provided by the Company’s operating activities totalled A14.6 million and A11.1 million during the years ended 31 December 2005 and 2004, respectively. The increase in cash flow provided by operating activities was primarily attributable to the improvement of operating results in 2005 relative to 2004. Cash flow used in investing activities totalled A13.5 million and A14.5 million for the years ended 31 December 2005 and 2004, respectively. This change is primarily attributable to an increase of A14.6 million in loans outstanding to unconsolidated subsidiaries in 2005 and an increase in investments made in the purchase of property and equipment from A19 million in the year ended 31 December 2004 to A33.6 million in the year ended 31 December 2005. Cash flow used in financing activities totalled A0.6 million for the year ended 31 December 2005 and cash flow provided by financing activities was A2.6 million for the year 2004. This change from a positive to a negative cash flow and the extent of it was primarily the result of a repayment of a long-term bank loan in 2005.

Years ended 31 December 2004 and 31 December 2003 Cash flow provided by operating activities totalled A11.1 million and A10.9 million for the years ended 31 December 2004 and 2003, respectively. The increase in cash flow was primarily attributable to the improvement of operating results in 2004 relative to 2003. Cash flow used in investing activities totalled A14.5 million and A13.8 million for the years ended 31 December 2004 and 2003, respectively. The cash flow for investing activities primarily consisted of investments in property and equipment which remained at similar level in 2004 in comparison to 2003. Cash flow provided by financing activities totalled A2.6 million and A6.1 million for the years ended 31 December 2004 and 2003, respectively. This decrease was primarily attributable to a decrease in proceeds from long-term loans required by the Company for its investments activities.

Commitments As of 30 June 2006, the Company’s long-term debt obligations, capital lease obligations and future minimum lease obligations under non-cancellable operating leases for each period indicated are summarised as follows:

Payments due within 2-3 4-5 5+ 1 year Years Years Years Total (B ’000) Long-term debt ...... 10,186 21,492 19,391 24,400 75,469 Capital lease obligations ...... — — — — — Future minimum lease obligations ...... 15,962 29,548 28,686 49,521 123,717 Other long-term obligations...... — — — — — The Company has financed the majority of its development to date through loans from Bank Leumi in Israel. The Company’s local subsidiaries in Central and Eastern Europe, mainly in Poland, have financed part of their projects using financing provided by local banks, while giving securities such as mortgage of the assets of the financed projects, mortgage of the shares and assignments of all revenues and insurance polices of the projects. The share of financing provided by local Polish banks has grown substantially in the past two years.

34 The Company and its subsidiaries conduct most of their cinema, video library stores and corporate operations in leased premises. These leases, which have non-cancellable clauses, expire at various dates after 30 June 2005. Many leases have renewal options. Most of the leases provide for contingent rentals based on the revenues of the underlying cinema or video library stores, while certain leases contain escalating minimum rental provisions.

Capital Expenditures Cash used for capital expenditures consists primarily of (a) cash used for the maintenance, upkeep and replacement of assets used in connection with the Company’s theatre operations (“maintenance capital expen- ditures”) and (b) cash used in the Company’s expansion of its theatres (“expansion capital expenditures”). A1.5.2.1 In each of the years ended 31 December 2003, 2004, and 2005, the Company’s expansion capital expenditures amounted to A15 million, A19 million, and A33.6 million. Expansion capital expenditures related principally to expenditures on fixed tangible assets in connection with the construction of new theatres in Poland and, to a lesser extent, also in Hungary and the Czech Republic. During 2006 to the date hereof, the Company has made expansion capital expenditures of A14.4 million, mainly in connection with the construction of three new projects in Poland (Lodz), Bulgaria (Sofia) and Israel (Ramat Gan). As stated above, the Company has historically funded its capital expenditures principally from cash generated by operations and borrowings under its loan facilities.

The Company plans to add approximately 25 new theatres in the next two years: ten in Poland, two in Israel, A1.5.2.2 one in Hungary and four in each of Bulgaria, the Czech Republic and Romania. The Company has 17 contractual A1.5.2.3 commitments already in place in respect of this component of its strategy. For these purposes, the Company has budgeted approximately A88 million of expansion capital expenditures through the end of 2008, of which A61 million are under contractual commitments. The Company anticipates that most of this amount will be financed with the proceeds from the Offering and cash generated by its operations. The Company expects that any additional required funding for these projects will come from internally generated cash flows and additional bank A1.10.1 loans. A1.10.2 A1.10.3 Description of Existing Credit Facilities and Availability A1.10.4 As at 30 June 2006, the Company had approximately PLN 50 million and A20 million of funds available under its existing credit facilities. The following is a description of the principal terms of the Company’s existing long term facilities. • Cinema City International N.V. received a loan from Bank Leumi Israel in two tranches of A43.7 million and US$11.7 million to be used for general corporate purposes. The loan does not have a repayment schedule and interest under the loan is based on EURIBOR and LIBOR, in each case plus 1.5%. The loan was transferred from ITIT as part of the group reorganisation in 2003. As of 30 June 2006, A33.3 million was outstanding under the loan. • Cinema City Poland sp. z o.o. and I.T. Poland Development 2003 sp. z o.o. entered into a loan agreement in November 2004, under which they received a PLN 77 million loan from Bank Zachodni WBK S.A., the proceeds of which were used for refinancing and financing of the construction of eight cinemas in Poland. The loan requires quarterly instalment payments until September 2014 and has a variable interest rate based on the three-month Warsaw Interbank Offer Rate (“WIBOR”) plus a margin ranging from 1.75% up to 3.5%. The loan is secured by, among other things, mortgages on real estate in Poland, pledges on assets and shares and surety (corporate guarantees) from certain group companies. The loan agreement contains the usual covenants and operating restrictions limiting the borrowers’ ability to borrow and invest; receive and grant loans, credit and other debt financing; encumber any assets; distribute profits; and/or acquire shares in other entities. As of 30 June 2006, A17.5 million remained outstanding under the loan. • Cinema City Poland sp. z o.o. received a US$11.0 million loan from Bank Pekao S.A. in 2002, the proceeds of which were used for the construction of a cinema in Katowice. On 31 December 2004, Bank Pekao S.A. assigned the loan to Bank Zachodni WBK S.A. The loan requires quarterly instalment payments of A222,000 plus a bullet repayment at maturity in 2015. The interest rate of the loan is based on three-month EURIBOR (U.S. dollars) plus a variable margin ranging from EURIBOR and down to 2.25%. The loan is secured by, amongst other things, a mortgage and pledge on shares and assets. The loan was converted to Euro in 2003. As of 30 June 2006, A7.3 million was outstanding under the loan. • Cinema City Poland sp. z o.o. I.T. Poland Development 2003 sp. z o.o. entered into a loan agreement in May 2006, under which they received a A6.9 million (PLN 28,000,000) from Bank Zachodni WBK S.A., to finance the construction of a cinemas in Lodz, Poland. The loan requires quarterly instalment payments of A173,000 (PLN 700,000) until June 2016 and bears a variable interest rate based on three-month WIBOR

35 plus a margin ranging from 1.75% up to 2.25%. The loan is secured by, among other things, mortgages on real estate in Poland, pledges on assets and shares and surety (corporate guarantees) from certain group companies. The loan agreement contains customary covenants and operating restrictions limiting the borrowers’ ability to borrow and invest; receive and grant loans, credit and other debt financing; encumber any assets; distribute profits; and/or acquire shares in other entities. As of 30 June 2006, A4.2 million (PLN 17,000,000) remained outstanding under the loan.

• Cinema City International N.V. has a A2,000,000 credit line from Bank Leumi UK to be used for general corporate purposes. The loan does not have a repayment schedule and interest under the loan is based on EURIBOR plus 2%. As at 30 June 2006, A666,000 was outstanding under the loan.

• IT Poland DEV 2003 and Cinema City Poland entered into a loan agreement in May 2006, under which it received a PLN 50,000,000 from Bank Zachodni WBK S.A., to finance six new projects in Poland over the next two years. The loan requires quarterly instalment payments of PLN 1.4 million until May 2016 and bears a variable interest rate based of WIBOR plus a margin ranging from 1.75% up to 2.25%. The loan is secured by, among other things, mortgages on real estate in Poland, pledges on assets and shares and surety (corporate guarantees) from certain group companies. The loan agreement contains customary covenants and operating restrictions limiting the borrower’s ability to borrow and invest; receive and grant loans, credit and other debt financing; encumber any assets; distribute profits; and/or acquire shares in other entities. As of 30 June 2006, the Company had made no drawings under this facility had not drawn down the loan.

Financing agreements provide customary restrictive covenants that, among other things, impose operating and A1.10.4 financial restrictions, including the restrictions on: receipt and grant loans, credit and other debt financing; encumber any assets; distribute profits; acquire shares in other entities; change the character of business activities; dispose of shares; change of ownership and/or control of the Company; effect merger or any other reorganisation; dispose, transfer and/or lease assets; distribute dividends or profits; receive credits from other banks, etc. Events beyond the Company’s control could prevent it from complying with these covenants and result in a breach of any such obligation, thus triggering an event of default.

Critical Accounting Policies and Estimates

The Company prepares its IFRS Financial Statements in conformity with IFRS adopted by the European Union and as applicable in the respective years. Under these standards, the Company’s management is required to make certain estimates, judgments and assumptions that it believes are reasonable based upon the information available. These estimates, judgments and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. The significant accounting policies which management believes are the most critical to aid in fully understanding and evaluating the Company’s reported financial results include the following:

Revenue and Expense Recognition

Revenues from admission (ticket sales) and concession sales (snack bars operated by the Company) are recognised when services are provided. Revenues from distribution of cinema films are recognised on an accrual basis by a percentage of admissions from the related films. Revenues from distribution of films to cable television companies and television stations are recognised over the agreed period for the screening of the film. Revenues from sales of video cassettes and DVDs are recognised upon delivery to the customer. Revenues from video cassettes and DVD rentals are recognised as the rental services are provided. Revenues from “on-screen” advertising contracts are included in theatre revenues and are recognised when the related advertisement or commercial is screened, or, in some cases, over the period of the contract. Revenues from rental contracts are included in other revenues and are recognised on an accrual basis. Revenues from the sale of real estate are included in other revenues and are recognised when the significant risks and benefits of the ownership have been transferred, when the buyer is committed to the purchase, and when the sales price is considered collectable.

The cost of theatre sales includes direct film costs, concession product costs and joint theatre facility costs such as employee costs, theatre rental and utilities, which are common to both ticket sales and concession operations. The costs of films distributed are capitalised until the time the films are distributed for screening. Once the films have been distributed and screening has begun, the costs are amortised at a rate equal to the ratio of revenues in the period to total estimated revenues for the films. General advertising expenses are expensed as incurred. Film advertising expenses are expensed when the film is distributed or is shown to the public.

36 Currency Translation

Up to and including the financial year ended 31 December 2004, the functional currency of the operations in Central Europe was the Euro. Management was of the opinion, at that time, that the Euro better reflected the economic substance of the underlying events and circumstances and thus the Euro was considered to be the relevant currency for the Central European subsidiaries.

In 2005, management determined that with the growth of the size of the operations and activities of the Company in Central Europe, the local Central European currencies were increasingly showing a more significant impact on the Company in comparison to the Euro. In addition, a transition from local currencies into the Euro by the relevant Central European countries appears less likely to happen in the near future than was previously expected. Therefore, starting the financial year ended 31 December 2005, the functional currencies of those Central European countries were stated in the respective local currencies rather than the Euro.

Nonetheless, for the financial year ended 31 December 2004, the financial statements of the above mentioned foreign operations were translated into euros as follows:

Monetary items were translated at the closing exchange rate and non-monetary items were translated at the exchange rate on the date of transaction. Income statement items were translated at the average exchange rate for the year. Foreign exchange differences arising on translation have been recognised in the income statement.

Starting the financial year ended 31 December 2005, the functional currencies of the operations in Central Europe are the relevant local currencies: the Czech Crown, the Hungarian Forint and the Polish Zloty.

The financial statements of the above mentioned foreign operations were translated from the functional currency into euros (presentation currency) as follows:

Assets and liabilities, both monetary and non-monetary were translated at the closing exchange rate. Income statement items were translated at the average exchange rate for the year. Foreign exchange differences arising on translation have been recognised directly in equity.

The functional currency of the operations in Israel remained unchanged (the New Israeli Shekel (NIS)).

Property and Equipment A1.8.1

Property and equipment are stated at cost less accumulated depreciation and impairment losses. Expenditures for maintenance and repairs are charged to expenses as incurred, while renewals and improvements of a permanent nature are capitalised. Depreciation is calculated by means of the straight-line method over the estimated useful lives of the assets. Annual rates of depreciation are as follows:

% Buildings ...... 2-3 Cinema equipment ...... Mainly 10 Leasehold improvements ...... Mainly 5 Computers, furniture and office equipment ...... 6-33 Vehicles ...... 15-20 Video movie cassettes and DVDs(*) ...... 50 Video machines...... 20

(*) In 2004, the estimated useful lives of video movie cassettes and DVDs were four years. Starting the financial year 2005, the useful live of this category is estimated to be two years.

Leasehold improvements are depreciated over the estimated useful lives of the assets, or over the period of the lease, including certain renewal periods, if shorter.

Leases in terms of which the Company assumes substantially all the risks and rewards of ownership are classified as finance leases. Plant and equipment acquired by way of finance lease is stated at an amount equal to the lower of its fair value and the present value of the minimum lease payments at inception of the lease, less accumulated depreciation.

According to IAS 36, the carrying amount of assets mentioned above is reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the recoverable amount is estimated as the higher of net selling price and value in use.

37 Financing expenses relating to short-term and long-term loans, which were taken for the purpose of purchasing or constructing property and equipment, as well as other costs which refer to the purchasing or constructing of property and equipment, are capitalised to property and equipment, in accordance with IAS 23.

Inventories

Inventories are valued at the lower of cost or net realisable value, and include concession products, spare parts, music cassettes, CDs and video cassettes, and are stated at the lower of cost or net realisable value. Cost is determined by means of the “first in, first out” method. Cost of music cassettes is determined on the basis of the average purchase price. Net realisable value is the estimated selling price during the normal course of business, less the estimated costs of completion and selling expenses.

Net Financing Costs

Net financing costs comprise interest payable on borrowings calculated using the effective interest rate method, and interest receivable on funds invested. Foreign exchange gains and losses, and gains and losses that are recognised on hedging instruments are recognised in the income statement. Interest income is recognised in the income statement as it accrues, taking into account the effective yield on the asset.

Financing expenses relating to short-term and long-term loans, which were taken for the purpose of purchasing or constructing property and equipment, as well as other costs which refer to the purchasing or constructing of property and equipment, are capitalised to property and equipment, in accordance with IAS 23.

Derivative Financial Instruments

The Company uses derivative financial instruments to hedge its exposure to foreign exchange rate risks arising from operational and financing activities. Derivative financial instruments are recognised initially at cost. Sub- sequent to initial recognition, derivative financial instruments are stated at fair value. The fair value of foreign contracts is based on the relevant current exchange rates at balance sheet date. Where a derivative financial instrument is used to economically hedge the foreign exchange exposure of a recognised monetary asset or liability, no hedge accounting is applied and any gain or loss due to the change in the fair value of the hedging instrument is recognised in the income statement.

Income Taxes

Income tax on the profit or loss for the year comprises current and deferred tax. Income tax is recognised in the income statement except to the extent that it relates to items recognised directly to equity, in which case it is recognised in equity. Income tax is calculated at the applicable local tax rates.

Deferred income tax is provided using the balance sheet liability method on all temporary differences at the balance sheet date between the carrying amounts of assets and liabilities for financial reporting purposes and the tax bases of assets and liabilities. The amount of deferred tax provided is based on the expected timing of the reversal of the temporary differences, using tax rates enacted or substantially enacted at the balance sheet date.

A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the unused tax losses and credits can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Additional income taxes that arise from the distribution of dividends are recognised at the same time as the liability to pay the related dividend.

Provision Related to Onerous Lease Contracts

During July 2002, the Company acquired a cinema chain in Poland at a discount, which was allocated to the lease agreements of the cinemas acquired. In the financial statements of the Company, the discount is presented as a provision related to onerous lease contracts. It is released to the income statement over the term of the lease on a straight-line basis.

Other provisions

The financial statements of the Company include different provisions related to the normal business activities of the Company such as accrued expenses and accrued employee retirement rights.

38 Quantitative and Qualitative Disclosures about Market Risk

Market risk represents the potential for loss due to adverse changes in the fair value of financial instruments. The Company is exposed to market risks related to movements in foreign currency exchange rates and interest rates. These exposures may change over time as business practices evolve and could have a material adverse impact on the Company’s financial results. The Company has not entered into any transactions with derivative financial instruments for the purpose of reducing its interest rate risk. However, as described below, from time to time, the Company utilises hedging instruments with respect to its operations.

Foreign Currency Risk

Foreign currency risk is the risk that the Company will incur economic losses due to adverse changes in foreign currency exchange rates. As currency exchange rates change, translation of the financial statements of the Company’s operations reported in currencies other than the Euro into Euro affects the year-to-year comparability of these results of operations.

The Company conducts transactions in the following currencies: Polish Zlotys, Hungarian Forint, Czech Republic Koruna, New Israeli Shekel, Bulgarian Lev, Euro and U.S. Dollar. Appreciation of the Euro, the Company’s reporting currency, against its other functional currencies decreases the Company’s revenues and costs as reported in its financial statements for those operations that do not operate in Euro. Conversely, depreciation of the Euro against these other currencies increases the Company’s revenues and costs as reported in its financial statements. The appreciation of the Euro against these other currencies, therefore, impacts the Company’s reported net income or loss.

Please see “— Critical Accounting Policies and Estimates — Currency Translation” for a description of the translation of the foreign currencies in which the Company operates in Euro.

Currency Transaction Risk

The Company incurs currency transaction risk whenever it or one of its subsidiaries enters into either a purchase or sales transaction using a currency other than its functional currency. This currency risk arises from foreign currency receivables as well as from commitments to purchase services and supplies in the future in currencies other than the functional currencies.

In an attempt to lessen its exposure to currency exchange risks, the Company converted a significant portion of its long-term loans from U.S. Dollars into Euro during 2003. From time to time, the Company also utilises hedging instruments with respect to its operations.

As at 30 June 2006, the Company has hedged some of its USD and EUR expenses through June 2006 in respect of its Polish theatre operations, against the Polish Zloty. In connection with these obligations, the Company has entered into forward foreign exchange contracts comprising a commitment to buy USD 400,000 at the beginning of each month during the second quarter of 2006 and until December 2008 at fixed prices denominated in Polish Zloty.

The Company has also entered into forward foreign exchange contracts comprising a commitment to buy A350,000 at the beginning of each month during the second quarter of 2006 and until December 2008 at fixed prices denominated in Polish Zloty.

These forward foreign exchange contracts have been valued in the consolidated balance sheet as at 30 June 2006 at their fair value.

Interest Rate Risk

The Company’s debt is subject to floating interest rates, as indicated in the following table as of 30 June 2006.

Amount Weighted Avg. Percentage of Indebtedness (E’000) Interest Rate Total Debt Fixed rate indebtedness ...... — — — Variable rate indebtedness ...... 86,976 4.85% 100%

The variable rate indebtedness is generally a fixed percentage above WIBOR, EURIBOR and LIBOR. Increases in interest rates will increase the Company’s interest expense under these loans.

39 DESCRIPTION OF THE COMPANY A1.5.1 A1.6.1.1 Overview of the Company The Company is the largest operator of multiplex cinemas in Central and Eastern Europe based on number of screens, with 335 screens in 35 multiplex cinemas and seven IMAX» theatres in Poland, Hungary, the Czech Republic and Bulgaria. In addition to Central and Eastern Europe, the Company is one of two leading motion picture exhibitors in Israel, operating 131 screens in 23 multiplex cinemas. In total, the Company operates 466 screens in 58 multiplex cinemas, including seven IMAX» theatres. In 2005, the Company had total revenues of A108.2 million. In the first six months of 2006, the Company had total revenues of A75.5 million. The Company also distributes films in Israel, Poland and Hungary and has long-standing relationships with international film companies, having acted as the exclusive motion picture distributor for Disney in Israel, through its subsidiary Buena Vista, for almost 50 years, and more recently in Poland and Hungary. The Company has exclusive rights to develop IMAX» theatres in Poland, the Czech Republic, Hungary, Bulgaria and Romania. In addition, in connection with its theatre development, the Company is engaged in real estate activities in Central and Eastern Europe. In Israel, the Company engages in video and DVD rental and sales, and since May 2006, this business has been operated through a joint venture operating the Blockbuster» franchise in which the Company has a 50% participation. The Company’s operations by country are illustrated below:

Poland Movie Exhibition Motion Pictures Distribution Entertainment Centres Real Estate Czech

Movie Exhibition Real Estate Hungary

Movie Exhibition Motion Picture Distribution

Romania

Movie Exhibition coming soon

Bulgaria

Real Estate Movie Exhibition

Israel

Movie Exhibition Motion Picture Distribution Video DVD Rental and Sales

40 The following table provides information regarding the Company’s revenue by segment and geographic market.

For the year ended 31 December For the six months ended 30 June 2003 2004 2005 2005 2006 (B in millions) (%) (B in millions) (%) (B in millions) (%) (B in millions) (%) (B in millions) (%) Poland Theatre operations ...... 30.8 32.2 33.9 34.3 38.6 35.7 16.1 31.5 29.5 39.1 Distribution...... 3.0 3.1 5.9 6.0 5.5 5.1 1.6 3.1 7.9 10.4 Other(1)(2) ...... 0.9 0.9 1.0 1.0 2.8 2.6 2.2 4.3 0.6 0.8 Total ...... 34.7 36.2 40.8 41.3 46.9 43.4 19.9 38.9 38.0 50.3 Hungary Theatre operations ...... 11.9 12.4 13.2 13.3 11.5 10.7 5.7 11.2 5.6 7.4 Distribution...... — — — — 1.5 1.4 — — 0.8 1.1 Total ...... 11.9 12.4 13.2 13.3 13.0 12.1 5.7 11.2 6.4 8.5 Czech Republic Theatre operations ...... 6.5 6.8 7.6 7.7 6.4 5.9 3.3 6.5 4.0 5.3 Other(2) ...... 0.5 0.5 0.6 0.6 0.8 0.7 0.5 1.0 0.4 0.5 Total ...... 7.0 7.3 8.2 8.3 7.2 6.6 3.8 7.5 4.4 5.8 41 Bulgaria Other(2) ...... 0.9 1.0 0.2 0.2 10.0 9.2 7.0 13.6 13.2 17.5 Israel Theatre operations ...... 23.1 24.1 20.6 20.8 17.2 15.9 7.6 14.9 8.3 11.0 Distribution...... 10.4 10.9 10.1 10.2 8.1 7.5 3.9 7.6 3.0 4.0 Video ...... 7.8 8.1 5.7 5.8 4.9 4.5 2.5 4.9 2.1 2.8 Other(2) ...... — — 0.1 0.1 0.9 0.8 0.7 1.4 0.1 0.1 Total ...... 41.3 43.1 36.5 36.9 31.1 28.7 14.7 28.8 13.5 17.9 Total ...... 95.8 100% 98.9 100% 108.2 100% 51.1 100% 75.5 100%

(1) Includes revenues from entertainment centres. (2) Includes revenues from real estate and theatre in 2003. Growth of the Company

The Company is continuing to expand within Central and Eastern Europe. In November and December 2004, the Company opened two multiplexes in Poland, one with 15 screens in Warsaw and the other with eight screens in the city of Czestochowa. In 2005 the Company opened multiplexes in Krakow (10 screens), Torun (12 screens), Poznan (nine screens) and Katowice (13 screens), Poland, an IMAX» theatre in Poznan and a multiplex with seven screens in Givataim, Israel. In the first seven months of 2006, the Company opened multiplexes in Lodz, Poland (14 screens), Sofia, Bulgaria (12 screens) and Ramat Gan, Israel (15 screens), and an IMAX» theatre in both Lodz and Sofia. The Company plans to add approximately 21 new theatres in the next two years. The Company has 14 contractual commitments already in place in respect of this component of its strategy.

The Company’s Strengths

The Company believes that it benefits from the following competitive strengths:

• Strong market positions. For many years the Company has been one of the two market leaders in Israel in the movie exhibition business, based on revenue. It has already leveraged its operational capabilities and standardised practices to become the leading theatre operator in Poland and one of the main theatre operators in Hungary, the Czech Republic and Bulgaria, based on revenue, and can further leverage these to develop new markets that the Company believes to be high growth, such as Romania.

• Presence in high growth markets. The Company’s growth focus is in countries that it believes have high growth potential. Penetration of movie screens per capita, admissions per capita, and the number of modern multiplexes relative to single screen theatres in Central and Eastern Europe is substantially lower than in the European Union and the US, which the Company believes is an indication of future growth potential. The Company believes that the movie industry in this region will continue to develop rapidly as disposable incomes increase and older, single screen theatres are replaced with modern multiplex facilities.

• Experienced management team. The Company believes that it has benefited from the extensive expe- rience of its management team. The Greidinger family has been in the cinema industry since 1929 and the Company’s senior management team collectively has more than 100 years of experience in the movie theatre industry and related real estate industry. This includes experience in all elements of the industry, such as film distribution, real estate and project development, exhibition, advertising, as well as operating experience in other movie distribution channels. The Company believes that as a result of this experience its management has strong insight relating to planning and site development, marketing and advertising and distribution activities.

• Diversified revenue base within its industry. The Company generates revenues from a number of sources, including ticket sales for movie exhibitions, concessions, advertising, movie distribution, video and DVD rental and sales, and real estate development and trading. The Company also receives revenue from sponsorship arrangements, including, for example, Orange plc sponsoring the Company’s IMAX» theatres in Poland. The Company believes that these diverse operations maximise use of its infrastructure and help reduce the inherent cyclicality and seasonality of the movie exhibition business.

• Strong cash flow and liquidity. The Company’s main customers are cinema attendees who typically pay in cash thereby eliminating significant accounts receivable in its core theatre operations business, reducing the Company’s working capital requirements and minimising bad debt provisions.

• Exclusivity with the Imax Corporation. The Company has an exclusive agreement with the Imax Corporation to develop IMAX» theatres in Poland, the Czech Republic, Hungary, Bulgaria and Romania. The Company currently operates five IMAX» theatres in Poland, one in the Czech Republic and one in Sofia, Bulgaria. The Company has plans for the development of two further IMAX» theatres by the end of 2007. The Company believes that, in addition to the high-margin revenues generated by these IMAX» theatres, its exclusive relationship with the Imax Corporation enables the Company to acquire better theatre site locations by offering an exclusive and attractive product to property developers.

• Distribution relationships with Disney (through Buena Vista). The Company distributes films in Israel, Poland and Hungary. The Company has been an exclusive distributor for Disney for almost 50 years in Israel and, since February 2003 and September 2005, in Poland and Hungary, respectively. In addition, it distributes new releases from New Line, Weinstein Co., Revolution and Spyglass, as well as other independent movie producers. The distribution operations represent a natural vertical add-on business,

42 providing natural synergies including the ability to actively advertise and promote movies in the Company’s markets. • High-quality multiplex facilities. The Company believes that the development and maintenance of high- quality theatre facilities is critical to its continued success. In constructing new theatres, the Company applies standardised interior design and technologies and these multiplex theatres include wide screens, digital surround systems, high-quality projection equipment, comfortable seating, computerised reserved seating ticketing systems, and full service concessions. The Company believes that its high-quality facilities provide a preferred destination and entertainment experience for moviegoers. The Company aims to enable moviegoers to complement their movie experience with other leisure and social activities by building its movie theatres within other shopping, leisure and entertainment facilities. • Standardised, flexible and cost effective approach to developing multiplex theatre sites. The Company has developed a standardised yet flexible cost effective approach to multiplex construction, which the Company believes has contributed to its track record of on-time and on-budget construction. Whenever the Company seeks to develop a new theatre, an experienced team applies a standardised design that is adapted to the requirements of the particular site, which enables the Company to achieve cost savings. In addition, as a result of its experience, the Company is able to respond quickly to developers of other commercial properties that include a cinema. The Company believes that this has earned it a reputation as a reliable multiplex operator which strengthens its ability to secure prime site locations and provides it with a competitive advantage over other exhibitors submitting bids. Moreover, the Company is now in a position where it is frequently approached by property developers who perceive it as a desirable cinema anchor for a complex. • Customised information technology and reporting systems. Management closely monitors the Compa- ny’s operations and cash flows through daily reports generated from customised information technology and reporting systems connected with each theatre. The Company believes that these systems help to enhance its ability to maximise revenue, cost control and efficiently manage theatre circuits. The real-time information available on these systems allows management to make immediate adjustments to movie schedules, prolong runs or increase the number of screens on which successful movies are played and substitute films when gross receipts cease to meet expected goals.

Business Strategy Key elements of the Company’s strategy include: • Consolidate its position in its existing markets. The Company aims to consolidate its position as the leading operator of multiplex cinemas in Poland by significantly expanding its operations and to enhance its position as a leading operator in Hungary, the Czech Republic and Bulgaria. To that end, since the end of 2004, the Company has developed nine theatres, of which two are IMAX» theatres, in Poland. The Company plans to add up to 21 new theatres in its existing markets in the next two years, of which ten are expected to be in Poland, two in Israel, one in Hungary and four in each of Bulgaria and the Czech Republic. The Company has 14 contractual commitments already in place in respect of this component of its strategy. • Expand into other Central and Eastern European Markets. The Company aims to expand its operations in new markets in Central-Eastern Europe, leveraging the business model that it has developed and implemented in Poland, the Czech Republic, Hungary and Bulgaria. To that end, the Company has commenced activities in Romania, where the Company plans to build four new theatres and will consider new opportunities in other Central and Eastern European countries as they arise. • Leverage leading market position to secure premium high traffic locations. As part of its development strategy, the Company will continue to seek to locate its theatres within strategically desirable destinations, such as shopping malls and entertainment complexes. Where the Company is unable to find suitable opportunities within an existing or planned development, it will continue to selectively purchase property to develop on its own. • Generate earnings through real estate development and trading. The Company intends to continue to participate in real estate development in the future, primarily in connection with its theatre expansion programme, and to identify and implement projects that provide it with a stable mix of leased and owned properties. The aim of this strategy is to allow the Company to selectively leverage the success of multiplexes into real estate and cinema-related entertainment centres.

43 • Continue to grow, attract and retain customer base. As the Company is operating in markets with relatively low admissions per capita, it aims to encourage the development of a vibrant movie going culture. The Company intends to grow its customer base through loyalty programmes, such as loyalty cards and bonus schemes, together with the effective use of online booking and other marketing and promotion tools. The Company is constantly re-evaluating and analysing its customer viewing patterns through its information systems in order to tailor its programming to satisfy customer requirements. • Further develop its film distribution channels in countries where it operates. The Company aims to grow its film distribution operations as its penetration of new markets through theatre operations develops. The distribution operations represent a natural vertical add-on business, providing natural synergies including the ability to actively advertise and promote movies in the Company’s markets. • Maximise revenue opportunities through cinema related operations. The Company will continue to pursue additional revenue growth opportunities by developing and expanding ancillary revenue streams, such as concession, sponsoring and advertising revenues. The Company believes that further opportunities exist to expand its sponsorship arrangements across both multiplexes and IMAX» theatres. With these ancillary revenue streams, the Company aims to improve margins and reduce its exposure to the cyclicality of the theatre business.

History and Development A1.5.1.5 The Greidinger family, which indirectly controls the Company, started the predecessor to the Company’s movie exhibition business in 1929 in Israel. Israel was the sole country of operation for the Company until 1997, when it looked beyond the mature Israeli market for growth opportunities. In December 1997, the Company opened its first multiplex theatre in Budapest, Hungary and, in 1999, the Company entered the Polish and the Czech markets. In July 2006, the Company commenced operations in its fifth territory, Bulgaria, with the opening of its first multiplex and IMAX» theatre in Sofia. In 2005, revenues derived from Central and Eastern Europe had grown to account for over 71% of the Company’s total revenues. The Company was formed in 1994 as a wholly owned subsidiary of ITIT, an Israeli holding company for the business. Historically, the Company’s film exhibition, distribution and video rental operations in Israel, as well as the assets related to these operations, were divided between ITIT and other subsidiaries of ITIT. To reflect the shift of emphasis in the business from Israel to Central and Eastern Europe, ITIT restructured its operations during 2003 by contributing its Israeli operations to the Company in exchange for additional shares in the Company through a series of transactions described below. In the “pre-reorganisation” structure, all the operations of the Cinema City group of companies were conducted through subsidiaries of ITIT, being a 100% subsidiary of Israel Theatres Limited. The Israeli operations were conducted through ITIT itself and through additional Israeli subsidiaries. The Central European operations were all conducted through local subsidiaries of Cinema City. Pan Europe Finance B.V., a 100% subsidiary of ITIT, was a Dutch company used as a tax efficient conduit for the bank loans provided to the then Cinema City group of companies through ITIT. In 2003, the Cinema City had five active companies in Poland: Cinema City Poland sp. z o.o., I.T. Poland Development 2003 sp. z o.o., New Age Media sp. z o.o., Forum Film Poland sp. z o.o. and New Cinemas Poland sp. z o.o.; one active company in Hungary, being I.T. Magyar; and two active Czech companies: I.T. Czech Cinemas s.r.o. and KINO 2005 a.s. The reorganisation of all of the businesses under Cinema City was specifically structured so as not to have any impact on the financial position and economic operations of the ITIT group. Following the reorganisation, the assets and liabilities as well as the economic operations and financial position of the then Cinema City group of companies were identical to the assets and liabilities as well as the economic operations and financial position of the ITIT capital group. The steps of the reorganisation were as follows: In stage one, the operations, assets and liabilities of ITIT (excluding assets and liabilities indicated in stages two and three) were transferred to I.T. Theatres 2004 Limited (“IT 2004”), a new wholly-owned subsidiary of ITIT. In stage two, the equity of the Israeli subsidiaries was transferred to Cinema City in exchange for ITIT receiving additional shares in Cinema City. As part of the transfer, ITIT agreed not to compete in the markets in which Cinema City operates. In stage three, all the remaining outstanding bank loans to ITIT from financial institutions and bank account balances held by ITITwere assigned to Cinema City (the remaining liabilities of ITITwere already transferred to IT

44 2004). In addition, as part of the reorganisation, there was no further tax benefit to Pan Europe Finance B.V. serving as a conduit for the Cinema City group’s bank loans, thus the company was liquidated. Upon completion of the reorganisation, Cinema City became the owner and holder of all the operations of the ITIT group in both Europe and Israel. The ITIT group received a special ruling from the Israeli tax authorities to allow for the transfer of the Israeli activities to IT 2004, and to transfer the shares of all the operating Israeli subsidiaries to Cinema City. Cinema City committed to pay tax in Israel on any future gains on the sale of any of its Israeli subsidiaries. Upon completion of the restructuring, the Company became owner and holder of all the business operations of ITIT in both Central and Eastern Europe and Israel. On 2 November 2006, ITIT transferred 4,940,352 Shares of the Company to ITIT’s parent company, Israel Theatres Limited. Such Shares represent the shares purchased by ITIT in February 2006 from certain minority shareholders. See “Principal and Selling Shareholders”.

45 Group Structure Chart

Cinema City (Holland)

50% 100% 100%100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

Norma Teleticket Mabat IT Cinema IT Forum Forum New Age IT Cinema Forum All Job Cinema Kino IT Cinema Cinema IT Film Limited Publishing Inter- Plus Magyar Hungary Home Media Poland City Film (Poland) City 2005 Czech City City Sofia (Israel) (Israel) (Israel) national (Israel) Cinemas Film Dis- Enter- (Poland) Develop- Poland Poland Inter- (Czech) Cinemas Bulgaria Finance (Holland) Theatres (Hungary) tribution tainment ment (Poland) (Poland) national (Czech) (Bulgaria) (Holland) 2004 (Hungary) (Hungary) 2003 (Poland) (Israel) (Poland) 46

100%

Forum Film (Israel) Key

Multiplex 60% 100% Holding Company Cinema Advertising Yaaf Theatre Operation Video Video Distribution Giant Machi (Israel) nes Film Distribution (Israel) Video - Retail/Rental Video - Automated Video Machines 50% Temporary Employment Agency Inactive Financing Vehicle Blockb uster *This group structure chart only includes principal subsidiaries of the Issuer. A further description of the activities of (Israel) these principal subsidiaries is contained in this Prospectus at page 113. A1.7.1 Theatre Operations A1.6.1.1 A1.12.1 Overview A1.12.2 As at 30 September 2006, the Company operated 466 screens in 58 theatres located in five countries. Within A1.6.2 Central and Eastern Europe, the Company’s cinemas operate under the Cinema City brand name, and in Israel its cinemas operate under the names “Planet” and “Rav-Chen”. All of the Company’s theatres are “first run” theatres, which means that the theatres show only current movie releases. The Company’s cinemas have between three and 15 screens per theatre (other than one single screen theatre in Tel-Aviv). Multi-screen theatres enable the Company to offer a diversified selection of films. At the same time, it allows the Company to exhibit films on a more cost efficient basis for longer periods by shifting films from larger to smaller auditoriums within the same complex to accommodate changing attendance levels. In addition, operating efficiencies are realised through the economies of having common box office, concession, projection, lobby and restroom facilities, which enable the Company to spread certain costs, such as payroll and rent, over a higher revenue base. Staggered movie starting times also reduce staff requirements and lobby congestion. The Company’s theatres generally have between 100 to 500 stadium-style seats per screen. The Company applies standardised interior design and technology in every country in which it operates, which the Company believes builds brand recognition and creates economies of scale. The Company’s theatres have digital surround sound systems and wide screens. The Company maintains an exclusive agreement with the Imax Corporation to develop IMAX» theatres in Poland, the Czech Republic, Hungary, Bulgaria and Romania. Under the agreement, the Company has leased seven IMAX» systems, and it expects to lease two additional systems for IMAX» theatres that will be constructed by the end of 2008. Most of the Company’s theatres employ a computerised telephone ticketing service that enables patrons to purchase or reserve tickets over the telephone. Within Central and Eastern Europe, these transactions are settled in cash at the box office. However, in Israel, the Company also offers customers the option to purchase reserved seating tickets by credit card, for which the Company receives a service fee. The Company’s movie theatre revenues are predominantly generated from box office receipts, concession sales and on-screen advertising. The following table indicates the breakdown of these revenues for the periods indicated:

For the year ended 31 December For the six months ended 30 June 2003 2004 2005 2005 2006 (B in (%) (B in (%) (B in (%) (B in (%) (B in (%) millions) millions) millions) millions) millions) Admissions: Multiplex ...... 48.1 66.5 50.8 67.5 45.5 61.8 21.2 64.8 30.4 64.1 IMAX» ...... 5.3 7.3 4.1 5.4 4.3 5.8 2.1 6.4 2.2 4.6 Concessions...... 12.4 17.2 13.3 17.7 13.3 18.1 5.7 17.4 8.5 17.9 Advertising ...... 6.5 9.0 7.1 9.4 10.5 14.3 3.7 11.4 6.3 13.4 Total ...... 72.3 100.0 75.3 100.0 73.6 100.0 32.7 100.0 47.4 100

Admissions The following table indicates by country the number of admissions for the periods indicated:

For the six months ended For the year ended 31 December 30 June 2003 2004 2005 2005 2006 (’000) (’000) (’000) (’000) (’000) Admissions: Poland ...... 6,642 7,585 6,979 3,138 5,112 Hungary...... 2,964 3,089 2,663 1,341 1,241 Czech Republic ...... 1,290 1,422 1,127 565 692 Bulgaria ...... — — — — — Israel ...... 3,685 3,241 2,662 1,225 1,230 Total ...... 14,581 15,337 13,431 6,269 8,275

47 Theatre Operations by Country Poland Poland has emerged as the most significant country for the Company’s theatre operations. In 2005, the country accounted for almost 52% of total box office sales. In the first six months of 2006, the Company’s multiplex network in Poland generated 62% of the Company’s total revenues from cinema operations. The Company currently operates 203 screens with 43,258 seats in 18 cinemas in Poland, which include five IMAX» theatres. The Company entered the Polish market in 1999 and initially commenced the development of multiplexes in Warsaw. The Company co-developed the Sadyba shopping centre, which was integrated with a cinema facility that the Company developed on its own, encompassing a multiplex and an IMAX» theatre. The Sadyba project was opened in September 2000 and the Company has gradually sold down, with its last remaining interest in the project being sold in 2005 to Plaza Centres (Europe) B.V.Another multiplex was opened in Bemowo, Warsaw by the end of 2000. In 2001, the Company continued its expansion with two new multiplexes opened in the south of Poland. In 2002, the Company opened two additional multiplexes in Katowice and Kraków. Apart from its organic growth, the Company acquired Ster Century’s four multiplexes in Poland in 2002. In 2003, the Company also acquired a multiplex in Gdansk. From 2004 through mid-2006, the Company continued its rapid expansion throughout Poland with the opening of seven additional multiplex complexes. The Company’s portfolio of currently operated multiplexes consists of six locations in Warsaw, eight multiplexes in the South of Poland, three in Central Poland and one in Gdansk. Apart from regular multiplexes, the Company simultaneously developed five IMAX» theatres adjacent to its cinema locations in Katowice, Kraków, Poznan, Lodz and Sadyba, Warsaw. Four out of 18 multiplexes operated by the Company in Poland are on real estate owned by the Company. Another multiplex was developed on leased land and the remaining 13 multiplexes are located on leased properties. The Company’s geographical development in Poland has reflected its strategy to target densely populated urban areas. Between 2000 and the third quarter of 2006, the Company was successful in entering the Polish market and becoming a leading exhibitor in the country. All properties are leased other than Janki, Warsaw; Katowice; Lodz; and Torun, which are owned by the Company.

No. of admissions Geographic al Location of (’000) No. of multiplex IMAX» Theatres in Poland Location Theatre Name in 2005 screens screen Warsaw Sadyba 644 12 1 Mokotów 617 14 — Bemowo 351 11 —

Toru Promenada 520 13 — Janki 353 10 — Warsaw Pozna Arkadia 775 15 — Katowice Punt 44 615 13 1 Lód Kraków Krakow 422 9 1 Czetochow Wrocaw Zakopianka 353 10 — Katowice Cze˛stochowa Cze˛stochowa 386 8 — Ruda Slaska Kraków Wrocław Korona 466 9 — Gdan´sk Krewetka 393 8 — Ruda S´la˛ska Ruda S´la˛ska 140 8 — Torun(1) Torun 286 12 — Krakow(1) Kazimierz 275 10 — Poznan(1) Poznan 377 9 1 Katowice(1) Silesia 6 13 — Lodz(1) Lodz — 14 1 Total 6,979 198 5

(1) Theatres opened during 2005 or in 2006.

Box office receipts from the multiplex and IMAX» theatres constitute the majority of the Company’s revenues from theatre operations accounting for 66% of revenues in 2005. Concession sales generate the second largest amount or revenue of this line of business accounting for 17% of revenues in 2005.

48 The tables below set out the admissions for the period 2003 to first half of 2006 and the revenue sales breakdown from theatre operations for 2005:

For the For the year ended six months ended 31 December 30 June 2003 2004 2005 2005 2006 Admissions ...... 6,642 7,585 6,979 3,138 5,112 Average ticket price in Euro ...... 3.53 3.33 3.67 3.66 3.86 Average ticket price in PLN...... 15.47 15.10 14.75 14.96 15.00

Revenue breakdown from theatre operations in Poland for the year ended 31 December 2005 (E,in thousands):

Box office ...... 22,769 IMAX» ...... 2,776 Concessions ...... 6,392 Advertising ...... 6,707 38,644

Growth in sales was predominantly achieved by the expansion of cinema facilities. Furthermore, 2003 results were additionally strengthened by sales from multiplex theatres acquired by the Company from Ster Century in 2002. While average ticket prices in PLN remained stable between 2002 and the first six months of 2006, due to significant appreciation of the PLN against the Euro through 2004, average ticket prices expressed in Euros increased during that period. However, while average ticket prices were stable overall, this reflects in part an increase in prices in cities where the Company is established, offset by lower initial prices in new cities of operation such as Lodz.

Another developing source of revenues from the theatre operations is from advertising activity. In order to take advantage of the growing interest in cinema advertising, a dedicated advertising sales house — New Age Media Sp. z o.o. (“New Age Media”) — was established in September 2002 as a wholly-owned subsidiary of the Company. New Age Media provides clients with full service on-screen and off-screen campaigns, including adapting client’s advertisements to cinema standards, delivering cinema-media planning services, organising promotion events in the Company’s venues and developing posters, stickers and various handouts. The total revenues of New Age Media for 2005 amounted to PLN 24.6 million or A6.1 million. Of these revenues 95% were generated from the Company’s theatre operations in Poland.

Based on the initial successful development of the Company’s Polish operations and the Company’s belief in Poland’s still untapped market potential, the Company plans to continue to aggressively grow its Polish operations. New multiplexes will be located in various regions of the country, which will broaden its geographical coverage. By expanding its geographical coverage, the Company will additionally be able to broaden its cinema advertising activities, since potential customers will have the opportunity to reach an audience spread out in various parts of the country, not only the three or four largest cities.

Hungary

Hungary was the first country in which the Company commenced its activities outside Israel. The Company currently operates 12 multiplexes with 86 screens and 16,432 seats across the country. In 2005, the Company’s Hungarian theatre activities accounted for over 16% of sales from the theatre operations business.

The Company entered the Hungarian market in 1997 with the opening of a seven-screen multiplex in Budapest. Since the Budapest cinema exhibition market, with over 15 multiplex centres, was already relatively developed at that time, the Company decided to continue its theatre development in relatively underdeveloped markets outside the capital. Between 1998 and 2000, the Company opened eight new multiplexes in selected major cities around the country. The facilities were predominantly medium size, with the number of screens per multiplex ranging from six to ten.

In 2001, the Company commenced operating smaller multiplex theatres in less populated cities. The Company opened three facilities of that type during 2001 and 2002, with four screens per multiplex. In 2004, the Company

49 opened an additional four screens multiplex in Veszprem. The Company currently has the largest network of multiplexes in Hungary. All of its theatres are leased.

No of admissions (in thousands) No. of Location Theatre Name in 2005 screens Budapest Csepel 116 7 (1)* Miskolc Uj-udvar 104 6 Szeged Szeged 435 9 Debrecen Budapest Sopron Gyor Debrecen Debrecen 335 9 Szolnok Gyor Gyor 327 10 Savaria Veszprem Alba Alba Alba 281 10 Zala Szeged Pecs Pecs 253 10 Pecs Szolnok Szolnok 137 4 Miskolc Miskolc 169 8 Szavaria Szavaria 159 4 Sopron Sopron 101 7 Veszprem Veszprem 139 4 Zala Zala 107 4 Total: 2663 92

(1) Closed at the end of 2005

Box office receipts constituted over 70% of 2005 sales from theatre operations in Hungary. Concession sales represented close to 22% of the 2005 revenue generated in Hungary from theatre operations. The remaining 8% of revenues in this line of business was attributable to on-and off-screen advertisements.

The tables below set out the admissions for the period 2003 to the first half of 2006 and the sales breakdown from theatre operations for 2005:

For the year Forthesixmonths ended 31 December ended 30 June 2003 2004 2005 2005 2006 Admissions (in thousands) ...... 2,964 3,089 2,663 1,341 1,241 Average ticket price in Euro ...... 2.83 2.99 3.12 3.12 3.12 Average ticket price in HUF...... 717.4 754.3 777 769 817

Revenue breakdown from theatre operations in Hungary for the year ended 31 December 2005 (E in thousands):

Box office ...... 8,326 Concessions ...... 2,581 Advertising ...... 986 11,893

The fluctuation in the number of admissions between 2003 and 2005 was predominantly influenced by the movie supply for that period and was consistent with the overall performance of the cinema industry in Hungary, which, according to Dodona, contracted by 11% from 13.7 million to 12.0 million between 2003 and 2005 in terms of the number of admissions.

The Company’s current business plan envisages opening a flagship megaplex of more than 20 screens including an IMAX» theatre in a newly developed modern entertainment and shopping centre in the heart of Budapest, which is scheduled for completion in the second half of 2007.

Czech Republic

The Company operates four multiplex sites and one IMAX» theatre in Prague, which constitute a total of 32 screens and 6,568 seats. The Czech Republic accounted for approximately 9% of Company sales from theatre operations in 2005.

50 The Company entered the Czech market in September 1999 with the acquisition of Galaxie, the country’s first multiplex located in Prague. The following year, the Company began developing a new multiplex, Cinema City- Galaxie, adjacent to the originally acquired location. Upon completion of the project in 2001, the old multiplex was replaced with the new facility. Expansion of theatre operations in the Czech Republic continued in 2002 with the opening of another multiplex in Prague (Zilcin). In 2003, the Company opened its Prague-Flora multiplex combined with an IMAX» theatre. The Company opened the Novodrorska Multiplex in March 2006. The Company has entered into an agreement to sell the old Galaxie theatre. So far, Prague has been the sole area of the Company’s Czech operations. The Company’s multiplexes secured the Company a national market share of around 27% in terms of box office admissions in 2005. All theatres are leased other than Galaxie, Prague, which is owned by the Company.

No of admissions Geographical location of (in thousands) IMAX» theatres in the Czech Republic Location Theatre Name in 2005 No. of screens screen Prague Flora 690 8 1 Pragu e Galaxie 167 9 — Zilcin 270 10 — Novodroska — 5 Total: 1,127 32 1

The tables below set out the admissions for the period 2003 to first half of 2006 and the revenues breakdown from theatre operations for 2005:

For the For the year ended six months 31 December ended 30 June 2003 2004 2005 2005 2006 Admissions (in thousands) ...... 1,290 1,422 1,127 565 692 Average ticket price in Euro ...... 3.84 3.94 4.01 4.20 4.6 Average ticket price in CZK ...... 122.91 125.28 125.91 126.57 124.38

Revenue breakdown from theatre operations in the Czech Republic for the year ended 31 December 2005 (E, in thousands):

Box office ...... 3,213 IMAX» ...... 1,543 Concessions ...... 827 Advertising ...... 758 6,341

The fluctuation in the number of admissions between 2003 and 2005 was predominantly influenced by the movie supply for that period and was consistent with the overall performance of the cinema industry in the Czech Republic, which contracted by approximately 20% from 2003 to 2005 in terms of the number of admissions, according to Dodona. The Company’s current business plan calls for the opening of four multiplexes outside of Prague, by the end of 2008.

Israel Israel is the second most significant market for the Company’s theatre operations in terms of revenue and the number of screens. The Company currently operates 23 multiplexes with 131 screens and 24,698 seats in the country. The Company’s theatres in Israel operate under the brand names “Rav-Chen” and “Planet”. In 2005, approximately 23% of all theatre operation sales were generated in Israel whereas in 2003 32% of the theatre operations sales were generated in Israel. In the first half of 2006, the Company’s multiplex network generated 18% of total sales from theatre operations in Israel.

51 Theatre operations commenced in Israel in 1931 with the opening of the Company’s first cinema in Haifa. In 1982, the Company opened Israel’s first multiplex theatre in Tel-Aviv. Until 1997, Israel was the sole territory of Company operations. The Company is one of the two leading exhibitors in the country, with approximately 32% market share in 2005 in terms of the total number of tickets sold.

The Company’s movie theatres are mainly spread along the coastline and in Israel’s major cities including Tel- Aviv (along with the contiguous Dan region), Jerusalem, Haifa and Beer-Sheba. Historically, the Company’s typical facility in Israel has had between three to eight screens, which is less than the average number of screens in the Company’s multiplexes in other countries predominantly because of unique characteristics of the Israeli market: exhibitors in Israel maintain preferential distribution arrangements with distributors, which means that different cinema operators display movies of different film studios. Each operator exhibits only a certain portion of all titles displayed in Israel, which proportionally reduces the optimal screen capacity of cinemas in Israel. This arrangement has slowly eroded in recent years. With the introduction of a new generation of megaplexes in the country to replace older theatres, the Company believes this three to eight screen trend will ultimately disappear. The Company itself is heading in that direction with the opening of a 15-screen megaplex in Ramat Gan in the outskirts of Tel-Aviv in July 2006. The Company has a 20-screen project scheduled to open in Haifa at the end of 2007 and a number of additional megaplex projects slated to other regions in the country. All of the Company’s theatres in Israel are leased.

No. of screens as at No of admissions 30 September Geographical Location of Cinemas in Israel Location Theatre Name (’000) in 2005 2006 Rehovot Rehovot 238 6 Haifa Jerusalem Jerusalem 227 7 Herzlia 7 Stars 192 6 Givataim Givataim 186 7 Tel-Aviv Dizengoff 179 6 Herzelia Marina 171 8 Tel-Aviv Petach Tikva Avnat 164 8 Ramat Gan(1) Ayalon 131 — Haifa Lev Hamifraz 128 7 Bat-Yam Bat-Yam 111 7 Kiriat Ono Kiriat Ono 107 5 Jerusalem Yahud Savyonim 93 4 Beer-Sheba Negev 90 4 Ashdod Ashdod 74 6 Beer -Sheba Carmiel Carmiel 79 5 Rishon Rishon 73 4 Netanya Netanya 69 4 Haifa Kongresim 68 5 Or-Akiva Or-Akiva 65 3 Haifa Horev 58 3 Tel-Aviv Opera 48 5 Ashkelon Ashkelon 41 5 (Rav-Chen theatres) Afula(2) Afula 40 — Tel-Aviv Gat 30 1 Ramat Gan(1) Yes Planet — 15 Total: 2,662 131

(1) The Ayalon multiplex consisted of four screens. It closed in June 2006. The Yes Planet multiplex at Ramat Gan replaced the Ayalon multiplex in July 2006. (2) The Afula multiplex consisted of three screens. It closed in January 2006.

In Israel in 2005, 71% of the Company’s sales from movie exhibition activities were directly generated through box office receipts. Another 21% were attributable to concession sales, whereas advertising activities are the source of 8% of sales. Revenues from movie exhibition activities in Israel have slowly declined between 2003 and the first half of 2006. Admissions have been down and ticket prices have remained relatively flat. Since 2004, several underperforming smaller multiplexes have been closed, including a four-screen theatre in Ramat Gan that

52 was replaced by a 15-screen megaplex in July 2006. The Company believes that the opening of this megaplex and additional new generation of megaplexes will reverse the downward trend of admissions. The tables below set out the admissions for the period 2003 to first half of 2006 and the sales breakdown from theatre operations for 2005:

For the For the year ended six months 31 December ended 30 June 2003 2004 2005 2005 2006 Admissions (in thousands) ...... 3,685 3,241 2,662 1,225 1,230 Average ticket price in Euro ...... 4.48 4.56 4.66 4.44 4.82 Average ticket price in NIS ...... 23.52 25.41 25.95 24.98 27.07 Revenue breakdown from theatre operations in Israel for the year ended 31 December 2005 (E in thousands):

Box office ...... 11,633 Concessions ...... 3,542 Advertising ...... 2,034 17,209

Periodic concerns over the security situation in Israel resulting from the conflict with the Palestinians have contributed to decreases in the total number of admissions in the movie theatres operated in Israel in the last three years. Sales for the first half of the year are usually lower than in the subsequent two quarters. During the period 2003-2005 sales from theatre operations in Israel in the first half of every year represented, on average, 43.1% of sales for the whole year. Although the Israeli cinema exhibition market reached a mature stage almost a decade ago, the Company plans to continue its steady development of a new generation of megaplexes in Israel in order to maintain its market share and remain one of the country’s leading exhibitors. Since the Company has developed multiplex theatres in Israel for over 20 years, its facilities tend, on average, to be older in Israel than in Central and Eastern Europe. The development of new projects will therefore be accompanied by the closing down of several older multiplexes over the next few years in order to maintain its leading position in the market. Although the recent conflict between Hezbollah and Israel forced the temporary closure of certain of the Company’s theatres in northern Israel, overall, it did not have material adverse effect on the Company’s Israeli operations.

Bulgaria The Company recently opened the first modern multiplex and IMAX» theatre in Sofia as part of a shopping mall project that the Company was a partner in developing. The multiplex consists of 13 screens plus one IMAX» theatre with a total of 2,870 seats. The shopping mall project represents the first modern shopping mall in Sofia. The Company began this project in 2001 together with its partners Aviv Holdings GmbH and Ocif Holdings GmbH and together they sold half of their 100% interest in July 2005 to a joint venture between Quinlan Estates and GE Capital. The Company, Aviv and Ocif sold their remaining 50% interest to Quinlan and GE in May 2006. The Company has retained favourable lease terms for its multiplex and IMAX» theatre on the site. Currently, the Company has plans to develop four further multiplexes in Bulgaria, comprising 32 screens before the end of 2008.

Romania The Company is in the process of rolling out its expansion into Romania, a particularly large and under- screened market in the Company’s geography. The Company has already signed three leases for cinemas in Bucharest, with a total of 50 screens plus one IMAX» theatre. All three projects are currently scheduled to open in the first half of 2008. The Company is in the process of forming a Romanian operating subsidiary and obtaining all necessary licenses to operate cinemas in the country and municipality. The Company expects to hire its first senior local managers in early 2007 and to have a full operational team on the ground prior to its planned 2008 launch.

53 Complementary Theatre-Related Activities IMAX» The Company’s IMAX» theatres feature twin-lens projection systems that are capable of creating a three- dimensional effect. Patrons are provided with polarised glasses, which enhance this 3D effect. The theatres are equipped with screens that are 20 to 24 meters high, which are designed to encompass the peripheral vision of viewers. IMAX» theatres are equipped with digital, wrap-around sound systems. The films shown in the IMAX» theatres are created with 70 mm film and specially designed IMAX» cameras. However, non-IMAX» films, which use 35mm film, can be converted to an IMAX» format. Film producers have increasingly begun to convert regularly formatted films into both 2D and 3D IMAX» formats to take advantage of the superior visual and audio experience of IMAX». This has most recently been done with such films as Superman Returns and The Polar Express. The leases relating to the IMAX» systems used by the Company are for 20-year terms, with an option to extend the lease for an additional 10 years. The exclusivity provisions of the Company’s agreement with Imax Corporation remain in effect until 31 December 2010, which may be automatically extended for an additional three years if the Company leases 11 IMAX» systems. The Company derives additional revenue for its IMAX» operations through sponsorship of its IMAX» theatres. Recently such sponsorship deals have been made with Orange plc for all of the IMAX»theatres in Poland and with Mtel for the theatre in Bulgaria.

Concessions Concession sales are the Company’s second largest revenue source, representing approximately 12% of total revenues for 2005. In the first half of 2006, concession sales amounted to 11% of revenues. Concession sales have a much higher margin than admission sales. The Company has devoted considerable management effort to increase concession sales and improve operating margins. These efforts include implementation of the following strategies: • Optimisation of product mix. Concession products are primarily comprised of various sizes of popcorn, soft drinks and candy. Different varieties and flavours of candy and soft drinks are offered at theatres based on preferences in that particular geographic region. Specially priced “combo-meals” have been imple- mented for all patrons as well as meals targeted toward children and senior citizens. The Company periodically introduces new concession products designed to attract additional concession purchases. • Staff training. Employees are continually trained in “suggestive-selling” and “upselling” techniques. Various incentive schemes are operated by the Company from time to time under which employees and individual theatre managers receive additional compensation based on concession sales at their theatres and are therefore motivated to maximise concession sales. • Theatre design. The Company’s theatres are designed to optimise efficiencies at the concession stands, which includes the strategic placement of concession stands to emphasise their visibility, reduce the length of concession queues and aid in improving the traffic flow around them. • Cost control. The Company negotiates prices for concession supplies directly with concession vendors and manufacturers on a bulk rate basis. Concession supplies are distributed by the vendors. The Company has an agreement to exclusively sell Coca-Cola» products and sales of these products represented approximately 25% of concession sales in 2005.

Film Licensing The Company’s theatres license the films they exhibit from distributors, including those from the Company’s distribution subsidiaries in Israel, Hungary and Poland. Licence terms are generally determined on a film-by-film basis. Rental fees are based on either mutually agreed upon or firm terms established prior to the opening of the picture. Under a firm terms formula, the Company pays the distributor a specified percentage of box office receipts, with the percentages declining over the term of the run. The Company generally uses three or four declining scales and the one applied to a film licence depends upon the expected success of the film.

Advertising and Sponsorship Advertising and sponsorship represents a developing source of revenues from theatre operations. In order to take advantage of the growing interest in the cinema advertising, the Company has established an advertising sales house in Poland under the name New Age Media. New Age Media provides clients with full service on-screen and off-screen advertising campaigns, including adapting client’s advertisements to cinema standards, delivering

54 cinema-media planning services, organising promotional events within the Company’s venues and developing posters, stickers and various other marketing materials. In 2005, New Age Media had total revenues of A6.1 million. Of these, almost 100% were generated from the Company’s operations in Poland. The Company’s distribution subsidiary in Poland, Forum Film (Poland), engages New Age Media in the marketing of films distributed by it. The Company has already established its own advertising activities in Israel and is in the process of doing so in Hungary. In Romania and Bulgaria, the Company conducts these activities through third party agencies.

Distribution Overview In addition to movie theatre operations, the Company is also involved in film distribution through its 50% owned Israeli subsidiary, Forum Film (Israel) its wholly owned Polish subsidiary, Forum Film (Poland), and its wholly owned Hungarian subsidiary, Forum Hungary Distribution (Hungary). In Israel, the Company is the distributor of Disney, New Line, Weinstein Co., Revolution and Spyglass pictures. In Poland, it is the exclusive distributor for Buena Vista and additionally distributes movies produced by Spyglass and other independent studios. In Hungary, it is the exclusive distributor for Buena Vista and additionally distributes movies produced by Spyglass. Film distribution involves the initial positioning and marketing of the film, followed by distribution to the cinemas that will show the film. Whilst distribution in Poland and Hungary is to all theatre operators, in Israel, in line with local practice, films distributed by Forum Film (Israel) in certain cities are exhibited exclusively in the Company’s theatres. Prior to negotiating film licences with the cinemas, the Company’s distribution subsidiaries evaluate the prospects for the film. Films are typically licensed to the cinemas in return for licence payments, which are generally related to the anticipated performance of the movie based on results in North America and in other markets, if available. The payments are split between the distributor and the movie producer. The Company believes that its success as a distributor derives, in part, from its innovative approach to distribution. It does not act as a pure intermediary between film production studios and movie exhibitors, but rather it is also actively engaged in the marketing and promotional efforts to seek to increase the film’s visibility in the marketplace. In Israel, Forum Film (Israel) also distributes films on video and DVD to over 700 outlets, as well as licensing film rights for network and cable television programming. In connection with video and DVD distribution, Forum Film (Israel) typically pays an ongoing licence fee to the film production company or distributor. It obtains a master copy of the film, which it reproduces in the desired format (i.e. video or DVD) at its own expense through a third party duplicator. Forum Film (Israel) then sells the videos and DVDs to stores throughout Israel, including to its affiliate, Blockbuster/Giant Video. The Company recently entered into agreements with two major film distributors to commence distribution of movies on DVD and video in Hungary as well.

Exclusive Agreements with Buena Vista The Company’s wholly owned Polish subsidiary, Forum Film (Poland), its wholly owned subsidiary Forum Film (Hungary) and its 50%-owned Israeli subsidiary, Forum Film (Israel), have entered into agreements with Buena Vista for the distribution of Buena Vista films. Forum Film (Israel) has been a distributor for Disney or its film subsidiaries for almost 50 years. The Forum Film (Israel) agreement expires on 30 September 2007 and Buena Vista has the option to extend the agreement for two additional one-year terms. The Forum Film (Poland) agreement expires on 30 September 2007 and Buena Vista has the option to renew the agreement for an additional one-year term. The Forum Film (Hungary) agreement expires on 30 September 2007 and Buena Vista has four options to renew for additional one-year terms. Forum Film (Israel), Forum Film (Poland) and Forum Film (Hungary) have the exclusive right to distribute Disney motion pictures to movie theatres in Israel, Poland and Hungary, respectively. Buena Vista films are generally those licensed to Buena Vista by its affiliates, Walt Disney Pictures and Touch Stone Pictures, or films produced by third parties and distributed by Buena Vista. Neither Forum Film (Israel), Forum Film (Poland) nor Forum Film (Hungary) is allowed to distribute films produced by any other major motion picture producer without Buena Vista’s prior written consent. Buena Vista can terminate the agreement if the Company’s Chief Executive Officer, Mr Moshe Greidinger, ceases to be directly involved in the business of Forum Film (Israel), Forum Film (Poland) or Forum Film (Hungary), as the case may be.

55 Forum Film (Israel), Forum Film (Poland) and Forum Film (Hungary) must promote the Buena Vista films they distribute and use their best efforts to exhibit such films in the most desirable theatres at the most favourable playing times.

The agreements require payment to Buena Vista of a licensing fee of a fixed percentage based on the box office receipts for the distributed films after deduction of all related expenses of releasing the movie in the relevant territory.

Other activities

Entertainment centres

The Company operates two entertainment centres in Poland under the name Hokus Pokus, which offer bowling, video arcade games, billiard tables, internet cafes and bars. These entertainment centres are intended to facilitate and augment movie attendance with theatres that are not connected to a shopping mall.

Real estate activities

The Company maintains a flexible approach with respect to the real estate component associated with the development of new theatres. In the first instance, the Company generally seeks to lease theatres rather than to purchase or develop in order to lower capital requirements. The Company, however, will consider owning the multiplex itself if strategically desirable, which may be the case, for example, where the current leasing costs appear prohibitively high, but the general location is deemed important, or if a leasable property does not exist. In certain circumstances, the Company will, on its own or with partners, acquire the land and engage contractors and designers to build an entertainment complex containing a multiplex and leasable commercial space, as it has done in Bemowo and Katowice, both of which are dense population centres with scarce modern indoor entertainment facilities. In addition, the Company may also acquire all or part of an entire shopping centre project that will contain a multiplex. The Company believes that this flexible approach to theatre property development gives it an opportunity to identify and implement optimal projects, providing the Company with a strong and stable mix of leased and owned properties and allowing it to selectively leverage upon the success of multiplexes into real estate and entertainment opportunities.

The Company’s other revenues include leasing fees from real estate in Poland and the Czech Republic. As at 30 June 2006 the Company owned approximately 53,904m2 of space and leased approximately 5,400m2 of space to third parties, and for 2005 the rental revenue was A1.1 million.

The Company currently has ownership interests in four real estate complexes in Poland. The first, located in Katowice was developed by the Company between 2000 and 2002 and encompasses a multiplex theatre and a Hokus Pokus entertainment centre and commercial rental space. The second site, located in Janki, Warsaw, was owned by Ster Century, a small cinema chain acquired by the Company in 2002. This site serves primarily as a multiplex facility, but has potential, additional rental space. The third located at Torun in the north of Poland includes 12 screens multiplex with 1,500 m2 of leasable area and the fourth located in Lodz in the centre of Poland includes 15 multiplex screens, with one IMAX».

Between 1999 and 2000, the Company also co-developed another site, located in Bemowo, Warsaw, with the French retailer Carrefour. The development involved land leased by Carrefour, which was subleased to the Company. The Bemowo site is comprised of a multiplex theatre and a commercial rental area.

The Company owns a real estate complex in Prague in the Czech Republic, consisting of a multiplex theatre and a space leased to two shops. This complex opened in 2001.

In 2005, the Company completed the sale of its remaining 50% interest in the Sadyba Best Mall, Warsaw, Poland to Plaza Centers (Europe) B.V. The Company will continue to maintain its lease for its multiplex and IMAX» operations on the Sadyba site.

In 2005, the Company and its joint venture partners, Aviv Holdings GmbH and Ocif Holdings GmbH, sold their 50% interest in a mall development project in Sofia, Bulgaria to GE Capital and Quinlan Estates. The Company and its joint venture partners sold their remaining 50% share in the project to Quinlan and GE in May 2006 in conjunction with the opening of the mall. The Company has entered into a long-term lease to operate a multiplex and an IMAX» theatre on the site. Aviv Holdings GmBH and the Company have entered into an agreement to acquire 60% of the shares of a Bulgarian company, which owns land in the city of Plovdiv, Bulgaria, on which the Company is planning on developing a second shopping centre project in Bulgaria.

56 The following table sets out certain information concerning real property leased and owned by the Company as A1.8.1 at 30 June 2006:

As at 30 July 2006 Number of Properties M2 Owned M2 Leased Poland ...... 18 50,104 51,000 Hungary ...... 12 — 24,144 Czech Republic ...... 4 3,800 7,435 Bulgaria ...... 1 — 4,300 Israel(1) ...... 24 — 34,107 Total ...... 59 53,904 120,986

(1) Includes 2,000 m2 of space leased by the Blockbuster» joint venture.

The leases for the Company’s theatre premises generally provide for contingent rental based upon operating results, some of which are subject to an annual minimum. Generally, these leases will include renewal options for various periods at stipulated rates. The Company attempts to obtain lease terms that provide for build-to-suit construction obligations of the landlord. No leases have remaining terms, including optional renewal periods, of less than five years, and approximately 90% of the Company’s leases, with 387 screens, have remaining terms, including optional renewal periods, of more than 10 years.

Video and DVD rentals and sales The Company, through its indirect subsidiary Ya’af-Giant Video Library Network Limited, has a 50% interest in a joint venture with the Israeli Blockbuster» franchisee. The joint venture sells and rents movies on video and DVD formats. The joint venture currently operates 30 stores. The average store offers approximately 4,000 titles, with the megastores offering approximately 10,000 titles. The Blockbuster joint venture is the leading chain in Israel. Around 80% of the joint venture’s business is generated through rental activities, with the remaining 20% achieved through video and DVD sales. Competitors of the joint venture in Israel consist principally of local operators of video and DVD rental outlets, none of which the Company considers to pose a material competitive threat to the joint venture. In addition to its chain of outlets, the joint venture also has two types of video and DVD vending machines aggregating to approximately 260 machines, of which approximately 70 are called ‘‘Moviemats’’, which allow the Company to offer 24-hour services and each contains up to 800 DVDs. Moviemats are produced by Ya’af Automatic Video Machines, Limited, a wholly owned subsidiary of Forum Film (Israel).

New Products and Services The Company has recently introduced a new service in Israel that permits customers to order and purchase tickets over the Internet for the Yes Planet theatre, print the tickets at home and then bring them to the cinema, this A1.6.1.2 service replacing the ticket booth and the local kiosk machines. The tickets are read via bar codes. If this service proves successful in the Israeli market, the Company currently plans to introduce this technology to its other geographies as well.

Customers and Suppliers Suppliers None of the Company’s suppliers have accounted for more than 10% of the total costs of goods sold in any of the last three years. However, the long-standing relationship with the production studios for which the Company acts as distributor in Israel, Hungary and Poland described in this document is of strategic importance to the Company.

Customers Due to the nature of its products and services, the Company is not dependant on any client or group of clients. No single customer accounts for more than 10% of total sales of the Company.

57 Material Contracts A1.22 The Company is a party to a number of contracts and agreements that are necessary for the conduct of the Company’s business. The following is a summary description of the Company’s material contracts.

Exclusive Distribution Agreement with Buena Vista Forum Film (Israel), Forum Film (Poland) and Forum Film (Hungary) have each entered into a distribution agreement with Buena Vista. The Forum Film (Israel) agreement came into effect on 1 October 2003 and is subject to annual renewal. Although the term of the agreement is relatively short, the basic relationship between the parties has been in effect for more than 50 years. The Forum Film (Israel) agreement expires on 30 September 2007 and Buena Vista has the option to extend the agreement for two additional one-year terms. The Forum Film (Poland) agreement expires on 30 September 2007 and Buena Vista has the option to renew the agreement for one additional one-year term. The Forum Film (Hungary) agreement expires on 30 September 2007 and Buena Vista has four options to renew for additional one-year terms. Under these agreements, Forum Film (Israel), Forum Film (Poland) and Forum Film (Hungary) each hold an exclusive right to distribute Disney motion pictures in their respective territories. The motion pictures distributed by Forum Film (Israel), Forum Film (Poland) and Forum Film (Hungary) are exhibited in cinemas operated by the Company and in other theatres as well. Forum Film (Israel), Forum Film (Poland) and Forum Film (Hungary) are not allowed to distribute pictures produced by any other major motion picture producer without Buena Vista’s prior written approval. Forum Film (Israel), Forum Film (Poland) and Forum Film (Hungary) are obliged to use their best efforts to exhibit Buena Vista’s pictures in the most desirable theatres at the most favourable playing time and must use every reasonable security measure to prevent duplication or pirating of the pictures. Forum Film (Israel), Forum Film (Poland) and Forum Film (Hungary) are entitled to deduct a “distribution fee”, which is a percentage share in all of the rentals actually invoiced from the exhibition of each motion picture in their respective territories. Buena Vista can terminate the agreement if the Company’s Chief Executive Officer, Mr Moshe Greidinger, ceases to be directly involved with Forum Film (Israel)’s, Film (Poland)’s, or Forum Film (Hungary)’s business, as the case may be.

Agreements on the Operation of IMAX» Theatres The Company is party to a master agreement with the Imax Corporation which gives the Company the exclusive right to develop and open IMAX» theatres in each of Poland, the Czech Republic, Hungary, Bulgaria and Romania. Under these arrangements, the Company does not have an automatic right to exclusivity. The master agreement related to the lease of up to nine IMAX» systems. To date, the Company has entered into lease agreements for seven such systems and has taken delivery of one more system pending completion of theatre construction. The initial term of each IMAX» system lease agreement is for 20 years with one option to extend it for 10 more years. Both parties are entitled to terminate the lease agreement if all or a part of any theatre is rendered unusable by damage from fire or any other event which cannot be substantially repaired within 180 days from a set date. The lease price for each IMAX» system consists of initial rent for the use of the system payable in instalments plus “additional rent” (a percentage of receipts from theatre admissions net of VAT), subject to a “minimum rent”. The Company is obliged to purchase polarised glasses exclusively from Imax Corporation. The lease of the seventh IMAX» system, dated 21 December 2000, imposes on Imax Corporation an obligation not to open any other IMAX» theatre within Poland, Hungary, the Czech Republic, Bulgaria and Romania until 31 December 2010 (extendable for up to another three years if the Company enters into an 11th lease).

Agreements with Plaza Centres (Europe) B.V. The Company is a party to a master agreement dated 9 July 1997 with Plaza Centres (Europe) B.V. (“Plaza Centres”) for the construction of theatre sites in shopping malls constructed by Plaza Centres throughout Hungary, Poland and the Czech Republic. The Company will build multiplex cinemas in each shopping mall constructed by Plaza Centres in areas with minimum populations (and also based on some limitations if nearby competition exists). The Company currently has 17 operating multiplexes in Plaza Centres shopping malls in Poland, the Czech Republic and Hungary, and three more under construction.

58 Each of the 17 multiplexes is covered by a specific lease agreement. The basic lease for each multiplex is for a minimum of 10 years, with three options for the Company to extend the term for additional five-years periods (for up to a total of 25 years). The Company is obliged to pay minimum annual rental fees, which under certain conditions may be increased by payments based on a formula relating to a percentage of revenues. In addition, the Company is also required to pay agreed fixed service fees to management companies in each shopping mall. The Company is granted exclusivity for cinema operations in each shopping mall and the Company has the right to terminate for each specific multiplex if certain admission levels are not sustained for two consecutive years.

Mall of Sofia Agreements Pursuant to a share purchase agreement dated 29 July 2005, I.T. Sofia sold 50% of its remaining 50% interest in M.O. Sofia AD (i.e., 25% of the Company’s registered share capital) to GE Capital Investments Holding B.V.and Fellstone Limited (Quinlan Estates). Simultaneously on completion of the above, I.T. Sofia, Aviv Holdings GmbH and Ocif Holdings GmbH (as the selling shareholders) and GE Capital Investments Holding B.V. and Fellstone Limited (Quinlan Estates) (as new shareholders) entered into an agreement regulating the rights and obligations of all parties as shareholders in M.O. Sofia AD and in relation to the development, construction and management of the mall in Sofia. The remaining interest in M.O. Sofia AD held by I.T. Sofia (i.e. 25% of the registered share capital) was sold to Fellstone Limited (Quinlan Estates) pursuant to a share purchase agreement dated 19 January 2006 (as amended). The rights under the above share purchase agreement were thereafter also assigned to GE Capital Investments Holding B.V.. The Company (and its joint venture partner) remains responsible for completion of the project.

Agreements with Coca-Cola» The Company is a party to agreements with the local Coca-Cola» representative in each of the countries in which the Company operates. Under these agreements, which all have a similar structure, the Company is committed to sell Coca-Cola» products as its exclusive soda fountain beverages. Each of the agreements specifies terms under which the beverages will be supplied to the Company, including volume discounts more favourable than the local Coca-Cola» distribution prices. Coca-Cola» is required to install the equipment necessary to sell the soft drinks (POM Towers, coolers, etc.) and to maintain such equipment. Coca-Cola» is required to create a marketing fund reflecting a specified percentage of the Company’s purchases from Coca-Cola», which is dedicated to support the Company promotional activities. In addition, Coca-Cola» is obligated to advertise its products on the Company’s screens on an ongoing basis for agreed fees.

Financing Agreements The Company has entered into a number of loan agreements, which are described in “Operating and Financial Review — Liquidity and Capital Resources”.

Insurance The Company maintains a multi-national insurance programme covering the Company’s activities in Europe and a separate insurance program in respect of its activities within Israel. The European programme is maintained through the Clal Insurance Company Limited, one of Israel’s leading insurers, and the Israeli programme is maintained through the Menora Insurance Co. Limited, a large Israeli insurer. Under the programmes, the Company has insurance policies in each country of operation. The local policies contain comprehensive property coverage, as well as third party liability insurance in amounts which the Company believes are customary in each country, subject in each case to a limit of US$10 million per occurrence for the European programme and US$20 million per occurrence for the Israeli programme.

Legal Matters A1.20.8 There are no governmental, legal or arbitration proceedings (including any such proceedings which are pending or threatened of which the Company is aware), which, during the 12 month period prior to the publication of this document, may have or have had, in the recent past, significant effects on the Company’s financial position or profitability.

59 At present, the Company is involved in the following disputes, neither of which the Company believes is material to its financial position or profitability, market position or creditworthiness: During the first quarter of 2005, the Company was informed by the developer of two of its future Polish sites (Wloclawek and Elblag) that it would seek to cancel the lease agreements which the developer presigned with the Company for these sites. The Company has refused to agree to the cancellation of these agreements and will vigorously pursue all its legal remedies to force the developer to honour the agreements in accordance with their terms. As the Company is simply seeking to enforce what the Company believes to be valid and existing contracts, it does not believe that any outcome of this dispute could have a material adverse effect on the Company. Cinema City Poland Sp. z o.o. is the defendant in a claim brought by Zwiazek Autorów i Kompozytorów (“ZAIKS”), a Polish collection society representing screenplay authors and authors of other literary and musical works used in audiovisual works that are exhibited in Poland. The Company understands that ZAIKS has also brought similar claims against every other major cinema exhibitor and cable tv operators in Poland. The claimant seeks royalties in the amount of approximately A2.0 million plus interest for the use of works by certain of its members in movies exhibited in Poland on the basis that those works were protected by applicable copyright laws. The Company is challenging the suit on two grounds. First, the Company believes ZAIKS’s claims are not justified by the relevant copyright laws. Second, the Company does not believe ZAIKS has sufficient standing to represent the authors as Polish collection societies are not entitled to collect such royalties on behalf of non-Polish authors (in particular authors based in the United States) without the respective agreements. The case is pending before the court of first instance.

Intellectual Property A1.11 A1.6.4 Patents The Company does not have any registered patents.

Licences Forum Film (Israel), Forum Film (Hungary) and Forum Film (Poland), the film distribution subsidiaries of the Company, enter into licence agreements from time to time with movie production companies for the distribution of their movies in Poland, in Hungary and Israel. See “— Complementary Theatre-Related Activities — Film Licensing”.

Trademarks Cinema City» Trademark The Company holds one trademark significant for its business, Cinema City», which is registered under International Registration Number 699960 by the World Intellectual Property Organisation. The period of registration is for 10 years commencing on 8 April 1998 (which the Company plans to renew prior to its expiration). The Company is entitled to use this trade mark in the territory of the following countries: Czech Republic, Hungary and Poland. The trademark is not registered in Israel, where one of the Company’s competitors uses the name Cinema City, but not the Company’s logo.

IMAX» Trademark Under the terms and conditions of the master agreement concluded on 25 September 1998 between Imax Corporation and ITIT, Imax Corporation granted to ITIT a non-exclusive, non-transferable licence to use the trademarks “IMAX»” and “IMAX» 3D” during the term of the IMAX» system lease in connection with the services of promoting and operating of the IMAX» theatres being developed by ITIT in Poland, Hungary, the Czech Republic and other areas where ITIT has been granted rights by Imax Corporation. This agreement has been assigned by ITIT to the Company. The Company is required to use or display the trademarks in all media advertising and other promotional material for the theatre, in a manner and proper logo form directed by Imax Corporation.

Regulatory Environment No special or significant concessions, permits and other administrative authorisations for carrying business are required in Israel, Poland, Hungary, Czech Republic or Bulgaria. The Company obtains from time to time permits required in connection with its ordinary course of business, such as permits to sell alcohol or to buy real estate in Poland or for selling products (concession sales) in the Hungarian multiplexes.

60 INFORMATION ON THE INDUSTRY AND MARKETS Some of the statements in this section of the Prospectus include forward-looking statements which reflect the Issuer’s current views with respect to future events and financial performance. Statements which include the words “intend’, “plan”, “project”, “expect”, “anticipate”, “will” and similar statements of a future or forward-looking nature identify forward-looking statements. All forward-looking statements address matters that involve risks and uncertainties. Accordingly, there are or will be important factors that could cause the Issuer’s actual results to differ materially from those indicated in these statements. These factors include, but are not limited to, those set out under “Risk Factors”, which should be read in conjunction with the other cautionary statements that are included elsewhere in this Prospectus. If one or more of these or other risks or uncertainties materialise, or if the Issuer’s underlying assumptions prove to be incorrect, actual results may vary materially from those projected in this Prospectus. Apart from any continuing obligations under the Dutch Securities Act, the Act on Offerings, or WSE Corporate Governance Rules to which the Issuer is subject to, the Issuer undertakes no obligation to publicly update or review any forward-looking statement contained in this Prospectus, whether as a result of new information, future developments or otherwise.

Overview of the Industry A1.12.1 A1.12.2 Motion Picture Theatres A1.6.3 The motion picture industry continues to grow on a global basis. According to the MPAA, global box office revenues have increased by 46% from $15.9 billion in 2000 to an estimated $23.2 billion in 2005 as a result of increasing acceptance of movie going as a popular form of entertainment throughout the world, ticket price increases and the further development of multiplex cinemas in many countries. In Central and Eastern European countries in which the Company operates, the growth has increased by 105% from $134.6 million to $276.6 million for the years 2000 to 2004, according to Dodona. The Company believes the following market trends will drive the continued growth and strength of its industry and the markets in which it operates: • Development of film franchises and increased appeal of a diversity of films. Studios are increasingly producing films in series, such as Ice Age, Harry Potter, Lord of the Rings, Star Wars, Spiderman and the X- Men. When the first in a series of films is successful, sequels typically attract large audiences and generate strong box office revenues. The Company believes that, as studios increasingly produce franchise films, exhibitors will benefit from their greater and more reliable revenues. An increase in the breadth of successful film genres also benefits film exhibitors. The aggressive marketing of a wide variety of diverse yet commercially appealing movies, such as The DaVinci Code and Chronicles of Narnia has expanded the demographic base of moviegoers and also contributes to a greater per capita attendance. Box office revenues are increasingly diversified among a number of strong movies rather than being concentrated on a few blockbuster hits. The number of films that generated gross box office revenues in excess of US$100 million increased from 10 in 1995 to 20 in 2005. • Increased importance of international markets for ensuring box office success. International markets are becoming an increasingly important component of the overall box office revenues generated by Holly- wood films. For example, markets outside of North America accounted for more than US$1.4 billion, or greater than 60%, of the global box office revenues for Harry Potter and the Sorcerer’s Stone, Lord of the Rings: Fellowship of the Ring and Monsters, Inc. With the continued growth of the international motion picture exhibition industry, the relative contribution of markets outside North America should become even more significant. As a result, the Company believes that studios will continue to devote greater resources to the promotion of films in international markets. • Increased studio spending on the production and marketing of new film releases. The theatrical success of a movie is typically the most important factor in determining its overall popularity, thereby establishing its value in other film distribution channels such as home video, DVD, and cable and broadcast television, as well as in international markets. These other film distribution channels have become significant sources of additional revenue for film studios. The Company believes that, as a result, film studios are placing an increased emphasis on maximising the theatrical success of their first-run films through increased expenditures on production and marketing. • Growth in local production. Movie production in each of the Company’s territories, particularly in Poland, is playing an increasingly important role in developing movie attendance and a local movie

61 culture, and have had commercial success, especially in attracting audiences who would otherwise not necessarily be as interested in the international movie fare. • Favourable attendance trends. The Company believes that patrons are attending movies more frequently because of the appeal of movie going as a convenient and affordable form of out-of-home entertainment. The cost of the movie going experience continues to compare favourably to alternative forms of entertainment such as professional sporting events or live music concerts. The following table presents information regarding the film exhibition market in 2005 in the countries in which the Company has a presence, as well as the comparable figures for the European Union. It demonstrates the lower per capita attendance and higher population per screen in most of the Company’s markets. The Company believes this disparity illustrates the potential for growth in these markets.

Multiplex screen Gross Average Total Total density Average Box Office Ticket Total Total Multiplex Multiplex per 100 Admissions Country Revenues Admissions Price Theatres Screens Theatres Screens people per head (E in millions) (in thousands) (E) 2005 2005 2005 2005 2005 2005 2005 2005 2005

Poland ...... 80.1 24,920 3.24 937 38 374 0.97 0.65 Hungary...... 39.29 12,040 2.83 244 635 22 180 1.78 1.19 Czech Republic ...... 36.68 9,480 3.17 530 667 18 156 1.53 0.93 Bulgaria ...... 5.75 2,420 2.45 116 167 3 38 0.49 0.31 Israel ...... 59.9 8,370 4.60 60 313 45 306 5.5 1.41 Romania ...... 8.8 2,830 2.13 105 120 2 15 0.07 0.13 United States...... 7,233.62 1,402,700 5.15 6,114 37,740 n/a n/a n/a 5.03 United Kingdom...... 1,126.3 165,000 6,50 772 3,486 95 916 1.54 2.87

Polish theatre market A1.6.3 Multiplex development in Poland is continuing rapidly, driven by growth in shopping mall development. Entry to the European Union in May 2004 has attracted European investment funds to the country, fuelling a property boom. The capital, Warsaw, has around 30 malls. Outside the capital in secondary and tertiary cities with a population of more than 100,000, there are numerous mall developments in the process of being built, many of which are seeking cinemas as anchor tenants. In addition to the underdevelopment of cinema infrastructure, the Polish movie theatre market remains generally underserved, particularly outside of Warsaw. Moreover, as of June 2006, multiplexes were located in only 20 of Poland’s largest cities, while Poland has 32 metropolitan areas with over 100,000 people. For 2005, admissions per capita in Poland were 0.65, compared to the European Union average of 2.5. Warsaw accounts for approximately one third of the entire multiplex market in Poland, both in terms of box office and admissions. The city also had a relatively high admission per capita rate of 2.8 for period, which is an indication of a maturing market. The Company is the largest cinema operator in Poland based on number of screens, and in 2005, had a multiplex box office market share of 38% based on box office revenues, according to ES Media and Company estimates. The Company has a particularly strong presence in Warsaw, with a total cinema admissions market share of 65% in 2005, according to ES Media. Within Poland, the Company’s largest competitor is Multikino in terms of the number of screens, which had 8 theatres, and 80 screens as of June 2006, and received approximately 20% of total multiplex box office receipts in 2005. Multikino’s multiplexes are relatively evenly distributed in major cities throughout Poland. The next four largest exhibitors in terms of the number of screens according to Dodona are Helios, with 50 screens at the end of 2005, Silver Screen, with 44 screens at the end of 2005, Kinoplex, with 34 screens at the end of 2005 and Kinepolis, with 20 screens at the end of 2005. In addition, there are new entrants in the market as well. A new investor, Max Film, opened its first multiplex in April 2006 and has announced plans to open four more by the end of 2007. The year 2004 proved to be a very strong year for the Polish market as a whole, with over 33 million admissions according to Dodona. That number dropped to just under 25 million admissions in 2005, due in large part to the death of the Pope, a poor product mix, and the fact that 2004 was, in retrospect, a particularly good year. However, Poland has posted strong half year numbers in 2006, and the Company believes the overall market is poised to return to 2004 levels. The Company continues to believe that Poland is a strong growth market given its growing economy and large number of urban areas that are still not served by modern multiplexes.

62 Hungarian theatre market The Hungarian film exhibition market consisted of a total of 635 screens in June 2006. This translates into approximately 21,400 people per screen. However, Hungary has only one multiplex screen per 51,000 inhabitants as of June 2006, which was significantly above the European Union average of approximately 44,000. Annual admissions in Hungary per capita in 2005 were 1.19, the highest in the Central and Eastern Europe region, although this level was significantly lower than the annual European Union average of 2.5. Budapest is the most important city for cinema operations in Hungary, representing approximately 57.1% of total admissions in 2005 with a very robust admissions per capita of 4.0 in 2005 according to Dodona. The southern part of the country, encompassing Sopron and Pecs, accounted for approximately 14% of total admissions in 2005 according to Company estimates. Admissions were evenly divided among the other regions of Hungary. The Hungarian movie exhibition market is dominated by four companies, which, according to Company estimates, accounted for approximately 83% of total admissions in 2005. As of June 2006, the Company had the largest cinema network in Hungary, with 12 theatres and 86 screens. According to Dodona and Company estimates, the Company’s market share in Hungary was approximately 22% in 2005, based on admissions. The Company’s theatres are primarily located outside of Budapest, and currently, the Company has 92% of its total screens outside of Budapest. According to the Ministry of National Cultural Heritage and Company estimates, the second largest cinema operator in Hungary as of June 2006 was InterCom, which had 10 multiplex theatres and 64 screens. Its theatres were equally split in and outside of Budapest. Based on total admissions, InterCom had the leading market share in 2005, with 33% of all admissions. The Company also competes with Palace Cinemas, which had four multiplex facilities with 47 screens as of June 2006 and an 18% market share, based on admissions, in 2005. In addition, Budapest Film operates five cinemas in Budapest. It sold the 13 screen Mammut I & II to Palace Cinemas in October 2005. In 2006, Palace Cinemas acquired InterCom, and became the largest theatre operator in Hungary. Hungary was one of the earliest Central or Eastern European countries to see rapid development of multiplex theatres, which primarily took place in the late 1990s. Since then, investment has slowed dramatically. Nonetheless, there continues to be rapid growth in those regions outside Budapest where modern multiplexes replace older theatre complexes. Like the rest of Central and Eastern Europe, admissions dropped from 2004 to 2005 from approximately 13.7 million to 12.0 million. The Hungarian industry has seen improvement in the first half of 2006 (actual admissions decreased, by 4% in this period, but revenues increased by 2%). The Company believes that with the growth in popularity of locally produced movies, which have already shown to be successful, box office results should continue to increase in Hungary, particularly in those underscreened regions outside of Budapest where the Company has focused its operations.

Czech theatre market The Czech movie exhibition market is characterised by a relatively small number of multiplex theatres. According to Dodona and Company estimates, there are currently 18 multiplex facilities with 156 screens in the Czech Republic. The country’s other movie theatres tend to be older, single screen cinemas. With approximately 65,000 people per multiplex screen, the Czech Republic has significantly less multiplex concentration than the European Union, which has an average of 44,000 people per multiplex. Nonetheless, in 2005, according to Dodona, multiplexes accounted for 5.2 million out of the 9.5 million admissions. Prague is the most significant metropolitan region within the Czech Republic, and it accounted for approx- imately 38.7% of total admissions in 2005. As of June 2006, Prague had 11 multiplexes with 98 screens, which represented approximately 67% of all multiplexes in the country. Most of these multiplex facilities were built between 2001 and 2006. The Company regards the Prague market as mature, as indicated by multiplexes selling more than 80% of all tickets within the city in 2005. In addition to multiplexes, the Company estimates that Prague has 30 to 40 older, single screen cinemas. Brno is another significant city within the Czech Republic, accounting for approximately 11% of the total number of admissions in 2005, and is the only Czech city other than Prague with more than one multiplex. The Czech cinema market is dominated by four companies, which currently operate 17 of the 18 multiplexes in the country. The largest is Palace, which had 6 multiplexes with 55 screens as of June 2006. Four of these theatres are located in Prague and two operate in Brno. The Company has 4 sites in Prague with 38 screens, and it operates an IMAX» theatre in Prague. Another competitor, Cinestar, had 5 theatres located outside of Prague, with 41 screens, as of June 2006. The Australian company, Village Cinemas, operated two theatres in Prague with 22 screens as at such date.

63 The Czech market dropped by more than 20% in admissions in 2005. The bulk of that drop, however, was experienced by the older single cinema theatres. The market has shown improvement in 2006, and the Company believes the market is poised to return to 2004 levels. In addition, with economic expansion tied to its accession to the European Union, the Company believes there continues to be growth opportunity in the Czech Republic, particularly in the regions outside of Prague that have few or no modern multiplexes.

Bulgarian theatre market Compared to other countries in Central and Eastern Europe, the Bulgarian film exhibition market is quite underdeveloped with, Dodona and Company estimates, only 97 screens and 2.42 million admissions in 2005, representing huge growth potential in the future. In 2003, with the opening of a 15-screen multiplex in Sofia, admissions rose by 50% and Bulgarian movie-goers generated A7.0 million revenues for the country’s box office, Dodona and Company estimates, and spent 57% more on movie tickets compared to 2002. However, in 2004 and 2005, admissions dropped significantly and the number of screens in the country decreased from 200 to 97. Theatre operators tried to counteract the decrease in admissions with steep increases in ticket prices. According to Dodona, the average ticket price increased by 19% in 2005, but this was more than offset by a 22% decrease in admissions. With the Company’s recent opening of a 12-screen (including an IMAX») multiplex theatre as part of its Mall of Sofia project, there are currently only four multiplex theatres in Bulgaria, all located in Sofia. Two multiplex theatres are owned by Alexandra Group Holding of which one was opened in May 2006 and one multiplex theatre is owned by United New Cinema. Alexandra Group Holding also owns several other cinema theatres throughout the country. The Company believes that the cinema market will continue to develop in Bulgaria and that admissions should return to 2003 levels within the next few years. The Company believes that this process will be enhanced by Bulgaria’s accession to the European Union in 2007, which the Company expects will drive a significant increase in investment and capital spending.

Romanian theatre market The Romanian theatre market is very poorly developed. The country, which has a population of almost 22 million, had only two multiplexes as at 30 June 2006. Audience attendance has decreased annually for the past 5 years, and this trend was exacerbated in 2005 with the introduction of a 19% value added tax on ticket prices. The number of cinemas has decreased significantly in recent years — from 434 screens in 1995 to only 100 screens in 2006, according to Dodona. Moreover, the cinema sector remains largely state-owned, and as a result, there has been little outside investment in new theatres or modernisation of existing theatres. According to Dodona, the Romanian market is ripe for change. The two largest exhibitors, the state-owned RomaniaFilm, (with 57 screens) and the privately owned Hollywood Multiplex Operations (with 15 screens), are both for sale. The State is in the process of privatising RomaniaFilm through the sale of its theatres by public tender or simply to the current operators. The Company believes Romania presents a very compelling investment opportunity. With its scheduled accession to the European Union in 2007, foreign investment should increase significantly. Moreover, the dearth of multiplexes within a relatively large urban population indicates there is a strong potential growth story, particularly when looking at the estimated admissions per person (0.13) in Romania in 2006 according to Dodona.

Israeli theatre market The Israeli movie exhibition market is well developed and mature, with 60 multiplex theatres and a total of 306 screens as of 31 December 2005. The Israeli population of approximately 7 million generated approximately 8.4 million admissions in 2005. Taking into consideration that certain Arab and Jewish populations who generally avoid cinemas as a matter of religious practice, the Company estimates that annual attendance per capita in Israel was approximately 1.20 in 2005, which was below the European Union average of 2.5. Tel-Aviv and the surrounding cities of Bat-Yam, Herzlia, Petah Tikva, Ramat Gan and Ranana form what is called the “Dan area”, which encompasses approximately 15% of the entire population of Israel. Tel-Aviv, with approximately 5% of Israel’s population, represented approximately 15% of total cinema admissions in 2005. Excluding Tel-Aviv, cities from the Dan region accounted for approximately 54% of total admissions in 2005. Jerusalem and Haifa represent other significant regions in Israel. With a combined population of approximately 14% of Israel’s total population, these two cities represented approximately 14% of the total number of admissions in 2005.

64 A unique feature of the Israeli cinema industry is the close cooperation between theatre operators and distributors. It is common practice for film distributors to maintain preferential distribution arrangements with selected exhibitors, which means that each cinema operator may offer a different selection of movies from its preferred distributor. Only cinemas that face no local competition will show movies of all distributors. These arrangements have influenced the size of movie theatres. Because the movie pipeline of each exhibitor is limited to a specific list of titles offered by its particular distributors, there is less need for extensive capacity, i.e. number of screens. As a result, the number of screens in Israeli multiplexes tends to range from three to eight. The Company believes that the recent trend in Israel towards the “megaplex” — more than 12 screens per theatre — is likely to end this historical arrangement, since each megaplex will show all the available first run products, similarly to the other territories in which the Company operates. The Israeli movie exhibition market is dominated by two cinema operators. As of the end of September 2006, the Company is the largest cinema operator in Israel based on number of screens with 23 theatres and 131 screens. Globus is the second largest operator with 24 theatres and 123 screens. In 2005, the Company had a 32% market share based on the total number of admissions. The Cinema City brand name is registered in Israel to another exhibitor, which has one megaplex with 21 screens. Other significant market participants include Lev Cinemas Limited and A.D. Mattalon Cinemas Limited, which operate relatively smaller facilities. Lev Cinemas had six sites with a total of 20 screens and Mattalon Cinemas operated three theatres with 13 screens as of 31 December 2005.

Motion Picture Distribution The Company distributes films in Poland, Israel and Hungary. These markets are discussed below.

Polish motion picture distribution market The largest film distributors within Poland include major US companies, including Warner and UIP, as well as the Company’s wholly owned subsidiary, Forum Film (Poland), and Monolith. According to ES Media and Company estimates, Warner, Forum Film (Poland), Monolith Plus and UIP had market shares, based on revenues, of 14%, 13%, 13% and 22%, respectively, as at 31 December 2005. The Company believes these companies’ market positions are the result of the strong movie pipelines of the studios they represent. Warner represents Warner Brothers, UIP represents Universal, Paramount Dreamworks and Sony, Forum Film (Poland) represents Disney affiliates Buena Vista and Spyglass. The remaining distribution market is fragmented among a list of distributors, including a number of independents, such as SPI, Monolith, Best Film and Gutek Film. The competitive landscape of the Polish distribution market was substantially altered in 2003, when Syrena Entertainment, the third largest distributor in 2003, wound up its operations. The Company formed Forum Film (Poland), its distribution entity in Poland, to fill this void and quickly became the second largest distributor in Poland based on revenues. During 2003 the Company distributed 3 of the top 10 movies exhibited in Poland. After only 5 months of operations, Forum Film (Poland) captured 11% of the Polish distribution market based on revenues, whereas after 11 months of operations Forum Film (Poland)’s market share based on revenues increased to 18%. In the first six months of 2006, Forum Film (Poland) had 26% of the distribution market share in Poland, which made it the largest distributor for that period.

Israeli motion picture distribution market Distributors play a key role in the Israeli cinema industry, because exhibitors generally have preferential arrangements with selected distributors. Only cinemas that face no local competition will show movies of all distributors. As a result, the major exhibitors have developed their own distribution entities. The Company’s 50% owned subsidiary, Forum Film (Israel), had a market share of approximately 22%, based on revenues for 2005, and it distributes movies primarily to Rav-Chen and Planet cinemas. Globus operates Noah Films, which distributes films to Globus’ theatres. In 2005, Noah Films had a market share of approximately 34%, based on revenues. Other significant distributors in Israel include Shani Movies Limited, which is operated by Lev Cinemas, and A.D. Mattalon Limited, operated by Mattalon. A.D. Mattalon provides films to the Company’s theatres in addition to Mattalon cinemas.

Hungarian motion picture distribution market InterCom dominates film distribution, handling films for Sony Pictures, Twentieth Century Fox, Warner Bros and Buena Vista. In addition, it also releases independent US films, European-language films, art films and Hungarian films. In 2005 InterCom released 68 films and captured a 45% share of box office. The UIP-Duna joint venture is the only studio-owned distributor operating in Hungary.

65 Since its entry to the Hungarian market in 2002, SPI International has quickly established itself as the third- largest distributor with 11% of box office in 2005. The year 2005 saw two new distributors enter the market. Hungaricom launched in October, releasing domestic films. Forum Film (Hungary), a subsidiary of the Company, achieved an 8% box office share, largely due to three films, Mr and Mrs Smith, The Chronicles of Narnia: The Lion, the Witch and the Wardrobe and Chicken Little, which all made the top 20.

Video and DVD rentals The Company has historically engaged in video and DVD rentals and sales in Israel. The Israeli home entertainment market is well developed and consists of a total of 200 outlets offering videos and DVDs for rental and for sale. In May 2006, the Israeli government anti-monopoly office approved the merger of Video Giant with Blockbuster. Video Giant and Kafan Video Libraries Limited (operator of the Blockbuster video libraries in Israel) (“Kafan”), have since formed a 50/50 joint venture operating the combined video chain under the brand name Blockbuster». Under the joint venture agreement, the Company provides the managing director (chief executive officer) for the joint venture, while Kafan provides the chairman of the board. The joint venture is jointly controlled between Kafan and the Company and the Company consolidates the results of operations of this entity proportionally (50%). The joint venture is the only nationwide video and DVD rental and sales operator in Israel, with a market share of approximately 60% based on the combined 2005 gross sales of the two entities that are now operated by the joint venture. The joint venture has 30 stores and 260 video machines, of which 70 are Moviemats.

66 DIRECTORS AND EMPLOYEES

The Company has a two-tier corporate governance structure, consisting of a management board (the A1.14.1 “Management Board”) and a supervisory board (the “Supervisory Board”). The day-to-day management and policy-making of the Company is vested in the Management Board, under the supervision of the Supervisory Board. There are currently three members of the Management Board whose names are set out below. The Supervisory Board supervises the Management Board and the Company’s general course of affairs and the business it conducts. It also supports the Management Board with advice. In performing their duties the Supervisory Board members must act in accordance with the interests of the Company and the business connected with it. For a detailed description of the powers and functions of the Management Board and the Supervisory Board, see “Description of the Shares and Corporate Rights and Obligations”.

Members of the Management and Supervisory Boards Management Board

The following table sets out information with respect to each of the members of the Management Board, their A1.16.1 respective ages, and their positions at the Company as at the date of this Prospectus. The terms of office as President and Members of the Management Board for the directors listed below expire in June 2008. The business address of the following persons is the Company’s principal place of business at Weena 210-212, 3012 NJ, Rotterdam, the Netherlands.

Name Position Age Moshe J. (Mooky) Greidinger ...... President of the Management Board, Chief Executive Officer 54 Amos Weltsch ...... Member of the Management Board, Chief Operating Officer 56 Israel Greidinger ...... Member of the Management Board, Chief Financial Officer 45

Supervisory Board A1.16.1 The following table sets out information with respect to each of the members of the Supervisory Board, their respective ages and their positions at the Company as at the date of this Prospectus. The terms of office for all members of the Supervisory Board, except Yair Shilhav’s, expire in June 2008. Yair Shilhav’s term shall expire in November 2010. A1.16.3 Name Position Age Coleman K. Greidinger ...... Chairman of the Supervisory Board, member of the Audit Committee 82 Yair Shilhav ...... Member of the Supervisory Board, Chairman of the Audit Committee 48 Arthur F. Pierce...... Member of the Supervisory Board, Remuneration Committee and Appointment Committee 76 Scott S. Rosenblum ...... Member of the Supervisory Board, Chairman of the Remuneration Committee and the Appointment Committee, member of the Audit Committee 57 Caroline M. Twist ...... Member of the Supervisory Board and of the Remuneration Committee 50 Peter J. Weishut ...... Member of the Supervisory Board and of the Appointment Committee 71

67 Relevant expertise and experience of the members of the Management and Supervisory Boards Management Board Moshe J. (Mooky) Greidinger Moshe J. (Mooky) Greidinger was appointed Chief Executive Officer of the Company in 1984. Mr Greidinger joined the Company in 1976. Since 1984, he has held executive positions with the Company with substantially the same responsibilities as he presently maintains. Mr Greidinger has also served as a director and Deputy Managing Director of Israel Theatres Limited since 1983 and Co-Chairman of the Cinema Owners Association in Israel since August 1996. He is the brother of Israel Greidinger and the son of Coleman Greidinger.

Amos Weltsch A1.14.1 Amos Weltsch joined the Company in 1980 at which time he was appointed Chief Operating Officer of the Company. Since that time, Mr Weltsch has held executive positions with the Company with substantially the same responsibilities as he presently maintains. He has also held various senior management positions with Israel Theatres Limited and affiliated companies since 1980. From 1974 to 1978, he was a manager at L. Glickman Building Materials, and from 1978 to 1980, a managing director of Eitan Cement Limited

Israel Greidinger Israel Greidinger joined the Company in 1994 and was appointed Chief Financial Officer of the Company in 1995. Since that time he has held executive positions with the Company with substantially the same responsibilities as he presently maintains. Mr Greidinger has also served as a director of Israel Theatres Limited since 1994. From 1985 to 1992, Mr Greidinger served as Managing Director of C.A.T.S. Limited (Computerised Automatic Ticket Sales), a London company, and from 1992 to 1994, he was President and Chief Executive Officer of Pacer C.A.T.S., Inc. He is the brother of Moshe Greidinger and the son of Coleman Greidinger.

Supervisory Board A1.14.1

Coleman K. Greidinger A1.16.3 Coleman Greidinger was appointed a member of the Supervisory Board in 2004, is the current Chairman of the Supervisory Board and a member of the Audit Committee. He founded Israel Theatres Limited in 1958 and has been Managing Director of Israel Theatres Limited and affiliated companies since that time. He was also a President of Variety Israel, serves as a member of the International Board of Variety Clubs and is a member of the board of governors of the Hebrew University in Jerusalem and the board of governors of the Technion University in A1.14.1 Haifa. He is the father of Moshe and Israel Greidinger.

Yair Shilhav

Yair Shilhav was appointed a member of the Supervisory Board in November 2006, and is the Chairman of the A1.16.3 Audit Committee. Since 2004, Mr Shilhav has been the owner of a business consulting office in Haifa. Between 2000 and 2003, he was a member of executive directory committee, the Somekh Chaikin CPA firm, a member firm of KPMG (“Somekh Chaikin”). Between, 1995 and 2003, he was the head of the Tel-Aviv branch of Somekh Chaikin, of which he was partner from 1990 to 2003. Prior to becoming a partner at Somekh Chaikin, he was head of the professional and finance department of the same firm. He was also the head of the accountancy faculty at Haifa University between 1998 and 2002.

Scott S. Rosenblum

Scott Rosenblum was appointed a member of the Supervisory Board in 2004, was appointed Chairman of the A1.16.3 Remuneration Committee and of the Appointment Committee in November 2006 and is also a member of the Audit Committee. He is licensed as a lawyer and admitted to the New York Bar Association. For the past ten years he was a partner in the law firm of Kramer Levin Naftalis & Frankel LLP, New York, and was Managing Partner between 1994 and 2000. He is currently a director of Escala Group, Inc and Temco, Inc.

Arthur F. Pierce

Arthur Pierce was appointed a member of the Supervisory Board in 2004 and, as of November 2006, has been A1.16.3 a member of the Remuneration Committee and the Appointment Committee. From 1996 to the present time, he has worked as a consultant providing services related to the international motion picture distribution. Between 1954 and 1972, Mr Pierce held various executive positions with Columbia Pictures International, Paramount Pictures

68 International and Cinema International Corporation. From 1972 to 1993, he served as Vice President of Europe for Warner Brothers Theatrical Distributions. From 1993 to 1996, he served as Senior Vice President for European Theatrical Distributions, Time Warner Entertainment. Mr Pierce currently serves as Director of Luna Productions, Limited, a UK subsidiary of New Regency Productions, Inc., Director of The Todd-AO Corporation, a U.S. company, and as President of Frank Pierce Partners, International Theatrical Representation. He received his B.A. and M.A. from Boston College in the United States.

Caroline M. Twist

Caroline Twist was appointed a member of the Supervisory Board in 2004 and, as of November 2006, has been A1.16.3 a member of the Remuneration Committee. Between 1978 and 1984, Ms Twist worked as a manager in ABC / Thorn EMI cinemas in the UK. From 1984 to 1988, she served as West End Regional Manager / New Projects Manager for C.I.C. Theatres in the U.K. From 1989 until now, Ms Twist has held various managerial positions, with PACER CATS, a leading supplier of computerised ticketing systems, both in the United States and Europe.

Peter J. Weishut

Peter Weishut was appointed a member of the Supervisory Board in 2004 and, as of November 2006, has been A1.16.3 a member of the Appointment Committee. Between 1969 and 1997, Mr Weishut worked as a director in Akzo Nobel in the Netherlands and Japan. From 1997 to 1999, he served as Management Consultant for Rafino, producer of pet foods, in the Netherlands. Between 1999 and 2001, Mr Weishut was the treasurer of a foundation celebrating the 400-year relationship between Netherlands and Japan.

Supervisory Board Composition; Audit, Remuneration and Appointment Committees A1.16.3 The Company’s Supervisory Board consists of six members. In accordance with the requirements of the Code, the Supervisory Board has installed from among its members an Audit Committee, a Remuneration Committee, and an Appointment Committee. Membership of these committees is set out in the table under “— Members of the Management and Supervisory Boards — Supervisory Board”.

Directors’ Remuneration, Benefits and Terms and Conditions A1.15.1 A1.15.2 Remuneration Policy A1.16.2 The objective of the Company’s remuneration policy is to provide a compensation programme that allows the Company to attract, retain and motivate members of the Management Board and Supervisory Board who have the character traits, skills and background to successfully lead and manage the Company. The remuneration policy, as recommended by the Supervisory Board, and which sets forth the terms of remuneration of members of the Management Board, was adopted by the General Shareholders’ Meeting in November 2006. The remuneration for the Supervisory Board was also adopted at the same General Shareholders’ Meeting upon recommendation of the Supervisory Board. In the year ended 31 December 2005, total remuneration, including salary and benefits, paid to all members of the Management Board and the Supervisory Board amounted to A1.2 million. The three members of the Company’s Management Board have three-year employment contracts that terminate in December 2007 and are automatically renewed by the year periods unless notice of termination is given by either party. These persons are paid under contractual agreements that provide a monthly base salary indexed to the Israeli consumer price index and annual participation in a bonus pool with the other Management Board members that is equal to 7% of the Company’s pre-tax profit before the bonus. In addition, each Management Board member receives certain perquisites as described below. Each Supervisory Board member receives annual remuneration of A8,500 and A1,500 per attendance at meetings or A750 if attendance is by telephone.

Management Board Moshe J. (Mooky) Greidinger is employed under a service contract dated 2 May 1998, which was extended in May 2004. The contract is due to expire in December 2007, but is automatically extended for one year periods subject to a six month notice provision from either party. It includes a non-compete clause that requires Mr Greidinger to refrain from any activity that is competitive to the Company’s activity for a period of twelve months after termination of employment. Forum Film (Israel), the Company’s 50% subsidiary, pays 33% of Mr Greidinger’s remuneration and covers 100% of the proportion of the bonus pool derived from Forum Film (Israel).

69 The service contract entitles Mr Greidinger to benefits including monthly remuneration of NIS 48,110, which is indexed monthly to the Israeli Consumer Price Index. As of August 2006, his monthly remuneration was 61,600 NIS. He is also entitled to participate in a bonus pool with Messrs Israel Greidinger and Amos Weltsch. The pool was originally set at 5.5% of the Company’s pre tax profit before the bonus, but was later increased by the Company to 7%. In addition, under the terms of his employment, Mr Greidinger is entitled to a car, contribution to a severance fund, contribution to a statutory provident fund, a A175 per diem payment for business travel days and reim- bursement of reasonable business expenses, including payment of reasonable telephone bills. Mr Greidinger is not entitled to any benefits on termination of his employment except for a severance payment, which is equal to his monthly base salary at the time of termination, multiplied by the number of years of his employment by the Company.

Amos Weltsch is employed under a service contract dated 2 May 1998 which was extended in May 2004. The contract is due to expire in December 2007, but is automatically extended for one year periods subject to six months’ notice provision from either party. It includes a non-compete clause that requires Mr Weltsch to refrain from any activity that is competitive to the Company’s activity for the period of twelve months after termination of employment. Forum Film (Israel), the Company’s 50% subsidiary, covers 100% of the portion of the bonus pool derived from Forum Film (Israel) profits.

The service contract entitles Mr Weltsch to benefits including monthly remuneration of NIS 43,673, which is indexed monthly to the Israeli Consumer Price Index. As of August 2006, his monthly remuneration was NIS 55,805. He is entitled to participate in a bonus pool with Messrs Israel Greidinger and Moshe Greidinger. The pool was originally set at 5.5% of the Company’s pre tax profit before the bonus, but was later increased by the Company to 7%. In addition, under the terms of his employment, Mr Weltsch is entitled to a car, contribution to a severance fund, contribution to a statutory provident fund, a A175 per diem payment for business travel days and reimbursement of reasonable business expenses, including payment of reasonable telephone bills. Mr Weltsch is not entitled to any benefits on termination of his employment except for a severance payment which is equal to the greater of: (a) the statutory amount accumulated in his policy account for severance pay and (b) his monthly base salary at the time of termination, multiplied by the number of years of his employment by the Company.

Israel Greidinger is employed under a service contract dated 2 May 1998, which was extended in May 2004. The contract is due to expire in December 2007, but is automatically extended for one year periods subject to a six month notice provision from either party. It includes a non-compete clause that requires Mr Greidinger to refrain from any activity that is competitive to the Company’s activity for a period of twelve months after termination of employment. Forum Film (Israel), the Company’s 50% subsidiary, pays 33% of Mr Greidinger’s remuneration and covers 100% of the portion of the bonus pool derived from Forum Film (Israel).

The service contract entitles Mr Greidinger to benefits including monthly remuneration of NIS 40,251, which is indexed monthly to the Israeli Consumer Price Index. As of August 2006 his monthly remuneration was NIS 51,808. He is also entitled to participate in a bonus pool with Messrs Moshe Greidinger and Amos Weltsch. The pool was originally set at 5.5% of the Company’s pre tax profit before the bonus, but was later increased by the Company to 7%. In addition, under the terms of his employment, Mr. Greidinger is entitled to a car, contribution to a severance fund, contribution to a statutory provident fund, a A175 per diem payment for business travel days and reimbursement of reasonable business expenses, including payment of reasonable telephone bills. Mr Greidinger is not entitled to any benefits on termination of his employment except for a severance payment, which is equal to his monthly base salary at the time of termination, multiplied by the number of years of his employment by the Company.

The Management Board members (other than M.J. Greidinger and I. Greidinger) are also eligible to participate in the Company’s Employee Stock Incentive Plan as described in “— Employee Stock Incentive Plan” below.

Supervisory Board

Coleman Kenneth Greidinger, Yair Shilhav, Arthur Frank Pierce, Scott S. Rosenblum, Caroline Mary Twist and Peter John Weishut serve as Supervisory Board members to the Company. The Company has a compensation programme for Supervisory Board members that provides the following benefits: annual remuneration of A8,500; and per meeting remuneration of A1,500 (A750 if by telephone conference). The Supervisory Board members are not entitled to any benefits on termination of their service.

70 Value of remuneration and bonuses The following table presents the remuneration and bonuses (in cash and in kind) paid out or payable for the year ended 31 December 2005 for each of the Management Board and Supervisory Board members. A1.15.1 As at 31 December 2005 Deferred Taxable Salary/Fees Bonus Bonus Benefits Total E E E E E

Management Board Moshe J. (Mooky) Greidinger ...... 198,000 332,000 — — 520,000 Amos Weltsch...... 171,000 161,000 — — 332,000 Israel Greidinger ...... 165,000 161,000 — — 326,000 Supervisory Board Coleman Greidinger ...... 10,000 — — — 10,000 Arthur Pierce ...... 10,000 — — — 10,000 Scott Rosenblum ...... 10,000 — — — 10,000 Caroline Twist...... 10,000 — — — 10,000 Peter Weishut ...... 10,000 — — — 10,000 No Management Board or Supervisory Board members nor any relatives of such persons, were advanced any loans, credits, guarantees or warranties by the Company.

The Company does not set aside any amounts in respect of pension, retirement or any similar benefits for A1.15.2 members of the Management Board or Supervisory Board.

Indemnity Members of the Management Board and Supervisory Boards have the benefit of an indemnity as provided for in the Articles of Association and pursuant to individual agreements with the Issuer. The indemnity gives members of the Management Board and Supervisory Boards a right, to the fullest extent permissable by law, to recover from the Issuer including but not limited to litigation expenses and any damages they are ordered to pay in relation to acts or omissions in the performance of their duties, unless such acts or omissions amount to wilful misconduct or recklessness, unless this would not be reasonable and fair. In addition to compensation for such litigation expenses, the Company provides the members of its Management Board and Supervisory Board with directors’ liability insurance policies.

Directors’ Interests A1.18.3 The direct and indirect interests of Management Board and Supervisory Board members of the Company in the A1.17.2 Company are as follows: A1.18.1 A3.3.3 Name of a person % of shares % of votes Amos Weltsch ...... 1.5% 1.5% Moshe Greidinger and Israel Greidinger(1)...... 34.3% 98.2%

(1) The table above represents each of Moshe and Israel Greidinger’s interests in the Company. Neither Moshe nor Israel Greidinger owns directly any Shares in the Company. For a description of their indirect holdings, see “Greidinger Family Interests” below. Other than as set out above no Management Board or Supervisory Board member or any connected person holds any legal or beneficial interest in the share capital of any member of the Company. A1.14.1 A1.14.2 Greidinger Family Interests A1.17.2 A1.18.3 The Greidinger family has indirect control of the Company’s majority shareholder, ITIT, through its majority 1.14.1 shareholding in Israel Theatres Limited. More than 75% of the shares in Israel Theatres Limited are held by Mr A1.14.2 Israel Greidinger, Mr Moshe Greidinger and their sisters, Ms Rebecca Greidinger and Ms Merav Greidinger as A1.17.2 follows: A1.18.3 • Ms Rebecca Greidinger holds 2.85% directly; • Ms Merav Greidinger holds 2.85% directly;

71 • Mr Israel Greidinger holds 3.47% of the shares directly and has 50% control of DKG Investment Limited, which company owns the entire share capital of Near East Finance Cooperation Limited, which in turn holds a 63.78% interest in Israel Theatres Limited, representing 63.78% of votes at the general meeting of shareholders; • Mr Moshe Greidinger holds 3.47% of the shares directly and has 50% control of DKG Investment Limited, which company owns the entire share capital of Near East Finance Cooperation Limited, which in turn holds a 63.78% interest in Israel Theatres Limited, representing 63.78% of votes at the general meeting of shareholders. No other shareholder owns more than 10% of Israel Theatres Limited. The 50% of Norma Film not owned by the Company is held by M.I. Greidinger Investment Limited, in which both Mr Moshe Greidinger and Mr Israel Greidinger each hold a 50% interest.

Other

At the date of this Prospectus, no member of the Management Board or Supervisory Board has, in the previous A1.14.1 five years (i) been convicted of any offences relating to fraud; (ii) held an executive position at any company at the time of or immediately preceding any bankruptcy, receivership or liquidation; (iii) been subject to any official public sanction by any statutory or regulatory authority (including any designated professional body), and (iv) been the subject of any official public incrimination or been disqualified by the court from acting as a member of the administrator, management or supervisory bodies of a company or from acting in the management or conduct of the affairs of any company. No family relationships exist between the members of the Management Board or Supervisory Board other than the family relationship between Mr Moshe J. Greidinger, Mr Israel Greidinger and Mr Coleman K. Greidinger as described above.

No member of the Management Board or Supervisory Board has a conflict of interest (actual or potential) A1.14.2 between his private interests and duties to the Company. No member of the Management Board or Supervisory Board holds a supervisory or a non-executive position in another listed company or carries on principal activities outside the Company which are significant with respect to the Company.

No member of the Management Board or Supervisory Board is entitled to any benefits on termination of their A1.16.2 employment under their respective service contracts, except that the service contracts of Mssrs Moshe and Israel Greidinger, the Company’s Chief Executive Officer and Chief Financial Officer, respectively, stipulate that they are entitled to a severance payment that is equal to their respective monthly base salaries at the time of termination, multiplied by the number of years of their respective employment with the Company; and the service contract for Mr Weltsch, the Company’s Chief Operating Officer, stipulates that he entitled to a severance payment that is equal to the greater of: (a) the statutory amount accumulated in his policy account for severance pay and (b) his monthly base salary at the time of termination, multiplied by the number of years of his employment by the Company. Other than as set out above, the Company is not aware of any person who has a disclosable interest in the share capital of the Company under the law of the Netherlands.

72 Employees A3.3.3 A1.17.1 The information set out below includes employee data for the Company as a whole.

As at 31 December 30 June 2003 2004 2005 2005 2006 Poland: Full time ...... 208 219 239 231 244 Part time ...... 522 663 878 828 928 Israel: Full time ...... 244 115 123 115 168 Part time ...... 631 650 555 652 528 Czech Republic: Full time ...... 57 53 42 46 41 Part time ...... 156 203 147 169 192 Hungary: Full time ...... 122 124 120 128 115 Part time ...... 27 23 20 20 18 Bulgaria: Full time ...... 3 10 20 16 14 Part time ...... 0 0 0 0 75 Total employees: Full time ...... 634 521 544 536 582 Part time ...... 1,336 1,539 1,600 1,669 1,666 Total...... 1,970 2,060 2,144 2,205 2,248

The majority of employees are employed in operations of the Company’s various theatres. The number of employees fluctuates due to the seasonal nature of the Company’s business. In Poland, the Company employs most of its part time employees through a wholly-owned subsidiary, All Job (Poland), which enables the Company to optimise operational flexibility. The Company considers its employee relations to be good. None of the employees are members of unions in any of the countries in which the Company operates. The Company has not experienced any material disruptions to its operations arising from labour disputes with its employees in the last three years.

Employee Stock Incentive Plan

The Company intends to present to its Shareholders, for approval prior to the Allotment Date, an employee A1.17.3 stock incentive plan (the “Employee Stock Incentive Plan”) comprising of a maximum of 930,000 newly issued or A1.21.1.5 repurchased shares for members of the Management Board, members of management and employees of the A1.21.1.6 Company. Therefore, the Shareholders have resolved to authorise the Supervisory Board to determine, with the participation of at least one independent member of the Supervisory Board, the exact terms of any stock or stock- based incentive scheme, and the persons entitled to participate therein, upon the recommendation of the Man- agement Board. The General Meeting of Shareholders shall approve the exact terms, criteria and beneficiaries of the Employee Stock Incentive Plan. In addition, under such resolution, the Company may purchase its shares in the open market to satisfy any share entitlements upon exercise of any options issued or granted under its Employee Stock Incentive Plan. However, the Issuer has agreed with the Managers to reasonably procure that any beneficiary of the Employee Stock Incentive Plan who receives any options, shares or other securities of the Issuer in connection with the Employee Stock Incentive Plan will not offer, sell, contract to sell, pledge or otherwise transfer or dispose of any such options, shares or other securities during the Lock-up Period. See “The Offering — Lock-up Agreements”. Other than as described above, the Company has not granted any other rights, including but not limited to rights to subscribe for shares, warrants, option rights or entitlements to any person or entity.

Pensions According to the relevant laws, the Company’s subsidiaries in Europe are required to deposit amounts, on a monthly basis, to retirement and pension funds on behalf of their employees, and therefore have no liabilities towards them. Local applicable labour laws and agreements require Cinema City or its subsidiaries to pay severance pay to dismissed or retiring employees (including those leaving their employment under certain other circumstances). The

73 calculation of the severance pay liability was made in accordance with labour agreements in force and based on salary components that, in management’s opinion, create entitlement to severance pay. Cinema City’s and/or its subsidiaries’ severance pay liabilities to their employees are funded partially by regular deposits with recognised pension and severance pay funds in the employees’ names and by purchase of insurance policies and are accounted for as if they were a defined contribution plan. The amounts funded as above are netted against the related liabilities and are not reflected in the balance sheets since they are not under the control and management of the companies.

74 RELATED PARTY TRANSACTIONS

Lease Agreements with Related Parties A1.14.1 A1.19 In June 1998, Israel Theatres Limited, a company that is controlled by Messrs Moshe and Israel Greidinger, entered into a lease agreement with ITIT to lease to ITIT the real estate properties on which six of the Company’s Israeli theatres are located, for the period running until 30 November 2007. Under the agreement, the Company has a right to terminate any lease prior to its original termination date and has done so with respect to two leases. The annual lease payments for the remaining four properties amount to A311,000 in total. The leases were extended in July 2006 for an additional five years on substantially the same terms. The Company’s subsidiaries Forum Film (Israel) and Giant Video have been leasing offices and storage space from Israel Theatres Limited since February 1994, for a rental payment of A10,000 per month, linked to the change in the Israeli consumer price index. I.T. International Theatres 2004, a subsidiary of the Company, has a lease for offices in Herzlia and Haifa from Israel Theatres Limited terminating on 30 November 2007, for a rental payment of A52,000 per annum, linked to the change in the Israeli consumer price index. The amount of rent paid for the lease is the market rate.

Share Transfer In November 2006, ITIT transferred 4,940,352 Shares of the Company to ITIT’s parent company, Israel Theatres Limited. Such Shares represent the shares purchased by ITIT in February 2006 from certain minority shareholders. See “Principal and Selling Shareholders”.

75 DESCRIPTION OF THE SHARES AND CORPORATE RIGHTS AND OBLIGATIONS A1.21.2 A1.21.2.3 The following is a summary of certain information in relation to the share capital of the Company and of A1.21.2.4 certain significant provisions of Dutch corporate law and the Articles of Association. This summary is intended to A3.4.1 contain all material information in relation to the share capital of the Company and the rights attaching to the A3.4.5 Shares and in relation to the Articles of Association of the Company, but does not purport to be complete. This A3.4.8 summary is qualified entirely by reference to the Articles of Association, which can be obtained from the A3.4.9 commercial register in Amsterdam, and by Dutch law in effect at the date of this Prospectus.

General A1.5.1.1 A1.5.1.2 The Company is a limited liability company (naamloze vennootschap) of unlimited duration incorporated, A1.5.1.3 existing and operating under the laws of the Netherlands, in compliance with Book 2 of the Dutch Civil Code. On A1.5.1.4 12 April 1994, I.T. International Cinemas B.V. (the previous name of the Company), was incorporated as a private limited liability company (besloten vennootschap met beperkte aansprakelijkheid) under the law of the Nether- lands, with statutory seat in Rotterdam, the Netherlands. I.T International Cinemas B.V. was converted into a limited liability company (naamloze vennootschap) on 24 March 2004 and changed its name to Cinema City International N.V.The Company is registered in the commercial register of the Chamber of Commerce and Industry for Amsterdam under the number 33260971. The Company’s corporate seat is in Amsterdam and its current office address at its principal place of business is Weena 210-212, 3012 NJ, Rotterdam, the Netherlands. The telephone number of the Company’s office is +31 10 201 3602 and the Company’s office fax number is +31 10 201 3603.

The following description is based on, and qualified in its entirety by reference to, the full text of the Articles of Association as approved at the General Meeting of Shareholders on 31 October 2006.

Corporate Purpose

Article 3 of the Articles of Association provide that the principle objects of the Company are: A1.21.2.1

a. to show, distribute, sell and rent films, to build and develop shopping centres, amusement centres, movie theatre complexes, video clubs and to enter into other real property transactions;

b. to incorporate, participate in, conduct the management of and take any other financial interest in other companies and enterprises;

c. to acquire, dispose of, manage and exploit real and personal property, including patents, marks, licences, permits and other industrial property rights;

d. to render administrative, technical, financial, economic or managerial services to other companies, persons or enterprises;

e. to borrow and/or lend moneys, act as surety or guarantor in any other manner, and bind itself jointly and severally or otherwise in addition to or on behalf of others,

the foregoing (a) through (e) whether or not in collaboration with third parties and inclusive of the performance and promotion of all activities which directly and indirectly relate to those objects, all this in the broadest sense of the terms.

Share Capital

Under the Articles of Association, the Company’s authorised share capital amounts to A1,750,000.—, divided A1.21.1.1 into 175,000,000 ordinary shares in registered or bearer form with a nominal value of A0.01 each. As at the date of A1.21.2.3 this Prospectus, the issued and outstanding share capital of the Company amounts to A407,240 and is divided into 40,724,000 fully paid ordinary shares with a nominal value of A0.01 each. All of the Shares are ordinary shares, are fully paid up and rank pari passu with each other and there is no other class of shares authorised. No depositary receipts for shares in the capital of the Company have been issued with the agreement of the Company, and the Company has not been informed that depositary receipts for shares in the capital of the Company have been issued without its agreement.

76 The table below shows the current Company’s share capital and the Company’s share capital after the New Shares have been issued:

Cumulative number Nominal value Issued ordinary share capital of shares (E per share) Current shares issued as at the date hereof ...... 40,724,000 0.01 New Shares to be issued for the Offering ...... 10,000,000 0.01 Total issued shares post-Offering ...... 50,724,000 0.01

Confirmation of Ownership of Shares Subsequent to admission and listing of the Shares to trading on the WSE on or about 8 December 2006, because of the principles of trading on the regulated market and the dematerialisation of securities in Poland, the document confirming the ownership of the Shares will be the registered depository certificate issued in particular for the purpose of participation in the General Meetings of Shareholders. Such a certificate is issued by the broker or the custodian with whom the relevant shareholder has a securities account. The registered depository certificate confirms that the shares have been blocked for the duration of the General Meeting of Shareholders and at least seven days ahead of it.

Issue of Additional Ordinary Shares and Pre-emption Rights A1.21.2.8 A3.4.5 The Company shall only issue shares pursuant to a resolution of the General Meeting of Shareholders or of another corporate body designated to do so by a resolution of the General Meeting of Shareholders for a fixed period not exceeding five years. The designation must be accompanied by a stipulation as to the number of shares that may be issued. The designation may each time be extended for a period of up to five years. The designation may not be cancelled, unless the designation provides otherwise. A decision by the General Meeting of Shareholders to issue shares or to designate another body to issue shares can only be taken upon the proposal of the Management Board. The proposal is subject to the approval of the Supervisory Board. Each holder of Shares shall have a right of pre-emption in proportion to the aggregate nominal value of such holder’s Shares. Shareholders shall, however, have no right of pre-emption on Shares which are issued against a contribution other than cash, which are issued to employees of the Company or of a group company of the Company, or which are issued to any person who exercises a previously acquired right to subscribe for Shares. Pre-emption rights may be restricted or excluded by a resolution of a General Meeting of Shareholders. A decision by the General Meeting of Shareholders to restrict or to exclude pre-emptive rights can only be taken upon the proposal of the Management Board. The proposal is subject to the approval of the Supervisory Board. The reasons for such proposal and the issue price of the shares must be given in writing in the proposal thereto. Pre- emptive rights may also be excluded or restricted by the authorised corporate body designated to do so by a resolution of the General Meeting of Shareholders for a fixed period not exceeding five years. The designation may each time be extended for a period of up to five years. The Company must announce any issue of shares with pre-emption rights for shareholders and the period during which these rights can be exercised in the Staatscourant (the Dutch official Gazette) and in a Dutch daily newspaper with nation-wide distribution as well as publication in each country in which the shares of the Company have been admitted to official listing on a regulated stock exchange in accordance with the applicable rules, as well as by means of any additional publications as the Management Board deems necessary. The period during which pre-emption rights can be exercised must be at least two weeks starting from the date on which the issue is announced in the Staatscourant (the Dutch Official Gazette). If the Company decides to issue new Shares in the future and does not waive the pre-emptive rights of existing shareholders then the Company will publish the decision by placing an announcement in the Staatscourant (the Dutch official gazette) and simultaneously in a Dutch and a Polish newspaper of nationwide circulation. In addition, the decision will be published in Poland as a Current Report filed with the FSC, the WSE and the PPA. The announcement will specify the period in which the pre-emptive right may be exercised. Such period may not be shorter than two weeks from the day of publication in the Staatscourant. Dutch law does not provide for any procedure for determining the pre-emptive right exercise date and such date is always defined in the relevant resolution on the issue of shares. The Company will agree upon the draft resolution regarding the issue of new shares, which will be offered as a result of the exercise of pre-emptive right, with the NDS and the WSE. The

77 announcement will also specify the details regarding the procedure for exercise of the pre-emptive rights. The pre- emptive right is exercised by placing an order with the Company and paying for the newly issued shares. If the Company decides to apply for admission of newly issued shares to trading on a regulated market in Poland then the pre-emptive rights will be exercised, and the payment for new shares will be made, in accordance with the rules of the WSE and of the NDS. Under Dutch laws pre-emptive rights are transferable and tradable property rights.

Purchase of its own Shares by the Company

The Company may acquire fully paid Shares at any time for no valuable consideration or, subject to certain provisions of Dutch law and the Articles of Association, if (i) the Company’s shareholders’ equity less the payment required to make the acquisition does not fall below the sum of called-up and paid-up share capital and any statutory reserves; (ii) the Company would thereafter not hold, or hold in pledge, shares with an aggregate nominal value exceeding ten per cent (10%) of its issued share capital; and (iii) the Management Board has been authorised at the General Meeting of Shareholders to make such acquisition, which authorisation shall be valid for not more than 18 months and shall specify the number of Shares which may be acquired, the manner in which they may be acquired, the limits within which the price must be set and the time within which the Shares must be resold.

No such authorisation is required for the acquisition by the Company of fully paid Shares for the purpose of transferring such Shares to employees of the Company or employees of a group company of the Company under a scheme applicable to such employees. Such Shares must be officially listed on an exchange. Any such acquisition of Shares may be effected by a resolution of the Management Board, subject to approval of the Supervisory Board.

In the General Meeting of Shareholders, no voting rights may be exercised for any Share held by the Company or a subsidiary of the Company.

At the date of this Prospectus, the Company does not hold any shares in its own share capital. A1.21.1.3

Reduction of the Issued Capital A1.21.2.8

At the proposal of the Supervisory Board, a General Meeting of Shareholders may, subject to Dutch law and the Articles of Association, resolve to reduce the issued share capital. A reduction of the Company’s issued capital may be effected (i) by cancellation of Shares held by the Company; or (ii) by reducing the nominal value of Shares, to be effected by an amendment to the Articles of Association. A reduction of the nominal value of Shares without repayment must be effected in proportion to all Shares. This principle may be deviated from with the consent of all shareholders.

Management Board

The management of the Company is entrusted to the Management Board under the supervision of the A21.2.2 Supervisory Board. The Articles of Association provide that the Management Board shall consist of two or more managing directors. Managing directors are appointed by the General Meeting of Shareholders.

The Management Board shall meet as often as a managing director requests a meeting. All resolutions by the Management Board shall be adopted by an absolute majority of the votes cast.

The authority to represent the Company shall also be vested in the Management Board and in two managing directors acting jointly. In addition, the Articles of Association may require that the Management Board shall obtain prior approval from the Supervisory Board for certain resolutions and the Management Board shall require the prior approval of a General Meeting of Shareholders for resolutions entailing a significant change in the identity or character of the Company or its business. The absence of approval by a General Meeting of Shareholders or the Supervisory Board, as the case may be, for a resolution that requires the approval of the General Meeting of Shareholders or the Supervisory Board, respectively, shall not affect the authority of the Management Board or its members to represent the Company.

In the event that the Company has a conflict of interest with a managing director, in the sense that the managing director in private enters into an agreement with, or is party in a legal proceeding between him and the Company, the Company shall be represented by two other managing directors. If there are no such other managing directors, the supervisory board directors shall appoint a person to that effect. Such person may be the managing director in relation to whom the conflict of interest exists. In all other cases of a conflict of interest between the company and a managing director, the Company can also be represented by that managing director. A General Meeting of Shareholders shall at all times be authorised to appoint one or more other persons to that effect.

78 Managing directors may be suspended or removed by a General Meeting of Shareholders at any time. Managing directors may also be suspended by the Supervisory Board, but such suspension may be discontinued at any time by the General Meeting of Shareholders. The Articles of Association provide that the Company shall have a policy on the remuneration of the Management Board, which remuneration policy shall be proposed by the Supervisory Board and adopted by the General Meeting of Shareholders. The remuneration and further terms of employment of the Management Board shall be determined by the Supervisory Board, with due observance of the remuneration policy. If the remuneration of the Management Board also consists of schemes under which Shares and/or rights to subscribe for Shares are granted, the Supervisory Board shall submit these schemes to the General Meeting of Shareholders for approval. As a minimum, the proposal must state the number of Shares or rights to subscribe for Shares that can be granted to the Management Board and the conditions for the granting and amending thereof. The Management Board may appoint officers with general or limited power to represent the Company.

Supervisory Board The Supervisory Board advises the Management Board and is responsible for supervising the management of the Management Board and the general course of affairs of the Company and the business connected with it. In performing their duties, the members of the Supervisory Board (each a “Supervisory Director”) shall act in accordance with the interests of the Company and the business connected with it. The Articles of Association provide that the Company shall have a Supervisory Board consisting of at least three (3) and at most six (6) natural persons of which at least two (2) supervisory directors shall be independent. Supervisory Directors are appointed by the General Meeting of Shareholders for a period of four years. After holding office for the first period of four years, Supervisory Directors are eligible for re-election for two additional terms of four years each, as referred to in article 23.3 of the Articles of Association. Each Supervisory Director may be suspended or removed by the General Meeting of Shareholders at any time. The Supervisory Board may appoint one of the Supervisory Directors as chairperson of the Supervisory Board. The Supervisory Board shall meet whenever a Supervisory Director or the Management Board deems necessary. The Supervisory Board shall meet with the Management Board as often as the Supervisory Board or the Management Board deems necessary. All resolutions by the Supervisory Board shall be adopted by an absolute majority of the votes cast. The chairman of the Supervisory Board shall not have a casting vote and, in the event of deadlock on a matter presented to the Supervisory Board, the matter will be deemed not to have been approved. The General Meeting of Shareholders shall establish the remuneration for each Supervisory Director.

General Meeting of Shareholders A1.21.2.5 The annual General Meeting of Shareholders shall be held within six months after the end of the financial year to deal with, among other matters: (i) the annual report; (ii) adoption of the annual accounts, (iii) discussion of any substantial changes in corporate governance; (iv) discussion of remuneration policy board of managing directors, (v) discharge of the board of managing directors for the management over the past financial year (vi) discussion of remuneration supervisory board, (vii) discharge of the board of Supervisory Directors for the supervision over the past financial year, (viii) policy on additions to reserves and dividends and (ix) adoption of the profit appropriation.

Extraordinary General Meetings of Shareholders

Other General Meetings of Shareholders shall be held as often as the Management Board or the Supervisory A1.21.2.5 Board deems necessary. Shareholders representing in the aggregate at least one-tenth of the Company’s issued capital may request the Management Board or the Supervisory Board to convene a General Meeting of Share- holders, stating specifically the business to be discussed. If the Management Board or the Supervisory Board has not given proper notice of a General Meeting of Shareholders following receipt of such request such that the meeting can be held within six weeks after receipt of the request, the applicants shall be authorised to convene a meeting themselves. If the requesting shareholders represent more than half of the issued capital, however, they shall be authorised to call the general meeting themselves without first having to request the board of managing directors to call the general meeting. Notwithstanding the previous paragraph, notice of General Meetings of Shareholders shall be given by the Management Board or the Supervisory Board, no later than on the fifteenth day prior to the day of the meeting.

79 The board of managing directors and the board of Supervisory Directors shall inform the General Meeting of Shareholders by means of a shareholder circular of all facts and circumstances relevant to the approval, delegation or authorisation to be granted if a right of approval is granted to the General Meeting of Shareholders. A notice of the General Meeting of Shareholders shall specify the business to be discussed and the manner in which shareholders can register and exercise their rights. All notices of General Meetings of Shareholders, all announcements concerning dividends and other payments and all other communications to shareholders shall be effected by (i) publication in at least one daily newspaper which is nationally distributed in the Netherlands, (ii) publication in at least one daily newspaper in each country in which the shares of the company have been admitted to official listing on a regulated stock exchange in accordance with the applicable rules and (iii) by means of any additional publications as the board of managing directors deems necessary. In case there are registered Shares issued, such notices and announcements shall also be sent to the addresses of the shareholders shown in the register of shareholders. Unless the notice of the General Meeting of Shareholders includes the contents of all documents which, according to Dutch law or the Articles of Association, are to be available to shareholders for inspection in connection with the General Meeting of Shareholders to be held, these documents are to be made available free of charge to shareholders at the registered office of the Company in the Netherlands, at its office in ul. Powsinska 31, Warsaw, Poland and on the Company’s website, www.cinemacity.nl. Shareholders who, alone or jointly, represent at least one per cent of the issued capital or, as the Company is listed at a stock exchange not being a Dutch stock exchange, a block of shares, alone or jointly, worth at least A50 million according to the price list of that exchange, shall have the right to request to the Management Board or the Supervisory Board that items be placed on the agenda of the General Meeting of Shareholders. Such requests shall be complied with by the Management Board or the Supervisory Board provided (i) that important interests of the Company do not dictate otherwise and (ii) that the request is received by the chairperson of the Management Board or of the Supervisory Board in writing at least 60 days before the date of the General Meeting of Shareholders. General Meetings of Shareholders are held in Amsterdam, Rotterdam or at Schiphol Airport (Municipality of Haarlemmermeer). General Meetings of Shareholders may also be held elsewhere, within or outside the Neth- erlands, in which case valid resolutions of the General Meeting of Shareholders may only be adopted if all of the Company’s issued capital is represented. Shareholders may adopt resolutions of the General Meeting of Share- holders in writing without holding a meeting, provided they are adopted by the unanimous vote of all shareholders entitled to vote. The General Meeting of Shareholders shall be presided over by the person appointed by the Supervisory Board, which may be substituted in accordance with the Articles of Association.

Record Date The Management Board may schedule a record date for each General Meeting of Shareholders. This record date shall not be earlier than the seventh day prior to the date of the General Meeting of Shareholders. The voting rights and the right to attend the General Meeting of Shareholders and the Pre-Meeting shall accrue to those holding such entitlements and registered as such in a register designated for that purpose by the Management Board on this record date, irrespective of to whom these rights accrue at the time of the General Meeting of Shareholders or the pre-meeting, respectively. The record date scheduled shall be specified in the notice of the relevant meeting together with the manner in which shareholders can register and exercise their rights, all in accordance with the Articles of Association.

Voting Rights At the General Meeting of Shareholders or at the Pre-Meeting, each Share confers the right to cast one vote, subject to the relevant provisions of the Articles of Association. Each shareholder that has complied with the conditions as set out in the notification to attend the General Meeting of Shareholders is then entitled to attend the General Meeting of Shareholders, to address the meeting and to exercise his or her voting rights, in accordance with the Articles of Association. Where it concerns registered Shares, shareholders may be requested to notify the Management Board in writing of the intention to attend the General Meeting of Shareholders. The Management Board must receive such notice no later than on the date mentioned in the notice of the relevant meeting. Shareholders that have duly registered at the record date may be represented in a meeting by a proxy authorised in writing, provided that the power of attorney has been received by the Management Board no later than on the date mentioned in the notice of

80 the relevant meeting. In both instances, this date shall not be earlier than the seventh day prior to the date of the General Meeting of Shareholders. At a General Meeting of Shareholders, each person present with voting rights must sign the attendance list. The shareholder shall have the right to vote on Shares, which is subject to a right of usufruct (vruchtgebruik)or a right of pledge. However voting rights shall be vested in the pledgee if such is provided upon the creation of the right of usufruct or the pledge. To the extent that Dutch law and the Articles of Association do not provide otherwise, all resolutions of the General Meeting of Shareholders shall be adopted by a simple majority of the votes cast. The Supervisory Directors and the Management Board members have, as such, the right to render advice in the General Meeting of Shareholders. Shareholders may adopt resolutions of the General Meeting of Shareholders in writing without holding a meeting, provided they are adopted by the unanimous vote of all shareholders entitled to vote. The Company envisages that, in addition of the Dutch corporate law requirements, the information concerning the dates and places of its General Meetings of Shareholders will also be announced in the form of a Current Report and a press release in Poland as described below: The Company will publish in Poland information of any General Meeting of Shareholders at least 30 days prior to the date of a given General Meeting of Shareholders, by filing with the FSC, the WSE and the PAP a Current Report containing a Polish translation of invitation to the General Meeting of Shareholders with the agenda of the meeting and information on the proxy voting procedure. Invitation to the General Meeting of Shareholders, together with any accompanying documents, will also be published in Dutch and Polish on the website of the Company. No resolution of the General Meeting of Shareholders may be adopted on a matter not included in the agenda, except where the entire share capital is represented at the General Meeting of Shareholders. The Company will publish draft resolutions that are to be adopted at the General Meeting of Shareholders not later than 15 days prior to the date of the General Meeting of Shareholders, by way of a Current Report. Shareholders may take part in the General Meeting of Shareholders and vote (i) in person, or (ii) by an individual proxy appointed by the shareholder or (iii) by a proxy indicated by the Company. It is an additional option for a shareholder to appoint a proxy indicated by the Company and, therefore, each shareholder may attend the General Meeting of Shareholders personally or may appoint its individual proxy as well. The proxy indicated by the Company that may be appointed by the shareholders to act as a proxy for the purpose of voting at the General Meeting of Shareholders and that will be given a voting instruction shall be a natural or legal person indicated by the Company in the invitation to the General Meeting of Shareholders. Such proxy or proxies will be appointed by the Management Board. Each shareholder may appoint a proxy indicated by the Company at the address mentioned in the invitation to the General Meeting of Shareholders or by submitting these documents at the Pre-Meeting. The voting instruction card and power of attorney should be accompanied by a depository certificate issued by the broker or custodian maintaining the securities account on which the Shares held by such voting shareholder are registered. The depository certificate should contain, inter alia, the name of the shareholder, the number of Shares held, as well as a statement of the broker or the custodian that the Shares will have been blocked in the securities account until the date of the General Meeting of Shareholders indicated in the Current Report containing the invitation to the General Meeting of Shareholders. The voting instruction card may be in Polish. The proxy indicated by the Company will follow the voting instructions of a shareholder as an individual proxy of each shareholder that has granted the authorisation to him. The shareholder may abstain from voting in particular resolutions. Abstentions will be excluded from the vote, but they will count for purposes of determining whether a quorum is present. If the proxy indicated by the Company receives the power of attorney from a given shareholder but does not receive the voting instruction card the proxy indicated by the Company will vote in the manner as proposed by the Management Board. The power of attorney granted to the proxy indicated by the Company may be revoked at any time by mailing or personal delivery of a revocation notice to the address indicated in the invitation to the General Meeting of Shareholders, provided that the revocation notice is received at least two business days prior to the General Meeting of Shareholders. Such term will be determined in accordance with the relevant provisions of Polish law. The shareholder may personally revoke the authorisation given to the proxy indicated by the Company in the course of the General Meeting of Shareholders and vote in person or by its individual proxy at the General Meeting of Shareholders. In the event that during the General Meeting of Shareholders the content of a draft resolution has been changed, the proxy indicated by the Company will vote in a manner which, in his/her opinion, is the closest to the intentions of the principal. If due to mistake or malicious intentions a proxy indicated

81 by the Company while voting on behalf of the shareholder does not follow the shareholder’s instruction, such vote will be valid and the shareholder may demand the redress of damages from such a proxy. The Company will bear the costs of the proxy indicated by the Company.

The shareholders may request a copy of the invitation to the General Meeting of Shareholders, together with any accompanying documents, free of charge, by sending a request to the Investors Relations Office of the Company at its registered office.

Pre-meetings

The Company intends to hold in Poland preliminary meetings with shareholders (“Pre-Meeting”) not more than 10 business days and not less than 1 business day prior to the date of each General Meeting of Shareholders. The agenda of the Pre-Meeting will be identical with the agenda of the General Meeting of Shareholders which follows the Pre-Meeting. Invitation to the Pre-Meeting will be published in Poland by way of a press release and a Current Report. The invitation to a Pre-Meeting may be published simultaneously with the invitation to the General Meeting of Shareholders.

Shareholders may participate, ask questions, review documents and vote on the Pre-Meetings on terms identical to those applicable to the General Meeting of Shareholders. Shareholders present or represented at the Pre- Meeting will be able to appoint proxies (indicated by the board of directors) to cast on behalf of shareholders votes at the General Meeting of Shareholders which follows the Pre-Meeting.

Challenging resolutions of General Meetings of Shareholders

Under Dutch law and the conflict of law rules, a resolution of a general meeting of shareholders of a Dutch company may only be appealed to a Dutch court in accordance with the Dutch company and civil proceedings law.

Pursuant to Dutch law, a resolution of a general meeting of shareholders may be appealed if the resolution is (i) in conflict with the statutory law, provisions of the articles of association on the proceedings for taking resolutions, (ii) in conflict with principles of reasonableness and fairness as set forth in Art. 2.8 of the Dutch Civil Code; or (iii) in conflict with the internal regulation of the company itself (inter alia the articles of association). Art. 2.8 of the Dutch Civil Code includes a general clause which appeals for the exercise of corporate rights and obligations in compliance with principles of reasonableness and fairness. The plaintiff should furthermore show a legal interest in appealing against the resolution.

Generally the appeal should be filed with a district court having jurisdiction over the relevant company’s statutory seat, and Dutch civil proceedings rules shall be applicable. Generally, the appeal will be subject to court fees. If the court finds in favour of the appealing party, the resolution can be nullified (vernietigd).

Furthermore, Dutch law provides for a right to challenge a resolution taken by other governing bodies of a Dutch company (i.e. the board of directors) on the same grounds as specified above. The same appeal procedure would apply.

Annual accounts

Annually, not later than five months after the end of the financial year, save where this period is extended by the General Meeting of Shareholders by not more than six months by reason of special circumstances, the Management Board shall prepare annual accounts, which must be accompanied by an annual report and an auditor’s report. The Supervisory Board shall prepare a report, which shall be enclosed with the annual accounts and the annual report. All managing directors and Supervisory Directors must sign the annual accounts.

The annual accounts, the annual report, the report of the Supervisory Board and the auditor’s report must be made available to the shareholders for review as from the day of the notice convening the General Meeting of Shareholders at the registered office of the Company in the Netherlands, at its office at Powsinska 31, Warsaw, Poland, and on the Company’s website, www.cinemacity.nl. Shareholders may inspect the documents at that place and obtain a copy free of charge. The annual accounts shall be adopted by the General Meeting of Shareholders. After adoption of the annual accounts, the General Meeting of Shareholders shall pass a resolution concerning release of the managing directors and the Supervisory Directors from liability for the exercise of their respective duties, insofar as the exercise of such duties is reflected in the annual accounts or otherwise disclosed to the General Meeting of Shareholders prior to the adoption of the annual accounts. The scope of a release from liability shall be subject to limitations by virtue of the law.

82 Dividends and other Distributions The Management Board shall, subject to the approval of the Supervisory Board, determine the amount of the profits accrued in a financial year that shall be added to the reserves of the Company. The allocation of the profits (if any) remaining shall be determined by the General Meeting of Shareholders. The Management Board may, subject to the prior approval of the Supervisory Board, resolve to make interim distributions at the expense of any reserve of the Company. Distributions to shareholders may only be made in so far as the Company’s shareholders’ equity exceeds the sum of the paid-up and called-up share capital plus the reserves required to be maintained by law and by the Articles of Association. Any distribution of profit shall be made only after the adoption of the financial statements by the General Meeting of Shareholders from which it is demonstrated that such distribution is permitted. Distributions that have not been claimed within five years as from the date that they have become available shall lapse. Subsequently to the Offering, it is expected that the dividends (if any) will be paid through the NDS. The Company will transfer the dividend, less the tax due under Dutch law, to the NDS on the dividend payment date. The NDS will pay that amount to the accounts of its members (investment firms and custodians) that will then pay the dividend directly to the shareholders. The funds will be payable in Euro or in PLN. The NDS will distribute successive dividends (if any) in accordance with the regulations prevailing on the Polish capital market.

Statutory Merger and Statutory Demerger

The Company may enter into a statutory merger with one or more other legal entities. A merger resolution may A1.21.2.6 only be adopted on the basis of a merger proposal prepared by the management boards of the merging legal entities. Within the Company, the merger resolution shall be adopted by the General Meeting of Shareholders. In certain specific circumstances, Dutch law allows for the merger resolution to be adopted by the Management Board. The Company may also be a party in a statutory demerger, which may include both split-up and spin-off. The procedure is very similar to the procedure for statutory mergers, as described above.

Right to Acquire Minority Shareholdings Section 2:92a of the Dutch Civil Code contains a procedure for the acquisition of shares owned by minority shareholders of a Dutch public limited company such as the Company. If a majority shareholder (either alone or together with its group companies) holds directly and for its own account at least 95 per cent of the issued share capital of the Company, such shareholder may institute proceedings against the minority shareholders in order to force them to transfer their shares to the majority shareholder.

Amendment to the Articles of Association and Dissolution A1.21.2.4 A1.21.2.8 Only upon the proposal of the Management Board, subject to the approval of the Supervisory Board, the General Meeting of Shareholders may resolve to amend the Articles of Association. When a proposal to amend the Articles of Association is to be made to the General Meeting of Shareholders, the notice convening the General Meeting of Shareholders must state so and a copy of the proposal, including the verbatim text thereof, shall be deposited and kept available at the registered office of the Company in the Netherlands, at its office in ul. powsinska 31, Warsaw, Poland, and on the Company’s website, www.cinemacity.nl, for inspection by the Shareholders, until the conclusion of the meeting. From the day of deposit until the day of the meeting, a shareholder shall, on application, be provided with a copy of the proposal free of charge. Only upon the proposal of the Management Board, subject to the approval of the Supervisory Board, the Company may be dissolved pursuant to a resolution to that effect by the General Meeting of Shareholders. When a proposal to dissolve the Company is to be made to the General Meeting of Shareholders, this must be stated in the notice convening the General Meeting of Shareholders.

Liquidation rights If the Company is dissolved pursuant to a resolution of the General Meeting of Shareholders, the Company’s business shall be liquidated with due observance of the provisions of Dutch law and the managing directors shall become liquidators of the Company’s property. The board of Supervisory Directors shall supervise the liquidation. During liquidation, the provisions of the Articles of Association shall remain in force to the extent possible. The balance remaining after payment of the Company’s debts shall be transferred to the shareholders in proportion to the aggregate nominal value of the shares held by each of them.

83 Directors’ Liability Under Dutch law, members of the Management Board and Supervisory Board are jointly and severally liable to the Company for failure to fulfil their respective duties properly. Members of either board may, in the event of the Company’s bankruptcy, be liable to the trustee in bankruptcy for improper fulfilment of their respective duties. The provisions of Dutch law governing such liability are mandatory in nature. In certain exceptional circumstances, liability of directors towards third parties may also arise.

Dutch Corporate Governance Code On 1st January, 2004 the Dutch Corporate Governance Code (the “Code”) entered into force. The Code is based upon national and international best practices in corporate governance. The Code contains 21 principles and 113 best practice provisions covering the management board, the supervisory board, the shareholders and general assembly, financial reporting, auditors, disclosure, compliance and enforcement. The Code requires Dutch companies that are listed on a government-recognised stock exchange, whether in the Netherlands or in any other country, to disclose in their annual reports (commencing with those annual reports for financial years beginning on or after 1st January 2004), whether or not they comply with the provisions of the Code and, if they do not comply, to explain the reasons why. Compliance with these measures was initially voluntary. However, since 31st December 2004, Dutch companies are legally required to set forth in their annual report whether they comply with the Code or explain why they do not.

The Code sets forth a number of “Best Practice Provisions” governing the conduct of management and A1.16.4 supervisory board members and shareholders. The Company acknowledges the importance of good corporate governance. Save as disclosed below, the Company complies with the Code. The Management Board and Supervisory Board have reviewed the Code, and generally agree with its basic provisions, and have, to the extent possible, implemented and subsequently applied most of the best practice provisions of the Code in its corporate governance structure and Articles of Association. The Code recognises that non-application of a Best Practice Provision is not in itself objectionable and indeed may be justified under certain circumstances. In certain respects where the provisions of the Code conflict with Polish law or Polish corporate governance requirements, the Company has determined that it will comply with the Polish requirements rather than the provisions of the Code in view of the fact that the Company is solely listed on a Polish stock exchange and the majority of its public shareholders are expected to be based in Poland. The following is a description of the material deviations from the provisions of the Code: • Best Practice Provision II.2.7 of the Code states that severance payments may not exceed the annual salary. Employment contracts of the members of the Management Board, which were entered into before the Code was developed, provide severance payments that exceed the annual salary. The employment contracts are considered to be in line with standard company policy and the Supervisory Board intends to honour this contractual commitment and is of the view that a deviation from the Code is justified. • Best Practice Provision III.2.1 of the Code prescribes that the Supervisory Board consists of independent persons, except for one. The company currently has two non-independent members of the Supervisory Board, which is a deviation from the Code. However, the current composition of Supervisory Board is consistent with Polish corporate governance guidelines. Any further deviations (if any) from the Best Practice Provisions of the Code will be included and explained in the Company’s annual report 2006.

Polish Corporate Governance On 15 December 2004, the WSE management board and the WSE supervisory board adopted corporate governance rules of the WSE contained in the Best Practices in Public Companies in 2005 (the “WSE Corporate Governance Rules”). The WSE Corporate Governance Rules reflect the achievements in this field at both national and international level and apply to companies listed on the WSE, irrespective of whether such companies are incorporated in Poland or outside of Poland. The WSE Corporate Governance Rules consist of five general principles and 48 best practice provisions relating to shareholders’ meetings, management boards, supervisory boards and relations with third parties and third party institutions. The WSE Corporate Governance Rules impose on companies listed on the WSE an obligation to disclose in their annual reports, whether or not the companies comply with those principles and provisions and, if they do not comply, to explain the reasons why. Moreover, every year, each company listed on the WSE is required to announce its detailed statement on compliance or non- compliance with the WSE Corporate Governance Rules by way of a Current Report published before 1 July.

84 Compliance with WSE Corporate Governance Rules is voluntary. Companies listed on the WSE are required, however, to give reasons justifying non-compliance or partial compliance with any rule. The Issuer intends, to the extent practicable, to comply with all principles of the WSE Corporate Governance Rules. However, certain principles will apply to the Company only to the extent allowed by Dutch law. In particular, as Dutch law does not provide for elections of the Supervisory Board’s members by separate groups of share- holders, the Company’s internal regulations do not and will not include provisions on group elections (Rule 6). No reports will be provided by the Supervisory Board member delegated by a group of shareholders (Rule 30) because Dutch law does not provide for delegation of a board member by a group of shareholders. Detailed information regarding non-compliance, as well as additional explanations regarding partial com- pliance with certain Corporate Governance Rules of the WSE due to incompatibilities with Dutch law, will be included in the full text of the Company’s declaration regarding WSE Corporate Governance Rules, which will be filed with the WSE at the time of filing the application for admission to listing and will be available on the Issuer’s website and published by way of a Current Report.

Obligations of Shareholders to Make a Public Offer On 21 April 2004 the EU Directive 2004/25/EC of the European Parliament and the Council of the European Union on takeover bids (the “Takeover Directive”) was adopted in the Netherlands. The Takeover Directive applies to all companies governed by the laws of a European Union member state of which all or some securities are admitted to trading on a regulated market in one or more member states. Pursuant to the Takeover Directive, a person holding securities in such a company that, when added to any existing holdings and the holdings of persons acting in concert with him, directly or indirectly, give him control of that company, is required to make a public offer to all the holders of those securities for all their holdings at an equitable price. The laws of the member state in which the company has its registered office will determine what percentage of the voting rights in that company is regarded as conferring control over the company and the method of calculation of such percentage. The main feature of the legislative proposal is the introduction into Dutch law of a requirement for a shareholder, or shareholders acting in concert, acquiring 30 per cent or more of the voting rights in a listed company, to make a mandatory bid for that company. Any such interests existing as at the moment of the new legislation coming into force in the Netherlands (i.e., on the basis of the current draft) will be grandfathered. The Takeover Directive was due to be implemented in each EU member state by 20 May 2006. However, implementation in the Netherlands has been delayed as a result of the debate that has arisen following the Dutch government’s proposal to include the breakthrough provisions of the Takeover Directive in the implementing legislation. In brief, the Dutch government proposed the creation of a statutory right for an offeror to breakthrough takeover defences after six months following the offer if it had acquired at least 75 per cent of the issued share capital of the target company. The breakthrough provisions of the Takeover Directive are however optional and it was generally felt within Dutch parliament and by the financial press that the Netherlands should not go further than was absolutely necessary in this respect. A revised legislative proposal for implementing the Takeover Directive, which excludes the breakthrough provisions, has now been submitted to the Dutch parliament. If the proposal is adopted, the legislation could come into force at the beginning of next year. For information on Polish tender offer obligations applicable to the Company’s shareholder see “Warsaw Stock exchange — Tender Offer Obligations”

Dutch Squeeze-Out Proceedings If a person or company or group companies (the “Controlling Entity”) hold in total 95.0% of a company’s (the “Controlled Entity”) issued share capital by nominal value for their own account, Dutch law permits the Controlling Entity to acquire the remaining shares in the Controlled Entity by initiating proceedings against the holders of the remaining shares. The price to be paid for such shares will be determined by the Enterprise Section of the Amsterdam Court of Appeal. A shareholder who holds less than 95.0% of the shares, but in practice controls the Controlled Entity’s general meeting of shareholders, could attempt through a legal merger with another business or by subscribing to additional shares in the Controlled Entity (e.g. in exchange for a contribution of part of its own business) to raise its interest to 95.0%.

Significant Ownership of Shares; Dutch Disclosure Act The disclosure of shareholdings in Dutch listed companies will be governed by the Act of 5 July 2006, Disclosure of Major Holdings and Capital Interest in Listed Institutions (Wet Melding Zeggenschap en Kapi- taalbelang in Effectenuitgevende Instellingen) (“Disclosure Act”), which supersedes the Disclosure of Major Holdings in Listed Companies Act 1996 (Wet melding zeggenschap in ter beurze genoteerde vennootschappen 1996). As of 5 August 2006, the Decree of 5 August 2006 Disclosure of Major Holdings and Capital Interest in

85 Listed Entities (“Disclosure Decree”) came into effect and provides for more detailed rules regarding the contents of the notification pursuant to the Disclosure Act. The requirements relating to notifications regarding the “denominator” (i.e. notifications by the listed company itself, regarding the outstanding share capital and votes) under both the Disclosure Act and the Disclosure Decree came into effect on 1 October 2006. However, the sections of the Disclosure Act in connection with notifications regarding the numerator (i.e. notifications regarding the entitlement to shares and votes) came into force with effect from 1 November 2006. Pursuant to the Disclosure Act and the Disclosure Decree, any person (i.e. natural person or legal entity) who acquires or loses the right of disposal to shares or voting rights of a public limited company incorporated under Dutch law whose shares have been admitted to the official listing on a regulated market within the European Economic Area (“EEA”) or a non-EEA legal entity whose shares have been admitted to the official listing on the a regulated market in the Netherlands (“Listed Company”) must provide written notice to Netherlands Authority for the Financial Markets (“AFM”) of such acquisition or loss if certain thresholds are met or exceeded (downward or upward). Except for notifications to be made by a shareholder, mandatory notifications need to be made by the Listed Company, and if applicable, by members of the Management Board and the Supervisory Board. The information below provides a summary of the obligations of either the Listed Company and persons with capital interest/voting rights or persons with deemed interest (including options).

Notification obligations of the Listed Company • A Listed Company has an obligation to notify the AFM in the event of a change in its capital of more than 1%. In addition, each quarter, a Listed Company is required to provide written notice to the AFM of any changes in its capital. • A Listed Company has an obligation to provide written notice to the AFM in the event of any change in voting rights. • A Listed Company has an obligation to provide written notice to the AFM upon every issuance or purchase of shares of 1% or more in its own capital. In addition, each quarter, a notification shall be made of any issuance or purchase of shares in its own capital. • In the event a Dutch public limited liability company or a non-EEA legal entity becomes a Listed Company (e.g. by means of an IPO), a written notice describing its share capital and voting rights must be provided to the AFM.

Notification obligations of persons with capital interest / voting rights • Any person who acquires or loses the right of disposal to shares or voting rights of a Listed Company (except for certain non-EEA entities) must give written notice to the AFM if certain thresholds are exceeded. Thresholds for this notification in relation to Dutch public limited liability companies are set at 5%, 10%, 15%, 20%, 25%, 30%, 40%, 50%, 60%, 75%, and 95%. • Any person who acquires or loses the right of disposal to shares or voting rights with special powers attached to them (e.g. priority shares, golden shares) in a Listed Company must provide written notice to the AFM. No thresholds need to be met or exceeded in this respect. • Any person whose substantial interest (i.e. more than 5% of the shares in the capital of the Listed Company or voting rights) at December 31 of a particular calendar year deviates from its latest notification pursuant to (i) a conversion of depositary receipts for shares into shares and vice versa or (ii) the exercise of rights pursuant to an agreement to acquire or dispose voting rights shall make a notification to the AFM within four weeks after such moment. • Any person who (ends up being a subsidiary) and who holds a substantial interest or shares with special powers attached to them under the articles of association of a Listed Company must provide written notice to the AFM. • Any person who, as he knows or ought to know, holds a substantial interest in a legal entity, which becomes a Listed Company, is required to provide notification.

Notification obligations of persons with deemed interest • Upon the establishment of a usufruct or pledge whereby the voting rights are allocated to the usufructuary or pledgee, the usufructuary or pledgee shall be deemed to have the right of disposal of the voting rights.

86 • A company which subsidiary has the right of disposal to shares or voting rights is deemed to have the right of disposal to the shares or voting rights of that company. This means that a person may be required to notify if one of its subsidiaries acquires or disposes of interests in the capital or voting rights of a Listed Company. The subsidiary itself does not need to provide notification.

• A person is deemed to have the disposal to shares if a third person holds such shares for his/her account. The same applies for voting rights, which can be exercised by that third person (e.g. when a bank holds shares for someone else’s account).

• A person is deemed to have the disposal to shares if a third person has the disposal to such shares pursuant to an agreement, which provides for a long-lasting joint policy with regard to voting rights (e.g. voting agreements).

• A person is deemed to have the disposal to shares if a third person has the disposal to such shares pursuant to an agreement, which provides for a temporary transfer of voting rights against a consideration.

• In case shares are jointly held in a community of property (e.g. Dutch limited partnership), the interests shall be allocated pro rata among the co-owners.

• A person is deemed to have the disposal to voting rights, which he can freely exercise (at his own discretion) as proxy holder.

The AFM is required to maintain a register in which all data reported pursuant to the Disclosure Act will be kept (the “Register”). Upon receipt of any notification pursuant to the Disclosure Act, the AFM must provide notice to the Listed Company and the person who made such notification. The Register will be updated accordingly within one business day after the day of receipt of a notification made to the AFM, except in the event the AFM requests for further information. The AFM shall forthwith give notice of such update to the Listed Company. For the purpose of correctness of the Register, the AFM is allowed to obtain additional information among others from the person with a notification obligation, the holder of a substantial interest, securities institutions, and the Listed Company.

For the purpose of calculating the percentage of capital interest or voting rights, the actual and potential (e.g. options) as well as direct and deemed interests must be taken into account.

In case of non-compliance with the reporting obligations under the Disclosure Act, the AFM is entitled to impose administrative penalties and fines per occurrence. In addition, a breach may also qualify as an economic offence pursuant to which criminal prosecution may follow leading to fines and/or imprisonment. In case of a failure to notify or an incorrect notification, the AFM is furthermore entitled to make a public announcement of such non-compliance.

Principles of Reasonableness and Fairness

On the basis of a general rule of Dutch corporate law, a company and those connected with it pursuant to law or its articles of association are bound to act towards each other in accordance with the ”principles of reasonableness and fairness”. Acts in violation of such principles may be challenged through court proceedings.

Certain Polish Requirements Applicable to Shareholders

Polish Foreign Exchange Regulations

Under the Polish Foreign Exchange Law, certain Polish residents holding shares in a foreign company, including the Shares, are obliged to report their shareholdings to the National Bank of Poland. Institutional investors (securities and commodity brokers, investment funds, general and employee pension funds, insurance companies) are obliged to file the reports on a quarterly basis, within 20 days after the end of each calendar quarter. Other investors are obliged to file the reports on an annual basis, within 30 days after the end of each calendar year, if at the end of a calendar year they hold the Shares of value exceeding A10,000 or equivalent. The reports are filed on special forms available at the website of the National Bank of Poland (www.nbp.pl).

Polish Large Shareholding Reporting Requirements

Under the Act on Offerings shareholders (i.e., persons registered as holders of securities accounts on which the securities concerned are registered) are required to report a large shareholding in listed companies.

87 Calculation of ownership percentages For the purpose of calculating a large shareholding, the Act on Offerings refers to the voting rights held by each shareholder (i.e., the number of votes held in relation to the total number of votes at the shareholders’ meeting), and not to the share percentage held in the listed company’s share capital. Voting shares of all classes are aggregated. For the purposes of calculating the number of votes, it is assumed that all shares give full voting rights, even if such voting rights are restricted or excluded by an agreement, or by the articles of association of a listed company or by applicable laws.

Reporting thresholds In accordance with Art. 69 of the Act on Offerings, a shareholder in a listed company, who individually or jointly with other entities: • has reached or exceeded 5%, 10%, 20%, 25%, 33%, 50% or 75% of voting rights in a listed company; • held shares giving at least 5%, 10%, 20%, 25%, 33%, 50% or 75% of voting rights in a publicly-traded company and as a result of a reduction of its equity interest achieved or reduced its interest below 5%, 10%, 20%, 25%, 33%, 50% or 75% of voting rights in a listed company; • held over 10% of voting rights and this shareholding has changed by at least 2%; • held over 33% of voting rights and this shareholding has changed by at least 1%; is required to notify both the FSC and the respective listed company of the fact. Such notification should be filed within four days from (i) the date of the occurrence of a change in such a shareholder’s shareholding in voting rights, or (ii) the date on which the shareholder becomes, or by exercising due care could have become, aware of such change. The reporting requirements are not triggered by day-trading activities, i.e. when a shareholder engaged in a number of transactions during a trading day but upon the settlement of transactions made by a shareholder on a single day, there was no change in the shareholding or the change did not result in reaching or exceeding any threshold which triggers the reporting requirement. The large shareholding notification requirement applies also if: • the shares have been pledged or are subject to other security interest, unless the voting rights resulting from those shares have been transferred to the beneficiary of the security interest and that beneficiary has stated its intention to exercise the voting rights; • a person other than the shareholder has a personal and lifelong economic benefit from the rights from shares; • shares are deposited or registered with an entity which may dispose of them at its own discretion; • a shareholder gains or exceeds the respective threshold as a result of legal occurrence other than purchase transaction (e.g., inheritance). The notification should provide the following information: • the date and type of event which resulted in the change of shareholding; • the original shareholding in the company, i.e., (i) the number of shares held before the change in the shareholding occurred, (ii) the percentage of shares held in the company’s share capital, (iii) the number of voting rights, as well as (iv) the total number, as a percentage, of votes held in the public company; • the current shareholding in the company, i.e. (i) the number of shares held by the shareholder after the change in the shareholding occurred, (ii) the percentage of shares held in the company’s share capital, (iii) the number of voting rights, as well as (iv) the total number, as a percentage, of votes held in the public company. Furthermore, the notification submitted in connection with reaching or exceeding 10 % of the voting rights should also contain information on: (i) whether the shareholder intends to increase further its shareholding within the next 12 months, and (ii) the purpose of such an increase. If the intention or the purpose of the acquisition changes after notification, the shareholder must immediately, but in no event later than 3 days following the change, notify the FSC and the relevant public company.

88 Once a listed company receives a notification from a shareholder, the company is obliged to forward it to the FSC, WSE (or other market on which the shares are traded) and to the PAP. In consequence the large shareholding is disclosed to the public. A listed company may however, upon FSC approval, withdraw the disclosure of the shareholder’s notification, if such disclosure: (i) could be contrary to the public interest, or (ii) could seriously affect the company’s interests, provided that investors are not misled by that non-disclosure when assessing the value of securities. Shareholdings of various legally separate parties must be aggregated for the purpose of large shareholding notifications if such parties are related or are acting in concert. The concept of “related parties” and “parties acting in concert” is broad. The following entities are regarded as related parties or parties acting in concert: • affiliates; • parties who are bound by an agreement (including an oral agreement) regarding joint acquisition of shares in a listed company; • parties who are bound by an agreement (including an oral agreement) regarding voting at the shareholders’ meeting on material matters of a listed company; • investment funds (Polish or foreign) managed by the same investment manager; • portfolios managed by the same investment manager if the manager may exercise votes resulting from the managed shares; • agents holding shares on behalf of, or for the benefit of a principal; • parties who exercise discretionary voting power on behalf of, a principal; • brokers who act as proxies for their clients and exercise discretionary voting power; • family members (if the shareholder is an individual). The reporting requirements also apply to an entity that reaches or exceeds the above-described thresholds (i) by becoming a parent company of an entity that directly or indirectly holds shares in a listed company, (ii) as a result of other occurrences relating to that legal transaction and (iii) as a result of any actions taken by subsidiaries or other occurrences relating to this subsidiary. In accordance with Art. 88 of the Act on Offerings the following instruments need to be disclosed as well: • bonds convertible into shares in listed companies; • depository receipts based on shares in listed companies; • other securities which confer a right to acquire shares in listed companies. All those securities are deemed to confer the right to such a share in the total number of voting rights as their holder may come to hold upon conversion of the securities into shares.

89 SELLING RESTRICTIONS No action has been taken by the Issuer, the Selling Shareholders or the Managers that would permit, other than under the Offering, an offer of the Offer Shares or possession or distribution of this Prospectus or any other offering material in any jurisdiction where action for that purpose is required.

No Offering Outside Poland No action has been or will be taken by the Issuer, the Selling Shareholders or the Managers in any jurisdiction other than Poland that would permit an offering of the Offer Shares, or the possession or distribution of this Prospectus or any other offering material relating to the Issuer or the Shares in any jurisdiction where action for that purpose is required. Accordingly, the Shares may not be offered or sold, directly or indirectly, and neither this Prospectus nor any other offering material or advertisements in connection with the Shares may be distributed or published, in or from any country or jurisdiction except in compliance with any applicable rules and regulations of any such country or jurisdiction. The distribution of this Prospectus and the offer of the Offer Shares in certain jurisdictions may be restricted by law and therefore persons into whose possession this Prospectus comes should inform themselves about and observe any such restrictions, including those in the paragraphs that follow. Any failure to comply with these restrictions may constitute a violation of the securities laws of any such jurisdictions.

European Economic Area In relation to each member state of the European Economic Area which has implemented the Prospectus Directive (each, a “Relevant Member State”), each Manager has represented and agreed that it has not made and will not make an offer of Shares to the public in that Relevant Member State prior to the publication of a prospectus in relation to the Shares which has been approved by the competent authority in that Relevant Member State or, where appropriate, approved in another Relevant Member State and notified to the competent authority in that Relevant Member State, all in accordance with the Prospectus Directive, except that it may make an offer of Shares to the public in that Relevant Member State under the following exemptions under the Prospectus Directive, if such exemption have been implemented in that Relevant Member State: • to legal entities which are authorised or regulated to operate in the financial markets or, if not so authorised or regulated, whose corporate purpose is solely to invest in securities; • to any legal entity which has two or more of (i) an average of at least 250 employees during the last financial year; (ii) total balance sheet assets of more than A43,000,000; and (iii) an annual net turnover of more than A50,000,000, as shown in its last annual or consolidated accounts; • to fewer than 100 natural or legal persons in such Relevant Member State or to fewer than 100 natural or legal persons in all member states, depending on the method of calculation provided for under applicable regulations of such Relevant Member State. • in any other circumstances which do not require the publication by the Issuer of a prospectus or obtaining any approvals pursuant to the Prospectus Directive. For the purposes of this provision, the expression an “offer of Shares to the public” in relation to any Shares in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the Offer Shares to be offered so as to enable an investor to decide to purchase or subscribe the Offer Shares, as the same may be varied in that Relevant Member State by any measure implementing the Prospectus Directive.

United Kingdom Neither this Prospectus nor any other offering material has been submitted to the clearance procedures of the Financial Services Authority in the United Kingdom. The Offer Shares have not been offered or sold and, prior to the expiry of a period of six months from the sale of the Offer Shares, will not be offered or sold to persons in the United Kingdom except to “qualified investors” as defined in section 86 of the Financial Services and Markets Act 2000 (the “FSMA”). Each Manager will represent, warrant and agree that: (i) it is a person whose ordinary activities involve it in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of its business; (ii) it has not offered or sold and will not offer or sell the Offer Shares other than to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or as agent) for the purposes of their businesses; (iii) it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within

90 the meaning of section 21 of FSMA) received by it in connection with the issue or sale of the Shares in circumstances in which section 21(1) of the FSMA does not apply to the Issuer or in respect of which an exemption (as set out in the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005) applies; and (iv) it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the Shares in, from or otherwise involving the United Kingdom.

France Neither this Prospectus nor any other material relating to the Offering has been submitted for clearance by the Autorité des Marchés Financiers in France. The Offer Shares have not been offered or sold and will not be offered or sold, directly or indirectly, to the public in France. Neither this Prospectus nor any other documents or materials relating to the Offering or the Offer Shares has been or will be (i) released, issued, distributed, or caused to be released, issued or distributed, to the public in France or (ii) used in connection with any offer, sale or distribution of the Offer Shares to the public in France. Such offers, sales and distributions may be made in France only to (i) providers of investment services relating to portfolio management for the account of third parties, and/or (ii) qualified investors (investisseurs qualifiés) investing for their own account, all as defined in, and in accordance with Article L.411-2 of the French Code monétaire et financier. Investors in France and persons who come into possession of this Prospectus or any other documents or materials relating to the Offering or the Offer Shares are required to inform themselves about and observe any such restrictions.

United States THE SHARES HAVE NOT BEEN, AND WILL NOT BE, REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933 (THE “US SECURITIES ACT”) OR WITH ANY SECURITIES REGULATORY AUTHORITY OF ANY STATE OR OTHER JURISDICTION OF THE UNITED STATES AND MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES EXCEPT PURSUANT TO AN EXEMPTION FROM, OR IN TRANSACTIONS NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE US SECURITIES ACT. THE SHARES ARE BEING OFFERED AND SOLD OUTSIDE THE UNITED STATES IN RELIANCE ON REGULATION S.

Canada This Prospectus is not, and under no circumstances is to be construed as, a prospectus, an advertisement or a Offering of the securities described herein in any province or territory of Canada. No securities commission or similar authority in Canada has reviewed or in any way passed upon this document or the merits of the securities described herein, and any representation to the contrary is an offence.

Japan The Shares have not been and will not be registered under the Securities and Exchange Law of Japan (Law No. 25 of 1948, as amended), and are not being offered or sold and may not be offered or sold, directly or indirectly, in Japan or to or for the account of any resident of Japan (which term as used herein includes any corporation or other entity organised under the laws of Japan), or to others for offering or sale, directly or indirectly, in Japan or to, or for the account of, any resident of Japan, except (i) pursuant to an exemption from the registration requirements of the Securities and Exchange Law of Japan and (ii) in compliance with any other applicable requirements of Japanese law.

91 THE WARSAW STOCK EXCHANGE The Issuer intends to apply for the admission of all the Issuer’s Shares, including the Offer Shares and up to 930,000 Authorised Shares to be reserved in the authorised capital for the issuance in connection with the Employee Stock Incentive Plan, to trading on the WSE and to list the Issuer’s Shares on the main market of the WSE. Due to listing and trading of the Issuer’s Shares on the WSE, the Issuer will be subject to certain Polish securities regulations, in particular with regard to disclosure of information, and will also be subject to supervision of the relevant Polish authorities in these areas. This summary is based on Polish regulations in force as at the date of this Prospectus, without prejudice to any amendments introduced at a later date or implemented with retroactive effect and does not purport to provide the exhaustive description of requirements imposed on shareholders holding shares in companies listed on the WSE, including the Issuer. Therefore, the investors should consult his, her or its legal adviser for legal advice in this respect.

Regulation of the Polish Securities Market Although the Issuer has a registered office in the Netherlands, and therefore, governed by Dutch law, the Issuer’s Shares will be listed on a regulated market in Poland and therefore certain Polish legal considerations may also be relevant, especially with regard to the rights and obligations arising out of trading in the Shares and the rights and obligations of shareholders. In particular, the Issuer will be subject to the regulations which constitute the framework of the Polish capital market and contain provisions relating to securities listed in Poland and their issuers: • the Act on Trading in Financial Instruments; • the Act on Supervision over the Capital Market; • the Act on Offerings; and • the Act on Supervision over the Financial Market.

Trading and Settlement Generally, shares and other equity securities listed on the WSE are quoted in PLN per share. The electronic trading system used by the WSE is WARSET, a trading system similar to those used on Euronext, in Chicago and Singapore. The settlement system uses automated netting procedures and daily mark-to-market evaluation of collateral requirements to reduce transfer costs. Trading in securities can be suspended by the WSE if a given listed company violates the binding regulations or upon the FSC request if orderly stock exchange trading is endangered or if its suspension is necessary in order to protect interests of investors. The electronic system provides for automatic volatility interruptions and market order interruptions during continuous auctions and for automatic volatility interruptions during continuous trading. The settlement of the transactions (on spot and forward markets) concluded on the WSE takes place outside the WSE through the NDS.

Listed Securities in Book-entry Form In accordance with Article 5 of the Act on Trading in Financial Instruments, securities admitted to trading on a regulated market in Poland (such as the WSE) cease to have a documentary form and exist only as book entries (“dematerialised securities”). In the case of securities offered to the public, which after offering will not be traded on a regulated market, as well as in the case of securities traded exclusively on an alterative trading system, their issuer may determine, on their own discretion, whether to issue securities in a documentary form or as book entries. The rights to dematerialised securities are created upon first registration of a security in a securities account. Generally, securities accounts are operated by: brokerage houses, banks conducting brokerage activities, custodian banks, foreign investment firms and foreign legal entities conducting brokerage activity in Poland in the form of a branch office, the NDS, and the National Bank of Poland. A holder of the securities account may demand that a depository certificate be issued in his/her name. Such a certificate is issued separately for each type of security registered on the account and serves as a basis for the exercise by the holder of the securities account of all rights arising from securities set forth in the certificate which cannot be exercised exclusively on the basis of securities account records.

92 Transfer of dematerialised securities becomes effective once the appropriate record has been made in the relevant securities account.

Tender Offer Obligations

In accordance with section 1 of Article 72 of the Act on Offerings, any acquisition of listed shares by a shareholder who holds shares entitling it to less than 33% of the total vote at the shareholders’ meeting in a publicly traded company, in secondary trading and within a period of less than 60 days, leading to the increase of its share in the total vote by more than 10% of the total vote at a shareholders’ meeting, shall be effected exclusively through a public tender offer.

Furthermore, any acquisition of listed shares by a shareholder, who holds shares entitling it to at least 33% of the total vote at the shareholders’ meeting in a publicly traded company, in secondary trading and within a period of less than 12 months, leading to the increase of its share in the total vote by more than 5% of the total vote at a shareholders’ meeting, shall be effected exclusively through a public tender offer. Additionally, a shareholder must launch a mandatory public tender in the following circumstances:

• a shareholder that wishes to cross the 33% voting rights threshold is obliged to launch a public tender for shares that will entitle it to hold 66% of the total vote; and

• a shareholder that wishes to cross the 66% voting rights threshold is obliged to launch a public tender for all the remaining shares in a publicly traded company.

Except for the cases indicated below, crossing the 33% or 66% thresholds requires that a mandatory public tender be launched.

If the indicated thresholds are exceeded due to acquisition of shares in an public offering, in-kind contribution, merger or division of a company, change of the articles of association or the expiry of preferences attached to shares or legal occurrence other than a purchase transaction, the shareholder either has to:

• launch a respective public tender, or

• sell the appropriate amount of shares so that the number of votes to which the shareholder is entitled is no more than 33% or 66% of votes respectively.

If during the 6-month period following the “66% mandatory tender offer”, the shareholder who launched the tender offer (or its subsidiaries, dominant entity or entities acting in concert) pays a higher price for shares than it offered in the tender offer, it will be obliged to pay the difference to all entities that have sold shares in the “66% mandatory tender offer”.

A shareholder launching a tender offer must provide security for 100% of the value of the shares which are to be purchased. The tender offer must be carried out through an entity authorised to conduct brokerage activities in Poland. The rules of determining the tender price are set out in detail in Article 79 of the Act on Offerings.

Sanctions for Violation of Regulations Governing Large Shareholdings

The exercise of voting rights resulting from shares acquired in violation of: (i) the large shareholding reporting obligations as described under “Description of Shares and Corporate Rights and Obligations — Certain Polish Requirements Applicable to Shareholders — Polish Large Shareholding Reporting Requirements”, (ii) public tender requirements when a shareholder wishes to cross the 33% voting rights threshold or increases its voting rights by more than 10% or 5%, respectively, in the circumstances described above, is invalid, which means that votes that are exercised in breach of the above-mentioned requirements will be not counted when establishing the result of the vote on a resolution of the shareholders’ meeting.

Violation of the mandatory tender offer requirement when a shareholder wishes to cross the 66% voting rights threshold results in invalidity of the exercise of voting rights attached to all the shares held by a given shareholder.

Additionally, a shareholder who violates any requirement of the securities regulations described above may be subject to a fine of up to PLN 1.0 million.

93 Disclosure Obligations Once the Shares have been admitted to trading on the WSE, the Issuer will be required to comply with certain disclosure obligations regarding the publication of information under Polish and Dutch law. Such obligations include: (i) the disclosure of inside information (e.g., any events that may substantially affect the price or the value of the shares); (ii) publication of current and periodic information; and (iii) the disclosure of transaction undertaken by insiders. All information will be in Polish and/or English. The Company intends to disseminate current and periodic reports using the ESPI system (the electronic disclosure system for issuers listed in Poland).

94 CERTAIN TAX CONSIDERATIONS The information set out below describes the principle Dutch and Polish tax consequences of the acquisition, holding and disposal of the Shares and is included for general information only. This summary does not purport to be a comprehensive description of all Dutch or Polish tax considerations that may be relevant to a decision to acquire, to hold or to dispose of the Issuer’s Shares. Each prospective investor should consult a professional tax advisor regarding tax consequences of acquiring, holding and disposing of the Issuer’s Shares under the laws of their country and/or state of citizenship, domicile or residence. This summary is based on tax legislation, published case law, treaties, rules, regulations and similar documentation, in force as at the date of this Prospectus, without prejudice to any amendments introduced at a later date and implemented with retroactive effect.

Taxation in the Netherlands Withholding Tax

Dividends distributed by the Issuer generally are subject to Dutch dividend withholding tax at a rate of 25%. A A3.4.11 bill has been presented to parliament that, when adopted, reduces the statutory dividend withholding tax rate from 25% to 15% as per 1 January 2007. The expression “dividends distributed” includes, among others, (i) distributions in cash or in kind; (ii) liquidation proceeds, proceeds of redemption of the Shares, or proceeds of the repurchase of the Shares by the Issuer or one of the Issuer’s subsidiaries or other affiliated entities to extent such proceeds exceed the average paid-in capital of the Shares recognised for Dutch dividend withholding tax purposes; (iii) an amount equal to the par value of the Shares issued or an increase in the par value of the Shares, to the extent that it does not appear that a contribution, recognised for the purposes of Dutch dividend withholding tax, has been made or will be made; and (iv) partial repayment of the paid-in capital, recognised for Dutch dividend withholding tax purposes, if and to the extent that the Issuer has net profits (zuivere winst), unless the holders of the Shares have resolved in advance at a General Meeting of Shareholders to make such repayment and the par value of the Shares concerned has been reduced by an equal amount by way of an amendment to the Issuer’s Articles of Association.

Dutch Resident Holders A holder of the Shares, individuals and corporate entities, who are, or who are deemed to be, a resident of the Netherlands or, if he or she is an individual who has opted to be taxed under the rules of the Dutch Income Tax Act 2001 (Wet inkomstenbelasting 2001) as they apply to resident individuals of the Netherlands, can generally credit the Dutch dividend withholding tax against their Dutch income tax or Dutch corporate income tax liability and are generally entitled to a refund of dividend withholding taxes exceeding their aggregate Dutch income tax or Dutch corporate income tax liability, provided certain conditions are met, unless such holder of the Shares is not considered to be the beneficial owner of the dividends. In general, the Issuer will be required to remit all amounts withheld as Dutch dividend withholding tax to the Dutch tax authorities.

Non-Dutch Resident Holders A holder of the Shares who is not treated as a resident of the Netherlands for purposes of Dutch taxation and who is considered to be a resident of the Netherlands Antilles or Aruba under the provisions of the Tax Convention for the Kingdom of the Netherlands (Belastingregeling voor het Koninkrijk), or who is considered to be a resident of a country other than the Netherlands under the provisions of a double taxation convention the Netherlands has concluded with such country may, depending on the terms of that double taxation convention, be eligible for a full or partial exemption from, or reduction or refund of, Dutch dividend withholding tax. In addition, subject to certain conditions and based on Dutch legislation implementing the Parent Subsidiary Directive (Directive 90/435/EEG) an exemption from Dutch dividend withholding tax will generally apply to dividends distributed to certain entities that are resident of another European Union member state.

Anti-Dividend Stripping Legislation A refund, reduction, exemption or credit of Dutch dividend withholding tax on the basis of Dutch tax law or on the basis of a tax treaty between the Netherlands and another state, will be granted only if the dividends are paid to the beneficial owner of the dividends. A receiver of a dividend is not considered to be the beneficial owner of a dividend in an event of “dividend stripping” in which he has paid a consideration related to the receipt of such dividend. In general terms, “dividend stripping” can be described as the situation in which a foreign or domestic person (usually, but not necessarily, the original shareholder) has transferred his Shares or his entitlement to the dividend distributions to a party that has a more favourable right to a refund or reduction of Dutch dividend

95 withholding tax than the foreign or domestic person. In these situations, the foreign or domestic person (usually the original shareholder), by transferring his Shares or his entitlement to the dividend distributions, avoids Dutch dividend withholding tax while retaining his “beneficial” interest in the Shares and the dividend distributions. This regime may also apply to the transfer of Shares or the entitlement to dividend distributions as described above, if the avoidance of dividend withholding tax is not the main purpose of the transfer.

Taxes on Income and Capital Gains Dutch Resident Individuals Individuals who are resident or deemed to be resident of the Netherlands for Dutch tax purposes, including individuals who have opted to be taxed as a resident of the Netherlands for the purposes of the Dutch Income Tax Act 2001 (Wet inkomstenbelasting 2001), are in general annually taxed on deemed income in the amount of 4% of their average net wealth for the year at an income tax rate of 30% (“box 3 taxation”). The net wealth for a certain year is calculated as the average of (i) the fair market value of portfolio investments (not including business assets or substantial shareholdings) less the qualifying liabilities at the beginning of that year and (ii) the fair market value of portfolio investments less the qualifying liabilities at the end of that year. The Shares are included as investment assets. An annual threshold of A19,698 of net wealth is generally available for each Dutch resident individual taxpayer. Because of the fixed yield of 4%, the actual benefits derived from the net portfolio investments, including any actual distributions on the Shares and actual capital gains realised upon the disposal of the Shares, are not as such subject to Dutch income tax. However, the following exceptions apply to the above general rule: • if the Shares are attributable to an enterprise from which a Dutch resident individual derives a share of the profit, whether as an entrepreneur (ondernemer) or as a person who has a co-entitlement to the net worth of such enterprise, without being an entrepreneur or a shareholder, as defined in the Dutch Income Tax Act 2001, any benefit derived or deemed to be derived from the Shares, including any income and capital gains realised on the disposal of the Shares, will be subject to income tax at a progressive rate with a maximum of 52% (“box 1 taxation”); • if the holding and/or disposal of the Shares qualify as income from ‘miscellaneous activities’ (resultaat uit overige werkzaamheden), any benefit deriving from these Shares will be subject to income tax at a progressive rate with a maximum of 52% (“box 1 taxation”). The holding and/or disposal can be treated as ‘miscellaneous activities’ in the event that the management of the portfolio of which the Shares form part exceeds regular active portfolio management; • If the Shares constitute a substantial interest or deemed substantial interest in the Issuer, any benefit deriving from these Shares will be subject to income tax at a rate of 25% (“box 2 taxation”). Generally, a holder of Shares will have a substantial interest in the Issuer if he/she, his/her partner, certain other relatives (including foster children) or certain persons sharing his/her household, alone or together, directly or indirectly: • hold Shares representing 5% or more of our total issued and outstanding capital (or the issued and outstanding capital of any class of our Shares) of the Issuer; • hold or have rights to acquire Shares (including the right to convert notes or stock options into Shares), whether or not already issued, that at any time (and from time to time) represent 5% or more of our total issued and outstanding capital (or the issued and outstanding capital of any class of our Shares) of the Issuer; or • hold or own certain profit participating rights that relate to 5% or more of the Issuer’s annual profit and/or to 5% or more of the Issuer’s liquidation proceeds. A deemed substantial interest arises if a substantial interest (or part thereof) has been disposed of, or is deemed to have been disposed of, on a nonrecognition basis.

Dutch Resident Entities Corporate and quasi corporate entities (including but not limited to non-transparent partnerships, foundations and non-transparent mutual funds for joint account (open fondsen voor gemene rekening), which are taxable under the Dutch Corporate Income Tax Act 1969 (Wet op de Vennootschapsbelasting 1969) and are resident or deemed to be resident of the Netherlands for purposes of Dutch tax are, in principle, subject to Dutch corporate income tax at

96 the statutory rate of 29.6%, with a rate of 25.5% applying to the first A22,689 of taxable profits. A bill has been presented to parliament that, when adopted, reduces, as per 1 January 2007, the statutory corporate income tax rate from 29.6% to 25.5%, with a rate of 20% applying to taxable profits up to A25,000, the first bracket, and 23.5% for profits up to A60,000, the second bracket. Any benefit derived or deemed to be derived from the Shares held by Dutch resident entities, including any actual distributions on the Shares and actual capital gains realised upon the disposal thereof, will generally be subject to corporate income tax, unless the Dutch participation exemption (deelnemingsvrijstelling) applies or unless the benefit is deemed to be included in the cost price of the Shares. The Dutch participation exemption is generally applicable if such entities own at least 5% of the Issuer’s nominal paid-up share capital. Qualifying Dutch resident pension funds are exempt from Dutch corporate income tax. Qualifying Dutch- resident investment funds (fiscale beleggingsinstellingen) are subject to Dutch corporate income tax at a special rate of 0% if they meet certain conditions with respect to their shareholder base and the annual distribution of dividends to their shareholders. Distributions on the Shares and capital gains realised upon the disposal on the Shares will be exempt from Dutch corporate income tax or subject to a special rate of 0% in the hands of shareholders who are qualifying Dutch resident pension funds or qualifying Dutch resident investment funds.

Non-Dutch Resident Holders Distributions on the Shares or capital gains realised upon the disposal of the Shares for a holder that is not resident, nor deemed to be resident of the Netherlands for Dutch tax purposes (and, in the case of an individual holder, that has not opted to be taxed as a resident of the Netherlands) are not taxable in the Netherlands, provided that: • such holder does not have an interest in an enterprise or a deemed enterprise that is, in whole or in part, carried on through a permanent establishment, a deemed permanent establishment (a statutorily defined term) or a permanent representative in the Netherlands to which (part of the) enterprise, or to whom, the Shares are attributable or deemed to be attributable; or • such holder is not entitled to a share in the profits of an enterprise that is effectively managed in the Netherlands to which the Shares are attributable, other than by way of securities or through an employment contract; or • the activities of such holder do not qualify as income from ‘miscellaneous activities’ carried out in the Netherlands, as defined under “Dutch Resident Individuals” second bullet point; or • such holder does not have a substantial interest or deemed substantial interest in the Issuer (as defined under “Dutch Resident Individuals” third bullet point), or, if such holder has a substantial interest or a deemed substantial interest, it forms part of the assets of an enterprise. If the non-Dutch resident holder is taxable in the Netherlands pursuant to one of the four eventualities mentioned above, such holder will, in principle, be taxed in the same way as Dutch resident taxpayers, as described above. If a tax treaty is in force between the Netherlands and the state of residence of the non-Dutch resident holder of the Shares and if such holder qualifies as a resident under that tax treaty, capital gains on the Shares will, in general, not be taxable in the Netherlands, except insofar as they are attributable to a permanent establishment in the Netherlands. Non-Dutch resident pension funds which are non-resident taxpayers for Dutch corporate income tax purposes, can qualify for the abovementioned corporate income tax exemption for Dutch-resident pension funds, provided that the conditions formulated by the Dutch State Secretary for Finance in the Decree of 26 January 2000, nr. DB99/ 3511, are met.

Dutch Gift, Estate and Inheritance Tax Dutch Resident Holders Generally, gift and inheritance taxes will be due in the Netherlands in respect of the acquisition of the Shares by way of a gift by, or on death of, a holder who is resident or deemed to be resident of the Netherlands for the purposes of the Dutch gift and inheritance tax at the time of the gift by or on the death of the holder of the Shares. For purposes of Dutch gift and inheritance taxes, among others, a Dutch national holder is deemed to be a resident of the Netherlands if he or she has been resident of the Netherlands at any time during the ten years preceding the date of the gift or his or her death. Additionally, an individual not holding the Dutch nationality will, among others,

97 be deemed to be resident of the Netherlands for purposes of Dutch gift tax if he or she has been resident of the Netherlands, at any time during the twelve months preceding the date of the gift. The same one-year rule may apply to entities that have transferred their seat of residence out of the Netherlands.

Non-Dutch Resident Holders No Dutch gift or inheritance taxes will arise in respect of the acquisition of the Shares by way of a gift by, or on the death of, a holder who is neither resident nor deemed to be resident in the Netherlands, unless: • such holder at the time of the gift has, or at the time of his/her death had, an enterprise or an interest in an enterprise that, in whole or in part, is or was carried on through a permanent establishment or a permanent representative in the Netherlands and to which enterprise or part of an enterprise the Shares are or were attributable, or are or were deemed to be attributable; or • such holder at the time of the gift is, or at the time of his/her death was entitled to a share in the profits of an enterprise effectively managed in the Netherlands, other than by way of the holding of securities, or through an employment contract, to which enterprise the Shares are or were attributable, or are or were deemed to be attributable; or • in case of a gift of Shares by an individual who at the date of the gift was neither resident nor deemed to be resident of the Netherlands, such individual dies within 180 days after the date of the gift, while at the time of his/her death being resident or deemed to be resident of the Netherlands.

Dutch Value-Added Tax No Dutch VAT will arise in respect of the acquisition, ownership, and disposal of the Shares.

Other Dutch Taxes and Duties No Dutch registration tax, customs duty, transfer tax, stamp duty or any other similar documentary tax or duty will be payable by a holder of the Shares in respect of the subscription, issue, placement, allotment, holding or disposal of the Shares.

Taxation in Poland The information contained in this section is based also on the provisions of the convention between the Kingdom of the Netherlands and Poland for the avoidance of double taxation and prevention of fiscal evasion with respect to taxes on income dated 13 February 2002 (the “Dutch-Polish Tax Treaty”).

Dutch Taxation of Polish Resident Individuals Taxation of Capital Gains Pursuant to Dutch individual income tax law, capital gains realised upon the disposal of the Shares for an individual holder who is resident of Poland will only be subject to Dutch individual income tax if: • the Shares should be allocated to an enterprise carried on by the holder through a permanent establishment of permanent representative in the Netherlands; or • the Shares of the Issuer qualify as a substantial interest in the Issuer and the substantial interest should not be allocated to an enterprise carried on by the holder outside the Netherlands. In the event the Polish resident carries on an enterprise in the Netherlands, to which its Shares are to be allocated, capital gains on a disposal of these Shares will be regarded as part of the profit of the enterprise and will thus be subject to Dutch individual income tax at progressive rates (52% at maximum). The percentage of shareholding is irrelevant in such a case. In the event Polish resident individuals hold a substantial interest in the Shares, which is not to be allocated to an enterprise carried on by such holder outside the Netherlands, a capital gain on a disposal of the substantial interest will be subject to 25% Dutch individual income tax on the basis of Dutch domestic law. However, according to article 13 of the Dutch-Polish Tax Treaty, no taxation will occur with respect to capital gains on substantial interests, provided that the Polish resident holders have not been a tax-resident of the Netherlands in the course of a period of ten years prior to the disposal of the substantial interest in the Issuer.

98 Taxation of Dividends

Pursuant to Dutch individual income tax law, dividend income received by a Polish resident individual in relation to a shareholding in the Issuer will only be subject to Dutch individual income tax if:

• the Shares are to be allocated to an enterprise carried on by the Polish resident individual through a permanent establishment or permanent representative in the Netherlands; or

• the Shares qualify as a substantial interest in the Issuer and the substantial interest should not be allocated to an enterprise carried on by the Polish resident individual outside the Netherlands.

In the event the Polish resident individual carries on an enterprise in the Netherlands, to which its Shares are to be allocated, dividend income received in relation to the shareholding in the Issuer will be regarded as part of the profit of the enterprise and will thus be subject to Dutch individual income tax at progressive rates (52% at maximum). The Issuer is the dividend withholding agent and will deduct this tax from the gross amounts of dividends paid to its shareholders and it will transfer to the NDS a net amount after deduction of tax. Dutch dividend withholding tax paid can be credited against the income tax liability of the permanent establishment. A credit will be available for the Dutch dividend tax that has been withheld on the dividend.

In the event Polish resident individuals hold a substantial interest in the share capital of the Issuer, which should not be allocated to an enterprise carried on by such holder outside the Netherlands, dividend income received in relation to the substantial interest will be subject to 25% Dutch individual income tax on the basis of domestic law. However, this rate will be reduced to 15% as a consequence of article 10 of the Dutch-Polish Tax Treaty. The Issuer is the dividend withholding agent and will deduct this tax from the gross amounts of dividends paid to its shareholders. As a result a net amount after deduction of tax will be transferred to the NDS. Dutch dividend withholding tax paid can be credited against the individual income tax liability.

Dutch Taxation of Polish Resident Entities

Taxation of Capital Gains

Pursuant to Dutch corporate income tax law, capital gains realised by a Polish resident entity are only subject to Dutch corporate income tax as a result of the disposal of the Shares if:

• the Shares are to be allocated to a permanent establishment or permanent representative of the Polish resident entity in the Netherlands; or

• the Shares qualify as a substantial interest in the Issuer and the substantial interest should not be allocated to an enterprise carried on by the Polish resident entity outside the Netherlands.

In the event the Polish resident entity has a permanent establishment in the Netherlands, to which its holding in the Issuer should be allocated, any capital gain on a disposal of the Shares will be regarded as part of the profit of the permanent establishment and will thus be subject to Dutch corporate income tax. In the event the Polish resident entity (its permanent establishment in the Netherlands) has a shareholding in the Issuer of at least 5%, an exemption from corporate income tax may apply to the capital gain (participation exemption).

In the event the Polish resident entity has a substantial interest in the Issuer that cannot be allocated to an enterprise carried on by the Polish resident entity, a capital gain on a disposal of the substantial interest will be subject to Dutch corporate income tax at 25.5% of the first A22,689 of profit and at 29.6% on any excess thereafter. Taxation may, however, be restricted as a consequence of article 13 of the Dutch-Polish Tax Treaty. Article 13 of the Dutch-Polish Tax Treaty stipulates that the right to tax such capital gain is exclusively reserved to the state of which the recipient of the gain is a tax-resident, i.e. Poland. It should therefore be examined whether a Polish resident entity has access to the Dutch-Polish Tax Treaty. Polish resident entities that are subject to domestic taxation should be able to gain access to the Dutch-Polish Tax Treaty and consequently, benefit from its provisions. On the other hand, Polish resident entities that are exempt from domestic taxation may not be able to benefit from the provisions of the Dutch-Polish Tax Treaty. A tax-exempt Polish resident entity may thus, in the event it holds a substantial interest in the Issuer that cannot be allocated to an enterprise, be subject to Dutch corporate income tax on a capital gain realised on a disposal of its substantial interest in the Issuer.

99 Taxation of Dividends Pursuant to Dutch corporate income tax law, dividend income received by a Polish resident entity in relation to a shareholding in the Issuer will only be subject to Dutch corporate income tax if: • the Shares are to be allocated to a permanent establishment or permanent representative of such Polish resident entity in the Netherlands; or • the Shares qualify as a substantial interest in the Issuer and the substantial interest should not be allocated to an enterprise carried on by the Polish resident entity outside the Netherlands. In the event the Polish resident entity has a permanent establishment in the Netherlands, to which its Shares should be allocated, dividend income received in relation to the shareholding in the Issuer will be regarded as part of the profit of the permanent establishment and will thus be subject to Dutch corporate income tax. In the event the Polish resident entity (its permanent establishment in the Netherlands) has a shareholding in the Issuer of at least 5%, an exemption from Dutch corporate income tax may apply to the dividend income (participation exemption). In the event of taxation on the dividend income, a credit will be available for the Dutch dividend tax that has been withheld on the dividend. In the event the Polish resident entity has a substantial interest in the Issuer that cannot be allocated to an enterprise carried on by the Polish resident entity, dividend income received in relation to the shareholding in the Issuer will be subject to Dutch corporate income tax. Provided that the Polish resident entity can apply for the benefits of the Dutch-Polish Tax Treaty, the dividend income will be taxed at a reduced rate of 5% or 15%, dependent on the size of the shareholding. A credit will be available for the Dutch dividend withholding tax that has been withheld on the dividend. As per 1 January 2005, the provisions of the “updated” European Union Parent Subsidiary Directive became effective. As a consequence, as of that date, a dividend paid by the Issuer to a Polish resident entity with a share interest in the Issuer of at least 20% is exempt from Dutch withholding tax, provided certain requirements are met. These requirements pertain, among others, to the legal form and taxation of such Polish shareholder. As from 1 January 2007, the required minimum share interest will be 15%. On 1 January 2009, the required minimum share interest will be further reduced to 10%. The Directive will only apply in situations, in which Shares of the Issuer that are held by a Polish resident entity should not be allocated to a permanent establishment of the Polish resident entity in the Netherlands. In the highly unlikely event that a Polish holder meets both (i) the conditions for Dutch substantial interest taxation on dividends and (ii) the requirements for the application of the European Union Parent Subsidiary Directive, this Directive does not only preclude the levy of Dutch dividend withholding tax, but also precludes the levy of Dutch corporate income tax on dividends arising from a substantial shareholding.

Dutch Dividend Withholding Tax Pursuant to Dutch dividend withholding tax law, dividends paid by the Issuer will be subject to 25% dividend withholding tax. This rate may be reduced by virtue of article 10 of the Dutch-Polish Tax Treaty.

Polish Resident Individuals Pursuant to article 10 of the Dutch-Polish Tax Treaty, dividends paid by the Issuer to Polish resident individuals, who do not carry on an enterprise in the Netherlands, to which their Shares should be allocated, will be subject to 15% Dutch withholding tax, regardless the extent of shareholding in the Issuer. In the event a Polish resident individual carries on an enterprise in the Netherlands, to which his or her Shares should be allocated, Dutch withholding tax will be due on the dividend of 25% (the domestic rate). Dividend withholding tax paid can be credited against Dutch individual income tax that may be due on the dividend.

Polish Resident Entities Pursuant to article 10 of the Dutch-Polish Tax Treaty, dividends paid to a Polish resident corporate entity with a minimum share interest in the Issuer of 10% will be subject to 5% dividend withholding tax, provided that the Shares should not be allocated to a permanent establishment or permanent representative in the Netherlands. Dividends paid to Polish resident entities with a shareholding in the Issuer of less than 10% will be subject to 15% Dutch dividend withholding tax, provided that the Shares should not be allocated to a permanent establishment or permanent representative in the Netherlands. It should be examined whether a Polish resident entity has access to the Dutch-Polish Tax Treaty and thus will be able to benefit from a reduced withholding tax rate. In the event the Polish resident corporate entity has a permanent establishment in the Netherlands, to which its Shares should be allocated, Dutch withholding tax will be due on the dividend at 25% (the domestic rate). However,

100 based on Dutch withholding tax law, in the event the Polish resident entity (its permanent establishment in the Netherlands) has a shareholding in the Issuer of at least 5%, an exemption from Dutch withholding tax may apply to the dividends paid in respect of that shareholding. As described above, dividend withholding tax paid can be credited against Dutch corporate income tax that may be due on the dividend. As per 1 January 2005, the provisions of the “updated” European Union Parent Subsidiary Directive became effective. As a consequence, as of that date, a dividend paid by the Issuer to a Polish resident entity with a share interest in the Issuer of at least 20% is exempt from Dutch withholding tax, provided certain requirements are met. These requirements pertain, among others, to the legal form and taxation of the Polish entity. As from 1 January 2007, the required minimum share interest will be 15%. On 1 January 2009, the required minimum share interest will be further reduced to 10%. The Directive will only apply in situations, in which Shares that are held by a Polish resident entity should not be allocated to a permanent establishment or permanent representative of the Polish resident entity in the Netherlands.

Polish Taxation of Polish Resident Individuals Individuals having their place of residence in Poland are subject to the Polish personal income tax on their worldwide profits, irrespective of the location of the source of income. Individuals who do not have a place of residence in Poland are subject to Polish personal income tax only as regards the profits that they derive on the territory of Poland.

Taxation of Capital Gains Pursuant to article 30b.1 of the Polish Personal Income Tax Act, income tax on the disposal of shares in Poland is payable at the rate of 19% of income earned. Income earned on disposal of shares is the difference, in a given calendar year, between revenue earned on disposal of shares, i.e. value of shares understood as a price specified in a sale agreement, and costs incurred on an acquisition and a disposal of shares. If a price differs significantly from the market value of shares without a justified reason, a tax authority can adjust income to a market level. After the end of a given calendar year, taxpayers who earned income on disposal of shares are required to declare such income in an annual tax return, and to calculate the amount of income tax due. These regulations do not apply if a disposal of shares is effected as part of a taxpayer’s business activity; then, income is taxed as business income.

Taxation of Dividends Pursuant to article 30a.1.4 of the Polish Personal Income Tax Act, income earned on dividends and other similar income from sharing in the profits of a Dutch company is subject to income tax for an individual with unlimited tax liability. Such income is accumulated with other income and is taxed at the flat 19% personal income tax rate. Under article 30a.9 of the Polish Personal Income Tax Act, tax paid in the Netherlands on such income can be deducted from the Polish tax payable. However, the amount of Dutch tax deducted from Polish tax cannot exceed the amount of tax calculated at the 19% rate on income taxable in the Netherlands. Income on dividends and the amounts of foreign tax to be deducted should be declared in an annual tax return be filed by 30 April of the calendar year following the year in which income was earned.

Polish Taxation of Polish Resident Corporate Entities Legal entities, companies in organisation and other entities with no legal personality (with the exception of certain types of partnerships) that have their registered seats or their management in Poland, are subject to Polish corporate income tax on their worldwide income irrespective of the country from which they were derived. These entities (including foreign partnerships that have no legal personality, if treated as a legal entity under the tax law of a given country and if they are subject to taxation in that country on their worldwide income) that do not have their registered seat or their management in Poland, are subject to Polish corporate income tax only as regards profits that they derive on the territory of Poland.

Corporate Income Tax on Disposal of Shares Applicable to Polish Tax Residents Income earned by Polish legal persons on disposal of shares is subject to corporate income tax in Poland in accordance with the general rules. Income earned on a disposal of shares is the difference between an amount earned through a disposal of shares, i.e. value of shares understood as a price specified in a sale agreement, and costs incurred on an acquisition and the disposal of the shares. If a price differs significantly from the market value of the shares without a justified reason, a tax authority can adjust the income to a market level. Income earned on disposal

101 of shares increases a taxpayer’s tax base. Pursuant to article 19.1 of the Polish Corporate Income Tax Act, the corporate income tax on such income amounts to 19% of the tax base.

Taxation of Dividends Under article 20.1 of the Polish Corporate Income Tax Act, dividends and other similar income from sharing in the profits of a Dutch company earned by Polish tax residents is subject to corporate income tax. Such income is taxed at 19%. Under article 20.1, tax paid in the Netherlands on such income can be deducted from the Polish tax payable. The amount of foreign tax deducted cannot exceed the Polish tax on this income calculated as a proportion of total tax payable. Under article 20.3 of the Polish Corporate Income Tax Act, if a Polish legal entity holds at least 20% (15% in 2007/2008 and 10% from 2009) of the shares of a Dutch company which is subject to tax on its worldwide income in a Member State other than Poland, a credit may also be claimed by the shareholder for tax paid by the Dutch company, up to a maximum of the Polish tax payable calculated proportionately. A credit can also be claimed for corporate income tax payable by the subsidiaries of the Dutch company being tax residents in a Member State other than Poland in which the Dutch company holds more than 20% (15% in 2007/2008 and 10% from 2009) of shares. The income should be declared in the tax return for the period when the income is received. Any Polish tax is due by the due date for the return.

Civil Law Transactions Tax The sale of securities to brokerage houses and banks conducting brokerage activity, and the sale of securities through the intermediation of a brokerage house or a bank conducting brokerage activity, is exempt from civil law transactions tax in Poland.

102 THE OFFERING

General

Pursuant to this Prospectus, 15,664,352 newly issued and existing ordinary bearer Shares (the “Firm Shares”) A3.5.1 created under Dutch law are being offered in the Offering consisting of a public offering in Poland and a private A3.5.1.1 placement to Institutional Investors in certain jurisdictions outside of Poland. No public offering in the Netherlands A3.4.5 will take place, although, for the purpose of the public offering in Poland the Issuer has taken and will take certain A3.4.2 actions in the Netherlands as its European Union home member state. For further information on the selling A3.4.3 restrictions please refer to “Selling Restrictions”. A3.6.2 A3.5.1.2 The Issuer is offering 10,000,000 newly issued ordinary bearer Shares (the “New Shares”), and the entities A3.4.1 listed below (the “Selling Shareholders”) are jointly offering 5,664,352 existing Shares (the “Sale Shares”) in the A3.7.1 following amounts: A3.7.2 1. 4,940,352 Sale Shares are being offered by Israel Theatres Limited, a company organised under the laws of Israel, with its address at 91 Medinat Ha-Yehudim, Herzlia Pituah, Israel; 2. 600,000 Sale Shares are being offered by Mr Amos Weltsch with his business address at c/o ITIT, 91 Medinat Ha-Yehudim, Herzlia Pituah, Israel; and 3. 124,000 Sale Shares are being offered by Mr Mark Segall with his business address at c/o Kidron Corporate Advisors LLC, 555 Fifth Avenue, 17th Floor, New York, NY 10017, USA.

Eligible Investors A3.5.2.1 The Offering within the territory of Poland is addressed both to the individuals, corporate entities (legal A3.6.3 persons) and non-corporate entities other than individuals to whom the Offering within the territory of Poland is addressed (“Retail Investors”) and corporate entities (legal persons) and non-corporate entities, other than individuals to whom the Offering is addressed and received from the Managers, the invitation to submit a subscription for Firm Shares or the Managers or the entity selected by the Managers (“Institutional Investors”). The Offering by way of a private placement in certain jurisdictions outside of Poland is addressed solely to Institutional Investors. Under no circumstances shall the Offering be regarded as addressed to US persons as defined in Regulation S. Retail Investors, both Polish residents and non-residents (except for US persons, as defined in Regulation S), may place their subscription orders in the Offering, solely on the territory of the Republic of Poland. Non-resident Retail Investors who intend to acquire the Firm Shares should acquaint themselves with the relevant laws of their countries of residence. Institutional Investors having their registered office in the territory of the Republic of Poland or outside the territory of Poland, except for US persons, as defined in Regulation S, may place subscription orders in the Offering. Selected Polish Institutional Investors and Institutional Investors in certain jurisdiction outside of Poland will be invited by the Managers to participate in the book-building process. No Retail Investor will be participating in the book-building process. Entities managing portfolios of securities on behalf of their clients should liaise with the Managers in order to discuss actions required to place subscription orders for their clients.

It is expected that the final number of the Firm Shares allotted in the Offering to the Retail Investors will A3.5.2.3(a) account for 20% of all the Firm Shares offered in the Offering, provided, however, that the Company and the A3.5.2.3(d) Affiliated Shareholder reserve the right to increase or reduce the number of the Firm Shares to be allotted to the Retail Investors in the Offering, with the agreement of the Lead Manager. Information on the allotment of the Firm Shares shall be published in the official electronic information dissemination service (the “Current Report”) as defined in article 56.1 of the Act on Offerings.

Stabilisation and the Overallotment Option A3.5.2.5 (a)-(c) In connection with the Offering, the Lead Manager (or any person acting for the Lead Manager) may purchase Shares on the WSE with a view to supporting the market price of the Shares on the WSE at a level higher than that A3.6.5 A3.6.5.1 which might otherwise prevail. The purchases of the Shares shall be made in accordance with the rules set out in the A3.6.5.2 European Commission Regulation (EC) No. 2273/2003 of 22 December 2003 implementing Directive 2003/6/EC A3.6.5.3 of the European Parliament. There is no obligation on the Lead Manager (or any agent of the Lead Manager) to A3.6.5.4 engage in such activities. Such stabilising, if commenced, may be discontinued at any time and must be brought to an end within 30 days after the Listing Date.

103 In connection with the stabilising transactions that may be carried out by the Lead Manager following the Offering on the WSE, the Principal Shareholder has granted to the Managers an option exercisable for up to 30 days following the Allotment Date to purchase up to an additional 2,349,652 Shares, the maximum number of which is equal to 15% of the Firm Shares being offered in the Offering, at a price equal to the Offer Price, less the fees due to A3.5.2.3(g) the Lead Manager in accordance with the Underwriting Agreement. A3.4.7 A3.5.1.2 A3.5.1.3 Expected Timetable of the Offering

On or about 20 November 2006 — 30 November Book-building process among the Institutional 2006 Investors. On or about 24 November 2006 — 30 November Subscription period for Retail Investors. 2006 On or about 23 November 2006 Determination of the Maximum Price. On or about 30 November 2006 Determination of the Offer Price and the final number of Offer Shares. On or about 1 December 2006 — 4 December 2006 Subscription period for Institutional Investors. On or about 4 December 2006 Acceptance of orders in performance of the underwriting commitments, if any. On or about 4 December 2006 Allotment Date On or about 7 December 2006 Settlement Date

The Company and the Affiliated Shareholder, with the agreement of the Lead Manager, reserve the right to change the above timetable of the Offering, including the dates for accepting subscription orders. Information on timetable changes shall be published by way of a press release in Poland and in the same manner as this Prospectus.

Maximum Price

The Maximum Price per Offer Share will be determined by the Issuer and the Affiliated Shareholder, with the A3.5.3.1 agreement of the Lead Manager, on or about 23 November 2006, based on (i) an assessment of the current and anticipated situation of the Polish and international capital markets, and (ii) an assessment of the growth prospects, risk factors and other information relating to the Company’s activities.

Determination of the Offer Price A3.5.3.1

The Offer Price will be determined by the Company and the Affiliated Shareholder, with the agreement of the Lead Manager, based on the following criteria and rules: (i) size and price sensitivity of demand from the Institutional Investors as gauged during the book-building process, (ii) the current and anticipated situation on the Polish and international capital markets and (iii) assessment of the growth prospects, risk factors and other information relating to the Company’s activities contained in this Prospectus. Investors are advised that based on the above factors the Offer Price for Institutional Investors may be set at a level higher than the Maximum Price. In such case, the Offer Price for Retail Investors would be different from the Offer Price for the Institutional Investors, provided that the Offer Price for Retail Investors shall in no event be higher than the Maximum Price. In the event that the Offer Price for the Institutional Investors is set at a level not higher than the Maximum Price, the Offer Price for the Retail Investors shall be the same as the Offer Price for the Institutional Investors.

The Offer Price will be expressed in PLN. The information on the final Offer Price will be announced by way A3.5.3.2 of a press release in Poland and in the same manner as this Prospectus has been published before the commence- A3.4.4 ment of the subscription period for Institutional Investors.

Final Number of the Shares Offered in the Offering

The Company and the Selling Shareholders, with the agreement of, the Lead Manager, may decide to reduce the final number of the Offer Shares offered in the Offering based on the following terms and criteria: (i) the volume and quality of the demand for the Firm Shares from Institutional Investors, in particular international Institutional Investors, during the book-building process; (ii) the anticipated demand from various groups of investors during the period of the first 30 days from the Listing Date of the Shares on the WSE; and (iii) the current and anticipated situation on the Polish and international capital markets. The relevant decision shall be published by way of a press release in Poland in the same manner as this Prospectus has been published.

104 Rules Governing Placing of Subscription Orders for the Shares A3.5.1.3 A3.5.1.8 Subscription orders from Retail Investors shall be accepted at the Customer Service Points of Biuro Maklerskie Banku BPH S.A. and Centralny Dom Maklerski Pekao S.A. listed on the Company’s website at www.cinemacity.nl or at any other place that may be publicly communicated by the Lead Manager prior to the end of the subscription period for Retail Investors. For information on the detailed rules governing the placing of subscription orders, in particular: (i) the documents required if a subscription order is placed by a statutory representative, proxy or any other person acting on behalf of an investor, and (ii) the possibility of placing subscription orders and deposit requests in a form other than the written form i.e. by telephone or internet, Retail Investors should contact the Customer Service Point of the brokerage house accepting orders for Shares from Retail Investors at which they intend to place their subscription order. Subscription orders from the Institutional Investors that have received the invitation to subscribe for the Firm Shares from the Managers shall be accepted at the registered office of CA IB Securities S.A. at ul. Emilii Plater 53, Warsaw, Poland. For information on the detailed rules governing the placing of subscription orders, in particular: (i) the documents required if an order is placed by a statutory representative, proxy or any other person acting on behalf of an investor, and (ii) the possibility of placing orders and deposit instructions in a form other than the written form, the Institutional Investors should contact the Lead Manager.

Investors have a right to place multiple subscription orders, provided the aggregate number of the Firm Shares A3.5.1.6 subscribed by one investor is not greater than the total number of the Firm Shares. Subscription orders for a total A3.5.2.3(h) number of Shares greater than the number of the Firm Shares shall be considered orders for all Firm Shares. A subscription order placed by an investor must cover at least one Firm Share. Subscription orders shall be placed on subscription forms made available at the brokerage houses accepting orders for Shares or through fax, telephone or other electronic means of communication if the brokerage house accepting subscription orders provides for such possibility and in compliance with terms and conditions set down for such placement.

By placing subscription orders, each of the prospective investors will be deemed to have read this Prospectus, A3.5.1.7 accepted the terms of the Offering, consented to being awarded a lower number of the Firm Shares than the number specified in such investor’s orders, or to not being awarded any Firm Shares at all, pursuant to the terms and conditions set forth in this Prospectus. Investors will not be entitled to withdraw their subscriptions in the Offering, other than as may be required under article 8 and article 16 of the Prospectus Directive, as implemented in each Relevant Member States’ jurisdictions of the European Union applicable to the Offering.

Rules Governing Payment for the Firm Shares A3.5.1.8 Retail Investors placing subscription orders for Firm Shares should pay for the Firm Shares at the time of placing the order. The payment should be equal to the product of the number of Firm Shares for which the investor placed the order and the Maximum Price. Institutional Investors placing subscription orders should pay for the Firm Shares no later than by the end of the subscription period for Institutional Investors. If an order is not paid up in full, it shall be valid for the number of the Shares corresponding to the amount paid by the investor. Payments should be transferred to such account as indicated by the investment institution accepting subscription order for the Firm Shares.

Allotment of the Shares A3.4.7 A3.5.1.9 The allotment of Offer Shares between Retail Investors and Institutional Investors will be determined by the Lead Manager, at its discretion, subject to the consent of the Company and the Affiliated Shareholder. The A3.5.2.3(a) — minimum allotment in the Offering will be one Share, regardless of how and through whom the subscription order (f) has been placed provided however that such an investor gets any share allocation at all. A3.5.2.4 A3.5.1.5 The exact number of the Offer Shares to be allotted to Retail Investors and Institutional Investors participating A3.5.1.6 in the Offering together with the information on the Offer Price shall be published following the setting of the Offer A3.5.1.9 Price as indicated in “Determination of the Offer Price”. The allotment of the Offer Shares is expected to take place A3.5.2.3 (c) on or about 4 December 2006 (the “Allotment Date”). Neither the Issuer, nor the Selling Shareholders will give A3.5.2.4 preferential treatment to or discriminate against any Retail Investor or groups of Retail Investors who will place subscription orders. In the case of an over-subscription, Shares shall be allotted to Retail Investors participating in

105 the Offering in accordance with the proportional reduction principle with respect to each order placed. Fractional allocations (after the proportional reduction, if any) will be rounded down to the nearest integer, and remaining individual shares shall be allotted to the Retail Investors who subscribed for the largest number of Shares.

Within 14 days from the Allotment Date or from the date of the announcement on abandoning the Offering, A3.5.1.5 Retail Investors who have not been allotted any Shares or whose subscriptions for the Shares have been reduced shall receive reimbursements of cash payments and of excess payments in accordance with the instructions provided by each Retail Investor as required under the procedures applicable in the brokerage house in which the subscription order was placed. The excess payments shall be reimbursed without any damages for costs incurred by the Retail Investors in the course of subscribing for the Shares. The Shares shall be allotted to Institutional Investors, subject to full payment for the Shares for which they subscribed in accordance with the provisions set forth in this Prospectus, in the first instance to those of the Institutional Investors who has been invited by the Lead Manager to participate in the book-building and will be included in the allotment list prepared by the Issuer and the Affiliated Shareholder based upon the recommendation and with the agreement of the Lead Manager (the “Allotment List”). The allocation of the Offer Shares to Institutional Investors will be determined by the Lead Manager, at its discretion, subject to the consent of the Issuer and the Affiliated Shareholder. Institutional Investors will be notified about their allocations by the Lead Manager. Retail Investors and Institutional Investors may be allotted the Sale Shares or New Shares and Overallotment Shares. It is contemplated that the proportion of the Sale Shares to New Shares allotted to each Retail Investor and Institutional Investor shall be substantially the same for each investor, however, a prospective investor should be aware that he/she may receive various numbers of the New Shares and the Sale Shares as a proportion of their total allocation of the Offer Shares.

An investor may be allocated New Shares only, or any combination of New Shares, Sale Shares and A3.4.3 Overallotment Shares. All Shares have equal rights and will be delivered to investors at the same time by registration on their brokerage accounts through the facilities of the NDS. The Issuer and the Affiliated Shareholder will attempt to allocate first the New Shares, and the Sale Shares will be allocated only after all New Shares have been allocated.

Dilution A3.9.1 A3.9.2 Upon completion of the Offering, the amount and percentage of the immediate dilution of the Issuer’s Shares will be as follows, assuming all New Shares are subscribed and issued and all Sale Shares are sold and the Overallotment Option is exercised in full:

Principal Shareholder...... 32,709,996 64.49% Overallotment Shares ...... 2,349,652 4.63% Sale Shares ...... 5,664,352 11.17% New Shares...... 10,000,000 19.74% Total ...... 50,724,000 100.00%

* Excluding any Shares that may in the future be issued in connection with the Employee Stock Incentive Plan.

Settlement

Registration of the Shares on investors’ securities accounts in their brokerage houses or custodian banks shall A3.4.3 be made through the NDS once the Shares have been admitted to trading on the WSE on or around 8 December 2006.

Abandonment of the Public Offering A3.5.1.4 A3.5.1.5 The Company and the Selling Shareholders may abandon the Public Offering or a part thereof at any time before the opening of the subscription period for Retail Investors without disclosing any reason for doing so.

The Managers may also cancel the Offering, at any time after the opening of the subscription period for Retail A3.5.2.3(g) Investors, if proceeding with the Offering will be considered impracticable or inadvisable. Such reasons include, but are not limited to: (i) suspension or material limitation in trading in securities generally on the WSE; (ii) sudden and material adverse change in the economic or political situation in Poland, Israel, the Czech republic, Hungary and Bulgaria or worldwide; (iii) a material adverse change in or affecting the Company’s business or a material loss

106 or interference with the Company’s business; (iv) insufficient, in the opinion of the Issuer or the Lead Manager, expected free float of the Shares on the WSE; or (v) any change or development in or affecting the general affairs, management, financial position, shareholders’ equity or results of the Company and its subsidiaries taken as a whole in a material adverse way. In such event, subscription orders for the Firm Shares that have been made will be disregarded, and any subscription payments made will be returned without interest or any other compensation.

Listing of the Shares A3.6.1 A3.6.2 The Shares will be dematerialised and registered with the NDS. Application will be made to the WSE for the admission of all of the Company’s Shares authorised and issued as at the Settlement Date, including the Firm Shares and the Overallotment Shares plus 930,000 Shares that have been authorised and may be issued from time to time under the Company’s Employee Stock Incentive Plan for listing on the main market in the continuous trading system. Trading in the Shares is expected to commence on or about 8 December 2006.

Investors should consider that since under Dutch law, no registration process is needed in order to validly issue any shares, the New Shares will be eligible for a listing application upon payment by investors, on par with the remaining Shares — consequently, the Issuer will not be seeking to apply for listing of any temporary share receipts, such as “rights to shares” (prawa do akcji) within the meaning of the Act on Trading in Financial Instruments.

At present, the Company does not intend to seek listing of the Shares at any stock exchange other than the WSE.

Offeror A3.4.1 A3.4.3 The Issuer has appointed CA IB Securities S.A. to act as its Offeror with respect to the Shares for the purposes A3.5.4.2 of the Offering and admission to trading on the main market of the WSE.

Registration of Shares

In accordance with applicable regulations, all the outstanding Shares as at the Settlement Date, including the Firm Shares and the Overallotment Shares plus 930,000 Shares that have been authorised for issuance from time to time under the Company’s Employee Stock Incentive Plan will be electronically registered with and cleared through the NDS (Krajowy Depozyt Papierów Wartos´ciowych S.A.) which is a Polish central clearinghouse and depository of securities with its seat at ul. Ksia˛z˙e˛ca 4, 00-498 Warsaw, Poland. All the Shares have been assigned ISIN code: NL0000687309.

Lock-up Agreements A3.7.3

Each of the Issuer, the Principal Shareholder and the Selling Shareholders have agreed that, without the prior written consent of the Lead Manager, it or he will not, subject to certain exceptions, during the 180 days period after the Allotment Date (the “Lock-up Period”) issue, offer, sell, contract to sell, pledge or otherwise transfer or dispose of, or announce the proposed sale of, any Shares or other equity securities or securities linked to the Issuer’s share capital, and the Issuer has agreed with the Managers to reasonably procure that any beneficiary of the Employee Stock Incentive Plan (as defined below) who receives any options, shares or other securities of the Issuer in connection with the Employee Stock Incentive Plan will not offer, sell, contract to sell, pledge or otherwise transfer or dispose of any such options, shares or other securities during the Lock-up Period, provided, however, that (i) the Issuer may, in connection with its Employee Stock Incentive Plan, issue options or other securities or contracts whose value is linked to the value of the Issuer’s shares; and (ii) members of the Company’s management may exercise any options granted to them under the Employee Stock Incentive Plan but any shares of the Issuer thus acquired may not be offered, sold, contracted to sell, pledged or otherwise transferred or disposed of during the Lock-up Period by such persons or on their behalf.

Expenses of the Offering A3.8.1

The total estimated expenses to be incurred by the Company and the Affiliated Shareholder in connection with the Offering will be announced in a press release on the Pricing Date. These will be comprised of the Managers’ underwriting fees of up to 5% of the gross proceeds of the Offering, plus an amount that is not expected to exceed A1.5 million in relation to professional fees (including auditors’ fees and fees of local counsel) and other expenses incurred in connection with preparation of the Offering.

107 PLACING AND UNDERWRITING A3.5.4 A3.6.3 The Issuer and the Selling Shareholders intend to enter, on or about the Pricing Date, into an underwriting A3.6.4 agreement (the “Underwriting Agreement”) in respect of the Offering with the Managers, in which the Managers A3.5.4.1 will commit, on a best efforts basis, to procure subscribers for, or failing that, to subscribe in their own name and pay A3.5.4.2 for, the Firm Shares at the Offer Price. The underwriting commitment is summarised below: A3.5.4.3 A3.5.4.4 Bank Austria Creditanstalt AG, Vordere Zollamtsstrasse 13, A-1030, Vienna, Austria ...... 90% A3.5.4.1 ING Bank N.V., London Branch, 60 London Wall, London EC2M 5TQ, England ...... 10% Total ...... 100%

CA IB Securities S.A., ul. Emilii Plater 53, 00-113 Warsaw, Poland, will act as Offeror in Poland with respect to the Shares for the purposes of the Offering and admission to trading on the main market of the WSE. In connection with the Offering, the Issuer has and the Selling Shareholders have agreed to pay a fee of up to 5%, including an incentive fee, of the gross proceeds from the placement and sale of the Offer Shares, pro rata to the number of the New Shares and the Sale Shares in the Offering. In addition, the Issuer and the Selling Shareholders have agreed to indemnify the Managers against certain liabilities and to reimburse the Managers for certain of their expenses in connection with the management of the Offering. The Managers are entitled in certain circumstances to be released and discharged from their respective obligations under the Underwriting Agreement prior to the Listing Date. Such circumstances include the non-satisfaction of certain conditions precedent and the occurrence of certain force majeure events. See “The Offering — Abandonment of the Public Offering”. In addition, the Principal Shareholder has granted to the Managers an option exercisable for up to 30 days following the Allotment Date to purchase up to an additional 2,349,652 Shares, the maximum number of which is equal to 15% of the number of Firm Shares being offered in the Offering, solely to cover overallotments, if any, made in connection with the Offering and short positions resulting from stabilisation transactions. See “The Offering — Stabilisation and the Overallotment Option”. Pursuant to the Underwriting Agreement, the Company, Principal Shareholder and the Selling Shareholders have agreed to a lock-up. See “The Offering — Lock-up Agreements”.

Other Relationships The Offeror and its respective affiliates have engaged in, and may in the future engage in, investment banking and other commercial dealings in the ordinary course of business with the Company and the Selling Shareholders and any of their respective affiliates. The Offeror and its respective affiliates have received and may receive in the future customary fees and commissions for these transactions and services.

Selling Restrictions The Offer Shares have not been and will not be registered under the US Securities Act, or with any securities regulatory authority of any state or any jurisdiction in the United States. The Offer Shares are being offered only outside the United States in accordance with Regulation S of the US Securities Act and may not be offered or sold within the United States or to, or for the account or benefit of, US persons except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the US Securities Act.

108 LEGAL MATTERS Certain legal maters in connection with the Offering will be passed upon for the Company and the Selling Shareholders with respect to United States laws and the laws of England and Wales by Baker & McKenzie LLP, London, with respect to Polish law, by Baker & McKenzie Gruszczyn´ski i Wspólnicy Kancelaria Prawna Sp.K., and with respect to Dutch laws by Baker & McKenzie Amsterdam N.V.

109 INDEPENDENT AUDITORS A1.20.4.1 A1.20.4.2 KPMG Accountants N.V.,the Netherlands (“KPMG Netherlands”), independent auditors, with their address at A1.2.1 A3.10.2 Burgemeester Rijnderslaan 10, 1185 MC Amstelveen, the Netherlands, have audited the consolidated financial A3.10.3 statements of the Issuer for each of the financial years ended 2003, 2004 and 2005 and reviewed the Interim A1.20.5.1 financial statements for the six-month periods ended 30 June 2005 and 30 June 2006. KPMG Netherlands have A1.20.6.2 A1.23.1 given, and have not withdrawn, their written consent to the inclusion of their report and the reference to themselves A1.20.6.1 herein in the form and context in which they are included. KPMG Netherlands has no interest in the Issuer. The signatory of the independent auditors’ report on the audited consolidated financial statements for the years 2003, 2004 and 2005 of the Issuer is a member of Royal NIVRA (het Koninklijk Nederlands Instituut van Registeraccountants).

110 GENERAL INFORMATION

Prospectus This Prospectus constitutes a prospectus for the purposes of article 5.3 of the Prospectus Directive for the purpose of giving the information with regard to the Issuer and the Shares it intends to offer pursuant to this Prospectus which is necessary to enable prospective investors to make an informed assessment of the assets and liabilities, financial position, profit and losses and prospects of the Issuer. The Prospectus Directive has been implemented in the Netherlands as at 1 July 2005 in the Act on the Supervision of the Securities Trade 1995 (Wet toezicht effectenverkeer 1995), as amended, the Decree on the Supervision of the Securities Trade 1995 (Besluit toezicht effectenverkeer 1995), as amended, and the Exemption Regulation pursuant to the Act on the Supervision of the Securities Trade 1995 (Vrijstellingsregeling Wet toezicht effectenverkeer 1995), as amended. This Prospectus constitutes a prospectus in the form of a single document within the meaning of article 3 of the Prospectus Directive. This Prospectus has been filed with, and was approved on 17 November 2006 by, the Netherlands Authority for the Financial Markets, which is the Dutch competent authority for the purpose of relevant implementing measures of the Prospectus Directive in the Netherlands. Under the Prospectus Directive and the Act on Offerings, this Prospectus, once approved by the competent authority of one member state of the European Union (“home member state”) may be used for making a public offering and admission of securities to listing on a regulated market in another member state of the European Union (“host member state”), provided that the competent authority of the home member state provides the competent authority of the host member state with a certificate of approval of the Prospectus. For the purposes of the public offering in Poland, the Issuer will publish a Polish translation of this Prospectus, including a translation of the summary of the Prospectus. The Issuer is responsible solely for the accuracy of the Polish translation of the summary of this Prospectus, or for omission of any information therein.

The Company

The Company is a limited liability company (naamloze vennootschap) of unlimited duration (registered A1.5.1.3 number 33260971) that is incorporated, exists and operates under the laws of the Netherlands, in compliance with A1.5.1.4 Book 2 of the Dutch Civil Code. On 12 April 1994, I.T. International Cinemas B.V. (the previous name of the Company), was incorporated as a private limited liability company (besloten vennootschap met beperkte aansprakelijkheid) under the law of the Netherlands, with statutory seat in Rotterdam, the Netherlands. I.T. International Cinemas B.V. was converted into a limited liability company (naamloze vennootschap) on 24 March 2004. The Issuer’s address is Weena 210-212, 3012 NJ, Rotterdam, the Netherlands. The telephone number of the Company’s registered office is +31 10 201 3602 and the Company’s fax number is +31 10 201 3603.

Shares in Book-Entry Form The Issuer’s Shares are bearer shares and will be in book-entry form. The Shares will be registered with the NDS, the central securities depository of Poland. No individual share certificates will be issued.

Corporate Resolutions and Share Capital A1.21.1.7 The issued share capital of the Company is A407,240 divided into 40,724,000 ordinary bearer shares of A0.01 each. All of the shares are fully paid up. The Company was incorporated on 12 April 1994 as a private limited liability company (besloten vennootschap met beperkte aansprakelijkheid) under the law of the Netherlands with a share capital of NLG 40,000, divided into 400 ordinary registered shares of NLG 100 each. On 29 January 2004, the Company increased its share capital by A11,118.10 through the creation of 245 ordinary registered shares each having a par value of A45.38, which par value before the introduction of the Euro amounted to NLG 100. On 11 March 2004, the Company increased its share capital by A4,764.90 to A34,000 through the creation of 105 ordinary registered shares each having a par value of A45.38. On 24 March 2004, the 750 ordinary registered shares were converted into 3,403,352 registered shares each with a par value of A0.01 pursuant to the resolution of the shareholders, under which the Company was also converted from a private limited liability company into a public limited liability company. At the same time 31,656,296 ordinary registered shares were issued each with a par value of A0.01.

111 On 13 May 2004, pursuant to the resolution of the Shareholders, the 4,940,352 ordinary registered shares, each with a par value of A0.01, were issued.

On 13 June 2004, in accordance with article 9 of the current Articles of Association, the Company’s shareholders pursuant to their resolution authorised the Management Board to issue shares within the authorised share capital for a period of 5 (five) years, until June 14 2009.

On 14 June 2004, the Shareholders resolved to issue 724,000 ordinary registered shares, each with a par value of A0.01, which issuance was realised on June 15 2004. Following this share issue, the Issuer’s issued and paid up share capital is A407,240.

On 6 September 2004 the Management Board adopted a resolution in which it resolved, amongst other things, to exchange 40,724,000 ordinary registered shares for 40,724,000 ordinary bearer shares, each share having a par value of A0.01, which proceedings also involved the revocation of the shareholders’ register and execution of six global share certificates representing all the ordinary bearer shares.

On 6 June 2006, the Management Board adopted a resolution in which it resolved, amongst other things, to exchange 40,724,000 ordinary bearer shares for 40,724,000 ordinary registered shares, each share having a par value of A0.01, which proceedings also involved the registration of such shares in the shareholders’ register and cancellation of six global share certificates.

On 31 October 2006, in accordance with the resolution of the General Meeting of Shareholders, which was adopted upon the proposal of the Management Board and under approval of the Supervisory Board, the Articles of Association were amended.

On 7 November 2006, the Shareholders adopted a resolution in which it resolved, amongst other things, to A3.4.6 exchange 40,724,000 ordinary registered shares for 40,724,000 ordinary bearer shares, each share having a par value of A0.01, all in accordance with the Articles of Association.

On 7 November 2006, the Shareholders resolved to confirm, in accordance with the Articles of Association, the designation of the Management Board as the corporate body with the power to issue Shares, subject to the approval of the Supervisory Board, for a fixed period not exceeding five years from 18 June 2004 to 18 June 2009, up to a number equal to not more than the Authorised Shares at the time of the resolution of issue or grant.

On 7 November 2006, the Shareholders resolved to confirm, in accordance with the Articles of Association, the designation of the Management Board as the corporate body with the power to restrict or exclude pre-emptive rights for a fixed period of five years, starting from 7 November 2006.

On 7 November 2006, the Shareholders resolved to authorise the board of managing directors for eighteen months effective from 7 November 2006, subject to the Supervisory Board’s approval, to purchase for consideration fully paid-up shares in the Company’s own capital, on the stock exchange or otherwise, and to alienate shares in the Company’s own capital, irrespective of whether such shares were purchased by the Company before or after aforementioned date, in the context of Employee Stock Incentive Plans or for other general corporate purposes. The said authorisation will cover the maximum number of shares which may be acquired by the Company in its own capital pursuant to the law and its Articles of Association at the time of the acquisition, in which respect the price must be between the shares’ nominal value and 110% of the average price of the shares listed on the WSE over the five days immediately preceding the purchase.

On 7 November 2006, the Shareholders resolved to approve an incentive based Employee Stock Incentive Plan comprising of a maximum of 930,000 incentive shares consisting of newly issued and/or repurchased Shares for managing directors, members of management and employees of the Company and to authorise the Supervisory Board to determine, with the participation of at least one independent member of the Supervisory Board, the exact criteria of any options granted, and the persons to whom they shall be granted. A General Meeting of Shareholders shall approve the exact terms and criteria and the number of stock options granted to the members of the Management Board.

Sale of the Sale Shares does not require any approval by the Issuer or approval of the current Shareholders.

Group Structure and Subsidiaries

The Company is a holding company and a controlling entity of companies that pursue business activities in A1.7.1 various countries including Poland, Hungary, Czech Republic, Bulgaria and Israel. The Issuer is responsible for A1.7.2 strategic management of the Company and its new investments and financing. A1.25

112 The following table sets out the Company’s focus of operations:

Principal direct and indirect subsidiaries A1.7.1 indirect/direct % A1.7.2 % held by the of votes held by Company Country Company the Company Activity A1.25 I.T. Sofia B.V...... The Netherlands 100% 100% Holding company Cinema City Finance B.V...... The Netherlands 100% 100% Financing Vehicle Cinema City Poland Sp. z o.o...... Poland 100% 100% Multiplex I.T. Poland Development 2003 Sp. z o.o. . Poland 100% 100% Multiplex New Age Media sp. z o.o ...... Poland 100% 100% Cinema advertising Forum Film Poland sp. z o.o ...... Poland 100% 100% Distribution New Cinemas Poland sp. z o.o ...... Poland 99% 99% Real estate management, advertising All Job Poland sp. z o.o...... Poland 100% 100% Manpower Cinema City International Poland sp. zo.o ...... Poland 100% 100% Inactive Stars Poland sp. z o.o ...... Poland 100% 100% Movie exhibition Star Poland sp. z o.o ...... Poland 100% 100% Movie exhibition Janki Properties sp. z o.o. (in liquidation) ...... Poland 100% 100% Real estates I.T. Magyar Cinema Kft...... Hungary 100% 100% Multiplex Forum Film Home Entertainment Kft. . . Hungary 100% 100% Distribution Forum Film Distribution Kft...... Hungary 100% 100% Distribution Kino 2005 a.s ...... Czech Republic 99% 99% Multiplex I.T Czech Cinemas S.R.O ...... Czech Republic 100% 100% Multiplex Cinema City Bulgaria International EOOD ...... Bulgaria 100% 100% Multiplex I.T. International Theatres 2004 Limited ...... Israel 100% 100% Multiplex Teleticket Limited ...... Israel 100% 100% Sale of the tickets over the phone Mabat Advertisement Limited ...... Israel 100% 100% Cinema advertising I.T. Cinema Plus Limited ...... Israel 100% 100% Movie exhibition Norma Film Limited ...... Israel 50% 60% Holding company Forum Film Limited ...... Israel 50% 60% Film distribution Ya’af — Giant Video Library Network Limited ...... Israel 30% 60% Video - retail Ya’af — Automatic Video Machines Limited ...... Israel 50% 60% Video - AVM (Automated Video Machines)

Documents Available for Inspection A1.24 The following documents will be available for inspection free of charge at the Company’s specified office address during normal business hours from the date of this Prospectus for a period of one year: • the Articles of Association; • the Company’s audited financial statements as at and for the years ended 31 December 2003, 31 December 2004 and 31 December 2005; • the Company’s interim financial statements as at and for the six month period ended 30 June 2006; • copies of corporate resolutions mentioned in the preceding section; and • copies of third party source publications cited in this Prospectus. Moreover, the following documents will be available through the Company’s website www.cinemacity.nl: • this Prospectus, together with its summary translated into the Polish language; • the Polish-language version of this Prospectus; • the current Articles of Association; • copies of the documents required to be published on the Company’s website pursuant to the Dutch Corporate Governance Code and the WSE Corporate Governance Rules; and • statement of the Company’s compliance or non-compliance with the WSE Corporate Governance Rules.

113 (This page has been left blank intentionally) INDEX TO FINANCIAL STATEMENTS A1.20.3 A3.10.2 Audited Financial Statements As At and for the Year Ended 31 December 2003 ...... F-2 A1.20.5.1 Audited Financial Statements As At and for the Year Ended 31 December 2004 ...... F-50 A1.20.6.1 Audited Financial Statements As At and for the Year Ended 31 December 2005 ...... F-98 A1.20.6.2 Interim Financial Statements As At and for the Six Month Period Ended 30 June 2006 ...... F-144

F-1 Cinema City International N.V. Financial Statements for the year ended 31 December 2003

F-2 Cinema City International N.V.

Financial Statements for the year ended 31 December 2003 Contents

Page Auditors’ report...... F-4 Consolidated Financial Statements for the year ended 31 December 2003 Consolidated Balance Sheet as of 31 December 2003 ...... F-5 Consolidated Income Statement for the year ended 31 December 2003 ...... F-7 Consolidated Statement of Shareholders’ Equity for the year ended 31 December 2003 ...... F-8 Consolidated Statement of Cash Flows for the year ended 31 December 2003 ...... F-9 Notes to the Consolidated Financial Statements ...... F-11 Dutch GAAP information ...... F-41 Parent Company Financial Statements Parent Company Balance Sheet as of 31 December 2003 ...... F-42 Parent Company Income Statement for the year ended 31 December 2003 ...... F-44 Notes to the Parent Company Financial Statements...... F-45

F-3 Cinema City International N.V.

Auditors’ Report

To the Shareholders of Cinema City International N.V.

Introduction We have audited the consolidated balance sheet of Cinema City International N.V., Amsterdam, as of 31 December 2003, and the related consolidated income statement, changes in share- holders’ equity and cash flows for the year then ended, as set out on pages F-5 to F-40. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

Scope We conducted our audit in accordance with International Standards on Auditing that are also accepted in the Netherlands. 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 prin- ciples used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

Opinion In our opinion, the consolidated financial statements give a true and fair view of the financial position of the Company as at 31 December 2003 and of the results of its operations, the change in the shareholders’ equity and its cash flows for the year then ended in accordance with International Financial Reporting Standards promulgated by the International Accounting Standards Board.

Amstelveen, 26 March 2004

KPMG ACCOUNTANTS N.V.

P. Mizrachy RA

F-4 Cinema City International N.V.

Consolidated Balance Sheet

31 December Note 2003 2002 2001 EUR (thousands) ASSETS FIXED ASSETS Intangible fixed assets ...... 4 374 328 267 Property and equipment ...... 5 138,548 140,227 86,776 Financial fixed assets Loans to unconsolidated subsidiaries ...... 6 — 18,956 19,322 Deferred tax asset ...... 24 2,080 2,603 1,265 Other investments ...... 3 3 190 Total financial fixed assets ...... 2,083 21,562 20,777 Total fixed assets ...... 141,005 162,117 107,820 CURRENT ASSETS Inventories ...... 7 3,042 2,831 3,002 Receivables Trade accounts receivable ...... 8 5,371 4,805 4,586 Loans to (unconsolidated) subsidiaries ...... 6 15,743 —— Receivable from related parties ...... 25 596 59 53 Income taxes receivable...... 24 701 564 201 Other amounts receivable and prepaid expenses ...... 9 5,155 4,424 4,087 Total receivables...... 27,566 9,852 8,927 Securities Marketable securities...... 208 964 406 Non-marketable securities held for sale ...... 10 117 117 117 Total securities ...... 325 1,081 523 Liquid funds Cash and cash equivalents ...... 5,377 2,241 2,818 Short-term bank deposits ...... 11 808 1,619 1,961 Total liquid funds ...... 6,185 3,860 4,779 Total current assets ...... 37,118 17,624 17,231 TOTAL ASSETS ...... 178,123 179,741 125,051

See accompanying notes to the Consolidated Financial Statements.

F-5 Cinema City International N.V.

Consolidated Balance Sheet

31 December Note 2003 2002 2001 EUR (thousands) SHAREHOLDERS’ EQUITY AND LIABILITIES SHAREHOLDERS’ EQUITY ...... 12 Share capital ...... 18 18 18 Premium on share capital ...... 40,100 29,531 29,530 Retained earnings ...... 11,749 17,402 15,177 Accumulated currency translation adjustment ...... 2 (189) (292) Total Shareholders’ equity ...... 51,869 46,762 44,433 Minority interests ...... 13 53 779 1,083 PROVISIONS Accrued employee retirement rights, net ...... 14 743 786 625 Deferred tax liabilities...... 24 1,781 1,915 1,106 Provision related to onerous lease contracts ...... 15 9,997 11,228 — Total Provisions...... 12,521 13,929 1,731 LONG TERM LIABILITIES Long-term loans, net of current portion ...... 16 76,731 73,170 30,236 Loan from shareholder ...... 25 3,957 4,771 — Other long-term payables ...... 3,340 1,790 1,091 Income received in advance...... 164 149 513 Total Long-term liabilities...... 84,192 79,880 31,840 CURRENT LIABILITIES Short-term bank credit ...... 17 12,648 19,188 28,886 Trade accounts payable ...... 8,315 10,984 10,239 Payable to related parties ...... 25 2,670 286 67 Employee and payroll accruals ...... 1,234 1,389 1,486 Income taxes ...... 24 1 474 — Other accounts payable ...... 18 4,620 6,070 5,286 Total Current liabilities ...... 29,488 38,391 45,964 TOTAL SHAREHOLDERS’ EQUITY AND LIABILITIES ...... 178,123 179,741 125,051

See accompanying notes to the Consolidated Financial Statements.

F-6 Cinema City International N.V.

Consolidated Income Statement

For the year ended 31 December Note 2003 2002 2001 EUR (thousands, except per share data and number of shares) Revenues ...... 20 95,783 88,608 75,540 Operating costs ...... 21 85,696 78,629 63,838 Gross margin ...... 10,087 9,979 11,702 General and administrative expenses ...... 4,630 4,785 4,369 Operating profit ...... 5,457 5,194 7,333 Financial income ...... 22 3,476 1,993 1,718 Financial expenses...... 22 (4,082) (3,741) (794) Gain/(loss) on disposals and write-off of other investments ...... 23 (231) (164) (2,421) Income before taxation ...... 4,620 3,282 5,836 Income taxes ...... 24 756 1,059 1,779 Net profit after taxation ...... 3,864 2,223 4,057 Minority interests in (profit)/loss of consolidated subsidiaries ...... 13 (270) 2 (868) Net income...... 3,594 2,225 3,189 Number of average equivalent shares*) ...... 35,059,648 35,059,648 35,059,648 Net earnings per ordinary share (basic and diluted) of EUR 0.01*) each ...... 12,26 0.10 0.06 0.09

*) The net earning per share was calculated taking into account the par value of share and the number of shares as of the date of this financial statements see note 12, 26.

See accompanying notes to the Consolidated Financial Statements.

F-7 Cinema City International N.V.

Statement of Shareholders’ Equity

Accumulated currency Number of Share Share Retained translation Shares1 capital Premium earnings adjustments Total EUR (thousands) except number of shares Balance as of 1 January 2001...... 400 18 29,526 11,988 — 41,532 Net income for the year 2001...... — — — 3,189 — 3,189 Costs of options granted ...... — — 4 — — 4 Foreign currency translation adjustment . . — — — — (292) (292) Balance as of 31 December 2001 ...... 400 18 29,530 15,177 (292) 44,433 Net income for the year 2002...... — — — 2,225 — 2,225 Costs of options granted ...... — — 1 — — 1 Foreign currency translation adjustment . . — — — — 103 103 Balance as of 31 December 2002 ...... 400 18 29,531 17,402 (189) 46,762 Net income for the year 2003...... — — — 3,594 — 3,594 Foreign currency translation adjustment ...... — — — — 1,513 1,513 Transfer to Share Premium2 ...... — — 10,569 (9,247) (1,322) — Balance as of 31 December 2003 ...... 400 18 40,100 11,749 2 51,869

1 As part of the Restructuring, the Company allocated additional shares to ITIT, then split each share to a par value of EUR 0.01, and issued new shares to ITIT to bring its holding to 35,059,648 shares. As ITIT is the 100% shareholder, the effect of this transaction is very similar to a stock split. The formal registration of the new shares was completed in March 2004. The number of shares and the share capital presented in the table above reflect the actual number as of 31 December 2001, 2002 and 2003. 2 The Transfer to Share Premium relates to the effects of the Restructuring on the statutory composition of the Company’s shareholders equity (see Notes 1 and 7 to the Parent Company Financial Statements).

See accompanying notes to the Consolidated Financial Statements.

F-8 Cinema City International N.V.

Consolidated Statement of Cash Flows

For the year ended 31 December 2003 2002 2001 EUR (thousands) Cash flows from operating activities Net income ...... 3,594 2,225 3,189 Adjustments to reconcile net income to net cash provided by operating activities: Financial income ...... (3,476) (1,993) (1,718) Financial expenses ...... 4,082 3,741 794 Income taxes ...... 756 1,059 1,779 Interest paid ...... (2,865) (2,076) (1,232) (Increase)/decrease in value of marketable securities ...... (226) (370) 39 Depreciation and amortisation ...... 10,391 9,583 6,402 Loss/(gain) on disposition of property and equipment, net ...... 156 105 (14) Decrease in provision related to onerous lease contracts ...... (1,231) (1,126) — Income taxes paid ...... (933) (1,713) (1,724) Increase in accrued employee rights upon retirement, net ...... 37 161 87 Minority interests in (losses)/earnings of consolidated subsidiaries...... 270 (2) 868 Write-off of other investments ...... — — 2,409 Costs of options granted ...... — 15 Effect of foreign currency exchange and others...... (98) (621) (684) 10,457 8,974 10,200 Decrease/(increase) in inventories...... (378) 174 (576) Decrease/(increase) in accounts receivable ...... 593 679 (515) Decrease/(increase) in long-term film distribution costs and deferred expenses ...... 15 392 (99) Increase/(decrease) in accounts payable ...... (996) 418 (3,937) Increase/(decrease) in employee and payroll accruals ...... (37) (96) 335 Increase/(decrease) in related parties ...... 1,802 160 (50) Decrease/(increase) in income taxes ...... (620) 111 236 Decrease/(increase) in income received in advance ...... 30 (365) 163 409 1,473 (4,443) Net cash provided by operating activities ...... 10,866 10,447 5,757 Cash flows from investing activities Purchase of property and equipment and other assets ...... (14,999) (30,271) (28,892) Purchase of marketable securities ...... — — (374) Purchase of other investments ...... — — (826) Proceeds from disposition of property and equipment ...... 725 155 187 Short-term bank deposits ...... 811 342 13,202 Loans to related parties ...... — 366 (13,346) Loans to third party ...... (1,225) —— Proceeds from non-marketable securities held for sale...... 884 —— Investment in subsidiary companies (Appendix A) ...... — (18,584) (56) Net cash used in investing activities ...... (13,804) (47,992) (30,105) Cash flows from financing activities Proceeds from long-term loans ...... 18,960 77,340 24,552 Repayment of long-term loans ...... (8,061) (28,581) (824) Increase in long-term payables ...... 1,550 —— Short-term bank credit, net...... (5,435) (11,291) (1,599) Dividend to minority shareholders of subsidiary company ...... (904) (302) (1,129) Net cash provided by financing activities ...... 6,110 37,166 21,000 Foreign currency exchange differences on cash ...... (36) (198) (292) Increase/(decrease) in cash and cash equivalents ...... 3,136 (577) (3,640) Cash and cash equivalents at beginning of year...... 2,241 2,818 6,458 Cash and cash equivalents at end of year ...... 5,377 2,241 2,818

See accompanying notes to the Consolidated Financial Statements.

F-9 Cinema City International N.V.

Consolidated Statement of Cash Flows

Appendix A: Acquisition of consolidated subsidiaries

For the year ended 31 December 2003 2002 2001 EUR (thousands) Investment in subsidiary companies Working capital, other than cash and cash equivalents ...... — 377 221 Fixed assets ...... — (31,314) (458) Provision related to onerous lease contracts ...... — 12,353 181 — (18,584) (56) Total investment in subsidiary company — see also note 3 ...... — (18,584) (56)

The investments in 2002 relate to Ster Century Poland (see also Note 3.II.1). The 2001 investments in subsidiaries relate to investments in I.T. Sofia B.V. and Megaplex Poland Sp.Zoo.

See accompanying notes to the Consolidated Financial Statements.

F-10 Cinema City International N.V.

Notes to the Consolidated Financial Statements

Note 1 — General and principle activities

The accompanying Consolidated Financial Statements present the financial position, results of operations, changes in shareholders’ equity, and cash flows of Cinema City International N.V. — previously known as I.T. International Cinemas B.V. — (“the Company”, or “the Group”). The financial statements were authorised for issue by the directors on 26 March 2004.

Cinema City International N.V., incorporated in the Netherlands, is a wholly-owned subsidiary of I.T. Inter- national Theaters Ltd. (“ITIT” or “parent company”), incorporated in Israel. The Group is principally engaged in the operation of entertainment activities in various countries including: Poland, Hungary, Czech Republic, Bulgaria and Israel. The Company is also engaged in managing and establishing its own entertainment real estate projects for rental purposes, in which the Company operates motion picture theatres. In addition, the Company is involved in short-term and long-term real estate trading in Central Europe. The Company’s business is dependent both upon the availability of suitable motion pictures from third parties for exhibition in its theatres, and the performance of such films in the Company’s markets.

Historically, the film exhibition, distribution and video rental operations in Israel, as well as the assets related to these operations, were divided among ITITand other subsidiaries of ITIT. As a result of the continuing expansion into Central Europe, and the increasing significance of Central Europe operations to the Group, during 2003 ITIT restructured its operations in Israel to be included within the Company (‘the Restructuring’).

At the end of 2003 financial year, as part of the Restructuring, ITIT and the Company performed certain transactions that, among other things, provided for: (i) the transfer to I.T. International Theatres 2004 Ltd. (“IT- 2004”), a new subsidiary of ITIT (See note 3 (I) (4)), of all assets connected with the film exhibition business in Israel; (ii) The transfer from ITIT to the Company of all shares in IT-2004 and in all other subsidiaries which relate to the Group’s operations in Israel; (iii) ITIT’s agreement not to compete in the markets that the Company operates in; (iv) the assignment of all remaining ITIT loans and balances from financial institutes to the Company; (v) the assignment of all assets and liabilities of Pan-Europe Finance B.V., a wholly-owned subsidiary of ITIT, to the Company, in consideration of debt. The debt was then converted to shares in the Company.

Upon completion of the Restructuring, the Company became owner and holder of all the operations of the Group in both Europe and Israel.

The Consolidated Financial Statements for the year ended 31 December 2003 present the ownership and operation of the Group as if the entire Group’s business had been owned and operated by the Company since 1 January 2003 (Consolidated Financial Statements in accordance with IFRS). Although the Restructuring was completed towards the end of 2003, such a presentation would appropriately reflect the economic operation and financial position of the Group. Prior to the Restructuring, the equivalent economic operations and financial position were held by ITIT, and are therefore shown as the comparative figures in the 2003 financial statements of the Company. The comparative figures were presented in the 2002 Consolidated Financial Statements of ITIT in US dollars. For the purposes of the 2003 financial statements of the Company, the comparative figures were translated to euro in accordance with the principle set in note 2 B (5).

The comparative figures of shareholders’ equity and its constituent elements for the years ended 31 December 2002 and 31 December 2001 have been presented to reflect the equity position of the Group and the Company on an equivalent basis.

The Consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) adopted by the International Accounting Standards Board (“IASB”), and interpre- tations issued by the Standing Interpretations Committee of the IASB. The Company’s separate financial statements (the ‘Parent Company Financial Statements’) are prepared in accordance with the applicable laws and regulations of the Company, being Generally Accepted Accounting Principles in the Netherlands (’Dutch GAAP’) and are taken up on pages F-42 through F-49. For an explanation of the comparison between IFRS and Dutch GAAP reference is made to the section Dutch GAAP Information on page F-41.

F-11 Cinema City International N.V.

Notes to the Consolidated Financial Statements (Continued)

Note 2 — Summary of Significant Accounting Policies A. Statement of compliance

The Consolidated Financial Statements have been prepared in accordance with IFRS adopted by the IASB. The Company has adopted the standards and interpretations with an effective date before 31 December 2003. The Company did not use the possibility for early adoption of standards and interpretations that were not yet effective.

B. Basis of presentation (1) Measurement basis The financial statements are presented in euro, rounded to the nearest thousand. They are prepared on the historical cost basis adjusted for the change in the measurement currency. Prior to 31 December 2002, measurement of the cost was accounted for in US dollars. As described in section (4) below, the currency changed to euro from 1 January 2003. Consequently, historical cost was translated into euro at the exchange rate of 31 December 2002, and was then accounted for in euro. Unless otherwise stated, monetary assets and liabilities are presented at nominal value. Marketable securities are presented at fair value. (2) Integral foreign operations The measurement currency of the operations in Central Europe is the euro. All of the Central European subsidiaries are considered to be integral to the Company’s operations. Management believes that the euro reflects the economic substance of the underlying event and circumstances and is the relevant currency for the Central European subsidiaries. The financial statements of integral foreign operations were translated into euro as follows: Monetary items were translated at the closing exchange rate; non-monetary items were translated at the exchange rate on the date of transaction. Income statement items were translated at the average exchange rate for the year. Foreign exchange differences arising on translation have been recognised in the income statement. (3) Non-integral foreign operations The measurement currency of the operations in Israel is the New Israeli Shekel (NIS). Management considers that the Israeli operations to be autonomous from the Company, with a measurement currency of NIS rather than euro. Management believes that NIS reflects the economic substance of the underlying event and circumstances relevant to the Israeli subsidiaries. The financial statements of non-integral foreign operations were translated into euro as follows: Assets and liabilities, both monetary and non-monetary were translated at the closing exchange rate. Income statement items were translated at the average exchange rate for the year. Foreign exchange differences arising on translation have been are recognised directly in equity. (4) Change in measurement and presentation currency Prior to 1 January 2003, the measurement and presentation currency of the Group was US dollars (with the exception of one subsidiary in the Czech Republic which defined the Czech Crown as its measurement currency). The growth of the Company’s operations in Central Europe, the change in management focus to operate in euro, and the reorganisation resulting in the Company being the controlling entity of the Group, has led the Company to change its measurement and presentation currency in Europe to euro (including all subsidiaries in the Czech Republic). The Israeli operations, as non-integrated autonomous foreign operations, have the NIS as measurement currency and euro as presentation currency. As a result of the recent significant changes in the Company’s economic environment in Israel, the measurement currency of the Israeli operations as from 1 January 2003 is the NIS.

F-12 Cinema City International N.V.

Notes to the Consolidated Financial Statements (Continued)

Note 2 — Summary of Significant Accounting Policies (continued)

B. Basis of presentation (continued) (5) Comparative balance sheet figures and results prior to 1 January 2003, that were previously measured in US dollars, have been translated into euro to enable comparison between the reporting periods. The translation from US dollars to euro has been performed in accordance with Interpretation 30 of the Standing Interpretations Committee of the IASB (“SIC”), as follows: • Assets and liabilities were translated at the closing rate prevailing as at 31 December 2002. • Income and expense items and equity transactions were translated at the exchange rates prevailing during 2002 at the dates of the transactions or a rate that approximates the actual exchange rates. • Equity items other than the net profit or loss were translated at the closing rate prevailing as 31 December 2002. • All exchange differences resulting from the above translations were recognised directly in equity.

C. Exchange rates Information relating to the relevant euro exchange rates (at year end and averages for the year):

Exchange rate of euro Czech Hungarian Polish US Israeli As of 31 December Crowns Forints Zloty Dollar Shekel (CZK) (HUF) (PLN) (USD) (NIS) 2003 ...... 32.41 246.33 4.72 1.26 5.53 2002 ...... 31.60 235.90 4.02 1.05 4.97

Change during the year % % % % % 2003 ...... 2.56 4.42 17. 41 20.00 11.27 2002 ...... (1.19) (10.04) 14.14 18.51 27.52

Exchange rate of euro Czech Hungarian Polish US Israeli Average for year Crowns Forints Zloty Dollar Shekel (CZK) (HUF) (PLN) (USD) (NIS) 2003 ...... 34.08 253.18 4.40 1.15 5.13 2002 ...... 30.81 262.19 4.29 0.95 4.98

Change year over year % % % % % 2003 ...... 10.61 (3.44) 2.50 21.05 2.90 2002 ...... (3.23) (13.40) (0.59) 5.56 12.74

D. Principles of consolidation The Consolidated Financial Statements include the accounts of the Company, its subsidiaries, and jointly controlled entities. Subsidiaries are those enterprises controlled by the Company. Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of an enterprise so as to obtain benefits from its activities. The financial statements of subsidiaries are included in the Consolidated Financial Statements from the date that control effectively commences until the date that control effectively ceases. Jointly controlled entities are those enterprises over whose activities the Company has joint control, established by contractual agreements. The Consolidated Financial Statements include the Company’s propor- tionate share of the enterprises’ assets, liabilities, revenues and expenses with items of similar nature on a line-by-line basis, from the date that joint control commences until the date that joint control ceases.

F-13 Cinema City International N.V.

Notes to the Consolidated Financial Statements (Continued)

Note 2 — Summary of Significant Accounting Policies (continued) D. Principles of consolidation (continued) All inter-company accounts and transactions are eliminated when preparing the Consolidated Financial Statements. A list of the companies whose financial statements are included in the Consolidated Financial Statements and the extent of ownership and control appears in note 32 to these financial statements.

E. Use of estimates The preparation of financial statements in conformity with IFRS requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

F. Intangible assets Intangible assets that are acquired by the Group are stated at cost less accumulated amortization, calculated over the estimated useful life of the assets, and impairment losses, if any. The recoverable amount is estimated at least at each balance sheet date. According to IAS 36, the carrying amount of the intangible assets mentioned above is reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the recoverable amount is estimated as the higher of net selling price and value in use.

G. Property and equipment (1) Property and equipment are stated at cost less accumulated depreciation and impairment losses. Expenditures for maintenance and repairs are charged to expenses as incurred, while renewals and betterments of a permanent nature are capitalised. (2) Depreciation is calculated by means of the straight-line method over the estimated useful lives of the assets. Annual rates of depreciation are as follows:

% Buildings ...... 2-3 Cinema equipment ...... Mainly 10 Leasehold improvements...... Mainly 5 Computers, furniture and office equipment ...... 6-33 Vehicles ...... 15-20 Video movie cassettes and DVDs ...... 25-33 Video machines ...... 20 (3) Leasehold improvements are depreciated over the estimated useful lives of the assets, or over the period of the lease, including certain renewal periods, if shorter. (4) Leases in terms of which the Group assumes substantially all the risks and rewards of ownership are classified as finance leases. Plant and equipment acquired by way of finance lease is stated at an amount equal to the lower of its fair value and the present value of the minimum lease payments at inception of the lease, less accumulated depreciation. (5) According to IAS 36 the carrying amount of assets mentioned above is reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the recoverable amount is estimated as the higher of net selling price and value in use. (6) Financing expenses relating to short-term and long-term loans, which were taken for the purpose of purchasing or constructing property and equipment, as well as other costs which refer to the purchasing or constructing of property and equipment, are capitalised to property and equipment, in accordance with IAS 23.

F-14 Cinema City International N.V.

Notes to the Consolidated Financial Statements (Continued)

Note 2 — Summary of Significant Accounting Policies (continued) H. Inventories Inventories include concession products, spare parts, music cassettes, CDs and video cassettes, and are stated at the lower of cost or net realisable value. Cost is determined by means of the “first in, first out” method. Cost of music cassettes is determined on the basis of the average purchase price. Net realisable value is the estimated selling price during the normal course of business, less the estimated costs of completion and selling expenses.

I. Allowance for doubtful accounts The allowance for doubtful accounts is determined based upon management’s evaluation of receivables doubtful for collection on a case-by-case basis.

J. Marketable securities The investments in securities held by the Group are classified as trading securities. Trading securities are bought and held principally for the purpose of selling them in the short term and are recorded at fair value. The fair value of investments held for trading is their quoted bid price as of the balance sheet date. Unrealised gains and losses on these securities are included in the income statement. Dividends and interest income are recognised when earned.

K. Cash and cash equivalents Cash and cash equivalents comprise cash balances and short-term highly liquid investments, that are readily convertible to known amounts of cash, and which are subject to insignificant risk of changes in value.

L. Employee benefits — defined contribution plans Obligations for contributions to defined contribution pension plans are recognised as an expense in the income statement as incurred.

M. Provision related to onerous lease contracts During July 2002, the Group acquired a cinema chain in Poland at a discount, which was allocated to the lease agreements of the cinemas acquired. In the financial statements of the Company the discount is presented as a provision related to onerous lease contracts and is released to the income statement over the term of the lease (see also note 3 (II) 1).

N. Long term liabilities Long term liabilities are stated at their nominal value plus accumulated interest. For information regarding the fair value of long term liabilities reference is made to Note 27 e.

O. Severance pay The Group’s liability for severance pay is calculated pursuant to local applicable severance pay laws and employee agreements based on the most recent salary of the employees. The Group’s liability for all of its employees is partly provided by monthly deposits with insurance policies and by accruals. The deposited funds include profits accumulated up to the balance sheet date. The deposited funds may be withdrawn only upon the fulfilment of the obligation pursuant to local severance pay law or labour agreements. The value of the deposited funds is based on the cash value of these policies, and includes immaterial profits.

P. Revenue recognition (1) Revenues from admission (ticket sales) and concession sales (snack-bars operated by the Company) are recognised when services are provided. (2) Revenues from distribution of cinema films are recognised on an accrual basis by a percentage of admissions from the related films.

F-15 Cinema City International N.V.

Notes to the Consolidated Financial Statements (Continued)

Note 2 — Summary of Significant Accounting Policies (continued) P. Revenue recognition (continued) (3) Revenues from distribution of films to cable television companies and television stations are recognised over the agreed period for the screening of the film. (4) Revenues from sales of video cassettes and DVDs are recognised upon delivery to the customer. (5) Revenues from video cassettes and DVD rentals are recognised as the rental services are provided. (6) Revenues from “on screen” advertising contracts are included in other revenues and are recognised when the related advertisement or commercial is screened, or, in some cases, over the period of the contract. (7) Revenues from rental contracts are included in other revenues and are recognised on an accrual basis. (8) Revenues from the sale of real estate are included in other revenues and are recognised when the significant risks and benefits of the ownership have been transferred and when the buyer is committed to the purchase, and the sales price is considered collectible.

Q. Operating costs (1) Theatre operating costs — Include direct concession product and joint theatre facility costs such as employee costs, theatre rental and utilities, which are common to both ticket sales and concession operations. (2) Cost of films distributed — Cost of films distributed are capitalised until the time the films are distributed for screening. Once the films have been distributed and screening has begun, the costs are amortised at a rate equal to the ratio of revenues in the period to total estimated revenues for the films. (3) Advertising expenses — General advertising expenses are expensed as incurred. Film advertising expenses are expensed when the film is distributed or is shown to the public.

R. Net financing cost Net financing costs comprise interest payable on borrowings calculated using the effective interest rate method, and interest receivable on funds invested. Foreign exchange gains and losses, and gains and losses that are recognised on hedging instruments are recognised in the income statements. Interest income is recognised in the income statements as it accrues, taking into account the effective yield on the asset.

S. Derivative financial instruments The Group uses derivative financial instruments to hedge its exposure to foreign exchange rate risks arising from operational and financing activities. Derivative financial instruments are recognised initially at cost. Subsequent to initial recognition, derivative financial instruments are stated at fair value. Where a derivative financial instrument is used to economically hedge the foreign exchange exposure of a recognised monetary asset or liability, no hedge accounting is applied and any gain or loss on the hedging instrument is recognised in the income statement.

T. Income taxes Income tax on the profit or loss for the year comprises current and deferred tax. Income tax is recognised in the income statement except to the extent that it relates to items recognised directly to equity, in which case it is recognised in equity. Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation

F-16 Cinema City International N.V.

Notes to the Consolidated Financial Statements (Continued)

Note 2 — Summary of Significant Accounting Policies (continued) T. Income taxes (continued) purposes. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantially enacted at the balance sheet date. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the unused tax losses and credits can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Additional income taxes that arise from the distribution of dividends are recognised at the same time as the liability to pay the related dividend.

U. Earnings per share Earnings per share were computed according to IAS 33 of the IASB. The computation is determined on the basis of the weighted average par value of the issued and paid-in share capital outstanding during the year.

V. Stock Option Plan The Company applies the intrinsic value-based method of accounting prescribed by the Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees” and related interpretations in accounting for its fixed plan stock options. As such, compensation expense would be recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. SFAS No. 123, “Accounting for Stock-Based Compensation”, established accounting and disclosure requirements using a fair value-based method of accounting for stock-based compensation plans for employee and for advisor. As allowed by SFAS No. 123, the Company has elected to apply the intrinsic value-based method of accounting described above, and has adopted the disclosure requirements of SFAS No. 123, and the relevant disclosures mentioned in IAS 19.

W. Segment reporting A segment is a distinguishable component of the Group that is engaged either in providing products or services (business segment), or in providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments.

Note 3 — Changes in Consolidated Entities (I) Changes in consolidated entities during 2003: (1) Forum Film Poland Sp.Zoo — 100% shares. This company commenced operations in July 2003. This company specialises in distribution of films in Poland. (2) MO. Sofia EAD — 50% share. In July 2003, the Company has sold 50% of its holding in this company for a total price of EUR 2,696,000 (which was partly paid through the repayment of shareholders loans provided to MO Sofia by the Company). (3) I.T. Sofia BV — 100% shares. in conjunction with the above (2), the Company acquired the remaining 25% of the shares of I.T. Sofia BV. The Company has paid a EUR 269,000 (USD 300,000) down payment out of a total payment of EUR 526,000 (USD 600,000), and may pay additional amounts after the opening of the project. The rest of the initial payment is subject to milestones relating to the progress of the development of the project, and the additional payments are subject to agreed success criteria after the opening. (4) IT Theatres 2004 Ltd. — 100%. New subsidiary, incorporated as part of the reorganisation (See note 1). Movie theatres operations in Israel were transferred to this subsidiary in December 2003.

(II) Changes in consolidated entities during 2002: (1) In July 2002, the Company acquired four multiplex cinemas in Poland from Ster Century Europe Limited. The multiplexes comprise a total of 46 screens and approximately 10,000 seats. The Company purchased all of the shares of Ster Century Europe’s Polish subsidiaries, and purchased shareholder loans provided to these subsidiaries, for a total price of approximately EUR 19 million (USD 20 million).

F-17 Cinema City International N.V.

Notes to the Consolidated Financial Statements (Continued)

Note 3 — Changes in Consolidated Entities (continued) (II) Changes in consolidated entities during 2002: (continued) A provision of EUR 12,731,000 (USD 13,369,000), relating to onerous lease contracts, which the acquired subsidiaries were party to prior to the acquisition, has been recorded as part of the acquisition. The provision is amortised over the non-cancellable periods of the lease contracts.

(2) IT Czech cinemas — 100% shares. This company commenced operations in December 2002 to operate all new projects in the Czech Republic. The first multiplex was opened during December 2002. A new IMAX multiplex was opened in March 2003.

(3) Cinema-City Poland Sp.Zoo — 100% shares, directly and indirectly. This company resulted from the merger of IT Bemowo and IT Poland Cinemas during June 2001. The principal business of this company is the construction and operation of multiplexes in Poland. During 2002 Cinema-City Poland Sp.Zoo took over Megaplex Baildon Sp.Zoo, IT Poland Development 2001 Sp.Zoo, Ster Century Poland Sp.Zoo and Janki Properties Poland Sp.Zoo.

(4) Megaplex Baildon Sp.Zoo — 100% shares. This company owns land and an entertainment centre in Katowice. Cinema City S.p.Zoo leases the above entertainment centre through “IT Poland Development 2001” and operates the IMAX multiplex and the entertainment centre itself. During 2002 Megaplex Baildon was merged into Cinema-City Sp.Zoo.

(5) IT Poland Development 2001 Sp.Zoo — 100% share. During 2001, this company opened a multiplex in Ruda Slonska, and IMAX Multiplex in Krakow. In the middle of 2002, this company opened a multiplex in Krakow and an entertainment centre in Katowice. During 2002, the company was merged into Cinema-City Sp.Zoo.

(6) Ster Century Poland Sp.Zoo — 100% shares — acquired in July 2002. The main aim of this company was to develop four cinemas in Poland which development has subsequently been completed. The company holds 100% of the shares of Ster Century Cinemas Poland Sp.Zoo. During 2002, after the acquisition, this company was merged into Cinema-City Poland Sp.Zoo.

(7) Ster Century Cinemas Poland Sp.Zoo — 100% share — acquired on July 2002. The main aim of this company was to maintain the operation of the 4 cinemas owned by its parent company. During 2002, after the acquisition, this company was merged into Cinema-City Poland Sp.Zoo.

(8) Janki Properties Poland Sp.Zoo — 100% shares — acquired on July 2002. The main aim of this company was to hold the land and the construction, which was used to develop one of the cinemas held by Ster Century Poland. During 2002, after the acquisition, this company was merged into Cinema-City Poland Sp.Zoo.

(9) New Age Media Sp.Zoo — 100% shares. During 2002, the name was changed from IT Poland Cinemas 2001. This company specialises in cinema advertising in Poland.

(III) Changes in consolidated entities during 2001:

(1) I.T. Czech Cinemas — 100% share. As of 31 December 2001 this company was not as yet operational, was incorporated with the aim of establishing and operating all new projects in the Czech Republic.

(2) Cinema City Poland Sp.Zoo — 100% share. This company was established as a result of the merger of I.T. Bemowo Sp.Zoo, I.T. Poland Development Sp.Zoo and I.T. Poland Cinemas Sp.Zoo — all were fully held by the Company.

(3) Megaplex Sp.Zoo — in May 2001 the Company purchased a 100% share of Megaplex. Megaplex Sp.Zoo has land in Katowice and licenses to build a cinema.

(4) I.T. Poland Development 2001 — was established during 2001, for the purpose of building and operating a multiplex in Poland (opened in October 2001).

F-18 Cinema City International N.V.

Notes to the Consolidated Financial Statements (Continued)

Note 3 — Changes in Consolidated Entities (continued) (III) Changes in consolidated entities during 2001: (continued) (5) In May 2001, the Company purchased a 75% share of Ilperveld Real Estate Holding B.V. and changed its name to I.T. Sofia B.V. This Company holds all the shares in MO Sofia EAD, which is building a shopping centre in Sofia, Bulgaria. (6) I.T. Bulgaria EAD — was established during 2001 with the purpose of operating an IMAX theatre and multiplex cinema in Bulgaria. (7) In September 2001, the Company sold its 50% interest in Galafilm a.s. (the investment was previously presented at cost). (8) I.T. Communication Theatres Ltd., a subsidiary company, wrote-off its investment in Entertec Ltd. and IOL Israel Online (2000) Ltd., at an amount of EUR 1,577,000 (USD 1,503,000). (9) The Company, together with third parties, formed a company named “News 24”. In 2001 the Company and the third parties decided to end “News 24” operations, and therefore the Company wrote-off its investment, at an amount of EUR 673,000 (USD 642,000). (10) During 2001 the Group has accounted additional write-downs at a total amount of EUR 159,000 (USD 152,000).

Note 4 — Intangible fixed assets The intangible fixed assets comprise mainly of investments in the development of video venting machines and are stated at cost less accumulated amortization and impairment losses, if any. Composition:

Financial year 2003 Foreign Balance at Additions currency beginning during translation Balance at of the year the year adjustments end of year EUR (thousands) Cost...... 471 192 (54) 609 Accumulated amortisation ...... 143 125 (33) 235 Carrying value ...... 328 374

Financial year 2002 Foreign Balance at Additions currency beginning during translation Balance at of the year the year adjustments end of year EUR (thousands) Cost...... 389 96 (14) 471 Accumulated amortisation ...... 122 34 (13) 143 Carrying value ...... 267 328

F-19 Cinema City International N.V.

Notes to the Consolidated Financial Statements (Continued)

Note 5 — Property and equipment, net Composition

31 December 2003 Foreign Sales and Balance at Additions currency disposals beginning during translation during Balance at of the year the year adjustments the year end of year EUR (thousands) Cost Land and buildings(1) ...... 62,265 3,378 — (1,104) 64,539 Cinema equipment(1) ...... 56,610 3,985 (1,574) (470) 58,551 Leasehold improvements ...... 43,094 2,346 (1,608) (357) 43,475 Computers, furniture and office equipment ..... 8,493 890 (1,002) (181) 8,200 Vehicles ...... 918 289 (101) — 1,106 Video movies ...... 4,278 1,311 (515) (2) 5,072 Video machines...... 1,477 65 (143) — 1,399 177,135 12,264 (4,943) (2,114) 182,342 Accumulated depreciation Land and buildings ...... 2,335 2,018 — (29) 4,324 Cinema equipment ...... 18,064 4,181 (1,069) (279) 20,897 Leasehold improvements ...... 7,500 1,682 (488) (287) 8,407 Computers, furniture and office equipment ..... 5,897 848 (701) (127) 5,917 Vehicles ...... 409 144 (47) — 506 Video movies ...... 1,921 1,161 (285) (2) 2,795 Video machines...... 782 232 (66) — 948 36,908 10,266 (2,656) (724) 43,794 Carrying value ...... 140,227 138,548

(1) Includes EUR 2,409,000 (2002 — EUR 3,995,000) construction in progress for entertainment purposes (See also note 19 (1)b.), and cinema equipment to an amount of EUR 5,400,000 (2002 — EUR 6,752,000) not operated yet (See also note 19 (1) c).

F-20 Cinema City International N.V.

Notes to the Consolidated Financial Statements (Continued)

Note 5 — Property and equipment, net (continued) Composition:

31 December 2002 Foreign Sales and Balance at Additions currency disposals beginning during translation during Balance at of the year the year adjustments the year end of year EUR (thousands) Cost Land and buildings(1) ...... 35,251 25,081 2,049 (116) 62,265 Cinema equipment(1) ...... 44,528 11,869 214 (1) 56,610 Leasehold improvements ...... 18,174 24,982 — (62) 43,094 Computers, furniture and office equipment ..... 7,974 568 8 (57) 8,493 Vehicles ...... 882 101 — (65) 918 Video movies ...... 3,092 1,186 — — 4,278 Video machines...... 1,537 — — (60) 1,477 111,438 63,787 2,271 (361) 177,135 Accumulated depreciation Land and buildings ...... 819 1,522 5 (11) 2,335 Cinema equipment ...... 13,058 4,988 18 — 18,064 Leasehold improvements ...... 3,753 3,775 — (28) 7,500 Computers, furniture and office equipment ..... 5,117 793 — (13) 5,897 Vehicles ...... 311 145 — (47) 409 Video movies ...... 1,037 884 — — 1,921 Video machines...... 567 229 — (14) 782 24,662 12,336 23 (113) 36,908 Carrying value ...... 86,776 140,227

Includes EUR 3,995,000 (2001 — EUR 5,136,000) construction in progress for entertainment purposes (See also note 19 (1)b.), and cinema equipment to an amount of EUR 6,752,000 (2002 — EUR 6,949,000) not operated yet (See also note 19 (1)c.).

Additions during 2002 included an amount of EUR 31,314,000 relating to acquired subsidiaries (see note 3 II).

Note 6 — Loans to Unconsolidated Subsidiaries

This item mainly represents loans to unconsolidated subsidiary companies presented at cost. The loans are denominated in USD and bear annual interest at the rate of 7%. The loan is due to be repaid when the option is exercised, as described in note 10 below.

Note 7 — Inventories

Composition:

31 December 2003 2002 2001 EUR (thousands) Concession products ...... 644 596 538 Video cassettes and DVDs ...... 817 951 1,480 IMAX films inventories ...... 1,389 937 618 Video machines ...... 78 177 226 Spare parts ...... 114 170 140 3,042 2,831 3,002

F-21 Cinema City International N.V.

Notes to the Consolidated Financial Statements (Continued)

Note 8 — Trade Accounts Receivable Composition: 31 December 2003 2002 2001 EUR (thousands) Trade accounts receivable ...... 5,390 4,822 4,752 Allowance for doubtful accounts ...... (19) (17) (166) 5,371 4,805 4,586

Note 9 — Other Amounts Receivable and Prepaid Expenses Composition: 31 December 2003 2002 2001 EUR (thousands) Government institutions ...... 1,107 456 934 Advances to suppliers ...... 22 306 291 Prepaid expenses ...... 1,351 1,000 149 Prepaid cinema film and video film distribution costs(1) ...... 1,356 2,280 1,934 Film distribution costs and deferred expenses ...... 1 16 409 Loans to other ...... 1,225 —— Other ...... 93 366 370 5,155 4,424 4,087

(1) Stated at cost, incurred by a subsidiary company, of video and cinema film which has not yet been distributed, after being reviewed for recoverability — see also Note 19 (1).

Note 10 — Non-Marketable Securities — Held for Sale This concerns an investment in a subsidiary in Central Europe, which has an investment in real estate. The investment is presented at cost, since the investment is acquired and held exclusively with a view to its subsequent disposal (see also note 6). During the year ended 31 December 2000, the Company, through a subsidiary, sold 50% of the real estate to a third party. The Company, through the subsidiary, has agreed to provide the third party with an option to sell the remaining 50% (including 50% share in Hocus Pocus) for an agreed price. The option will expire at the end of March 2004. The value of the option is not lower than the book value of the investment, including the loans.

Note 11 — Short-Term Bank Deposits In 2003, deposits with Central European Bank denominated in euro for a total amount of EUR 808,000 (2002 — EUR 1,619,000) were made to serve as collateral for credits provided to a subsidiary. The deposits bear interest of 2.5%-3% per annum.

Note 12 — Shareholders’ Equity a. Share capital consists of: 31 December 2003 Issued and Authorised outstanding Number of shares Ordinary shares of EUR 45.38 par value ...... 2,000 400

Ordinary shares entitle one vote per share and participation in payments of dividends.

F-22 Cinema City International N.V.

Notes to the Consolidated Financial Statements (Continued)

Note 12 — Shareholders’ Equity (continued) b. Regarding employees’ stock option plan — see note 25. c. As part of the Restructuring, the Company issued new shares to its 100% shareholder, ITIT, then split each existing share to a par value of EUR 0.01, and issued new shares to ITIT to bring its holding to 35,059,648 shares. As ITIT is the 100% shareholder, the effect of this transaction is very similar to a stock split. The formalities regarding the registration of the new shares were completed in March 2004. The number of shares and the per share presented in the table above reflect the actual numbers as of 31 December 2001, 2002 and 2003. Subsequent to the issuance and registration of the new shares, the share capital of the Company consists of:

Issued and Authorised outstanding Number of shares Ordinary shares of EUR 0.01 par value ...... 175,000,000 35,059,648

Note 13 — Minority Interests

31 December 2003 2002 2001 EUR (thousands) Balance at beginning of year ...... 779 1,083 1,483 Minority interests in earnings/(losses) of consolidated subsidiaries ...... 270 (2) 868 Dividend to minority shareholders of subsidiary companies ...... (904) (302) (1,129) Translation adjustments ...... (92) — (139) Balance at end of year...... 53 779 1,083

Note 14 — Accrued Employee Retirement Rights a. According to the relevant laws, the Company’s subsidiaries in Europe are required to deposit amounts, on a monthly basis, to retirement and pension funds on behalf of their employees, and therefore have no such liabilities towards them. b. Local applicable labour laws and agreements require Group companies to pay severance pay to dismissed or retiring employees (including those leaving their employment under certain other circumstances). The calculation of the severance pay liability was made in accordance with labour agreements in force and based on salary components that, in Management’s opinion, create entitlement to severance pay. Group companies’ severance pay liabilities to their employees are funded partially by regular deposits with recognised pension and severance pay funds in the employees’ names and by purchase of insurance policies and are accounted for as if they were a defined contribution plan. The amounts funded as above are netted against the related liabilities and are not reflected in the balance sheets since they are not under the control and management of the companies. c. The amounts of the liability for severance pay presented in the balance sheets (see d below) reflect that part of the liability not covered by the funds and the insurance policies mentioned in (b) above, as well as the liability that is funded by deposits with recognised central severance pay funds held under the name of the Company’s subsidiaries.

F-23 Cinema City International N.V.

Notes to the Consolidated Financial Statements (Continued)

Note 14 — Accrued Employee Retirement Rights (continued) d. The provision for accrued employee rights upon retirement, net, comprises:

31 December 2003 2002 2001 EUR (thousands) Provision for severance pay ...... 1,696 1,742 1,652 Less: Amounts deposited with recognised central severance pay funds, including earnings thereon and other deposits ...... (953) (956) (1,027) 743 786 625

Note 15 — Provisions related to onerous lease contracts In July 2002, the Group purchased four multiplex cinemas in Poland from Ster Century Europe Limited. The multiplexes comprised a total of 46 screens and approximately 10,000 seats. As part of the transaction, the Group acquired all of the shares of Ster Century Europe’s Polish subsidiaries, and purchased shareholder loans provided to these subsidiaries, for a total consideration of approximately EUR 19 million (USD 20 million). A provision of EUR 12,731,000 (USD 13,369,000), relating to onerous lease contracts, which the acquired subsidiaries were party to prior to the acquisition, has been recorded as part of the acquisition. The provision is amortised over the non- cancellable periods of the lease contracts. Amortisation in 2003 amounted to EUR 1,231,000 (2002: EUR 1,126,000) and was credited to the operating expenses. During 2003, an additional write-down of EUR 377,000 to onerous lease contracts was charged to operating expenses.

Note 16 — Long-Term Loans A. Composition: 31 December Interest rates 2003 2002 2001 % EUR (thousands) Linked to the CPI ...... (1) 4.1-6.65 — 12,839 11,894 Linked to the CPI ...... (2) — 1,602 1,779 InNIS...... (1) 5.7 — 1,303 4,312 In Hungarian forint ...... (3) — 1,869 2,157 In Czech crowns ...... (4) 8,394 9,047 7,815 In euros...... (6) 58,036 —— In US dollars ...... (5) 16,672 52,238 6,175 Loan from customers ...... (7) — — 238 Loan from minority interest holder ...... (1)7 139 167 167 83,241 79,065 34,537 Less — current portion ...... (6,510) (5,895) (4,301) 76,731 73,170 30,236

(1) Fixed rate. (2) Ogen Kfir + 1.3%. (3) Linked to the Hungarian forint bearing interest at the rate of BUBOR + 1.75-2%.

(4) Linked to the Czech crowns bearing interest at the rate of PRIBOR + 2.6%.

(5) Linked to the US Dollar bearing interest at the rate of LIBOR + 1%-1.75%.

(6) In euro, bearing interest at the rate of EURIBOR + 1.5%-2.25%.

(7) In dollars, bearing no interest. The interest rates shown concern the rates per the end of the appropriate financial years.

F-24 Cinema City International N.V.

Notes to the Consolidated Financial Statements (Continued)

Note 16 — Long-Term Loans (continued) B. The loans mature as follows: 31 December 2003 2002 2001 EUR (thousands) First year — current maturities ...... 6,510 5,895 4,301 Second year ...... 6,677 43,159 4,923 Third year ...... 6,826 6,067 4,944 Fourth year ...... 7,034 5,395 4,553 Fifth year...... 9,072 3,502 4,180 Sixth year and thereafter ...... 15,320 15,047 11,636 Undefined ...... 31,802 —— 83,241 79,065 34,537

C. Liens — see note 19 (2).

Note 17 — Short-Term Bank Credit Composition: 31 December Interest rate 2003 2002 2001 % EUR (thousands) Current maturities...... 6,510 5,895 4,301 Short-term bank credit: Unlinked (NIS)...... (1)9.8%-11.4% 6,138 12,995 7,761 Linked (US dollar) ...... — — 16,136 Linked (Hungarian Forints)...... Bubor + 2% — 298 688 12,648 19,188 28,886

(1) Variable The interest rates shown concern the rates per the end of the appropriate financial years.

Note 18 — Other Accounts Payable Composition: 31 December 2003 2002 2001 EUR (thousands) Accrued expenses ...... 1,454 2,054 1,239 Government institutions ...... 753 549 360 Advances and income received in advance(1) ...... 1,847 3,416 3,640 Other ...... 566 51 47 4,620 6,070 5,286

(1) Consist mainly of advances received from several customers, for feature video rentals and film distribution.

F-25 Cinema City International N.V.

Notes to the Consolidated Financial Statements (Continued)

Note 19 — Commitments, Contingent Liabilities and Liens (1) Commitments a. The Company and its subsidiaries conduct most of their cinema, video library stores and corporate operations in leased premises. These leases, which have non-cancellable clauses, expire at various dates after 31 December 2003. Many leases have renewal options. Most of the leases provide for contingent rentals based on the revenues of the underlying cinema or video library stores, while certain leases contain escalating minimum rental provisions. Most of the leases require the tenant to pay city taxes, insurance, and other costs applicable to the leased premises. Future minimum lease payments under non-cancellable operating leases from third parties for the years after 31 December 2003, are as follows:

EUR (thousands)* 2004 ...... 11,523 2005 ...... 11,415 2006 ...... 12,576 2007 ...... 12,491 2008 ...... 12,268 After 2008...... 33,487 93,760

* Does not include contingent rental, which is subject to the Company’s decision to exercise the option to extend the operating lease period. Rental expenses for theatres are summarised as follows:

31 December 2003 2002 2001 EUR (thousands) Minimum rental...... 12,127 8,923 5,938 Contingent rental ...... 644 297 681 12,771 9,220 6,619

b. The Group is a party to a master agreement with a developer, Control Centres Ltd. (“Control Centres”), for the construction of theatre sites in shopping malls and other commercial centres throughout Hungary, Poland and the Czech Republic. Under this agreement, the Company currently has 14 multiplexes that are already operating in shopping malls in Central Europe. c. The Group has commitments to acquire equipment of approximately EUR 2,720,000 (2002: EUR 10,000,000) in connection with the development of new systems and movie theatres. In addition, the Group is committed to pay a percentage of its revenues from some of these new systems, subject to a minimum monthly cost per system. d. In consideration for its rights to be the exclusive distributor of their films in Israel, Poland and Hungary, subsidiary companies are committed to pay fees to certain producers based on a percentage of its revenues (or in some cases, specific profits) from the films. In some cases, a minimum fee has been determined. e. Ya’af Network, a subsidiary company, has agreements for the rental of video library stores, and for the rental of space for videomats, which it uses in its operations. The rental terms pursuant to these agreements (including renewal options) granted to Ya’af Network are for periods of one to ten years. The rental expenses relating to these agreements are calculated as a lump-sum linked either to the Israeli CPI or to the US dollar, or as a percentage of the turnover. Annual rent expenses for 2003 amounted to EUR 875,000. f. Subsidiary companies signed agreements with third parties in Israel, Poland and Hungary. According to these agreements, the subsidiary companies grant the third parties exclusive broadcasting rights on

F-26 Cinema City International N.V.

Notes to the Consolidated Financial Statements (Continued)

Note 19 — Commitments, Contingent Liabilities and Liens (continued) (1) Commitments (continued) Israeli, Polish and Hungarian television for specific movies. These rights are for various periods and will end during the years 2004-2008.

g. Movie films are typically licensed from film distributors representing film production companies. Film exhibition licences typically specify rental fees based upon a gross receipts formula, which is negotiated on a movie-by-movie basis in advance of distribution. The fees are generally related to the anticipated performance of the movie based on the distributor’s experience in other markets, if possible. Under such a formula, the distributor receives a specified percentage of box office receipts, with the percentage declining over the term of the run. h. In July 2003, the Company has signed an agreement to buy the minority interest in IT Sofia BV, for a consideration of EUR 526,000 (USD 600,000), with potential additional success payments. Through its Bulgarian subsidiary, IT Sofia BV is developing a shopping entertainment centre in Sofia, Bulgaria. The first part of the purchase price was paid in cash during 2003. The balance is due subject to milestones based on the progress of the project, and additional payments are subject to success of the shopping centre after opening.

(2) Liens

a. As part of the reorganisation, the Company has assumed the majority of the Group’s bank debt, provided originally via ITIT. Based on the agreement between the Company and ITIT of December 2003, the bank will provide the Company with loans, which will be used to pay back ITIT’s loans to the bank. In order to secure the Company’s liabilities for such bank credits and loans in the amount of approximately EUR 53 million, the Company has provided the bank the following: (i) a registered first degree fixed lien on IT 2004’s (the Israeli subsidiary) outstanding share capital and goodwill; (ii) a first degree floating lien on IT 2004’s assets, including insurance benefits in respect of the assets and rights of any kind which the ITIT has or will have in the future; (iii) that the assets of IT 2004 will not be pledged and the lien cannot be transferred without the agreement of the bank; (iv) ITIT has agreed to guarantee the debt of the Company, and ITIT has provided the bank with a fixed lien on 70% of the Company’s issued share capital; (v) that certain financial covenants will be fulfilled and maintained.

b. The local subsidiaries in Poland and the Czech Republic have obtained financing from banks for some of the cinema complex projects. The securities given include: mortgage on the assets of the financed projects, pledge on the shares of the subsidiaries, and an assignment of all revenues and insurance policies of the projects. c. In order to secure an outstanding loan from a central European bank of approximately EUR 6,000,000, a subsidiary company has provided to the bank the following: (i) a registered first degree fixed lien on its outstanding share capital and goodwill; (ii) a first degree floating lien on its assets, including insurance benefits in respect of the assets and rights of any kind which the subsidiary has or will have in the future; (iii) that the assets of the subsidiary will not be pledged and the lien cannot be transferred without the agreement of the bank.

(3) Contingent Liabilities

a. From time to time, the Group is involved in routine litigation and proceedings during the normal course of business. As of balance sheet date, the Group is not involved in any litigations or proceedings.

b. The Israeli government office (“the Office”) in charge of antitrust matters commenced an investigation into the theatre business in Israel in 2001. Under the investigation, the Office investigated the Group’s activities in Israel including the interaction between the Group and its competitors. Since the com- mencement of the investigation, no further actions were taken by the Office, and the Group was not asked to provide any further information, or answer any further questions. Management is of the opinion that the consequences of the investigation cannot be determined at this stage.

F-27 Cinema City International N.V.

Notes to the Consolidated Financial Statements (Continued)

Note 20 — Revenues

For the year ended 31 December 2003 2002 2001 EUR (thousands) Theatre sales ...... 72,252 *67,991 *52,640 Distribution ...... 13,427 9,834 11,624 Video ...... 7,771 9,231 10,677 Other...... 2,333 *1,552 *599 95,783 88,608 75,540

* Reclassified

Note 21 — Operating costs

For the year ended 31 December 2003 2002 2001 EUR (thousands) Theatre operations ...... 58,088 53,454 39,710 Distribution operations ...... 11,958 8,000 8,033 Video operations ...... 5,259 7,592 9,693 Depreciation and amortisation ...... 10,391 9,583 6,402 85,696 78,629 63,838

Note 22 — Financial Income/Expenses A. Financial Income

For the year ended 31 December 2003 2002 2001 EUR (thousands) Interest income ...... 1,321 1,993 1,718 Currency exchange gain...... 2,155 —— Total financial income ...... 3,476 1,993 1,718

B. Financial Expenses

For the year ended 31 December 2003 2002 2001 EUR (thousands) Interest expenses incurred ...... (4,216) (3,831) (1,674) Interest cost capitalised(1) ...... 134 374 1,388 Currency exchange loss ...... — (284) (508) Total financial expenses ...... (4,082) (3,741) (794)

(1) The Company has capitalised interest expenses to the cost of buildings in progress as well as to other fixed assets components before being taken into operation.

F-28 Cinema City International N.V.

Notes to the Consolidated Financial Statements (Continued)

Note 23 — Gain/(loss) on disposals and write-off on other investments

For the year ended 31 December 2003 2002 2001 EUR (thousands) Capital (loss)/gain on disposition of property, equipment and other assets, net ...... (156) (105) 14 Write-off on other investments ...... — — (2,409) Other ...... (75) (59) (26) (231) (164) (2,421)

(1) The write-off of other investments during 2001 related to various investments. For a more detailed description reference is made to Note 3 (III) under items (8), (9) and (10).

Note 24 — Income Taxes

I. Tax laws applicable to the Group:

1. Results of operations for tax purposes of the Company and its Dutch subsidiaries are computed in accordance with Dutch tax legislation.

2. Tax rates applicable to the Company and its subsidiaries are as follows:

The subsidiary Tax rate Netherlands...... 34.5% Hungary ...... 18% Czech Republic ...... 31% Poland ...... 27% Israel ...... 36% Bulgaria ...... 23.5%

Tax rates in several countries the Group is operating in, will change as of 1 January 2004 as follows:

— Hungary to 16%.

— Poland to 19%.

— Bulgaria to 19.5%

3. Tax ruling in Israel

The Group has received a special ruling from the Israeli tax authorities to allow for the transfer of the Israeli activities to IT-2004, and to transfer the shares of all the operating Israeli subsidiaries to the Dutch company. Under the ruling, ITIT has committed not to sell its shares in the Company for a period of four years, and the Company has committed to pay tax in Israel on any future gains on the sale of Israeli subsidiaries.

II. Deferred income taxes

1. Deferred income taxes are primarily provided for all the temporary differences between the tax and the accounting basis of assets and liabilities based on the tax rate that is expected to be in effect at the time the deferred income taxes will be realised.

Realisation of the deferred income tax assets is dependent upon generating sufficient taxable income in the period that deferred income tax assets are realised. Based on all available information, Management believes that all of the deferred income tax assets are realisable and therefore has not provided for valuation allowance.

F-29 Cinema City International N.V.

Notes to the Consolidated Financial Statements (Continued)

Note 24 — Income Taxes (continued) II. Deferred income taxes (continued) 2. Changes in deferred income taxes are in respect of the following items:

For the year ended 31 December 2003 2002 2001 EUR (thousands) Accrued employee rights ...... (3) (37) (86) Inventories ...... — (17) 17 Fixed assets ...... (315) 1,025 838 Operating tax loss carry forwards ...... (284) (1,589) (239) Deferred income ...... (67) 83 (31) Long term liabilities ...... 75 — (123) Other ...... 1 8 (120) (593) (527) 256

3. Deferred income taxes are in respect of the following items: Deferred income tax included in assets:

For the year ended 31 December 2003 2002 2001 EUR (thousands) Accrued employee rights ...... 271 467 429 Fixed assets ...... (239) (287) 75 Operating tax loss carry forwards ...... 1,675 2,211 622 Deferred income...... 89 38 121 Other ...... 284 174 18 2,080 2,603 1,265

Deferred tax included in liabilities:

For the year ended 31 December 2003 2002 2001 EUR (thousands) Fixed assets ...... 1,934 1,751 1,088 Inventories ...... — —18 Other ...... (153) 164 — 1,781 1,915 1,106

III. Income taxes in the income statements comprises:

For the year ended 31 December 2003 2002 2001 EUR (thousands) Current taxes ...... 331 1,359 1,639 Deferred income taxes ...... 425 (842) 282 In respect of previous years ...... — 542 (142) 756 1,059 1,779

F-30 Cinema City International N.V.

Notes to the Consolidated Financial Statements (Continued)

Note 24 — Income Taxes (continued) IV. Tax reconciliation The difference between the amount of tax calculated on income before taxes at the regular tax rate and the tax expenses included in the financial statements is explained as follows:

For the year ended 31 December 2003 2002 2001 EUR (thousands) Tax calculated at the regular rate (34.5%)...... 1,594 1,132 2,013 Adjustment for reduced tax rate in foreign subsidiary ...... 298 (37) (642) Non-deductible expenses ...... 2,279 542 1,472 Effect of tax losses utilized ...... 1,093 —— Income exempt from taxes ...... (4,508) (1,326) (1,245) Taxes in respect of previous years ...... — 542 (143) Other differences ...... — 206 324 756 1,059 1,779

Note 25 — Related Party Transactions Related parties — Parties are considered to be related if one party has the ability to control or exercise significant influence over the other party in making financial and reporting decisions. Such relationships include: 1. Parent-subsidiary relationships. 2. Entities under common control. 3. Individuals who, through ownership, have significant influence over the enterprise and close members of their families. 4. Key management personnel. Transactions with related parties: a. Income (expenses):

For the year ended 31 December 2003 2002 2001 EUR (thousands) Financing ...... 123 (86) — Rental fees ...... 553 (730) (770) Management services ...... 322 383 383

b. In June 1998, Israel Theatres Ltd. (the parent company of ITIT) leased to ITIT the real estate properties on which four of the Company’s theatres are located, until 30 November 2007, subject to the Company’s right to terminate any lease prior to its original termination date. The annual lease payments for the above properties aggregate to EUR 311,000 (USD 392,000). These leases were assigned to IT-2004 as part of the reorganisation. (See also notes 1 and 19(1).) c. In December 2003, employment agreements with Mr. Moshe Greidinger and Mr. Israel Greidinger, both managers in the Company, whose family members control Israel Theatres, and with Mr. Amos Weltsch, its Chief Operating Officer (the “Managers”), signed originally with ITIT, were assigned to the Company. The fulfilment of the Company’s obligation under the agreements will be performed by the Company, or by its Israeli subsidiaries.

F-31 Cinema City International N.V.

Notes to the Consolidated Financial Statements (Continued)

Note 25 — Related Party Transactions (continued) In December 2003, employment agreements with Mr. Moshe Greidinger and Mr. Israel Greidinger, both managers in the Company, whose family members control Israel Theatres, and with Mr. Amos Weltsch, its Chief Operating Officer (the “Managers”), signed originally with ITIT on 1998, were assigned to the Company. The fulfilment of the Company’s obligation under the agreements will be performed by the Company, or by its Israeli subsidiaries.

In accordance with the said agreement, the aggregate gross monthly remuneration of the Managers amounts to EUR 29,000 (USD 37,000) per month (not linked), which, together with related employee benefits, will amount to EUR 35,000 (USD 44,000) per month.

In addition, the Managers will be entitled to an annual bonus aggregating to 7% of the Company’s consolidated profits before tax for any fiscal year. The above Managers undertook to be employed by the Company for an indefinite period, with 6 month notice of termination, and to refrain from competing with the Company’s business for a period of 12 months following termination of their employment with the Company.

Forum Film Ltd., a 50% subsidiary, will participate in the aforementioned remunerations to Mr. Moshe Greidinger and Mr. Israel Greidinger at the rate of 33% thereof and will fully cover the portion of the abovementioned bonuses that relate to its own revenues.

d. In May 1998, ITIT entered into a management services agreement with Israel Theatres pursuant to which the Company will provide Israel Theatres for an indefinite period, but not less than three years, with certain management services. Management services include office and accounting services through providing Israel Theatres with senior personnel and administration of Israel Theatres’ business. The management services agreement is for a fixed annual sum of EUR 299,000 (USD 377,000). In December 2003, this agreement was assigned to IT 2004, the new Israeli subsidiary of the Company.

e. Forum Film Ltd. and Giant Video have been leasing offices and storage space from Israel Theatres since February 1994, for consideration of EUR 10,000 (USD 13,000) per month, linked to the changes in the CPI.

Israel Theatres leased offices in Herzlia and in Haifa to IT2004 until 30 November 2007, in consid- eration of EUR 52,000 (NIS 286,000) per annum. The rental fees are linked to the Israeli CPI.

f. The minority interests mainly represent a 50% indirect share in the equity of Forum Film by related parties. Pursuant to Forum Film’s Articles of Association, the Company has the right to appoint three of Forum Film’s five directors, and accordingly, maintains control over all major company decisions.

g. The Company has entered into an indemnification agreement with each executive officer and director. These agreements endeavour to fully indemnify and limit the personal liability of the officers and directors, in certain circumstances, both to the Company and to its shareholders, for acts or omissions by them in their official capacity. The Company had obtained officers’ and directors’ liability insurance.

h. Israel Theatres, ITIT and its directors and principal officers undertook not to compete, whether directly or indirectly, with the Company’s business in the film exhibition, distribution and video rental fields. The length of this undertaking is for as long as they are directors or officers in either of the companies, or beneficially own a controlling interest in the Company. The agreement specifically states that Israel Theatres and ITIT may not engage in the development, sale or lease of property for theatrical or video rental use without the prior written consent of the Company, unless it is to be used by the Company.

i. In June 2002, ITIT received a loan from Israel Theatres in the amount of EUR 3,957,000 (USD 5,000,000), for the same terms as Israel Theatres received the loan from the bank (linked to the USD bearing interest at the rate of LIBOR + 1.15%). In December 2003, the loan was assigned by ITIT to the Company.

F-32 Cinema City International N.V.

Notes to the Consolidated Financial Statements (Continued)

Note 25 — Related Party Transactions (continued) j. The reorganisation of the Group and ITIT includes the following transactions (for the accounting application of the reorganisation — See Note 1): 1. In December 2003, ITIT and IT-2004, a newly formed subsidiary of ITIT, entered into an agreement in which ITIT transferred to IT-2004 all fixed assets connected with the film exhibition business of ITIT in consideration for IT-2004 issuing 10,100 new shares to ITIT. In addition, some other assets were transferred, in consideration for approximately the same amount of related liabilities. As part of the agreement, the employees of ITIT were transferred to IT-2004, together with the related central severance fund. 2. In December 2003, ITIT transferred to the Company, in exchange for an aggregate of 245 Ordinary Shares of the Company (i), its 50% interest in the share capital of Norma Film Ltd., (a holding company), the sole shareholder of Forum Film Ltd. (Israel); (ii) 100% of the share capital of Mabat Ltd., Teleticket Ltd. and Cinema Plus Ltd., which are Israeli companies conducting some of the movie theatres operations in Israel. 3. On the basis of the agreement between the Company and ITIT dated December 2003, the Company has assumed the majority of the Group’s bank debt, provided originally via ITIT. 4. In December 2003, Pan Europe Finance BV (‘PEF’), a wholly-owned subsidiary of ITIT, and the Company have entered into agreement pursuant to which PEF has assigned to the Company all its loans receivables from the Company’s subsidiaries in Central Europe, and PEF debt with ITIT and Bank Leumi UK. 5. The remaining balances between the Company, or any of its subsidiaries, which remained after the assignments and transfer of loans described above, was converted into shares, and the only debt that remained outstanding between the Company and any of its non-affiliated related parties, is the EUR 3,957,000 (USD 5,000,000) due to ITIT as described in section (i). 6. On 31 December 2003, the Company performed a share capital split by issuing to ITIT additional Ordinary Shares to bring the total holding of ITIT (representing 100% of the shares) to 35,059,648 shares of EUR 0.01 each. On 24 March 2004, the Restructuring was formally completed.

Note 26 — Stock Option plan Prior to the reorganisation of the Group, executives, Board members, consultants and senior employees of ITIT and its subsidiaries were holding 418,000 options for shares of ITIT (representing 4.2% of the total shares of the ITIT), with an exercise price of EUR 4 (USD 5). At grant date the exercise price higher than the stock price. As part of the reorganization, these options were cancelled in October 2003. In November 2003 those options were re- granted under same terms. In March 2004 the board of the Company has decided to transfer some of these options described above from ITIT to the company representing 1.8% of the total shares in the Company with same original terms. In addition the board of directors approved a new option plan for approximately 30 senior employees as part of a new listing of the company with an exercise price equal to the new listing. The Company applies APB Opinion No. 25 in accounting for its Plans and, accordingly, no compensation cost has been recognized for its stock options in the financial statements. Had the Company determined compensation cost based on the fair value at the grant date for its stock options under SFAS No. 123, the Company’s net income would have been reduced to the pro-forma amounts indicated below. The fair value of stock options granted, on the

F-33 Cinema City International N.V.

Notes to the Consolidated Financial Statements (Continued)

Note 26 — Stock Option plan (continued) date of grant, were calculated using the Black & Scholes option-pricing model (excluding a volatility assumption) with the following weighted-average assumptions: • Expected dividend yield (NIL) %, risk-free interest rate of 6%, and an expected life of 3 years.

For the year ended 31 December 2003 2002 (in thousands) Net income ...... Asreported 3,594 2,225 Pro forma 3,594 2,202 Earning per share — basic and diluted ...... Asreported 0.10 0.06 Pro forma 0.10 0.06

Note 27 — Financial Instruments Exposure to credit, interest rate and currency risk arises in the normal course of the Group’s business.

Credit risk Financial instruments that potentially subject the Group to concentrations of credit risk consist principally of cash and cash equivalents, short-term investments and receivables. The Group places its cash and cash equivalents and short-term investments in financial institutions with high credit ratings. Management does not expect any counterparty to fail to meet its obligations. Concentrations of credit risk with respect to trade receivables are limited due to the large number of customers comprising the Group’s customer base.

Interest rate risk The Group adopts a policy of a mixture of flat and floating interest rates (see note 16 and 17).

Foreign currency risk The Group incurs foreign currency risk on sales, purchases and borrowings that are denominated in a currency other than the euro. The currencies giving rise to this risk are primarily USD, PLN, NIS, HUF and CZK. In order to minimise exposure to foreign currency risk, among other things, the Group converted a major part of its long-term loans into euros during 2003. The following are details of the fair values of the financial instruments for which it is practicable to estimate such value: a. Cash and cash equivalents, short-term bank deposit and short-term bank credit. The carrying amounts approximate fair value because of the short maturity of these instruments. b. Marketable securities. The carrying amounts approximate fair value. c. Trade accounts receivable, other accounts receivable, accounts payable and accrued liabilities. The carrying amounts approximate fair value because of the short-term nature of these instruments. d. Investment in non-marketable securities. See Note 10. e. Debt — during 2003 the Company refinanced its long-term debts and obligations. As of 31 December 2003, the aggregate fair value of the Company’s long-term debt obligations is similar to its carrying value of EUR 83 million. As of 31 December 2002, the aggregate fair value of the Company’s long-term debt obligation was approximately EUR 76 million compared to the carrying value of EUR 79 million. The above fair values have been based on terms for debts with conditions and maturities similar to those of the Company’s debts as prevailing in the market per balance sheet date.

F-34 Cinema City International N.V.

Notes to the Consolidated Financial Statements (Continued)

Note 28 — Linkage Terms of Monetary Items 31 December 2003 In or linked In or linked In or linked to foreign to euro to U.S. Dollar currencies Total EUR (thousands) Assets: Cash and cash equivalents...... 3,056 — 2,321 5,377 Short-term bank deposits ...... 778 30 — 808 Trade account receivable...... — — 5,371 5,371 Other accounts receivable ...... 792 — 4,363 5,155 Related parties receivable ...... — — 596 596 Marketable securities ...... — — 208 208 Loans to unconsolidated subsidiaries ...... — 15,743 — 15,743 4,626 15,773 12,859 33,258 Liabilities: Short-term bank credit ...... — — 6,138 6,138 Trade accounts payable...... 153 — 8,162 8,315 Employee and payroll accruals ...... 2 — 1,232 1,234 Other accounts payable ...... 81 754 3,785 4,620 Due to related parties ...... — — 2,670 2,670 Long term loans (including current — maturities) ...... 58,036 16,811 8,394 83,241 Long term loans from parent company ...... — 3,957 — 3,957 Accrued employee rights upon retirement ...... — — 743 743 58,272 21,522 31,124 110,918

31 December 2002 In or linked In or linked In or linked to foreign to euro to U.S. Dollar currencies Total EUR (thousands) Assets: Cash and cash equivalents...... — 470 1,771 2,241 Short-term bank deposits ...... 771 848 — 1,619 Trade account receivable...... — 109 4,696 4,805 Other accounts receivable ...... — 181 4,243 4,424 Related parties receivable ...... —411859 Marketable securities ...... — 823 141 964 Loans to unconsolidated subsidiaries ...... — 18,956 — 18,956 771 21,428 10,869 33,068 Liabilities: Short-term bank credit ...... — — 13,293 13,293 Trade accounts payable...... — 912 10,072 10,984 Employee and payroll accruals ...... — — 1,389 1,389 Other accounts payable ...... — 973 5,097 6,070 Due to related parties ...... — — 286 286 Long term loans (including current — maturities) ...... — 54,196 24,869 79,065 Long term loans from parent company ...... — 4,771 — 4,771 Accrued employee rights upon retirement ...... — — 786 786 — 60,852 55,792 116,644

F-35 Cinema City International N.V.

Notes to the Consolidated Financial Statements (Continued)

Note 29 — Segment Reporting Segment information is presented in respect of the Group’s business and geographical segments. The primary format, business segments, is based on the Group’s management and internal reporting structure. The Group’s operations in Israel and Central Europe are organised under the following major business segments: — Theatre operations. — Distribution — Distribution of movies. — Video + DVD — Rental and sale of video cassettes and DVD. Business segments: 2003 Theatre Video & Operations Distribution DVD Other Eliminations Consolidated EUR (thousands) Revenues External sales ...... 73,190 13,427 7,771 1,395 — 95,783 Inter-segment sales ...... — 5,822 604 — (6,426) — Total revenues...... 73,190 19,249 8,375 1,395 (6,426) 95,783 Results Segment results before depreciation, amortization and impairment write downs ...... 10,942 1,473 2,038 1,395 — 15,848 Depreciation, amortization and impairment write downs ...... 8,589 37 1,765 — — 10,391 Segment results...... 2,353 1,436 273 1,395 — 5,457 Net financial expense ...... (606) Gain and loss on disposals ...... (231) Income taxes ...... (756) Minority interests ...... (270) Net income ...... 3,594

31 December 2003 Theatre Video & Operations Distribution DVD Other Unallocated Consolidated EUR (thousands) Assets Segment assets...... 146,243 5,589 5,725 18,486 2,080 178,123 Liabilities Segment liabilities ...... 29,147 3,751 1,816 381 91,159 126,254 Other information Capital expenditure ...... 13,633 20 1,346 — — 14,999

F-36 Cinema City International N.V.

Notes to the Consolidated Financial Statements (Continued)

Note 29 — Segment Reporting (continued) 2002 Theatre Video & Operations Distribution DVD Other Eliminations Consolidated EUR (thousands) Revenues External sales ...... 69,083 9,834 9,006 685 — 88,608 Inter-segment sales ...... — 4,564 700 — (5,264) — Total revenues ...... 69,083 14,398 9,706 685 (5,264) 88,608 Results Segment results before depreciation, amortization and impairment write downs...... 11,718 1,981 1,122 401 (147) 15,075 Depreciation, amortization and impairment write downs ...... 7,822 394 1,631 34 — 9,881 Segment results ...... 3,896 1,587 (509) 367 (147) 5,194 Net financial expense...... (1,748) Gain and loss on disposals ...... (164) Income taxes ...... (1,059) Minority interests ...... 2 Net income ...... 2,225

31 December 2002 Theatre Video & Operations Distribution DVD Other Unallocated Consolidated EUR (thousands) Assets Segment assets...... 142,074 5,886 6,897 22,281 2,603 179,741 Liabilities Segment liabilities ...... 31,743 4,139 2,722 102 94,273 132,979 Other information: Capital expenditure ...... 28,945 17 1,223 86 — 30,271

F-37 Cinema City International N.V.

Notes to the Consolidated Financial Statements (Continued)

Note 29 — Segment Reporting (continued) 2001 Theatre Video & Operations Distribution DVD Other Eliminations Consolidated EUR (thousands) Revenues External sales ...... 52,850 11,624 10,677 389 — 75,540 Inter-segment sales ...... — 5,217 979 — (6,196) — Total revenues ...... 52,850 16,841 11,656 389 (6,196) 75,540 Results Segment results before depreciation, amortization and impairment write downs...... 9,533 2,799 1,426 389 (188) 13,959 Depreciation, amortization and impairment write downs ...... 4,924 316 1,283 103 — 6,626 Segment results ...... 4,609 2,483 143 286 (188) 7,333 Net financial income ...... 924 Gain and loss on disposals ...... (2,421) Income taxes ...... (1,779) Minority interests ...... (868) Net income ...... 3,189

31 December 2001 Theatre Video & Operations Distribution DVD Other Unallocated Consolidated EUR (thousands) Assets Segment assets...... 88,636 4,324 7,756 23,070 1,265 125,051 Liabilities Segment liabilities ...... 11,995 4,784 3,283 328 60,228 80,618 Other information: Capital expenditure ...... 21,186 83 3,135 4,488 — 28,892

In addition to the information on business segments based on the structure of the Group, the figures below present information for geographical segments. Determination of geographical segments is based on location of assets and is identical to customer location.

31 December 2003 Central Europe Israel Unallocated Consolidated EUR (thousands) Revenues External sales ...... 54,538 41,245 — 95,783 Assets Segment assets ...... 147,046 28,997 2,080 178,123 Capital expenditure ...... 10,562 4,437 — 14,999

F-38 Cinema City International N.V.

Notes to the Consolidated Financial Statements (Continued)

Note 29 — Segment Reporting (continued) 31 December 2002 Central Europe Israel Unallocated Consolidated EUR (thousands) Revenues External sales ...... 40,015 48,593 — 88,608 Assets Segment assets ...... 143,690 33,448 2,603 179,741 Capital expenditure ...... 26,577 3,694 — 30,271

31 December 2001 Central Europe Israel Unallocated Consolidated EUR (thousands) Revenues External sales ...... 21,051 54,489 — 75,540 Assets Segment assets ...... 91,022 32,764 1,265 125,051 Capital expenditure ...... 23,573 5,319 — 28,892

Note 30 — Interest in a jointly controlled entity

The Company through a subsidiary has a 50% interest in the jointly controlled “M.O. Sofia EAD”, whose principle activity is to build and to operate a shopping centre in Sofia, Bulgaria. The Company through a subsidiary sold 50% of “M.O Sofia EAD” in July 2003. The Consolidated Financial Statements as at 31 December 2003 includes the following items that represent the Company’s interests in the assets and liabilities “M.O. Sofia EAD”:

EUR (Thousands) Current assets ...... 123 Non-current assets ...... 2,536 Current liabilities ...... (95) Non-current liabilities ...... (1,710) 854

Note 31 — Personnel

Personnel costs are specified as follows:

For the year ended 31 December 2003 2002 2001 EUR (thousands) Salaries and wages ...... 10,338 10,289 8,655 Pension costs ...... 353 362 320 Other social charges ...... 1,353 1,296 882 Total personnel costs ...... 12,044 11,947 9,857

The average number of personnel, in full time equivalents, employed by the Company and its subsidiaries during the year 2003 were 2,225 (financial year 2002: 2,125), of which 1 employee (2002: also 1 employee) was

F-39 Cinema City International N.V.

Notes to the Consolidated Financial Statements (Continued)

Note 31 — Personnel (continued) employed by the 50% consolidated joint venture (see Note 30). A geographical allocation of the average number of personnel is as follows:

For the year ended 31 December 2003 2002 Israel ...... 1,058 1,107 Central Europe ...... 1,165 1,017 European Union ...... 2 1 Total average number of personnel ...... 2,225 2,125

Note 32 — Details of corporations in the Group

31 December 2003 The Direct/indirect Company’s Voting right equity share By the Company in subsidiary Consolidation Currency %% % I.T. International Theatres 2004 Ltd...... 100% 100% FULL (6) I.T. Magyar Cinemas Kft ...... 100% 100% FULL (2) Kino 2005 a.s...... 99% 99% FULL (3) I.T. Sadyba, B.V...... 100% 100% FULL (1) Cinema City Poland Sp.Z.oo ...... 100% 100% FULL (4) IT Development 2003 ...... 100% 100% FULL (4) I.T. Czech Cinemas S.R.O...... 100% 100% FULL (3) I.T.SofiaB.V...... 100% 100% FULL (1) MO Sofia EAD ...... 50% 50% PROPORTIONATE (5) New Age Media Sp.Zoo ...... 100% 100% FULL (4) Forum Film Poland Sp.Zoo ...... 100% 100% FULL (4) Norma Film Ltd...... 60% 50% FULL (6) Forum Film Ltd...... 60% 50% FULL (6) Ya’af — Giant Video Library Network Ltd...... 60% 30% FULL (6) Ya’af — Automatic Video Machines Ltd. . . 60% 50% FULL (6) Mabat Ltd...... 100% 100% FULL (6) Teleticket Ltd...... 100% 100% FULL (6) Mercaz Ltd...... 100% 100% FULL (6) Cinema Plus Ltd...... 100% 100% FULL (6) I.T. Bulgaria EOOD ...... 100% 100% Unconsolidated - Not operational (5) Sadyba Center S.A. Poland ...... 50% 50% Unconsolidated - temporarily held (4) Hocus Pocus Centrum ...... 50% 50% Unconsolidated - temporarily held (4)

(1) A holding company in the Netherlands. (2) Hungarian corporation. (3) Czech corporation. (4) Polish corporation. (5) Bulgarian corporation. (6) An Israeli corporation.

F-40 Cinema City International N.V.

Dutch GAAP information

Accounting principles applied for Dutch GAAP purposes The Consolidated Financial Statements as presented on pages F-5 through F-40 have been prepared in accordance with International Financial Reporting Standards (“IFRS”) adopted by the International Accounting Standards Board (“IASB”). These accounting principles are largely in conformity with generally accepted accounting principles in the Netherlands (“Dutch GAAP”). The presentation and description of items in the Consolidated Balance Sheet on pages F-5 and F-6 and the Consolidated Income Statement have been brought in line with the presentation model as prescribed under Dutch GAAP. For a summary of significant accounting principles reference is made to pages F-11 through F-17. The Consolidated Financial Statements including the notes thereto as prepared under IFRS should be considered an integral part of the financial statements as prepared under Dutch GAAP which also includes the Parent Company Financial Statements as presented on pages F-42 through F-49. There are no differences between IFRS and Dutch GAAP that need to be disclosed separately in these consolidated accounts.

F-41 Cinema City International N.V.

Parent Company Balance Sheet

31 December Note 2003 2002 EUR (thousands) ASSETS FIXED ASSETS Property and equipment ...... 3 5,412 6,761 Financial fixed assets Investment in subsidiaries ...... 4 34,840 10,469 Loans to subsidiaries ...... 5 75,626 4,415 Total fixed assets ...... 115,878 21,645 CURRENT ASSETS Receivables Receivable from subsidiaries...... 1,421 44 Income taxes receivable ...... 21 — Other amounts receivable and prepaid items ...... 165 151 Liquid funds Cash and cash equivalents ...... 2,672 221 Short-term bank deposits ...... 6 808 1,600 Total current assets ...... 5,087 2,016 TOTAL ASSETS ...... 120,965 23,661

See accompanying notes to the Parent Company Financial Statements.

F-42 Cinema City International N.V.

Parent Company Balance Sheet

31 December Note 2003 2002 EUR (thousands) SHAREHOLDERS’ EQUITY AND LIABILITIES SHAREHOLDERS’ EQUITY ...... 7 Share capital ...... 18 18 Premium on share capital ...... 40,100 133 Retained earnings...... 11,749 8,592 Accumulated currency translation adjustment ...... 2 2 Total Shareholders’ equity ...... 51,869 8,745 LONG TERM LIABILITIES Long-term loans, net of current portion...... 8 55,612 — Loan from group companies ...... 9 3,957 14,746 Total Long-term liabilities ...... 59,569 14,746 CURRENT LIABILITIES Short-term bank credit ...... 4,762 — Trade accounts payable ...... 33 23 Payable to subsidiaries ...... 4,659 34 Employee and payroll accruals ...... 2 — Income and other taxes payable ...... 1 4 Other accounts payable ...... 70 109 Total Current liabilities ...... 9,527 170 TOTAL SHAREHOLDERS’ EQUITY AND LIABILITIES ...... 120,965 23,661

See accompanying notes to the Parent Company Financial Statements.

F-43 Cinema City International N.V.

Parent Company Income Statement

For the year ended 31 December Note 2003 2002 EUR (thousands) General and administrative expenses ...... 487 405 Operating result ...... (487) (405) Financial income...... 324 402 Financial expenses ...... (100) (51) Currency exchange gain ...... 677 133 Income before taxation ...... 414 79 Income taxes...... — — Profit after taxation...... 414 79 Result from subsidiaries after taxation ...... 4 2,743 1,179 Net income ...... 3,157 1,258

See accompanying notes to the Parent Company Financial Statements.

F-44 Note 1 — General The Company was incorporated on 12 April 1994, and has its seat in Hoofddorp, the Netherlands. Prior to 2003, the Company operated as a holding company of the European cinema activities of the Group. During the financial year 2003, the Company was involved in a restructuring (the ‘Restructuring’ — for a more detailed explanation reference is made to Note 1 to the Consolidated Financial Statements). At the end of the financial year 2003, as part of the Restructuring, all activities, assets, (including the Group’s other subsidiaries) and liabilities of the Group that were previously not performed and owned by the Company, were transferred to the Company as a contribution in kind (see Note 7 — Shareholders’ equity). Upon completion of the restructuring, the Company operates as the parent company of the entire Group, including the Israeli activities. The Restructuring formally ended in March 2004 when the legal proceedings were completed, which included a change of the Company’s articles of association. The amendments to the articles of association included, amongst others, a change of the Company’s legal structure from a limited liability company (‘B.V.’) to a public company ‘N.V.’) under Dutch law, a name change from I.T. International Cinemas B.V.to Cinema City International N.V.and an increase in the Company’s authorized share capital. The share capital as taken up in the Parent Company Balance Sheet per 31 December 2003 reflects the actual number of outstanding shares per the end of the financial year. The effect of the change in the articles of association, which involved a redenomination of the nominal capital per share as well as a share split, are not reflected in these Parent Company Financial Statements since these changes were formalised after the end of the financial year. The composition of the shareholders’ equity as shown in the Consolidated Financial Statements of the Group for the year ended 31 December 2003 has been brought in line with the presentation of shareholders’ equity in the Parent Company Balance Sheet.

Note 2 — Accounting principles The accounting principles and measurement basis of the Company’s statutory accounts are similar to those applied with respect to the consolidated financial statements (see Note 2 to the Consolidated Financial Statements). The Parent Company Financial Statements have been prepared in conformity with generally accepted accounting principles in the Netherlands (‘Dutch GAAP’), whereas the Consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) adopted by the International Accounting Standards Board (“IASB”). For a comparison between IFRS and Dutch GAAP reference is made to page F-41 “Dutch GAAP information”.

Note 3 — Property and Equipment Composition:

For the year ended 31 December 2003 Sales and Balance at Additions disposals Contributed assets beginning during during as part of the Balance at of the year the year the year Restructuring(2) year end EUR (thousands) Cost Cinema equipment(1) ...... 6,752 1,960 (3,312) — 5,400 Computers, furniture and office equipment ...... 91—2 12 6,761 1,961 (3,312) 2 5,412 Carrying value ...... 6,761 5,412

F-45 Note 3 — Property and Equipment (continued) For the year ended 31 December 2002 Sales and Balance at Additions disposals beginning during during Balance at of the year the year the year year end EUR (thousands) Cost Cinema equipment(1) ...... 4,166 4,371 (1,785) 6,752 Computers, furniture and office equipment...... 45—9 4,170 4,376 (1,785) 6,761 Carrying value ...... 4,170 6,761

(1) Consists of prepayments on account of IMAX systems not operated yet. Therefore, no depreciation has been made. (2) See Note 7.

Note 4 — Investment in subsidiaries The subsidiaries of the Company are valued at their net equity value. The movements in subsidiaries are as follows:

For the year ended 31 December 2003 2002 EUR (thousands) Balance at beginning of year ...... 10,469 8,668 Investments in subsidiaries ...... 521 622 Net result subsidiaries during the year ...... 2,743 1,179 Subsidiaries contributed as part of the Restructuring (see Note 7) ...... 21,107 — Balance at the end of the year ...... 34,840 10,469

Note 5 — Loans to subsidiaries

For the year ended 31 December 2003 2002 EUR (thousands) Balance at beginning of year ...... 4,415 5,280 Loans added ...... 2,231 315 Loans redeemed ...... (2,111) (1,180) Loans contributed as part of the Restructuring (see Note 7) ...... 71,091 — Balance at the end of the year ...... 75,626 4,415

Note 6 — Short-Term Bank Deposits Reference is made to Note 11 to the Consolidated Financial Statements.

F-46 Note 7 — Shareholders’ Equity

Accumulated currency Number of Share Share Retained translation Shares capital Premium earnings adjustments Total EUR (thousands) except number of shares Balance as of 1 January 2002...... 400 18 133 7,334 2 7,487 Net income for the year 2002...... — — — 1,258 — 1,258 Balance as of 31 December 2002 ...... 400 18 133 8,592 2 8,745 Net income for the year 2003...... — — — 3,157 — 3,157 Assets and liabilities contributed as part of the Restructuring ...... — — 39,967 — — 39,967 Balance as of 31 December 2003 ...... 400 18 40,100 11,749 2 51,869

As of 31 December 2003 the authorized share capital of the Company consists of 2,000 ordinary shares with a par value of EUR 45.38 per share (31 December 2002: 2,000 ordinary shares).

At the end of the financial year 2003, as part of the Restructuring, the following assets and liabilities of the Group that were previously not performed and owned by the Company were transferred to the Company as a contribution in kind

EUR (thousands) Property and Equipment ...... 2 Subsidiaries ...... 21,107 Loans to subsidiaries ...... 71,091 Cash and cash equivalents...... 2,611 Long term loans ...... (55,612) Loan from parent company ...... (3,957) Inter-company loans ...... 14,099 Short-term bank credit ...... (4,762) Current accounts with subsidiaries ...... (4,604) Other current receivables and payables, net ...... (8) Total contribution ...... 39,967

In exchange for this contribution, the Company issued 33,244,527 new shares (with a par value of EUR0.01 per share) to the contributor on 19 March 2004. The resulting increase in the share capital amount of EUR322,445 will be charged to Share Premium in 2004 (see also note 13).

Note 8 — Long term loans, net of current portion

A. Composition:

Interest rate as of 31 December 31 December 2003 2003 % EUR (thousands) In euro ...... (1) 43,702 In US dollars ...... (2) 16,672 60,374 Less — current portion ...... (4,762) 55,612

(1) In euro, bearing interest at the rate of EURIBOR + 1.5%-2.25%. (2) Linked to the US dollar bearing interest at the rate of LIBOR + 1%-1.75%.

F-47 Note 8 — Long term loans, net of current portion (continued) B. The loans mature as follows:

31 December 2003 EUR (thousands) First year — current maturities ...... 4,762 Second year ...... 4,762 Third year ...... 4,762 Fourth year...... 4,762 Fifth year ...... 4,762 Sixth year and thereafter ...... 4,762 Undefined ...... 31,802 60,374

Note 9 — Loan from Group Companies

As part of the Restructuring, a loan from the shareholder was transferred to the Company in the amount of EUR 3,957,000 (USD 5,000,000).The loan is linked to the USD bearing interest at the rate of LIBOR + 1.15% (see also Note 25 to the Consolidated Financial Statements).

Note 10 — Personnel

The Company employed one member of staff during the year.

Note 11 — Directors’ remuneration

The Board of Directors of the Company consists of 5 members; one of the new board members was a member of the board prior the restructuring and has received a fee of EUR 2,000 during 2003. The Company does not have a Board of Supervisory Directors.

Note 12 — Reconciliation of net income to consolidated net income

As the Parent Company Income Statement includes the result from the Company and its subsidiaries as owned prior to the Restructuring materially differ from the consolidated net income as presented in the Consolidated Income Statement, a reconciliation of the net income as per the Parent Company Income Statement and the net income as per the Consolidated Income Statement is shown below:

2003 2002 EUR (thousands) Net income — parent company (not consolidated) (see page F-44)...... 3,157 1,258 Result of other activities transferred to the Company as part of the Restructuring ...... 437 967 Net income — consolidated (see page F-7) ...... 3,594 2,225

Note 13 — Post Balance Sheet Event

During the financial year 2003, the Company and its group were involved in a restructuring (the ‘Restruc- turing’ — for a more detailed explanation reference is made to Note 1 to the Consolidated Financial Statements and to Note 1 of the Parent Company Financial Statements). On 24 March 2004, on which date the Company’s amended articles of association came into force and a further share issue took place, the Restructuring was formally completed. The amendments to the articles of association included, amongst others, a change of the Company’s legal structure from a limited liability company (‘B.V.’) to a public company (‘N.V.’) under Dutch law, a name change from I.T. International Cinemas B.V. to Cinema City International N.V., a redenomination of the par value per share and an increase in the Company’s authorized share capital. As of 26 March 2004, the authorized share capital of the Company consists of 175,000,000 ordinary shares with a par value of EUR 0.01 per share, and the number of outstanding ordinary shares is 35,059,648.

F-48 Note 13 — Post Balance Sheet Event (continued) The issue of new shares in 2004 was made to the Company’s 100% shareholder, ITIT as described in note 7. The corresponding increase in share capital, amounting to EUR 332,445 will be charged to Share Premium in 2004. The net impact of the share issue on the Company’s shareholders’ equity is nil.

Amsterdam, 26 March 2004

Chairman Director and CFO

F-49 Cinema City International N.V. Financial Statements for the year ended 31 December 2004

F-50 Cinema City International N.V.

Financial Statements for the year ended 31 December 2004

Contents

Page Auditors’ report...... F-52 Consolidated Financial Statements for the year ended 31 December 2004 Consolidated Balance Sheet as of 31 December 2004 ...... F-53 Consolidated Income Statement for the year ended 31 December 2004 ...... F-55 Consolidated Statement of Changes in Shareholders’ Equity for the year ended 31 December 2004 .... F-56 Consolidated Statement of Cash Flows for the year ended 31 December 2004 ...... F-57 Notes to the Consolidated Financial Statements ...... F-59 Dutch GAAP information ...... F-89 Parent Company Financial Statements Parent Company Balance Sheet as of 31 December 2004 ...... F-90 Parent Company Income Statement for the year ended 31 December 2004 ...... F-92 Notes to the Parent Company Financial Statements...... F-93

F-51 Cinema City International N.V.

Auditors’ Report

To the Shareholders of Cinema City International N.V.

Introduction We have audited the accompanying consolidated balance sheets of Cinema City International N.V., Amsterdam, and its subsidiaries (“the Group”) as of 31 December 2004 and 2003 and the related consolidated income statements, changes in shareholders’ equity and cash flows for each of the years then ended, as set out on pages F-53 to F-88. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

Scope We conducted our audit in accordance with International Standards on Auditing that are also accepted in the Netherlands. 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 prin- ciples used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

Opinion In our opinion, the consolidated financial statements give a true and fair view of the financial position of the Company as of 31 December 2004 and 2003 and of the results of its operations, the changes in shareholders’ equity and its cash flows for each of the years then ended in accordance with International Financial Reporting Standards adopted by the EU.

Amstelveen, 23 February 2005

KPMG ACCOUNTANTS N.V.

P. Mizrachy RA

F-52 Cinema City International N.V.

Consolidated Balance Sheet

31 December Note 2004 2003 EUR (thousands) ASSETS FIXED ASSETS Intangible fixed assets ...... 4 169 374 Property and equipment...... 5 148,794 138,548 Financial fixed assets Deferred tax asset ...... 25 2,516 2,080 Total fixed assets ...... 151,479 141,002 CURRENT ASSETS Inventories ...... 7 2,858 3,042 Receivables Trade accounts receivable ...... 8 5,707 5,371 Loans to (unconsolidated) subsidiaries ...... 6 13,790 15,743 Receivable from related parties ...... 26 616 596 Income taxes receivable ...... 25 390 701 Other amounts receivable and prepaid expenses ...... 9 9,097 5,158 Total receivables ...... 29,600 27,569 Securities Marketable securities ...... 173 208 Non-marketable securities held for sale ...... 10 117 117 Total securities ...... 290 325 Liquid funds Cash and cash equivalents ...... 11 4,537 5,377 Short-term bank deposits — collateralized ...... 12 715 808 Total liquid funds ...... 5,252 6,185 Total current assets...... 38,000 37,118 TOTAL ASSETS ...... 189,479 178,123

See accompanying notes to the Consolidated Financial Statements.

F-53 Cinema City International N.V.

Consolidated Balance Sheet

31 December Note 2004 2003 EUR (thousands) SHAREHOLDERS’ EQUITY AND LIABILITIES SHAREHOLDERS’ EQUITY ...... 13 Share capital ...... 407 18 Premium on share capital ...... 43,553 40,100 Retained earnings...... 17,089 11,749 Accumulated currency translation adjustment ...... (975) 2 Total Shareholders’ equity ...... 60,074 51,869 Minority interests ...... 14 (174) 53 LONG TERM LIABILITIES Long-term loans, net of current portion ...... 17 80,433 76,731 Loan from shareholder ...... 26 — 3,957 Accrued employee retirement rights, net ...... 15 794 743 Deferred tax liabilities ...... 25 2,704 1,781 Provision related to onerous lease contracts...... 16 8,389 9,997 Other long-term payables ...... 20 2,872 3,340 Income received in advance ...... 173 164 Total Long-term liabilities ...... 95,365 96,713 CURRENT LIABILITIES Short-term bank credit ...... 18 11,084 12,648 Trade accounts payable ...... 9,423 8,315 Payable to related parties ...... 26 850 2,670 Employee and payroll accruals ...... 1,284 1,234 Income taxes ...... 25 — 1 Other accounts payable ...... 19 11,573 4,620 Total Current liabilities ...... 34,214 29,488 TOTAL SHAREHOLDERS’ EQUITY AND LIABILITIES ...... 189,479 178,123

See accompanying notes to the Consolidated Financial Statements.

F-54 Cinema City International N.V.

Consolidated Income Statement

For the year ended 31 December Note 2004 2003 EUR (thousands, except per share data and number of shares) Revenues ...... 21 98,938 95,783 Operating costs ...... 22 83,696 85,696 Gross margin ...... 15,242 10,087 General and administrative expenses...... 4,504 4,630 Operating profit ...... 10,738 5,457 Financial income ...... 23 4,454 3,476 Financial expenses ...... 23 (5,581) (4,082) Gain/(loss) on disposals and write-off of other investments ...... 24 (1,204) (231) Write-off of IPO costs ...... 29 (1,765) — Income before taxation ...... 6,642 4,620 Income taxes ...... 25 1,549 756 Net income before minority interests ...... 5,093 3,864 Attributable to: Equity holders of the parent company ...... 5,340 3,594 Minority interests...... 14 (247) 270 Net income before minority interests ...... 5,093 3,864 Number of average equivalent shares *) ...... 38,539,535 35,059,648 Net earnings per ordinary share (basic and diluted of EUR 0.01*) each...... 13 0.14 0.10

*) The net earning per share was calculated taking into account the par value of share and the number of shares as of the date of this financial statements see note 13.

See accompanying notes to the Consolidated Financial Statements.

F-55 Cinema City International N.V.

Statement of Shareholders’ Equity

Accumulated currency Number of Share Share Retained translation Shares1 capital Premium Earnings adjustments Total EUR (thousands) except number of shares Balance as of 31 December 2002 ..... 400 18 29,531 17,402 (189) 46,762 Net income for the year 2003 ...... — — — 3,594 — 3,594 Foreign currency translation adjustment ...... — — — — 1,513 1,513 Transfer to Share Premium ...... — — 10,569 (9,247) (1,322) — Balance as of 31 December 2003 ..... 400 18 40,100 11,749 2 51,869 New shares issued *) (Par value EUR 45.38) ...... 350 16 (16) ——— Split of shares *) (to par value EUR 0.01) ...... 3,402,602 — — — — — New shares issued *) (par value EUR 0.01) ...... 31,656,296 317 (317) — — — New shares issued ) (par value EUR 0.01) ...... 5,664,352 56 3,786 — — 3,842 Net income for the year 2004 ...... — — — 5,340 — 5,340 Foreign currency translation adjustment...... — — — — (977) (977) Balance as of 31 December 2004..... 40,724,000 407 43,553 17,089 (975) 60,074

*) As part of the restructuring

Statement of recognised income

For the year ended 31 December 2004 2003 EUR (thousands) Net income attributable to equity holders of the parent company ...... 5,340 3,594 Net income attributable to minority interests ...... (247) 270 Total net income before minority interests ...... 5,093 3,864

1 As part of the Restructuring, the Company allocated 350 additional shares to ITIT, than split each share to a par value of EUR 0.01, and issued 31,656,296 new shares to ITIT to bring it’s holding to 35,059,648 shares. As ITIT at that time was 100% shareholder, the effect of this transaction is very similar to a stock split.

See accompanying notes to the Consolidated Financial Statements.

F-56 Cinema City International N.V.

Consolidated Statement of Cash Flows

For the year ended 31 December 2004 2003*) EUR (thousands) Cash flows from operating activities Operating profit ...... 10,738 5,457 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortisation...... 10,659 10,391 Decrease in provision related to onerous lease contracts ...... (1,608) (1,231) Increase in accrued employee rights upon retirement, net...... 94 37 Effect of foreign currency exchange and others ...... 1,411 337 Interest received ...... 1,260 1,176 Interest paid ...... (3,874) (4,041) Income taxes paid ...... (649) (951) Costs of IPO ...... (1,765) — Operating income before working capital...... 16,266 11,175 Decrease/(increase) in inventories ...... 117 (378) (Increase)/decrease in accounts receivable ...... (1,066) 205 Increase in prepaid expenses ...... (2,838) (351) Increase in governmental institutions...... (1,671) (651) (Increase)/decrease in long-term film distribution costs and deferred expenses ...... (102) 15 Increase/(decrease) in accounts payable...... 1,956 (944) Increase/(decrease) in employee and payroll accruals...... 96 (37) (Decrease)/increase in related parties...... (1,725) 1,802 Decrease in income received in advance ...... 18 30 Net cash provided by operating activities ...... 11,051 10,866 Cash flows from investing activities Purchase of property and equipment and other assets...... (18,955) (14,999) Investment in development of video vending machines ...... (138) — Proceeds from disposition of property and equipment ...... 2,555 725 Short-term bank deposits ...... 93 811 Loans to related parties ...... 805 — Loans to third party ...... 1,061 (1,225) Proceeds from non-marketable securities held for sale ...... — 884 Proceeds from disposition of marketable securities ...... 37 — Net cash used in investing activities ...... (14,542) (13,804)

*) The 2003 cash flows from operating activities have been reclassified for reasons of comparison

See accompanying notes to the Consolidated Financial Statements.

F-57 Cinema City International N.V.

Consolidated Statement of Cash Flows (Continued)

For the year ended 31 December 2004 2003 EUR (thousands) Cash flows from financing activities Capital contributions ...... 3,842 — Proceeds from long-term loans ...... 14,520 18,960 Repayment of long-term loans...... (9,804) (8,061) Repayment of loan from shareholder ...... (3,957) — Increase in long-term payables ...... (468) 1,550 Short-term bank credit, net ...... (1,480) (5,435) Dividend to minority shareholders of subsidiary company ...... — (904) Net cash provided by financing activities ...... 2,653 6,110 Foreign currency exchange differences on cash ...... (2) (36) Increase/(decrease) in cash and cash equivalents ...... (840) 3,136 Cash and cash equivalents at beginning of year ...... 5,377 2,241 Cash and cash equivalents at end of year ...... 4,537 5,377

See accompanying notes to the Consolidated Financial Statements.

F-58 Cinema City International N.V.

Notes to the Consolidated Financial Statements

Note 1 — General and principle activities

The accompanying Consolidated Financial Statements present the financial position, results of operations, changes in shareholders’ equity, and cash flows of Cinema City International N.V. — previously known as I.T. International Cinemas B.V.— (“the Company”, or “the Group”). The financial statements were authorised for issue by the directors on 26 February 2005.

Cinema City International N.V., incorporated in the Netherlands, is a subsidiary of I.T. International Theatres Ltd. (“ITIT” or “parent company”), incorporated in Israel. The Group is principally engaged in the operation of entertainment activities in various countries including: Poland, Hungary, Czech Republic, Bulgaria and Israel. The Company is also engaged in managing and establishing its own entertainment real estate projects for rental purposes, in which the Company operates motion picture theatres. In addition, the Company is involved in short- term and long-term real estate trading in Central Europe. The Company’s business is dependent both upon the availability of suitable motion pictures from third parties for exhibition in its theatres, and the performance of such films in the Company’s markets.

Historically, the film exhibition, distribution and video rental operations in Israel, as well as the assets related to these operations, were divided among ITITand other subsidiaries of ITIT. As a result of the continuing expansion into Central Europe, and the increasing significance of Central Europe operations to the Group, during 2003 ITIT restructured its operations in Israel to be included within the Company (‘the Restructuring’). At the end of 2003 financial year, as part of the Restructuring, ITIT and the Company performed certain transactions that, among other things, provided for: (i) the transfer to I.T. International Theatres 2004 Ltd. (“IT-2004”), a new subsidiary of ITIT (See note 3 (II) (4)), of all assets connected with the film exhibition business in Israel; (ii) The transfer from ITIT to the Company of all shares in IT-2004 and in all other subsidiaries which relate to the Group’s operations in Israel; (iii) ITIT’s agreement not to compete in the markets that the Company operates in; (iv) the assignment of all remaining ITIT loans and balances from financial institutes to the Company; (v) the assignment of all assets and liabilities of Pan-Europe Finance B.V., a wholly-owned subsidiary of ITIT, to the Company, in consideration of debt. The debt was then converted to shares in the Company. Upon completion of the Restructuring, the Company became owner and holder of all the operations of the Group in both Europe and Israel.

The comparative figures in the 2004 Consolidated Financial Statements present the ownership and operation of the Group as if the entire Group’s business had been owned and operated by the Company since 1 January 2003 (Consolidated Financial Statements in accordance with IFRS). Although the Restructuring was completed towards the end of 2003, such a presentation would appropriately reflect the economic operation and financial position of the Group during the full year 2003.

The Consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) adopted by the International Accounting Standards Board (“IASB”), and interpre- tations issued by the Standing Interpretations Committee of the IASB. The Company’s separate financial statements (the ‘Parent Company Financial Statements’) are prepared in accordance with the applicable laws and regulations of the Company, being Generally Accepted Accounting Principles in the Netherlands (‘Dutch GAAP’) and are taken up on pages F-90 through F-97. For an explanation of the comparison between IFRS and Dutch GAAP reference is made to the section Dutch GAAP Information on page F-89.

Note 2 — Summary of Significant Accounting Policies

A. Statement of compliance

The Consolidated Financial Statements have been prepared in accordance with IFRS adopted by the IASB.

The Company has adopted the standards and interpretations with an effective date before 31 December 2004. The Company did not use the possibility for early adoption of standards and interpretations that were not yet effective.

F-59 Cinema City International N.V.

Notes to the Consolidated Financial Statements (Continued)

Note 2 — Summary of Significant Accounting Policies (continued) B. Basis of presentation (1) Measurement basis The financial statements are presented in euro, rounded to the nearest thousand. They are prepared on the historical cost basis adjusted for the change in the measurement currency. Unless otherwise stated, monetary assets and liabilities are presented at nominal value. Marketable securities are presented at fair value. (2) Integral foreign operations The measurement currency of the operations in Central Europe is the euro. All of the Central European subsidiaries are considered to be integral to the Company’s operations. Management believes that the euro reflects the economic substance of the underlying event and circumstances and is the relevant currency for the Central European subsidiaries. The financial statements of integral foreign operations were translated into euro as follows: Monetary items were translated at the closing exchange rate; non-monetary items were translated at the exchange rate on the date of transaction. Income statement items were translated at the average exchange rate for the year. Foreign exchange differences arising on translation have been recognised in the income statement. (3) Non-integral foreign operations The measurement currency of the operations in Israel is the New Israeli Shekel (NIS). Management considers that the Israeli operations to be autonomous from the Company, with a measurement currency of NIS rather than euro. Management believes that NIS reflects the economic substance of the underlying event and circumstances relevant to the Israeli subsidiaries. The financial statements of non-integral foreign operations were translated into euro as follows: Assets and liabilities, both monetary and non-monetary were translated at the closing exchange rate. Income statement items were translated at the average exchange rate for the year. Foreign exchange differences arising on translation have been are recognised directly in equity.

C. Exchange rates Information relating to the relevant euro exchange rates (at year end and averages for the year):

Exchange rate of euro Czech Hungarian Polish US Israeli As of 31 December Crowns Forints Zloty Dollar Shekel (CZK) (HUF) (PLN) (USD) (NIS) 2004 ...... 30.51 246.19 4.09 1.36 5.88 2003 ...... 32.41 246.33 4.72 1.26 5.53 Change during the year ...... % % % % %

2004 ...... (5.86) (0.06) (13.35) 7.94 6.33 2003 ...... 2.56 4.42 17. 41 20.00 11.27

Exchange rate of euro Czech Hungarian Polish US Israeli Average for year Crowns Forints Zloty Dollar Shekel (CZK) (HUF) (PLN) (USD) (NIS) 2004 ...... 31.95 252.11 4.53 1.24 5.58 2003 ...... 34.08 253.18 4.40 1.15 5.13 Change year over year % % % % %

2004 ...... (6.25) (0.42) 2.95 7.83 8.77 2003 ...... 10.61 (3.44) 2.50 21.05 2.90

F-60 Cinema City International N.V.

Notes to the Consolidated Financial Statements (Continued)

Note 2 — Summary of Significant Accounting Policies (continued) D. Principles of consolidation The Consolidated Financial Statements include the accounts of the Company, its subsidiaries, and jointly controlled entities. Subsidiaries are those enterprises controlled by the Company. Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of an enterprise so as to obtain benefits from its activities. The financial statements of subsidiaries are included in the Consolidated Financial Statements from the date that control effectively commences until the date that control effectively ceases. Jointly controlled entities are those enterprises over whose activities the Company has joint control, established by contractual agreements. The Consolidated Financial Statements include the Company’s propor- tionate share of the enterprises’ assets, liabilities, revenues and expenses with items of similar nature on a line-by-line basis, from the date that joint control commences until the date that joint control ceases. All inter-company accounts and transactions are eliminated when preparing the Consolidated Financial Statements. A list of the companies whose financial statements are included in the Consolidated Financial Statements and the extent of ownership and control appears in note 34 to these financial statements.

E. Use of estimates The preparation of financial statements in conformity with IFRS requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

F. Intangible assets Intangible assets that are acquired by the Group are stated at cost less accumulated amortisation, calculated over the estimated useful life of the assets, and impairment losses, if any. The recoverable amount is estimated at least at each balance sheet date. Under IAS 36, the carrying amount of the intangible assets mentioned above is reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the recoverable amount is estimated as the higher of net selling price and value in use.

G. Property and equipment (1) Property and equipment are stated at cost less accumulated depreciation and impairment losses. Expenditures for maintenance and repairs are charged to expenses as incurred, while renewals and betterments of a permanent nature are capitalised. (2) Depreciation is calculated by means of the straight-line method over the estimated useful lives of the assets. Annual rates of depreciation are as follows:

% Buildings ...... 2-3 Cinema equipment ...... Mainly 10 Leasehold improvements...... Mainly 5 Computers, furniture and office equipment ...... 6-33 Vehicles ...... 15-20 Video movie cassettes and DVDs ...... 25-33 Video machines ...... 20 (3) Leasehold improvements are depreciated over the estimated useful lives of the assets, or over the period of the lease, including certain renewal periods, if shorter. (4) Leases in terms of which the Group assumes substantially all the risks and rewards of ownership are classified as finance leases. Plant and equipment acquired by way of finance lease is stated at an amount

F-61 Cinema City International N.V.

Notes to the Consolidated Financial Statements (Continued)

Note 2 — Summary of Significant Accounting Policies (continued) G. Property and equipment (continued) equal to the lower of its fair value and the present value of the minimum lease payments at inception of the lease, less accumulated depreciation. (5) According to IAS 36 the carrying amount of assets mentioned above is reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the recoverable amount is estimated as the higher of net selling price and value in use. (6) Financing expenses relating to short-term and long-term loans, which were taken for the purpose of purchasing or constructing property and equipment, as well as other costs which refer to the purchasing or constructing of property and equipment, are capitalised to property and equipment, in accordance with IAS 23.

H. Inventories Inventories are valued at the lower of cost or net realisable value, and include concession products, spare parts, music cassettes, CDs and video cassettes, and are stated at the lower of cost or net realisable value. Cost is determined by means of the “first in, first out” method. Cost of music cassettes is determined on the basis of the average purchase price. Net realisable value is the estimated selling price during the normal course of business, less the estimated costs of completion and selling expenses.

I. Allowance for doubtful accounts The allowance for doubtful accounts is determined based upon management’s evaluation of receivables doubtful for collection on a case-by-case basis.

J. Marketable securities The investments in securities held by the Group are classified as trading securities. Trading securities are bought and held principally for the purpose of selling them in the short term and are recorded at fair value. The fair value of investments held for trading is their quoted bid price as of the balance sheet date. Unrealised gains and losses on these securities are included in the income statement. Dividends and interest income are recognised when earned..

K. Cash and cash equivalents Cash and cash equivalents comprise cash balances and short-term highly liquid investments, that are readily convertible to known amounts of cash, and which are subject to insignificant risk of changes in value.

L. Employee benefits — defined contribution plans Obligations for contributions to defined contribution pension plans are recognised as an expense in the income statement as incurred.

M. Employee benefits — severance pay In certain countries in which the Group operates, employees are entitled to a severance pay at the end of their employment. The Group’s liability for these severance payments is calculated pursuant to local applicable severance pay laws and employee agreements based on the most recent salary of the employees. The Group’s liability for all of its employees is partly provided by monthly deposits with insurance policies and by accruals. The deposited funds include profits accumulated up to the balance sheet date. The deposited funds may be withdrawn only upon the fulfilment of the obligation pursuant to local severance pay law or labour agreements. The value of the deposited funds is based on the cash value of these policies, and includes immaterial profits. The unfunded portion of the Group’s liability is taken up in the balance sheet as a provision under the heading “Accrued employee retirement rights, net”. The provision is stated at nominal value.

F-62 Cinema City International N.V.

Notes to the Consolidated Financial Statements (Continued)

Note 2 — Summary of Significant Accounting Policies (continued) N. Provision related to onerous lease contracts During July 2002, the Group acquired a cinema chain in Poland at a discount, which was allocated to the lease agreements of the cinemas acquired. In the financial statements of the Company the discount is presented as a provision related to onerous lease contracts and is released to the income statement over the term of the lease (see also note 16).

O. Long term loans All long term loans and borrowings are initially recognised at cost, being the fair value of the consideration received net of issue costs associated with the borrowing. After initial recognition, interest-bearing loans are subsequently measured at amortised cost using the effective interest rate method. Amortised cost is calculated by taking into account any issue costs, and any discount or premium on settlement. Gains and losses are recognised in net profit or loss when the liabilities are derecognised or impaired, as well as through the amortisation process. For information regarding the fair value of long term liabilities reference is made to Note 28.

P. Revenue recognition (1) Revenues from admission (ticket sales) and concession sales (snack-bars operated by the Company) are recognised when services are provided. (2) Revenues from distribution of cinema films are recognised on an accrual basis by a percentage of admissions from the related films. (3) Revenues from distribution of films to cable television companies and television stations are recognised over the agreed period for the screening of the film. (4) Revenues from sales of video cassettes and DVDs are recognised upon delivery to the customer. (5) Revenues from video cassettes and DVD rentals are recognised as the rental services are provided. (6) Revenues from “on screen” advertising contracts are included in other revenues and are recognised when the related advertisement or commercial is screened, or, in some cases, over the period of the contract. (7) Revenues from rental contracts are included in other revenues and are recognised on an accrual basis. (8) Revenues from the sale of real estate are included in other revenues and are recognised when the significant risks and benefits of the ownership have been transferred, when the buyer is committed to the purchase, and when the sales price is considered collectible.

Q. Operating costs (1) Theatre operating costs — Include direct concession product and joint theatre facility costs such as employee costs, theatre rental and utilities, which are common to both ticket sales and concession operations. (2) Cost of films distributed — Cost of films distributed are capitalised until the time the films are distributed for screening. Once the films have been distributed and screening has begun, the costs are amortised at a rate equal to the ratio of revenues in the period to total estimated revenues for the films. (3) Advertising expenses — General advertising expenses are expensed as incurred. Film advertising expenses are expensed when the film is distributed or is shown to the public.

F-63 Cinema City International N.V.

Notes to the Consolidated Financial Statements (Continued)

Note 2 — Summary of Significant Accounting Policies (continued) R. Net financing cost

Net financing costs comprise interest payable on borrowings calculated using the effective interest rate method, and interest receivable on funds invested. Foreign exchange gains and losses, and gains and losses that are recognised on hedging instruments are recognised in the income statements.

Interest income is recognised in the income statements as it accrues, taking into account the effective yield on the asset.

S. Derivative financial instruments

The Group uses derivative financial instruments to hedge its exposure to foreign exchange rate risks arising from operational and financing activities.

Derivative financial instruments are recognised initially at cost. Subsequent to initial recognition, derivative financial instruments are stated at fair value. The fair value of foreign contracts is based on the relevant current exchange rates at balance sheet date. Where a derivative financial instrument is used to economically hedge the foreign exchange exposure of a recognised monetary asset or liability, no hedge accounting is applied and any gain or loss due to the change in the fair value of the hedging instrument is recognised in the income statement.

T. Income taxes

Income tax on the profit or loss for the year comprises current and deferred tax. Income tax is recognised in the income statement except to the extent that it relates to items recognised directly to equity, in which case it is recognised in equity. Income tax is calculated at the applicable local tax rates.

Deferred income tax is provided using the balance sheet liability method on all temporary differences at the balance sheet date between the carrying amounts of assets and liabilities for financial reporting purposes and the tax bases of assets and liabilities. The amount of deferred tax provided is based on the expected timing of the reversal of the temporary differences, using tax rates enacted or substantially enacted at the balance sheet date.

A deferred tax ass4et is recognised only to the extent that it is probable that future taxable profits will be available against which the unused tax losses and credits can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Additional income taxes that arise from the distribution of dividends are recognised at the same time as the liability to pay the related dividend.

U. Earnings per share

Earnings per share are computed according to IAS 33 of the IASB. The computation is determined on the basis of the weighted average par value of the issued and paid-in share capital outstanding during the year.

V. Stock Option Plan

In 2003, the Company applied the intrinsic value-based method of accounting prescribed by the Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees” and related interpretations in accounting for its fixed plan stock options. As such, compensation expense was recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. SFAS No. 123, “Accounting for Stock-Based Compensation”, established accounting and disclosure requirements using a fair value-based method of accounting for stock-based compensation plans for employee and for advisor. As allowed by SFAS No. 123, the Company elected to apply the intrinsic value-based method of accounting described above, and adopted the disclosure requirements of SFAS No. 123, and the relevant disclosures mentioned in IAS 19. However, as the stock option plan was terminated in 2004, the accounting policy for the Stock Option Plan is no longer applicable for the current year.

F-64 Cinema City International N.V.

Notes to the Consolidated Financial Statements (Continued)

Note 2 — Summary of Significant Accounting Policies (continued) W. Segment reporting

A segment is a distinguishable component of the Group that is engaged either in providing products or services (business segment), or in providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments.

X. Comparative figures

Certain comparative figures have been reclassified to conform with 2004 classifications.

Note 3 — Changes in Consolidated Entities

(I) Changes in consolidated entities during 2004:

None

(II) Changes in consolidated entities during 2003:

(1) Forum Film Poland Sp.Zoo — 100% shares. This company commenced operations in July 2003. This company specialises in distribution of films in Poland.

(2) MO. Sofia EAD — 50% share. In July 2003, the Company has sold 50% of its holding in this company for a total price of EUR 2,696,000 (which was partly paid through the repayment of shareholders loans provided to MO Sofia by the Company).

(3) I.T. Sofia BV — 100% shares. in conjunction with the above (2), the Company acquired the remaining 25% of the shares of I.T. Sofia BV. The Company has paid a EUR 269,000 (USD 300,000) down payment out of a total payment of EUR 526,000 (USD 600,000), and may pay additional amounts after the opening of the project. The rest of the initial payment is subject to milestones relating to the progress of the development of the project, and the additional payments are subject to agreed success criteria after the opening.

(4) IT Theatres 2004 Ltd. — 100%. New subsidiary, incorporated as part of the reorganisation (See note 1). Movie theatres operations in Israel were transferred to this subsidiary in December 2003.

Note 4 — Intangible fixed assets

The intangible fixed assets comprise mainly of investments in the development of video vending and renting machines and are stated at cost less accumulated amortisation and impairment losses, if any.

Composition:

Financial year 2004 Balance at Foreign currency beginning of the Additions during translation Balance at end of year the year adjustments year EUR (thousands) Cost ...... 609 138 (39) 708 Accumulated amortisation ...... 235 333 (29) 539 Carrying value ...... 374 169

F-65 Cinema City International N.V.

Notes to the Consolidated Financial Statements (Continued)

Note 4 — Intangible fixed assets (continued) Financial year 2003 Balance at Foreign currency beginning of the Additions during translation Balance at end of year the year adjustments year EUR (thousands) Cost ...... 471 192 (54) 609 Accumulated amortisation ...... 143 125 (33) 235 Carrying value ...... 328 374

Note 5 — Property and equipment, net Composition

Financial year 2004 Foreign Sales and Balance at Additions currency disposals beginning during translation during the Impair- Balance at of the year the year adjustments year ment end of year EUR (thousands) Cost Land and buildings(1) ...... 50,549 17,515 0 — — 68,064 Cinema equipment(1) ...... 55,701 6,122 (838) (2,519) — 58,466 Leasehold improvements ...... 57,969 59 (842) (2) — 57,184 Computers, furniture and office equipment ...... 9,575 140 (516) (26) — 9,173 Vehicles ...... 960 241 (48) (120) — 1,033 Video movies ...... 6,777 1,311 (355) — — 7,733 Video machines ...... 1,085 26 (65) — — 1,046 182,616 25,414 (2,664) (2,667) — 202,699 Accumulated depreciation Land and buildings ...... 4,041 2,143 — — 332 6,516 Cinema equipment ...... 20,213 4,568 (624) — — 24,157 Leasehold improvements ...... 9,380 954 (252) — — 10,082 Computers, furniture and office equipment ...... 6,554 255 (362) (16) — 6,431 Vehicles ...... 393 157 (22) (77) — 451 Video movies ...... 2,841 2,035 (316) — 897 5,457 Video machines ...... 646 214 (49) — — 811 44,068 10,326 (1,625) (93) 1,229 53,905 Carrying value ...... 138,548 148,794

(1) Includes EUR 17,884,000 construction in progress for entertainment purposes and cinema equipment to an amount of EUR 5,098,000 not operated yet (See also note 20 (1) b. and c.). The impairment write-offs are further described in Note 24.

F-66 Cinema City International N.V.

Notes to the Consolidated Financial Statements (Continued)

Note 5 — Property and equipment, net (continued) Financial year 2003 Balance at Foreign Sales and beginning Additions currency disposals of the during translation during the Balance at year*) the year adjustments year end of year EUR (thousands) Cost Land and buildings(1) ...... 48,275 3,378 — (1,104) 50,549 Cinema equipment(1) ...... 53,760 3,985 (1,574) (470) 55,701 Leasehold improvements ...... 57,588 2,346 (1,608) (357) 57,969 Computers, furniture and office equipment .... 9,868 890 (1,002) (181) 9,575 Vehicles ...... 772 289 (101) 960 Video movies ...... 5,983 1,311 (515) (2) 6,777 Video machines ...... 1,163 65 (143) 1,085 177,409 12,264 (4,943) (2,114) 182,616 Accumulated depreciation Land and buildings ...... 2,052 2,018 0 (29) 4,041 Cinema equipment ...... 17,380 4,181 (1,069) (279) 20,213 Leasehold improvements ...... 8,473 1,682 (488) (287) 9,380 Computers, furniture and office equipment .... 6,534 848 (701) (127) 6,554 Vehicles ...... 296 144 (47) — 393 Video movies ...... 1,967 1,161 (285) (2) 2,841 Video machines ...... 480 232 (66) — 646 37,182 10,266 (2,656) (724) 44,068 Carrying value ...... 140,227 138,548

*) Reclassified for reasons of comparison

Includes EUR 2,409,000 construction in progress for entertainment purposes and cinema equipment to an amount of EUR 5,400,000 not operated yet.

Note 6 — Loans to Unconsolidated Subsidiaries

This item represents a loan to an unconsolidated subsidiary presented at cost. The loan is denominated in USD and bear annual interest at the rate of 7%. The loan is due to be repaid upon the sale of a 50%-subsidiary (not consolidated) that owns real estate located in Central Europe. . For further details of the expected sale of the interest reference is made to note 10 below.

Note 7 — Inventories

Composition:

31 December 2004 2003 EUR (thousands) Concession products ...... 643 644 Video cassettes and DVDs ...... 570 817 IMAX films inventories ...... 1,416 1,389 Video machines ...... 64 78 Spare parts ...... 165 114 2,858 3,042

F-67 Cinema City International N.V.

Notes to the Consolidated Financial Statements (Continued)

Note 7 — Inventories (continued) Valuation:

31 December 2004 2003 EUR (thousands) At cost...... 2,864 3,048 Provision for net realisable value ...... (6) (6) 2,858 3,042

All inventories included above are valued at cost with the exception of certain spare parts (with an original cost value of EUR 6,000) which in prior years have been written off to zero.

Note 8 — Trade Accounts Receivable Composition:

31 December 2004 2003 EUR (thousands) Trade accounts receivable ...... 5,720 5,390 Allowance for doubtful accounts ...... (13) (19) 5,707 5,371

Note 9 — Other Amounts Receivable and Prepaid Expenses Composition:

31 December 2004 2003 EUR (thousands) Government institutions ...... 2,733 1,107 Advances to suppliers ...... 371 22 Prepaid expenses ...... 4,113 1,351 Prepaid cinema film and video film distribution costs(1) ...... 1,458 1,356 Film distribution costs and deferred expenses ...... — 1 Loans to other(2)...... 164 1,225 Other ...... 258 96 9,097 5,158

(1) Stated at cost, incurred by a subsidiary company, of video and cinema film which has not yet been distributed, after being reviewed for recoverability — see also Note 20 (1)f. (2) The Loans to other are repayable at March 2005 and earn an interest of 5% per annum.

Note 10 — Non-Marketable Securities — Held for Sale This concerns an investment in a subsidiary in Central Europe, which has an investment in real estate. The investment is presented at cost, since the investment is acquired and held exclusively with a view to its subsequent disposal (see also note 6). During the year ended 31 December 2000, the Company, sold 50% of a subsidiary that owns a real estate property to a third party. The Company, has signed a letter of intent to sell the other 50% to the same third party. Following the signature of the letter of intent, the parties have filed an application with the Polish anti-monopoly authorities to approve the transaction. The Company does not foresee any reason for the Anti-Monopoly to prevent the sale, and is expecting a binding agreement to be signed following such approval.

F-68 Cinema City International N.V.

Notes to the Consolidated Financial Statements (Continued)

Note 11 — Cash and cash equivalents Cash and cash equivalents comprise cash at bank and in hand and short term deposits freely available for the Group. The short term deposits have an original maturity varying from one day to three months. Composition:

31 December 2004 2003 EUR (thousands) Cash at bank and at hand ...... 3,936 2,773 Short-term deposits...... 601 2,604 4,537 5,377

Cash at bank and in hand earns interest at floating rates based on daily bank deposit rates. Short-term deposits are made for varying periods of between one day and three months depending on the immediate cash requirements of the Group, and earn interest at the respective short-term deposit rates. The fair value of the cash and cash equivalents is EUR 4,537,000 (2003: EUR 5,377,000)

Note 12 — Short-Term Bank Deposits — collateralized In 2004, deposits with banks in Central Europe denominated in Euro and PLN for a total amount of EUR 715,000 (2003 — EUR 808,000) were made to serve as collateral for credit facilities provided to a subsidiary. Composition:

31 December 2004 2003 EUR (thousands) In EUR earn interest 0.5%-2.5% ...... 294 808 In PLN earn interest of 4% ...... 421 — 715 808

Note 13 — Shareholders’ Equity a. Share capital consists of:

31 December 2004 Issued and Authorised outstanding Number of shares Ordinary shares of EUR 0.01 par value ...... 175,000,000 40,724,000

Ordinary shares entitle one vote per share and participation in payments of dividends. b. Regarding the previously existing employees’ stock option plan — see note 27. c. As at 31 December 2003, the share capital of the Company consisted of 400 ordinary shares of EUR 45.38 par value each. As part of the restructuring that took place in 2003, the Company issued new shares to its 100% shareholder, ITIT, then split each existing share to a par value of EUR 0.01, and issued new shares to ITIT to bring the number of its issued and outstanding shares to 35,059,648. As at that time, ITIT was the 100% shareholder, the effect of this transaction is very similar to a stock split. The formalities regarding the registration of the new shares were completed in March 2004. Subsequent to the issuance and registration of the new shares on 24 March 2004, the authorised share capital of the Company consisted of 175,000,000 shares of EUR 0.01 par value each. On 13 May 2004, the Company issued 4,940,352 new ordinary shares, and a further 724,000 new ordinary shares were issued by the Company on 15 June 2004. The total amount contributed to the Company’s share capital and share premium reserve in connection with these share issues amounted to EUR 3,842,000. As a

F-69 Cinema City International N.V.

Notes to the Consolidated Financial Statements (Continued)

Note 13 — Shareholders’ Equity (continued) result of the share issues during 2004, the total number of shares issued and outstanding at 31 December 2004 totalled 40,724,000. All shares issued and outstanding at 31 December 2004 have been fully paid up.

Note 14 — Minority Interests

31 December 2004 2003 EUR (thousands) Balance at beginning of year ...... 53 779 Minority interests in (losses)/earnings of consolidated subsidiaries...... (247) 270 Dividend paid to minority shareholders of subsidiary companies ...... — (904) Translation adjustments ...... 20 (92) Balance at end of year ...... (174) 53

Note 15 — Accrued Employee Retirement Rights a. According to the relevant laws, the Company’s subsidiaries in Europe are required to deposit amounts, on a monthly basis, to retirement and pension funds on behalf of their employees, and therefore have no such liabilities towards them. b. Local applicable labour laws and agreements require Group companies to pay severance pay to dismissed or retiring employees (including those leaving their employment under certain other circumstances). The calculation of the severance pay liability was made in accordance with labour agreements in force and based on salary components that, in Management’s opinion, create entitlement to severance pay. Group companies’ severance pay liabilities to their employees are funded partially by regular deposits with recognised pension and severance pay funds in the employees’ names and by purchase of insurance policies and are accounted for as if they were a defined contribution plan. The amounts funded as above are netted against the related liabilities and are not reflected in the balance sheets since they are not under the control and management of the companies. c. The amounts of the liability for severance pay presented in the balance sheets (see d below) reflect that part of the liability not covered by the funds and the insurance policies mentioned in (b) above, as well as the liability that is funded by deposits with recognised central severance pay funds held under the name of the Company’s subsidiaries. d. The provision for accrued employee rights upon retirement, net, comprises:

31 December 2004 2003 EUR (thousands) Provision for severance pay ...... 1,662 1,696 Less: Amounts deposited with recognised central severance pay funds, including earnings thereon and other deposits ...... (868) (953) 794 743

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Notes to the Consolidated Financial Statements (Continued)

Note 15 — Accrued Employee Retirement Rights (continued) e. The movements in the provision for accrued employee rights upon retirement during the financial year is as follows:

Financial year 2004 Amount Gross amount deposited Net amount EUR (thousands) Balance beginning of the year ...... 1,696 (953) 743 Payments made upon retirement ...... — — — Translation difference ...... (95) 51 (44) Monthly payments to deposit ...... — 34 34 Net movement in provision (credited)/charged to net profit ...... 61 — 61 Balance at the end of the year ...... 1,662 868 794

Financial year 2003 Amount Gross amount deposited Net amount EUR (thousands) Balance beginning of the year ...... 1,742 (956) 786 Payments made upon retirement ...... — — — Monthly payments to deposit ...... — 3 3 Net movement in provision (credited)/charged to net profit ...... (46) — (46) Balance at the end of the year ...... 1,696 (953) 743

Note 16 — Provisions related to onerous lease contracts In July 2002, the Group purchased four multiplex cinemas in Poland from Ster Century Europe Limited. The multiplexes comprised a total of 46 screens and approximately 10,000 seats. As part of the transaction, the Group acquired all of the shares of Ster Century Europe’s Polish subsidiaries, and purchased shareholder loans provided to these subsidiaries, for a total consideration of approximately EUR 19 million (USD 20 million). The acquisition also involved the assumption of certain long term lease contracts with onerous terms, expiring in 2009 to 2010. A provision of EUR 12,731,000 (USD 13,369,000), relating to these onerous lease contracts, which the acquired subsidiaries were party to prior to the acquisition, has been recorded as part of the acquisition. The provision is amortised over the non-cancellable periods of the lease contracts. Amortisation in 2004 amounted to EUR 1,608,000 (2003: EUR 1,231,000) and was credited to the lease expenses under operating expenses Movements:

Financial year 2004 2003 EUR (thousands) Balance at beginning of year ...... 9,997 11,228 Amortisation during the year ...... (1,608) (1,231) Balance at end of year ...... 8,389 9,997

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Notes to the Consolidated Financial Statements (Continued)

Note 17 — Long-Term Loans A. Composition:

31 December Interest rates 2004 2003 % EUR (thousands) In Czech crowns ...... (1) 8,418 8,394 InEUR...... (2) 63,122 58,036 In US dollars ...... (3) 14,944 16,672 InNIS...... (4) 605 — Loan from minority interest holder ...... (5) 129 139 87,218 83,241 Less — current portion ...... 6,785 6,510 80,433 76,731

(1) Linked to the Czech crowns bearing interest at the rate of PRIBOR + 2.6%. (2) In euro, bearing interest at the rate of EURIBOR + 1.5%-2.8%. (3) Linked to the US Dollar bearing interest at the rate of LIBOR + 1%-1.75%. (4) In NIS, linked to the Israeli CPI and bearing interest at the rate of 5.7% (5) In dollars, bearing no interest. In 2004 the Company, through a subsidiary, signed a loan agreement with a Polish bank under which agreement the Company can borrow up, in trenches, to a maximum of PLN 77 million. The loan is intended for the financing of new cinema projects in Poland. As at 31 December 2004, no amounts have been drawn down under this agreement. The interest rates shown concern the rates per the end of the appropriate financial years. B. The loans mature as follows:

31 December 2004 2003 EUR (thousands) First year — current maturities ...... 6,785 6,510 Second year ...... 7,671 6,677 Third year ...... 7,776 6,826 Fourth year ...... 9,640 7,034 Fifth year ...... 7,061 9,072 Sixth year and thereafter ...... 11,609 15,320 Undefined ...... 36,676 31,802 87,218 83,241

C. Liens — see note 20 (2).

F-72 Cinema City International N.V.

Notes to the Consolidated Financial Statements (Continued)

Note 18 — Short-Term Bank Credit Composition:

31 December Interest rates 2004 2003 % EUR (thousands) Current maturities ...... 6,785 6,510 Short-term bank credit: Unlinked (NIS) ...... (1)9.8% - 11.4% 4,299 6,138 11,084 12,648

(1) Variable The interest rates shown concern the rates per the end of the appropriate financial years.

Note 19 — Other Accounts Payable Composition:

31 December 2004 2003 EUR (thousands) Investment Creditors ...... 5,966 404 Accrued expenses ...... 1,981 1,454 Government institutions ...... 379 753 Advances and income received in advance(1) ...... 2,521 1,847 Forward currency contracts (see also Note 28)...... 448 — Other ...... 278 162 11,573 4,620

(1) Consist mainly of advances received from several customers, for feature video rentals and film distribution.

Note 20 — Commitments, Contingent Liabilities and Liens (1) Commitments a. The Company and its subsidiaries conduct most of their cinema, video library stores and corporate operations in leased premises. These leases, which have non-cancellable clauses, expire at various dates after 31 December 2004. Many leases have renewal options. Most of the leases provide for contingent rentals based on the revenues of the underlying cinema or video library stores, while certain leases contain escalating minimum rental provisions. Most of the leases require the tenant to pay city taxes, insurance, and other costs applicable to the leased premises.

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Notes to the Consolidated Financial Statements (Continued)

Note 20 — Commitments, Contingent Liabilities and Liens (continued) (1) Commitments (continued) Future minimum lease payments under non-cancellable operating leases from third parties for the years after 31 December 2004, are as follows:

EUR (thousands)* 2005 ...... 12,612 2006 ...... 13,251 2007 ...... 12,920 2008 ...... 12,792 2009 ...... 12,189 After 2009 ...... 43,980 107,744

* Does not include contingent rental, which is subject to the Company’s decision to exercise the option to extend the operating lease period. Rental expenses for theatres are summarised as follows:

31 December 2004 2003 EUR (thousands) Minimum rental ...... 11,378 12,127 Contingent rental ...... 215 644 11,593 12,771

b. The Group is a party to a master agreement with a developer, Control Centres Ltd. (“Control Centres”), for the construction of theatre sites in shopping malls and other commercial centres throughout Hungary, Poland and the Czech Republic. Under this agreement, the Company currently has 15 multiplexes that are already operating in shopping malls in Central Europe. c. As at 31 December 2004, the Group has unpaid commitments to invest in the development of properties of approximately EUR 13.5 million and further commitments to acquire equipment of approximately EUR 10 million in connection with the development of new systems and movie theatres. In addition, the Group is committed to pay a percentage of its revenues from some of these new systems, subject to a minimum monthly cost per system. d. In consideration for its rights to be the exclusive distributor of their films in Israel, Poland and Hungary, subsidiary companies are committed to pay fees to certain producers based on a percentage of its revenues (or in some cases, specific profits) from the films. In some cases, a minimum fee has been determined. e. Ya’af Network, a subsidiary company, has agreements for the rental of video library stores, and for the rental of space for videomats, which it uses in its operations. The rental terms pursuant to these agreements (including renewal options) granted to Ya’af Network are for periods of one to ten years. The rental expenses relating to these agreements are calculated as a lump-sum linked either to the Israeli CPI or to the US dollar, or as a percentage of the turnover. Annual rent expenses for 2004 amounted to EUR 712,000. f. Subsidiary companies signed agreements with third parties in Israel, Poland and Hungary. According to these agreements, the subsidiary companies grant the third parties exclusive broadcasting rights on Israeli, Polish and Hungarian television for specific movies. These rights are for various periods and will end during the years 2004-2008. g. Movie films are typically licensed from film distributors representing film production companies. Film exhibition licences typically specify rental fees based upon a gross receipts formula, which is negotiated

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Notes to the Consolidated Financial Statements (Continued)

Note 20 — Commitments, Contingent Liabilities and Liens (continued) (1) Commitments (continued) on a movie-by-movie basis in advance of distribution. The fees are generally related to the anticipated performance of the movie based on the distributor’s experience in other markets, if possible. Under such a formula, the distributor receives a specified percentage of box office receipts, with the percentage declining over the term of the run. h. In July 2003, the Company has signed an agreement to buy the minority interest in IT Sofia BV, for a consideration of EUR 526,000 (USD 600,000), with potential additional success payments. Through its Bulgarian subsidiary, IT Sofia BV is developing a shopping entertainment centre in Sofia, Bulgaria. The first part of the purchase price was paid in cash during 2003, second part was paid during 2004. The balance is due subject to milestones based on the progress of the project, and additional payments are subject to success of the shopping centre after opening. i. Lease contracts of certain cinema equipment of IMAX» systems are classified as finance lease and as such the equipment is included in Tangible fixed assets under Cinema equipment. The total of the lease obligation at 31 December 2004 amounted to EUR 2,872,000 (31 December 2003: EUR 3,340,000), and is classified as Other long-term payables. The lease term expires on 31 December 2020, after which the ownership will be transferred to the Company.

(2) Liens a. As part of the reorganisation, the Company has assumed the majority of the Group’s bank debt, provided originally via ITIT. Based on the agreement between the Company and ITIT of December 2003, the bank will provide the Company with loans, which will be used to pay back ITIT’s loans to the bank. In order to secure the Company’s liabilities for such bank credits and loans in the amount of approximately EUR 56 million, the Company has provided the bank the following: (i) a registered first degree fixed lien on IT-2004’s (the Israeli subsidiary) outstanding share capital and goodwill; (ii) a first degree floating lien on IT-2004’s assets, including insurance benefits in respect of the assets and rights of any kind which the ITIT has or will have in the future; (iii) that the assets of IT-2004 will not be pledged and the lien cannot be transferred without the agreement of the bank; (iv) ITIT has agreed to guarantee the debt of the Company, and ITIT has provided the bank with a fixed lien on 70% of the Company’s issued share capital; (v) that certain financial covenants will be fulfilled and maintained. b. The local subsidiaries in Poland and the Czech Republic have obtained financing from banks for some of the cinema complex projects. The securities given include: mortgage on the assets of the financed projects, pledge on the shares of the subsidiaries, and an assignment of all revenues and insurance policies of the projects. As at 31 December 2004, the Company had issued a guarantee for Euro 12 million to a polish bank in connection with a loan provided to a subsidiary. After the end of the financial year 2004, the Company issued a guarantee for a total amount of PLN 115.5 million to a Polish bank in order to secure several loan agreements with this bank. c. In order to secure an outstanding loan from a central European bank of approximately EUR 5.3 million a subsidiary company has provided to the bank the following: (i) a registered first degree fixed lien on its outstanding share capital and goodwill; (ii) a first degree floating lien on its assets, including insurance benefits in respect of the assets and rights of any kind which the subsidiary has or will have in the future; (iii) that the assets of the subsidiary will not be pledged and the lien cannot be transferred without the agreement of the bank.

(3) Contingent Liabilities a. From time to time, the Group is involved in routine litigation and proceedings during the normal course of business. As of balance sheet date, the Group is not involved in any litigations or proceedings. b. The Israeli government office (“the Office”) in charge of antitrust matters commenced an investigation into the theatre business in Israel in 2001. Under the investigation, the Office investigated the Group’s activities in Israel including the interaction between the Group and its competitors. Since the

F-75 Cinema City International N.V.

Notes to the Consolidated Financial Statements (Continued)

Note 20 — Commitments, Contingent Liabilities and Liens (continued) (3) Contingent Liabilities (continued) commencement of the investigation, no further actions were taken by the Office, and the Group was not asked to provide any further information, or answer any further questions. Management is of the opinion that the consequences of the investigation cannot be determined at this stage.

Note 21 — Revenues

Financial year 2004 2003 EUR (thousands) Theatre sales ...... 75,313 72,252 Distribution ...... 15,991 13,427 Video ...... 5,664 7,771 Other ...... 1,970 2,333 98,938 95,783

Note 22 — Operating costs

Financial year 2004 2003 EUR (thousands) Theatre operations ...... 55,627 *57,425 Distribution operations ...... 12,959 11,958 Video operations ...... 3,548 5,259 Other ...... 903 *663 Depreciation and amortisation ...... 10,659 10,391 83,696 85,696

Cost of inventories recognized as an expense are included in Cost of sales for an amount of EUR 3,673,000 (2003: EUR 3,473,000).

* Reclassified

Note 23 — Financial Income/Expenses A. Financial Income

Financial year 2004 2003 EUR (thousands) Interest income ...... 1,260 1,321 Currency exchange gains ...... 3,194 2,155 Total financial income ...... 4,454 3,476

F-76 Cinema City International N.V.

Notes to the Consolidated Financial Statements (Continued)

Note 23 — Financial Income/Expenses (continued) B. Financial Expenses

Financial year 2004 2003 EUR (thousands) Interest expenses incurred ...... (3,827) (4,216) Interest cost capitalised(1)...... 483 134 Exchange loss arising from hedge transactions(2) ...... (448) — Other currency exchange losses ...... (1,789) — Total financial expenses ...... (5,581) (4,082)

(1) The Company has capitalised interest expenses to the cost of buildings in progress as well as to other fixed assets components before being taken into operation. (2) During 2004, the Company hedged its US dollar rental obligations in respect of its Polish and Hungarian theatre operations against the Polish Zloty and the Euro, respectively. In connection with these obligations, the Company entered into forward foreign exchange contracts comprising a commitment to buy USD 400,000 at the beginning of each month during the second half of 2004 and the first half of 2005 at fixed prices denominated in Polish Zloty. In addition, the Company entered into a forward foreign exchange contracts comprising a commitment to buy at the beginning of each month USD 190,000 during the second half of 2004 and USD 195,000 during the first half of 2005 at fixed prices denominated in Euro and Hungarian Forint, respectively. These forward foreign exchange contracts have been valued in the consolidated balance sheet at 31 December 2004 at their fair value. (See also Note 28).

Note 24 — Gain/(loss) on disposals and write-off on other investments

Financial year 2004 2003 EUR (thousands) Capital (loss)/gain on disposition of property, equipment and other assets, net ...... — (156) Impairment of video and DVD movies ...... (897) — Impairment of land and buildings ...... (332) — Other ...... 25 (75) (1,204) (231)

The impairment of video and DVD movies is explained by a shorter estimated life time of video and DVD movies that are kept for rental purposes. Previously, these items were depreciated in 4 years whereas the Company now estimates their economic lifetime to be 2 years. The effect of the shortened lifetime is presented as an impairment write-off. The impairment of land and buildings relates to a property in the Czech Republic. For both impairment write-offs reference is also made to Note 5.

Note 25 — Income Taxes I. Tax laws applicable to the Group: 1. Results of operations for tax purposes of the Company and its Dutch subsidiaries are computed in accordance with Dutch tax legislation. 2. Tax rates applicable to the Company and its subsidiaries are as follows:

The subsidiary Tax rate Netherlands...... 34.5% Hungary ...... 16% Czech Republic ...... 28% Poland ...... 19% Israel ...... 35% Bulgaria ...... 19.5%

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Notes to the Consolidated Financial Statements (Continued)

Note 25 — Income Taxes (continued) I. Tax laws applicable to the Group: (continued) Tax rates in several countries the Group is operating in, will change as of 1 January 2005 as follows: • Netherlands to 31.5% • Czech to 26% • Israel to 34% • Bulgaria to 15% 3. Tax ruling in Israel The Group has received a special ruling from the Israeli tax authorities to allow for the transfer of the Israeli activities to IT-2004, and to transfer the shares of all the operating Israeli subsidiaries to the Dutch company. Under the ruling, ITIT has committed not to sell its shares in the Company for a period of four years, and the Company has committed to pay tax in Israel on any future gains on the sale of Israeli subsidiaries.

II. Deferred income taxes 1. Deferred income taxes are primarily provided for all the temporary differences between the tax and the accounting basis of assets and liabilities based on the tax rate that is expected to be in effect at the time the deferred income taxes will be realised. Realisation of the deferred income tax assets is dependent upon generating sufficient taxable income in the period that deferred income tax assets are realised. Based on all available information, Management believes that all of the deferred income tax assets are realisable and therefore has not provided for valuation allowance. The majority of the deferred tax asset per 31 December 2004 has arisen in Poland. 2. Changes in deferred income taxes are in respect of the following items:

31 December 2004 2003 EUR (thousands) Accrued employee rights ...... (25) (3) Fixed assets ...... (349) (315) Operating tax loss carry forwards ...... 579 (284) Deferred income ...... — (67) Long term liabilities ...... (89) 75 Other ...... (627) 1 (511) (593)

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Notes to the Consolidated Financial Statements (Continued)

Note 25 — Income Taxes (continued) II. Deferred income taxes (continued) 3. Deferred income taxes are in respect of the following items: Deferred income tax included in assets:

31 December 2004 2003 EUR (thousands) Accrued employee rights ...... 233 271 Fixed assets ...... 154 (239) Operating tax loss carry forwards ...... 2,244 1,675 Deferred income ...... — 89 Other ...... (115) 284 2,516 2,080

Deferred tax included in liabilities:

31 December 2004 2003 EUR (thousands) Fixed assets ...... 2,627 1,934 Other ...... 77 (153) 2,704 1,781

III. Income taxes in the income statements comprises:

Financial year 2004 2003 EUR (thousands) Current taxes...... 921 331 Deferred income taxes ...... 615 425 In respect of previous years ...... 13 — 1,549 756

IV. Tax reconciliation The difference between the amount of tax calculated on income before taxes at the regular tax rate and the tax expenses included in the financial statements is explained as follows:

Financial year 2004 2003 EUR (thousands) Tax calculated at the regular rate (34.5%) ...... 2,292 1,594 Adjustment for reduced tax rate in foreign subsidiaries ...... (455) 298 Non-deductible expenses ...... 166 2,279 Effect of tax losses utilized ...... 502 1,093 Income exempt from taxes ...... (2,089) (790) Unrealized exchange rate differences ...... 1,742 (3,649) Taxes in respect of previous years ...... 13 — Other differences ...... (622) (69) Actual tax charged ...... 1,549 756

F-79 Cinema City International N.V.

Notes to the Consolidated Financial Statements (Continued)

Note 26 — Related Party Transactions Related parties Parties are considered to be related if one party has the ability to control or exercise significant influence over the other party in making financial and reporting decisions. Such relationships include: 1. Parent-subsidiary relationships. 2. Entities under common control. 3. Individuals who, through ownership, have significant influence over the enterprise and close members of their families. 4. Key management personnel. Transactions with related parties: a. Income (expenses):

Financial year 2004 2003 EUR (thousands) Financing ...... 43 123 Rental fees ...... 965 1,012 Management services ...... 117 322

b. In June 1998, Israel Theatres Ltd. (the parent company of ITIT) leased to ITIT the real estate properties on which four of the Company’s theatres are located, until 30 November 2007, subject to the Company’s right to terminate any lease prior to its original termination date. The annual lease payments for the above properties aggregate to EUR 278,000 (USD 392,000). These leases were assigned to IT-2004, a 100% subsidiary of the Company, as part of the Reorganisation. (See also note 1) c. In December 2003, employment agreements with Mr. Moshe Greidinger and Mr. Israel Greidinger, both managers in the Company, whose family members control Israel Theatres, and with Mr. Amos Weltsch, its Chief Operating Officer (“Managing Directors”), signed originally with ITIT in 1998, were assigned to the Company. The fulfilment of the Company’s obligation under the agreements will be performed by the Company, or by its Israeli subsidiaries. In accordance with the said agreement, the aggregate gross monthly remuneration for the Managing Directors amounts to EUR 27,000 (USD 37,000) per month (not linked), which, together with related employee benefits, will amount to EUR 32,000 (USD 44,000) per month. In addition, the Managing Directors will be entitled to an annual bonus aggregating to 7% of the Company’s consolidated profits before tax for any fiscal year. The above Managing Directors undertook to be employed by the Company for an indefinite period, with 6 month notice of termination, and to refrain from competing with the Company’s business for a period of 12 months following termination of their employment with the Company. Forum Film Ltd., a 50% subsidiary, will participate in the aforementioned remunerations to Mr. Moshe Greidinger and Mr. Israel Greidinger at the rate of 33% thereof and will fully cover the portion of the abovementioned bonuses that relate to its own revenues. The Managing Directors of the Company received remuneration totalling EUR 854,000 (2003: EUR 723,000). The members of the Supervisory Board which was installed in December 2003 received fees totalling EUR 48,500. Total remuneration is included in General and administrative expenses. d. In May 1998, ITIT entered into a management services agreement with Israel Theatres pursuant to which the Company will provide Israel Theatres for an indefinite period, but not less than three years,

F-80 Cinema City International N.V.

Notes to the Consolidated Financial Statements (Continued)

Note 26 — Related Party Transactions (continued) Related parties (continued) with certain management services. Management services include office and accounting services through providing Israel Theatres with senior personnel and administration of Israel Theatres’ business. The management services agreement is for a fixed annual sum of EUR 299,000 (USD 377,000). In December 2003, this agreement was assigned to IT-2004, the 100% Israeli subsidiary of the Company. e. Forum Film Ltd. and Giant Video have been leasing offices and storage space from Israel Theatres since February 1994, for consideration of EUR 10,000 (USD 13,000) per month, linked to the changes in the CPI. Israel Theatres leased offices in Herzlia and in Haifa to IT-2004 until 30 November 2007, in consid- eration of EUR 49,000 (NIS 286,000) per annum. The rental fees are linked to the Israeli CPI. f. The minority interests mainly represent a 50% indirect share in the equity of Forum Film by related parties. Pursuant to Forum Film’s Articles of Association, the Company has the right to appoint three of Forum Film’s five directors, and accordingly, maintains control over all major company decisions. g. The Company has entered into an indemnification agreement with each executive officer and director. These agreements endeavour to fully indemnify and limit the personal liability of the officers and directors, in certain circumstances, both to the Company and to its shareholders, for acts or omissions by them in their official capacity. The Company had obtained officers’ and directors’ liability insurance. h. Israel Theatres, ITIT and its directors and principal officers undertook not to compete, whether directly or indirectly, with the Company’s business in the film exhibition, distribution and video rental fields. The length of this undertaking is for as long as they are directors or officers in either of the companies, or beneficially own a controlling interest in the Company. The agreement specifically states that Israel Theatres and ITIT may not engage in the development, sale or lease of property for theatrical or video rental use without the prior written consent of the Company, unless it is to be used by the Company. i. In June 2002, ITIT received a loan from Israel Theatres in the amount of EUR 3,957,000 (USD 5,000,000), for the same terms as Israel Theatres received the loan from the bank (linked to the USD bearing interest at the rate of LIBOR + 1.15%). In December 2003, the loan was assigned by ITIT to the Company and, subsequently in 2004, fully redeemed by the Company. j. The Reorganisation of the Group and ITIT during 2003 included several transactions which are described in Note 1.

Note 27 — Stock Option plan Prior to the reorganisation of the Group, executives, Board members, consultants and senior employees of ITIT and its subsidiaries were participating in a stock option plan. The stock option plan has been terminated in 2004. During the financial years 2003 and 2004 no options have been exercised.

Note 28 — Financial Instruments The Group’s principal financial instruments, other than derivatives, comprise bank loans, loans from the shareholder, operating leases and short-term bank credits. The main purpose of these financial instruments is to raise finance for the Group’s operations. The Group has various other financial instruments such as trade debtors and trade creditors, which arise directly from its operations. The Group also enters into derivative transactions, principally forward currency contracts. The purpose is to manage the currency risks arising from the Group’s operations and its sources of finance. It is, and has been throughout the financial year 2004, the Group’s policy that no trading in financial instruments shall be undertaken. The main risks arising from the Group’s financial instruments are interest rate risk, liquidity risk, foreign currency risk and credit risk. The board reviews and agrees policies for managing each of these risks and they are summarised below. The Group also monitors the market price risk arising from all financial instruments. The Group’s accounting policies in relation to derivatives are set out in note 2.

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Notes to the Consolidated Financial Statements (Continued)

Note 28 — Financial Instruments (continued) Credit risk Financial instruments that potentially subject the Group to concentrations of credit risk consist principally of cash and cash equivalents, short-term investments and receivables. The Group places its cash and cash equivalents and short-term investments in financial institutions with high credit ratings. Management does not expect any counterparty to fail to meet its obligations. Concentrations of credit risk with respect to trade receivables are limited due to the large number of customers comprising the Group’s customer base.

Interest rate risk The Group adopts a policy of a mixture of flat and floating interest rates (see note 17 and 18). The Group’s policy is to manage its interest cost using a mix of fixed and variable rate debt. At 31 December 2004, the Group’s had no borrowings at fixed rates of interest.

Foreign currency risk The Group incurs foreign currency risk on sales, purchases and borrowings that are denominated in a currency other than the euro. The currencies giving rise to this risk are primarily USD, PLN, NIS, HUF and CZK. In order to minimise exposure to foreign currency risk, among other things, the Group converted a major part of its long-term loans into EUR during 2003. As at 31 December 2004, the Company has hedged some of its US dollar investment and expenses through June 2005 in respect of its Hungarian and Polish theatre operations, against the Hungarian Forint and the Polish Zloty, respectively. In connection with these obligations, the Company has entered into forward foreign exchange contracts comprising a commitment to buy USD 400,000 at the beginning of each month during the first half of 2005 at fixed prices denominated in Polish Zloty. In addition, the company has entered into a forward foreign exchange contract comprising a commitment to buy USD 195,000 at the beginning of each month during the first two quarters of the 2005 financial year at fixed prices denominated in Hungarian Forint. These forward foreign exchange contracts have been valued in the consolidated balance sheet at 31 December 2004 at their fair value.

Fair values The following are details of the fair values of all of the Group’s financial instruments that are carried in the financial statements at other than fair values and for which it is practicable to estimate such value: a. Cash and cash equivalents, short-term bank deposit and short-term bank credit. The carrying amounts approximate fair value because of the short maturity of these instruments. b. Marketable securities. The carrying amounts approximate fair value. c. Trade accounts receivable, other accounts receivable, accounts payable and accrued liabilities. The carrying amounts approximate fair value because of the short-term nature of these instruments. d. Investment in non-marketable securities. See Note 10. e. Debt — as of 31 December 2004, the aggregate fair value of the Company’s long-term debt obligations is similar to its carrying value of EUR 87 million. As of 31 December 2003, the aggregate fair value of the Company’s long-term debt obligation was approximately EUR 83 million compared to the carrying value of EUR 79 million. The above fair values have been based on terms for debts with conditions and maturities similar to those of the Company’s debts as prevailing in the market at balance sheet date.

Note 29 — Write-off of IPO costs During 2004, the Company started a process aiming to list the company’s shares on the Warsaw stock exchange, with the plan to issue 20% of new shares to the public. After having filed a prospectus with the Polish Security and exchange commission (‘Polish SEC’), in November 2004, the Company was granted admission to the Warsaw stock exchange. Following the clearance by the Polish SEC, the Company started a road show, aiming at issuing the new shares through an Initial Public Offering (‘IPO’). At the end of the road show, after consulting with

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Notes to the Consolidated Financial Statements (Continued)

Note 29 — Write-off of IPO costs (continued) its broker, management concluded that the demand for the new shares was not strong enough to ensure successful future trading of the Company’s shares. The Company therefore decided to delay the IPO without setting a new date. It is the intention of management to review carefully the situation in the Polish security market during 2005, whilst looking also for additional opportunities to raise capital. As no definite time can be set for a future IPO, management has decided to write off an amount of Euro 1,765,000 against the Company’s net income for 2004, representing the total investment regarding the IPO process. The expenditures include mainly legal and accounting fees, public relations and marketing costs.

Note 30 — Linkage Terms of Monetary Items

31 December 2004 In or linked In or linked In or linked to foreign to euro to U.S. Dollar currencies Total EUR (thousands) Assets: Cash and cash equivalents...... 719 317 3,501 4,537 Short-term bank deposits ...... 294 — 421 715 Trade account receivable...... 1 — 5,706 5,707 Other accounts receivable ...... 479 34 8,581 9,094 Related parties receivable ...... 12 — 604 616 Marketable securities ...... — — 173 173 Loans to unconsolidated subsidiaries ...... — 13,790 — 13,790 1,505 14,141 18,986 34,632 Liabilities: Short-term bank credit ...... — — 4,299 4,299 Trade accounts payable...... 122 84 9,217 9,423 Employee and payroll accruals ...... 4 — 1,280 1,284 Other accounts payable ...... 2,648 3,249 5,677 11,574 Due to related parties ...... 5 — 845 850 Long term loans (including current - maturities) ...... 63,122 15,073 9,023 87,218 Accrued employee rights upon retirement ...... — — 794 794 65,901 18,406 31,135 115,442

F-83 Cinema City International N.V.

Notes to the Consolidated Financial Statements (Continued)

Note 30 — Linkage Terms of Monetary Items (continued)

31 December 2003 In or linked In or linked In or linked to foreign to euro to U.S. Dollar currencies Total EUR (thousands) Assets: Cash and cash equivalents...... 3,056 — 2,321 5,377 Short-term bank deposits ...... 778 30 808 Trade account receivable...... — — 5,371 5,371 Other accounts receivable ...... 795 — 4,363 5,158 Related parties receivable ...... — — 596 596 Marketable securities ...... — — 208 208 Loans to unconsolidated subsidiaries ...... — 15,743 — 15,743 4,629 15,773 12,859 33,261

Liabilities: Short-term bank credit ...... — — 6,138 6,138 Trade accounts payable...... 153 — 8,162 8,315 Employee and payroll accruals ...... 2 — 1,232 1,234 Other accounts payable ...... 81 754 3,785 4,620 Due to related parties ...... — — 2,670 2,670 Long term loans (including current - maturities) ...... 58,036 16,811 8,394 83,241 Long term loans from parent company ...... — 3,957 — 3,957 Accrued employee rights upon retirement ...... — — 743 743 58,272 21,522 31,124 110,918

Note 31 — Segment Reporting Segment information is presented in respect of the Group’s business and geographical segments. The primary format, business segments, is based on the Group’s management and internal reporting structure. The Group’s operations in Israel and Central Europe are organised under the following major business segments: — Theatre operations. — Distribution — Distribution of movies. — Video + DVD — Rental and sale of video cassettes and DVD.

F-84 Cinema City International N.V.

Notes to the Consolidated Financial Statements (Continued)

Note 31 — Segment Reporting (continued) Business segments:

Financial year 2004 Theatre Video & Operations Distribution DVD Other Eliminations Consolidated EUR (thousands) Revenues External sales ...... 75,313 15,991 5,664 1,970 — 98,938 Inter-segment sales ...... — 5,095 — — (5,095) — Total revenues...... 75,313 21,086 5,664 1,970 (5,095) 98,938 Results Segment results before depreciation, amortisation and impairment write downs ...... 16,355 2,861 1,746 435 — 21,397 Depreciation, amortisation and impairment write downs ...... 8,426 99 2,497 534 — 11,556 Segment results...... 7,929 2,762 (751) (99) 9,841 Net financial expense ...... (1,127) Gain and loss on disposals ...... (307) IPO cost Write-off ...... (1,765) Income taxes ...... (1,549) Minority interests ...... 247 Net income ...... 5,340

31 December 2004 Theatre Video & Operations Distribution DVD Other Unallocated Consolidated EUR (thousands) Assets Segment assets...... 153,545 6,763 3,634 23,021 2,516 189,479 Liabilities Segment liabilities ...... 26,874 4,916 1,995 1,398 94,222 129,405 Other information Capital expenditure ...... 18,084 120 1,479 5,869 — 25,552

F-85 Cinema City International N.V.

Notes to the Consolidated Financial Statements (Continued)

Note 31 — Segment Reporting (continued) Financial year 2003 Theatre Video & Operations Distribution DVD Other Eliminations Consolidated EUR (thousands) Revenues External sales ...... 73,190 13,427 7,771 1,395 — 95,783 Inter-segment sales ...... — 5,822 604 — (6,426) — Total revenues...... 73,190 19,249 8,375 1,395 (6,426) 95,783 Results Segment results before depreciation, amortisation and impairment write downs ...... 10,942 1,473 2,038 1,395 — 15,848 Depreciation, amortisation and impairment write downs ...... 8,589 37 1,765 — — 10,391 Segment results...... 2,353 1,436 273 1,395 — 5,457 Net financial expense ...... (606) Gain and loss on disposals ...... (231) Income taxes ...... (756) Minority interests ...... (270) Net income ...... 3,594

31 December 2003 Theatre Video & Operations Distribution DVD Other Unallocated Consolidated EUR (thousands) Assets Segment assets...... 146,243 5,589 5,725 18,486 2,080 178,123 Liabilities Segment liabilities ...... 29,147 3,751 1,816 381 91,159 126,254 Other information Capital expenditure ...... 13,633 20 1,346 — — 14,999

In addition to the information on business segments based on the structure of the Group, the figures below present information for geographical segments. Determination of geographical segments is based on location of assets and is identical to customer location.

31 December 2004 Central Europe Israel Unallocated Consolidated EUR (thousands) Revenues External sales ...... 62,235 36,703 — 98,938 Assets Segment assets ...... 162,011 24,952 2,516 189,479 Capital expenditure ...... 23,484 2,068 — 25,552

F-86 Cinema City International N.V.

Notes to the Consolidated Financial Statements (Continued)

Note 31 — Segment Reporting (continued) 31 December 2003 Central Europe Israel Unallocated Consolidated EUR (thousands) Revenues External sales ...... 54,538 41,245 — 95,783 Assets Segment assets ...... 147,046 28,997 2,080 178,123 Capital expenditure ...... 10,562 4,437 — 14,999

Note 32 — Interest in a jointly controlled entity

The Company through a subsidiary has a 50% interest in the jointly controlled “M.O. Sofia EAD”, whose principal activity is to build and to operate a shopping centre in Sofia, Bulgaria. The Company through a subsidiary sold 50% of “M.O Sofia EAD” in July 2003. The Consolidated Financial Statements as at 31 December 2004 includes the following items that represent the Company’s interests in the assets and liabilities “M.O. Sofia EAD”:

EUR (Thousands) Current assets ...... 615 Non-current assets ...... 7,998 Current liabilities ...... (774) Non-current liabilities ...... (7,056) 783

Note 33 — Personnel

Personnel costs are specified as follows:

31 December 2004 2003 EUR (thousands) Salaries and wages ...... 10,560 10,338 Pension costs ...... 303 353 Other social charges ...... 1,828 1,353 Total personnel costs...... 12,691 12,044

For 2004 and 2003, the pension costs comprise defined contribution expenses only.

The average number of personnel, in full time equivalents, employed by the Company and its subsidiaries during the year 2004 were 1,269 (financial year 2003: 1,252), of which 1 employee (2003: 1 employee) was employed by the 50% consolidated joint venture (see Note 32). A geographical allocation of the average number of personnel is as follows:

31 December 2004 2003 Israel ...... 560 620 Central Europe ...... 708 631 Netherlands ...... 1 1 Total average number of personnel ...... 1,269 1,252

F-87 Cinema City International N.V.

Notes to the Consolidated Financial Statements (Continued)

Note 34 — Details of corporations in the Group

31 December 2004 Direct/indirect The Company’s Voting right equity share By the Company in subsidiary Consolidation Currency %% % I.T. International Theatres 2004 Ltd...... 100% 100% FULL (6) I.T. Magyar Cinemas Kft ...... 100% 100% FULL (2) Kino 2005 a.s...... 99% 99% FULL (3) I.T. Sadyba, B.V...... 100% 100% FULL (1) Cinema City Poland Sp.Z.oo...... 100% 100% FULL (4) IT Development 2003 ...... 100% 100% FULL (4) I.T. Czech Cinemas S.R.O...... 100% 100% FULL (3) I.T.SofiaB.V...... 100% 100% FULL (1) MO Sofia EAD ...... 50% 50% PROPORTIONATE (5) New Age Media Sp.Zoo ...... 100% 100% FULL (4) Forum Film Poland Sp.Zoo...... 100% 100% FULL (4) Norma Film Ltd...... 60% 50% FULL (6) Forum Film Ltd...... 60% 50% FULL (6) Ya’af — Giant Video Library Network Ltd. . . 60% 30% FULL (6) Ya’af — Automatic Video Machines Ltd. .... 60% 50% FULL (6) Mabat Ltd...... 100% 100% FULL (6) Teleticket Ltd...... 100% 100% FULL (6) Mercaz Ltd...... 100% 100% FULL (6) Cinema Plus Ltd...... 100% 100% FULL (6) I.T. Bulgaria EOOD ...... 100% 100% Unconsolidated — (5) Not operational Sadyba Center S.A. Poland ...... 50% 50% Unconsolidated — (4) temporarily held Hocus Pocus Centrum ...... 50% 50% Unconsolidated — (4) temporarily held

(1) A holding company in the Netherlands. (2) Hungarian corporation. (3) Czech corporation. (4) Polish corporation. (5) Bulgarian corporation. (6) An Israeli corporation.

F-88 Cinema City International N.V.

Dutch GAAP information

Accounting principles applied for Dutch GAAP purposes The Consolidated Financial Statements as presented on pages F-53 through F-88 have been prepared in accordance with International Financial Reporting Standards (“IFRS”) adopted by the International Accounting Standards Board (“IASB”). These accounting principles are largely in conformity with generally accepted accounting principles in the Netherlands (“Dutch GAAP”). The presentation and description of items in the Consolidated Balance Sheet on pages F-53 and F-54 and the Consolidated Income Statement have been brought in line with the presentation model as prescribed under Dutch GAAP. For a summary of significant accounting principles reference is made to pages F-60 through F-65. The Consolidated Financial Statements including the notes thereto as prepared under IFRS should be considered an integral part of the financial statements as prepared under Dutch GAAP which also includes the Parent Company Financial Statements as presented on pages F-90 through F-97. There are no differences between IFRS and Dutch GAAP that need to be disclosed separately in these consolidated accounts.

F-89 Cinema City International N.V.

Parent Company Balance Sheet

31 December Note 2004 2003 EUR (thousands) ASSETS FIXED ASSETS Property and equipment...... 3 5,098 5,412 Financial fixed assets Investment in subsidiaries ...... 4 39,153 34,840 Loans to subsidiaries...... 5 69,815 59,883 Total fixed assets ...... 114,066 100,135 CURRENT ASSETS Receivables Short-term loans to subsidiaries ...... 6 13,790 15,743 Receivable from subsidiaries ...... 1,581 1,421 Income taxes receivable ...... 20 21 Other amounts receivable and prepaid items ...... 116 165 Liquid funds Cash and cash equivalents ...... 390 2,672 Short-term bank deposits ...... 7 — 808 Total current assets...... 15,897 20,830 TOTAL ASSETS ...... 129,963 120,965

See accompanying notes to the Parent Company Financial Statements.

F-90 Cinema City International N.V.

Parent Company Balance Sheet

31 December Note 2004 2003 EUR (thousands) SHAREHOLDERS’ EQUITY AND LIABILITIES SHAREHOLDERS’ EQUITY ...... 8 Share capital ...... 407 18 Premium on share capital ...... 43,553 40,100 Retained earnings...... 11,749 8,592 Net profit for the period ...... 5,340 3,157 Accumulated currency translation adjustment ...... (975) 2 Total Shareholders’ equity ...... 60,074 51,869 LONG TERM LIABILITIES Long-term loans, net of current portion ...... 9 58,225 55,612 Loan from group companies ...... 10 — 3,957 Total Long-term liabilities ...... 58,225 59,569 CURRENT LIABILITIES Short-term bank credit ...... 11 5,000 4,762 Trade accounts payable ...... 104 33 Payable to subsidiaries ...... 6,244 4,659 Employee and payroll accruals ...... 4 2 Income and other taxes payable ...... — 1 Other accounts payable ...... 312 70 Total Current liabilities ...... 11,664 9,527 TOTAL SHAREHOLDERS’ EQUITY AND LIABILITIES ...... 129,963 120,965

See accompanying notes to the Parent Company Financial Statements.

F-91 Cinema City International N.V.

Parent Company Income Statement

31 December Note 2004 2003 EUR (thousands) Revenue ...... 208 — General and administrative expenses...... (415) (487) Operating result ...... (207) (487) Financial income ...... 11 2,965 324 Financial expenses ...... 11 (2,054) (100) Currency exchange gain ...... 1,144 677 IPO costs...... (1,765) — Income before taxation...... 83 414 Income taxes ...... 13 — — Profit after taxation ...... 83 414 Result from subsidiaries after taxation ...... 4 5,257 2,743 Net income ...... 5,340 3,157

See accompanying notes to the Parent Company Financial Statements.

F-92 Cinema City International N.V.

Note 1 — General

Cinema City International N.V. (‘the Company’) was incorporated on 12 April 1994, and has its seat in Amsterdam, the Netherlands. The Company is a subsidiary of I.T. International Theatres Ltd. (“ITIT”), incor- porated in Israel.

Upon completion of restructuring in the 2003 financial year, the Company became owner and holder of all of the operations of the Group in both Europe and Israel. For further information, refer to the Company’s Annual Accounts for the year ended 31 December 2003 (“2003 Annual Accounts”).

Prior to 2003, the Company operated as a holding company of the European cinema activities of the Group. During the 2003 financial year, the Company was involved in restructuring (the ‘Restructuring’). At the end of the financial year 2003, as part of the Restructuring, all activities, assets, (including the Group’s other subsidiaries) and liabilities of the Group that were previously not performed and owned by the Company, were transferred to the Company. Upon completion of the Restructuring, the Company operates as the parent company of the entire Group, including the Israeli activities.

The Restructuring formally ended in March 2004 when the legal proceedings were completed, which included a change of the Company’s articles of association. The amendments to the articles of association included, amongst others, a change of the Company’s legal structure from a limited liability company (‘B.V.’) to a public company (‘N.V.’) under Dutch law, a name change from I.T. International Cinemas B.V. to Cinema City International N.V. and an increase in the Company’s authorized share capital.

The Group is principally engaged in the operation of entertainment activities in various countries including: Poland, Hungary, Czech Republic, Bulgaria and Israel. The Company is also engaged in managing and establishing its own entertainment real estate projects for rental purposes, in which the Company operates motion picture theatres. In addition, the Company is involved in short-term and long-term real estate trading in Central Europe. The Company’s business is dependent both upon the availability of suitable motion pictures from third parties for exhibition in its theatres, and the performance of such films in the Company’s markets.

Note 2 — Accounting principles

The accounting principles and measurement basis of the Company’s statutory accounts are similar to those applied with respect to the consolidated financial statements (see Note 2 to the Consolidated Financial Statements). The Parent Company Financial Statements have been prepared in conformity with generally accepted accounting principles in the Netherlands (‘Dutch GAAP’), whereas the Consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) adopted by the International Accounting Standards Board (“IASB”). For a comparison between IFRS and Dutch GAAP reference is made to page F-89 “Dutch GAAP information”.

Note 3 — Property and Equipment

Composition:

For the year ended 31 December 2004 Balance at Sales and beginning of Additions during disposals during Balance at the year the year the year year end EUR (thousands) Cost Cinema equipment(1) ...... 5,400 2,172 (2,489) 5,083 Computers, furniture and office equipment ...... 12 3 — 15 5,412 2,175 (2,489) 5,098 Carrying value ...... 5,412 5,098

F-93 Cinema City International N.V.

Note 3 — Property and Equipment (continued) For the year ended 31 December 2003 Sales and Contributed Balance at Additions disposals assets as beginning of during during part of the Balance at the year the year the year Restructuring(2) year end EUR (thousands) Cost Cinema equipment(1) ...... 6,752 1,960 (3,312) — 5,400 Computers, furniture and office equipment . . 91—2 12 6,761 1,961 (3,312) 2 5,412 Carrying value...... 6,761 5,412

(1) Consists of prepayments on account of IMAX systems not operated yet. Therefore, no depreciation has been incurred. (2) See Note 7.

Note 4 — Investment in subsidiaries

The subsidiaries of the Company are valued at their net equity value.

The movements in subsidiaries are as follows:

For the year ended 31 December 2004 2003 EUR (thousands) Balance at beginning of year ...... 34,840 10,469 Currency translation adjustment ...... (977) — Investments in subsidiaries ...... 33 521 Net result subsidiaries during the year ...... 5,257 2,743 Subsidiaries contributed as part of the Restructuring (see Note 8) ...... — 21,107 Balance at the end of the year ...... 39,153 34,840

Note 5 — Loans to subsidiaries

For the year ended 31 December 2004 2003 EUR (thousands) Balance at beginning of year ...... 59,883 4,415 Loans added ...... 13,608 2,231 Loans redeemed ...... (3,676) (2,111) Loans contributed as part of the Restructuring (see Note 8) ...... — 55,348 Balance at the end of the year ...... 69,815 59,883

Note 6 — Short-term loans to subsidiaries

Reference is made to Note 6 to the Consolidated Financial Statements.

Note 7 — Short-Term Bank Deposits

In 2003, deposits with Central European Bank denominated in Euro for a total amount of EUR 808,000 were made to serve as collateral for credit facilities provided to a subsidiary. The deposits generated interest of 2.5% - 3% per annum. Following a repayment of credit facilities by the subsidiary during 2004, the deposits were no longer needed as collateral.

F-94 Cinema City International N.V.

Note 8 — Shareholders’ Equity

Accumulated Net profit currency Share Share Retained for translation capital Premium earnings the year adjustments Total EUR (thousands) Balance as of 1 January 2003 ...... 18 133 7,334 1,258 2 8,745 Profit appropriation prior year ...... — — 1,258 (1,258) — — Net profit for the year 2003...... — — — 3,157 — 3,157 Assets and liabilities contributed as part of the Restructuring ...... — 39,967 — — — 39,967 Balance as of 31 December 2003 ...... 18 40,100 8,592 3,157 2 51,869 Profit appropriation prior year ...... — — 3,157 (3,157) Net profit for the year 2004...... — — — 5,340 — 5,340 Currency translation ...... — — — — (977) (977) New shares issued...... 389 3,453 — — — 3,842 Balance as of 31 December 2004 ...... 407 43,553 11,749 5,340 (975) 60,074

As of 31 December 2004 the authorized share capital of the Company consists of 175,000,000 ordinary shares with a par value of EUR 0.01 each (31 December 2003: 2,000 ordinary shares with a par value of EUR 45.38 per share). For further details on shares issued during 2004, reference is made to Note 13 of the Consolidated Financial Statements. At the end of the financial year 2003, as part of the Restructuring, the following assets and liabilities of the Group that were previously not owned by the Company were transferred to the Company as a contribution in kind

EUR (thousands) Property and Equipment ...... 2 Subsidiaries ...... 21,107 Loans to subsidiaries ...... 55,348 Short-term loans to subsidiaries ...... 15,743 Cash and cash equivalents...... 2,611 Long term loans ...... (60,374) Loan from parent company ...... (3,957) Inter-company loans ...... 14,099 Current accounts with subsidiaries ...... (4,604) Other current receivables and payables, net ...... (8) Total contribution ...... 39,967

F-95 Cinema City International N.V.

Note 9 — Long term loans, net of current portion

A. Composition:

Interest rate as of 31 December 31 December 31 December 2004 2004 2003 % EUR EUR (thousands) (thousands) In euro ...... (1) 48,281 43,702 In US dollars ...... (2) 14,944 16,672 63,225 60,374 Less — current portion ...... (5,000) (4,762) 58,225 55,612

(1) In euro, bearing interest at the rate of EURIBOR + 1.5%-2.25%. (2) Linked to the US dollar bearing interest at the rate of LIBOR + 1%-1.75%.

B. The loans mature as follows:

31 December 2004 EUR (thousands) First year to 31 December 2005 - current maturities ...... 5,000 Second year to 31 December 2006 ...... 5,000 Third year to 31 December 2007...... 5,000 Fourth year to 31 December 2008 ...... 5,000 Fifth year to 31 December 2009 ...... 5,000 Sixth year and thereafter ...... 5,000 Undefined ...... 33,225 63,225

C. The movements of long-term loans are as follows:

For the year ended 31 December 2004 2003 EUR (thousands) Balance at beginning of year ...... 60,374 — Loans added ...... 11,606 — Loans redeemed ...... (7,522) Currency exchange difference ...... (1,233) — Loans contributed as part of the Restructuring (see Note 8) ...... — 60,374 Balance at the end of the period ...... 63,225 60,374

Note 10 — Loan from Group Companies

At 31 December 2003, as part of the Restructuring, a loan from the shareholder was transferred to the Company in the amount of EUR 3,957,000 (USD 5,000,000 — see also Note 8). During 2004, the Company redeemed the loan. The shareholders loan was linked to the USD and did bear interest at the rate of LIBOR + 1.15%.

Note 11 — Financial income Financial income for the years 2004 and 2003 entirely consisted of interest income on inter-company loans and receivables.

F-96 Cinema City International N.V.

Note 12 — Financial expenses The financial expenses for the year 2004 relate to the interest paid on the long term bank and shareholder loans that were transferred to the Company at 31 December 2003 as part of the Restructuring.

Note 13 — Income taxes No Dutch income taxes have been recorded primarily because of available tax losses carry forward from prior years. Realisation of this deferred income tax asset is dependent upon generating sufficient taxable income in the period that deferred income tax asset is realised. Based on all available information, it is not probable that the deferred income tax asset is realisable and therefore the deferred tax asset is valued at nil.

Note 14 — Personnel The Company employed two members of staff during the year (2003: one employee).

Note 15 — Directors’ remuneration The Board of Managing Directors of the Company consists of 3 members; the board members are entitled to total remuneration of EUR 854,000 during the year 2004. The amount of remuneration also include fees, salaries and bonuses paid and have been paid through the Company’s subsidiaries. The Supervisory Board of the Company consists of 5 members; the supervisory directors are entitled to an annual fee of EUR 8,500 plus an amount of EUR 1,500 per board meeting. The total amount paid in respect of supervisory board fees during 2004 is EUR 48,500.

Note 16 — Reconciliation of net income in 2003 to consolidated net income for 2003 As the comparative figures for 2003 in the Parent Company Income Statement include the result from the Company and its subsidiaries as owned prior to the Restructuring and since this result materially differs from the consolidated net income for 2003 as presented in the comparative figures in the Consolidated Income Statement, a reconciliation of the 2003 net income as per the Parent Company Income Statement and the 2003 net income as per the Consolidated Income Statement is shown below: 2003 EUR (thousands) Net income — parent company (not consolidated) (see page F-92)...... 3,157 Result of other activities transferred to the Company as part of the Restructuring ...... 437 Net income — consolidated attributable to equityholders of the parent company (see page F-55)...... 3,594

Amsterdam, 23 February 2005 The Management Board Moshe Greidinger Amos Weltsch Israel Greidinger

Supervisory Board Coleman Kenneth Greidinger Carrie Twist Frank Pierce Scott Rosenblum Peter Weishut

F-97 Cinema City International N.V. Financial Statements for the year ended 31 December 2005

F-98 Cinema City International N.V.

Financial Statements for the year ended 31 December 2005

CONTENTS

Page Auditors’ report...... F-100 Consolidated Financial Statements for the year ended 31 December 2005 Consolidated Balance Sheet as of 31 December 2005 ...... F-101 Consolidated Income Statement for the year ended 31 December 2005 ...... F-103 Consolidated Statement of Changes in Shareholders’ Equity for the year ended 31 December 2005 . . . F-104 Statement of Recognised Income and Expense for the year ended 31 December 2005 ...... F-105 Consolidated Statement of Cash Flows for the year ended 31 December 2005 ...... F-106 Notes to the Consolidated Financial Statements ...... F-107 Parent Company Financial Statements Parent Company Balance Sheet as of 31 December 2005 ...... F-137 Parent Company Income Statement for the year ended 31 December 2005 ...... F-139 Notes to the Parent Company Financial Statements ...... F-140

F-99 Cinema City International N.V. Auditors’ Report

To the Shareholders of Cinema City International N.V.

Introduction We have audited the financial statements of Cinema City International N.V., Amsterdam, and its subsidiaries (“the Group”) as of 31 December 2005 and 2004 and for each of the years then ended, as set out on pages F-101 to F-143. These financial statements consist of the consolidated financial statements and the Company financial statements. 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 audit.

Scope We conducted our audit in accordance with International Standards on Auditing that are also accepted in the Netherlands. 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 prin- ciples used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

Opinion Opinion with respect to the consolidated financial statements In our opinion, the consolidated financial statements give a true and fair view of the financial position of the Group as of 31 December 2005 and 2004 and of the results of its operations, the changes in the shareholders’ equity and its cash flows for each of the years then ended in accordance with International Financial Reporting Standards adopted by the EU and also comply with the financial reporting requirements included in Part 9 of Book 2 of the Netherlands Civil Code as far as applicable.

Opinion with respect to the Company financial statements In our opinion, the Company financial statements give a true and fair view of the financial position of the Group as of 31 December 2005 and 2004 and of the results of its operations, the changes in the shareholders’ equity and its cash flows for each of the years then ended in accordance with accounting principles generally accepted in the Netherlands and also comply with the financial reporting requirements included in Part 9 of Book 2 of the Netherlands Civil Code as far as applicable.

Amstelveen, 6 June 2006

KPMG ACCOUNTANTS N.V.

P. Mizrachy RA

F-100 Cinema City International N.V.

Consolidated Balance Sheet

31 December Note 2005 2004 EUR (thousands) ASSETS FIXED ASSETS Intangible fixed assets ...... 4 198 169 Property and equipment...... 5 166,610 148,794 Deferred tax asset...... 26 1,057 2,516 Investment in associate ...... 6 2,283 — Total fixed assets ...... 170,148 151,479 CURRENT ASSETS Inventories ...... 8 2,998 2,858 Receivables Trade accounts receivable ...... 9 7,083 5,707 Loans to (unconsolidated) subsidiaries...... 7 — 13,790 Receivable from related parties ...... 27 1,702 616 Income taxes receivable ...... 105 390 Other accounts receivable and prepaid expenses...... 10 14,763 9,097 Total receivables ...... 23,653 29,600 Securities Marketable securities ...... 55 173 Non-marketable securities held for sale ...... 11 — 117 Total securities ...... 55 290 Liquid funds Cash and cash equivalents ...... 12 5,167 4,537 Short-term bank deposits — collateralised...... 13 — 715 Total liquid funds ...... 5,167 5,252 Total current assets ...... 31,873 38,000 TOTAL ASSETS ...... 202,021 189,479

See accompanying notes to the Consolidated Financial Statements.

F-101 Cinema City International N.V.

Consolidated Balance Sheet

31 December Note 2005 2004 EUR (thousands) SHAREHOLDERS’ EQUITY AND LIABILITIES SHAREHOLDERS’ EQUITY...... 14 Share capital ...... 407 407 Premium on share capital ...... 43,553 43,553 Retained earnings ...... 24,999 17,089 Accumulated currency translation adjustment ...... 4,158 (975) Total shareholders’ equity ...... 73,117 60,074 Minority interests ...... 15 (411) (174) LONG-TERM LIABILITIES Long-term loans, net of current portion ...... 18 73,888 80,433 Accrued employee retirement rights, net ...... 16 907 794 Deferred tax liabilities ...... 26 1,918 2,704 Provision related to onerous lease contracts ...... 17 6,781 8,389 Other long-term payables ...... 21(1)i 2,767 2,872 Income received in advance ...... 182 173 Total long-term liabilities ...... 86,443 95,365 CURRENT LIABILITIES Short-term bank credit ...... 19 18,299 11,084 Trade accounts payable...... 9,923 9,423 Payable to related parties ...... 27 437 850 Employee and payroll accruals ...... 1,312 1,284 Other accounts payable...... 20 12,901 11,573 Total current liabilities ...... 42,872 34,214 TOTAL SHAREHOLDERS’ EQUITY AND LIABILITIES...... 202,021 189,479

See accompanying notes to the Consolidated Financial Statements.

F-102 Cinema City International N.V.

Consolidated Income Statement A1.21.1.1 For the year ended 31 December Note 2005 2004 EUR (thousands, except per share data Note and number of shares) Revenues ...... 22 108,181 98,938 Operating costs...... 23 90,867 83,696 Gross margin ...... 17,314 15,242 General and administrative expenses ...... 5,387 4,504 Operating profit ...... 11,927 10,738 Financial income ...... 24 2,198 4,454 Financial expenses ...... 24 (4,951) (5,581) Loss on disposals and write-off of other investments ...... 25 (151) (1,204) Write-off of IPO costs ...... 29 — (1,765) Income before net result from associates ...... 9,023 6,642 Net result from associates ...... (103) — Income before taxation ...... 8,920 6,642 Income taxes ...... 26 1,198 1,549 Net income before minority interests ...... 7,722 5,093 Attributable to: Equity holders of the Parent Company ...... 7,910 5,340 Minority interests ...... 15 (188) (247) Net income before minority interests ...... 7,722 5,093 Number of average equivalent shares(*) ...... 40,724,000 38,539,535 Net earnings per ordinary share (basic and diluted of EUR 0.01(*) each ...... 14 0.19 0.14

(*) The net earnings per share were calculated taking into account the par value of the share and the number of shares as of the date of these financial statements (see Note 14).

See accompanying notes to the Consolidated Financial Statements.

F-103 Cinema City International N.V.

Statement of Shareholders’ Equity

Accumulated currency Number of Share Share Retained translation shares capital premium earnings adjustments Total EUR (thousands) except number of shares Balance as of 31 December 2003 ...... 400 18 40,100 11,749 2 51,869 New shares issued(*) (par value EUR 45.38)...... 350 16 (16) — — — Split of shares(*) (to par value EUR 0.01). . . 3,402,602 — — — — — New shares issued(*) (par value EUR 0.01). . 31,656,296 317 (317) — — — New shares issued (par value EUR 0.01) . . . 5,664,352 56 3,786 — — 3,842 Net income for the year 2004 ...... — — — 5,340 — 5,340 Foreign currency translation adjustment .... — — — — (977) (977) Balance as of 31 December 2004 ...... 40,724,000 407 43,553 17,089 (975) 60,074 Net income for the year 2005 ...... — — — 7,910 — 7,910 Foreign currency translation adjustment ...... — — — — 5,133 5,133 Balance as of 31 December 2005 ...... 40,724,000 407 43,553 24,999 4,158 73,117

(*) As part of the restructurings the Company allocated 350 additional shares to ITIT, then split each share to a par value of EUR 0.01, and issued 31,656,296 new shares to ITIT to bring it’s holding to 35,059,648 shares. As ITIT at that time was a 100% shareholder, the effect of this transaction was very similar to a stock split.

See accompanying notes to the Consolidated Financial Statements.

F-104 Cinema City International N.V.

Statement of Recognised Income and Expense

For the year ended 31 December 2005 2004 EUR (thousands) Foreign exchange translation differences ...... 5,084 (957) Net income recognised directly in equity ...... 5,084 (957) Profit for the period ...... 7,722 5,093 Total recognised income and expense for the period ...... 12,806 4,136 Attributable to: Equity holders of the Parent Company...... 13,043 4,363 Minority interests ...... (237) (227) Total recognised income and expense for the period ...... 12,806 4,136

See accompanying notes to the Consolidated Financial Statements.

F-105 Cinema City International N.V.

Consolidated Statement of Cash Flows

For the year ended 31 December 2005 2004 EUR (thousands) Cash flows from operating activities Operating profit ...... 11,927 10,738 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortisation...... 12,096 10,659 Decrease in value of other assets (including write-offs) ...... 367 — Decrease in provision related to onerous lease contracts ...... (1,608) (1,608) Increase in accrued employee rights upon retirement, net...... 50 94 Effect of foreign currency exchange and others ...... 1 1,411 Interest received ...... 670 1,260 Interest paid ...... (3,492) (3,874) Income taxes paid ...... (306) (649) Costs of IPO ...... — (1,765) Operating income before working capital...... 19,705 16,266 (Increase)/decrease in inventories ...... (309) 117 Increase in accounts receivable ...... (1,012) (1,066) Increase in prepaid expenses ...... (2,004) (2,838) Increase in governmental institutions...... (693) (1,671) Increase in long-term film distribution costs and deferred expenses ...... (683) (102) (Decrease)/increase in accounts payable ...... (204) 1,956 (Decrease)/increase in employee and payroll accruals ...... (47) 96 Decrease in related parties ...... (133) (1,725) (Decrease)/increase in income received in advance ...... (4) 18 Net cash provided by operating activities ...... 14,616 11,051 Cash flows from investing activities Purchase of property and equipment and other assets(*) ...... (33,614) (18,955) Investment in development of video vending machines ...... (198) (138) Investment in subsidiaries ...... 164 — Proceeds from disposition of property and equipment ...... 6,542 2,555 Increase in long-term receivables ...... (2,054) — Short-term bank deposits ...... 678 93 Loans to unconsolidated subsidiaries ...... 14,599 — Loans to related parties ...... — 805 Loans to third party ...... 164 1,061 Proceeds from disposition of marketable securities ...... 132 37 Proceeds from disposition of other assets ...... 117 — Net cash used in investing activities ...... (13,470) (14,542) Cash flows from financing activities Capital contributions ...... — 3,842 Proceeds from long-term loans ...... 36,623 14,520 Repayment of long-term loans ...... (40,927) (9,804) Repayment of loan from shareholder ...... — (3,957) Increase in long-term payables ...... (265) (468) Short-term bank credit, net increase/(decrease) ...... 3,945 (1,480) Net cash from financing activities ...... (624) 2,653 Net cash effect due to exclusion of a subsidiary from consolidation ...... (69) — Foreign currency exchange differences on cash ...... 177 (2) Increase/(decrease) in cash and cash equivalents ...... 630 (840) Cash and cash equivalents at beginning of year ...... 4,537 5,377 Cash and cash equivalents at end of year...... 5,167 4,537

(*) taking into account movements in investment creditors

See accompanying notes to the Consolidated Financial Statements.

F-106 Cinema City International N.V.

Notes to the Consolidated Financial Statements

Note 1 — General and principal activities The accompanying Consolidated Financial Statements present the financial position, results of operations, changes in shareholder’ equity, and cash flows of Cinema City International N.V. — previously known as I.T. International Cinemas B.V. — (“the Company”, or “the Group”). The financial statements were authorised for issue by the directors on 6 June 2006. Cinema City International N.V., incorporated in Amsterdam, the Netherlands, is a subsidiary of I.T. Inter- national Theatres Ltd. (“ITIT”), incorporated in Israel. The Group is principally engaged in the operation of entertainment activities in various countries including Poland, Hungary, the Czech Republic, Bulgaria and Israel. The Company is also engaged in managing and establishing its own entertainment real estate projects for rental purposes, in which the Company operates motion picture theatres. In addition, the Company is involved in short- term and long-term real estate trading in Central Europe. The Company’s business is dependent both upon the availability of suitable motion pictures from third parties for exhibition in its theatres, and the performance of such films in the Company’s markets. The Consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the EU as well as in accordance with article 362.9 of the Netherlands Civil Code. These accounting principles, as far as the Consolidated Financial Statements are concerned, are largely in conformity with generally accepted accounting principles in the Netherlands (“Dutch GAAP”). The presentation and description of items in the Consolidated Balance Sheet on pages F-101 and F-102 and the Consolidated Income Statement on page F-103 have been brought in line with the presentation model as prescribed under Dutch GAAP. The summary of significant accounting principles in note 2 below (pages F-107 through F-113) applied also to Consolidated Financial Statements as prepared under Dutch GAAP. There are no differences between IFRS and Dutch GAAP that need to be disclosed separately in these consolidated accounts. The Company’s separate financial statements (the ‘Parent Company Financial Statements’) are prepared in accordance with the applicable laws and regulations of the Company, being Dutch GAAP’ and are taken up on pages F-137 through F-143 For an explanation of the comparison between IFRS and Dutch GAAP see above.

Note 2 — Summary of significant accounting policies A. Statement of compliance The Consolidated Financial Statements have been prepared in accordance with IFRS adopted by the EU. The Company has adopted the standards and interpretations with an effective date before 31 December 2005. The Company did not use the possibility for early adoption of standards and interpretations that were not yet effective.

B. Basis of presentation (1) Measurement basis The financial statements are presented in euros, rounded to the nearest thousand. They are prepared on the historical cost basis adjusted for the change in the measurement currency. Unless otherwise stated, monetary assets and liabilities are presented at nominal value. Marketable securities are presented at fair value. (2) Functional and presentation currency Up to and including the financial year ended 31 December 2004, the functional currency of the operations in Central Europe was the euro. Management was of the opinion, at that time, that the euro better reflected the economic substance of the underlying event and circumstances and thus the euro was considered to be the relevant currency for the Central European subsidiaries. In 2005, management considers that with the growth of the size of the operations and activities of the Company in Central Europe, the local Central European currencies have increasingly shown a more significant impact on the Company in comparison to the euro. In addition, a transition from local

F-107 Cinema City International N.V.

Notes to the Consolidated Financial Statements (Continued)

Note 2 — Summary of significant accounting policies (continued) B. Basis of presentation (continued) currencies into the euro by the relevant Central European countries is less likely to happen in the near future as was previously expected. Therefore, starting the financial year ended 31 December 2005, the functional currencies of those Central European countries are the respective local currencies rather than the euro. For the financial year ended 31 December 2004, the financial statements of the above mentioned foreign operations were translated into euros as follows: Monetary items were translated at the closing exchange rate and non-monetary items were translated at the exchange rate on the date of transaction. Income statement items were translated at the average exchange rate for the year. Foreign exchange differences arising on translation have been recognised in the income statement. Starting the financial year ended 31 December 2005, the functional currencies of the operations in Central Europe are the relevant local currencies: the Czech crown, the Hungarian forint and the Polish zloty. The financial statements of the above mentioned foreign operations were translated from the functional currency into euros (presentation currency) as follows: Assets and liabilities, both monetary and non-monetary were translated at the closing exchange rate. Income statement items were translated at the average exchange rate for the year. Foreign exchange differences arising on translation have been recognised directly in equity. The functional currency of the operations in Israel remained unchanged (the New Israeli shekel (NIS)). The financial statements of the operation in Israel were translated from the functional currency into euros (presentation currency) for both 2004 and 2005 as follows: Assets and liabilities, both monetary and non-monetary were translated at the closing exchange rate. Income statement items were translated at the average exchange rate for the year. Foreign exchange differences arising on translation have been recognised directly in equity.

F-108 Cinema City International N.V.

Notes to the Consolidated Financial Statements (Continued)

Note 2 — Summary of significant accounting policies (continued) C. Exchange rates

Information relating to the relevant euro exchange rates (at year-end and averages for the year):

Exchange rate of euro Czech Hungarian Polish US Israeli As of 31 December crowns forints zloty dollar shekel (CZK) (HUF) (PLN) (USD) (NIS) 2005 ...... 29 252.62 3.86 1.18 5.45 2004 ...... 30.51 246.19 4.09 1.36 5.88

Change during the year % % % % % 2005 ...... (4.95) 2.61 (5.62) (13.24) (7.3) 2004 ...... (5.86) (0.06) (13.35) 7.94 6.33

Exchange rate of euro Czech Hungarian Polish US Israeli Average for year crowns forints zloty dollar shekel (CZK) (HUF) (PLN) (USD) (NIS) 2005 ...... 29.8 248.54 4.03 1.25 5.58 2004 ...... 31.95 252.11 4.53 1.24 5.58

Change year over year % % % % % 2005 ...... (6.73) (1.42) (11.03) 0.81 0.00 2004 ...... (6.25) (0.42) 2.95 7.83 8.77

D. Principles of consolidation

The Consolidated Financial Statements include the accounts of the Company, its subsidiaries, and jointly controlled entities.

Subsidiaries are those enterprises which are controlled by the Company. Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of an enterprise so as to obtain benefits from its activities. The financial statements of subsidiaries are included in the Consolidated Financial Statements from the date that control effectively commences until the date that control effectively ceases.

Jointly controlled entities are those enterprises over whose activities the Company has joint control, established by contractual agreements. The Consolidated Financial Statements include the Company’s propor- tionate share of the enterprises’ assets, liabilities, revenues and expenses with items of similar nature on a line-by-line basis, from the date that joint control commences until the date that joint control ceases.

All inter-company accounts and transactions are eliminated when preparing the Consolidated Financial Statements.

A list of the companies whose financial statements are included in the Consolidated Financial Statements and the extent of ownership and control appears in Note 34 to these financial statements.

E. Use of estimates

The preparation of financial statements in conformity with IFRS requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

F-109 Cinema City International N.V.

Notes to the Consolidated Financial Statements (Continued)

Note 2 — Summary of significant accounting policies (continued) F. Intangible fixed assets

Intangible fixed assets that are acquired by the Group are stated at cost less accumulated amortisation, calculated over the estimated useful life of the assets, and after impairment losses, if any. The recoverable amount is estimated at least at each balance sheet date. Under IAS 36, the carrying amount of the intangible fixed assets mentioned above is reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the recoverable amount is estimated as the higher of net selling price and value in use.

G. Investment in associate

The investment in associate comprises a minority interest held by the Group and is accounted for using the equity method.

H. Property and equipment

(1) Property and equipment are stated at cost less accumulated depreciation and impairment losses. Expenditures for maintenance and repairs are charged to expenses as incurred, while renewals and improvements of a permanent nature are capitalised.

(2) Depreciation is calculated by means of the straight-line method over the estimated useful lives of the assets.

Annual rates of depreciation are as follows:

% Buildings ...... 2-3 Cinema equipment ...... Mainly 10 Leasehold improvements...... Mainly 5 Computers, furniture and office equipment ...... 6-33 Vehicles ...... 15-20 Video movie cassettes and DVDs(*) ...... 50 Video machines ...... 20

(*) In 2004, the estimated useful lives of video movie cassettes and DVDs were 4 years. Starting the financial year 2005, the useful live of this category is estimated to be 2 years. The effect of this change in accounting estimate on the depreciation amount for 2005 is further disclosed in Note 5.

(3) Leasehold improvements are depreciated over the estimated useful lives of the assets, or over the period of the lease, including certain renewal periods, if shorter.

(4) Leases in terms of which the Group assumes substantially all the risks and rewards of ownership are classified as finance leases. Plant and equipment acquired by way of finance lease is stated at an amount equal to the lower of its fair value and the present value of the minimum lease payments at inception of the lease, less accumulated depreciation.

(5) According to IAS 36, the carrying amount of assets mentioned above is reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the recoverable amount is estimated as the higher of net selling price and value in use.

(6) Financing expenses relating to short-term and long-term loans, which were taken for the purpose of purchasing or constructing property and equipment, as well as other costs which refer to the purchasing or constructing of property and equipment, are capitalised to property and equipment, in accordance with IAS 23.

F-110 Cinema City International N.V.

Notes to the Consolidated Financial Statements (Continued)

Note 2 — Summary of significant accounting policies (continued) I. Inventories Inventories are valued at the lower of cost or net realisable value, and include concession products, spare parts, music cassettes, CDs and video cassettes, and are stated at the lower of cost or net realisable value. Cost is determined by means of the “first in, first out” method. Cost of music cassettes is determined on the basis of the average purchase price. Net realisable value is the estimated selling price during the normal course of business, less the estimated costs of completion and selling expenses.

J. Allowance for doubtful accounts The allowance for doubtful accounts is determined based upon management’s evaluation of receivables doubtful for collection on a case-by-case basis.

K. Marketable securities The investments in securities held by the Group are classified as trading securities. Trading securities are bought and held principally for the purpose of selling them in the short term and are recorded at fair value. The fair value of investments held for trading is their quoted bid price as of the balance sheet date. Unrealised gains and losses on these securities are included in the income statement. Dividends and interest income are recognised when earned.

L. Cash and cash equivalents Cash and cash equivalents comprise cash balances and short-term highly liquid investments, that are readily convertible to known amounts of cash, and which are subject to insignificant risk of changes in value.

M. Employee benefits — defined contribution plans Obligations for contributions to defined contribution pension plans are recognised as an expense in the income statement as incurred.

N. Employee benefits — severance pay In certain countries in which the Group operates, employees are entitled to severance pay at the end of their employment. The Group’s liability for these severance payments is calculated pursuant to local applicable severance pay laws and employee agreements based on the most recent salary of the employees. The Group’s liability for all of its employees is partly provided by monthly deposits with insurance policies and by accruals. The deposited funds include profits accumulated up to the balance sheet date. The deposited funds may be withdrawn only upon the fulfilment of the obligation pursuant to local severance pay law or labour agreements. The value of the deposited funds is based on the cash value of these policies, and includes immaterial profits. The unfunded portion of the Group’s liability is taken up in the balance sheet as a provision under the heading “Accrued employee retirement rights, net”. The provision is stated at nominal value.

O. Provision related to onerous lease contracts During July 2002, the Group acquired a cinema chain in Poland at a discount, which was allocated to the lease agreements of the cinemas acquired. In the financial statements of the Company the discount is presented as a provision related to onerous lease contracts and is released to the income statement over the term of the lease (see also Note 17).

P. Long-term loans All long-term loans and borrowings are initially recognised at cost, being the fair value of the consideration received net of issue costs associated with the borrowing.

F-111 Cinema City International N.V.

Notes to the Consolidated Financial Statements (Continued)

Note 2 — Summary of significant accounting policies (continued) P. Long-term loans (continued) After initial recognition, interest-bearing loans are subsequently measured at amortised cost using the effective interest rate method. Amortised cost is calculated by taking into account any issue costs, and any discount or premium on settlement.

Gains and losses are recognised in net profit or loss when the liabilities are derecognised or impaired, as well as through the amortisation process.

For information regarding the fair value of long-term liabilities reference is made to Note 28.

Q. Revenue recognition

(1) Revenues from admission (ticket sales) and concession sales (snack-bars operated by the Company) are recognised when services are provided.

(2) Revenues from distribution of cinema films are recognised on an accrual basis by a percentage of admissions from the related films.

(3) Revenues from distribution of films to cable television companies and television stations are recognised over the agreed period for the screening of the film.

(4) Revenues from sales of video cassettes and DVDs are recognised upon delivery to the customer.

(5) Revenues from video cassettes and DVD rentals are recognised as the rental services are provided.

(6) Revenues from “on screen” advertising contracts are included in theatre revenues and are recognised when the related advertisement or commercial is screened, or, in some cases, over the period of the contract.

(7) Revenues from rental contracts are included in other revenues and are recognised on an accrual basis.

(8) Revenues from the sale of real estate are included in other revenues and are recognised when the significant risks and benefits of the ownership have been transferred, when the buyer is committed to the purchase, and when the sales price is considered collectible.

R. Operating costs

(1) Theatre operating costs include direct concession product and joint theatre facility costs such as employee costs, theatre rental and utilities, which are common to both ticket sales and concession operations.

(2) Cost of films distributed are capitalised until the time the films are distributed for screening. Once the films have been distributed and screening has begun, the costs are amortised at a rate equal to the ratio of revenues in the period to total estimated revenues for the films.

(3) General advertising expenses are expensed as incurred. Film advertising expenses are expensed when the film is distributed or is shown to the public.

S. Net financing cost

Net financing costs comprise interest payable on borrowings calculated using the effective interest rate method, and interest receivable on funds invested. Foreign exchange gains and losses, and gains and losses that are recognised on hedging instruments are recognised in the income statement.

Interest income is recognised in the income statement as it accrues, taking into account the effective yield on the asset.

F-112 Cinema City International N.V.

Notes to the Consolidated Financial Statements (Continued)

Note 2 — Summary of significant accounting policies (continued)

T. Derivative financial instruments The Group uses derivative financial instruments to hedge its exposure to foreign exchange rate risks arising from operational and financing activities.

Derivative financial instruments are recognised initially at cost. Subsequent to initial recognition, derivative financial instruments are stated at fair value. The fair value of foreign contracts is based on the relevant current exchange rates at balance sheet date. Where a derivative financial instrument is used to economically hedge the foreign exchange exposure of a recognised monetary asset or liability, no hedge accounting is applied and any gain or loss due to the change in the fair value of the hedging instrument is recognised in the income statement.

U. Income taxes Income tax on the profit or loss for the year comprises current and deferred tax. Income tax is recognised in the income statement except to the extent that it relates to items recognised directly to equity, in which case it is recognised in equity. Income tax is calculated at the applicable local tax rates. Deferred income tax is provided using the balance sheet liability method on all temporary differences at the balance sheet date between the carrying amounts of assets and liabilities for financial reporting purposes and the tax bases of assets and liabilities. The amount of deferred tax provided is based on the expected timing of the reversal of the temporary differences, using tax rates enacted or substantially enacted at the balance sheet date. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the unused tax losses and credits can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Additional income taxes that arise from the distribution of dividends are recognised at the same time as the liability to pay the related dividend.

V. Earnings per share Earnings per share are computed according to IAS 33 of the IASB. The computation is determined on the basis of the weighted average par value of the issued and paid-in share capital outstanding during the year.

W. Segment reporting A segment is a distinguishable component of the Group that is engaged either in providing products or services (business segment), or in providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments.

Note 3 — Changes in consolidated entities (I) Changes in consolidated entities during 2005: (a) Forum Hungary Film Distribution KFT-100%Shares. New subsidiary, incorporated in Hungary. This company commenced operation in February 2005 and specialises in distribution of films in Hungary. (b) Per 30 June 2005, the Company, through a subsidiary sold 25% of the shares in MO Sofia EAD after which the Company still holds a further 25% interest in this company. The Company has received initial payment of EUR 6.9 million, and is still entitled to an additional amount of up to EUR 2.5 million. The Company has provided the buyers with a cost overrun guarantee, to cover its part in any costs of completion of the project exceeding the budget, and has retained the responsibility of the completion. The remaining 25% interest in MO Sofia EAD is included in the consolidated balance sheet per 31 December 2005 as “Investments in associate” under “Financial fixed assets”. In prior years, the 50% interest was proportionally consolidated in the Company’s financial statements.

F-113 Cinema City International N.V.

Notes to the Consolidated Financial Statements (Continued)

Note 3 — Changes in consolidated entities (continued) (I) Changes in consolidated entities during 2005: (continued) (c) All Job Poland S.p.Z.oo — 100% shares. New subsidiary, incorporated in Poland. This company commenced operation in November 2005 and specialises in recruitment and employment of the company staff in Poland.

(II) Changes in consolidated entities during 2004: None

Note 4 — Intangible fixed assets The intangible fixed assets comprise mainly of investments in the development of video vending and renting machines and are stated at cost less accumulated amortisation and impairment losses, if any. Composition:

Financial year 2005 Foreign Balance at Additions currency Balance at beginning during translation end of of the year the year adjustments year EUR (thousands) Cost ...... 708 198 60 966 Accumulated amortisation ...... 539 181 48 768 Carrying value ...... 169 17 12 198

Financial year 2004 Balance at Foreign beginning Additions currency Balance at of the during translation end of year the year adjustments year EUR (thousands) Cost ...... 609 138 (39) 708 Accumulated amortisation ...... 235 333 (29) 539 Carrying value ...... 374 (195) (10) 169

F-114 Cinema City International N.V.

Notes to the Consolidated Financial Statements (Continued)

Note 5 — Property and equipment, net

Financial year 2005 Balance at Foreign Sales and beginning of Additions currency disposals Balance at the during the translation during end year year adjustments the year(3) Impairment of year EUR (thousands) Cost Land and buildings(1) ...... 68,064 8,456 3,320 (12,174) — 67,666 Cinema equipment(1) ...... 58,466 8,102 2,682 (800) — 68,450 Leasehold improvements ...... 57,184 16,639 3,854 (183) — 77,494 Computers, furniture and office equipment ...... 9,173 494 654 (292) — 10,029 Vehicles ...... 1,033 179 68 (93) — 1,187 Video movies(2) ...... 7,733 1,189 598 — — 9,520 Video machines ...... 1,046 9 83 — — 1,138 202,699 35,068 11,259 (13,542) — 235,484 Accumulated depreciation Land and buildings ...... 6,516 2,711 447 — — 9,674 Cinema equipment ...... 24,157 5,208 1,321 (2) — 30,684 Leasehold improvements ...... 10,082 1,875 626 (105) — 12,478 Computers, furniture and office equipment ...... 6,431 446 463 (211) — 7,129 Vehicles ...... 451 147 29 (48) — 579 Video movies(2) ...... 5,457 1,341 465 — — 7,263 Video machines ...... 811 187 69 — — 1,067 53,905 11,915 3,420 (366) — 68,874 Carrying value ...... 148,794 23,153 7,839 (13,176) — 166,610

(1) Includes EUR 5,758,000 construction in progress for entertainment purposes and cinema equipment to an amount of EUR 7,731,000 not operational yet (see also Note 20 (1) b. and c.). (2) In 2004, the estimated useful lives of video movie cassettes and DVDs were determined to be 4 years. Accordingly, the depreciation percentage for this category was 25%. Starting the financial year 2005, further to an impairment write-off in 2004, the useful live of this category is estimated to be 2 years as a result of which depreciation is changed at 50% (annualised). The effect of this change in accounting estimate on the depreciation amount for 2005 is an increase of EUR 144,000. (3) Includes EUR 10,939,000 property and equipment of a subsidiary which is not consolidated starting from 30 June 2005.

F-115 Cinema City International N.V.

Notes to the Consolidated Financial Statements (Continued)

Note 5 — Property and equipment, net (continued)

Composition: Financial year 2004 Foreign Sales and Balance at Additions currency disposals beginning during translation during Balance at of the year the year adjustments the year Impairment end of year EUR (thousands) Cost Land and buildings(4) ...... 50,549 17,515 0 — — 68,064 Cinema equipment(4)...... 55,701 6,122 (838) (2,519) — 58,466 Leasehold improvements ...... 57,969 59 (842) (2) — 57,184 Computers, furniture and office equipment ...... 9,575 140 (516) (26) — 9,173 Vehicles ...... 960 241 (48) (120) — 1,033 Video movies ...... 6,777 1,311 (355) — — 7,733 Video machines ...... 1,085 26 (65) — — 1,046 182,616 25,414 (2,664) (2,667) — 202,699 Accumulated depreciation Land and buildings ...... 4,041 2,143 — — 332 6,516 Cinema equipment ...... 20,213 4,568 (624) — — 24,157 Leasehold improvements ...... 9,380 954 (252) — — 10,082 Computers, furniture and office equipment ...... 6,554 255 (362) (16) — 6,431 Vehicles ...... 393 157 (22) (77) — 451 Video movies ...... 2,841 2,035 (316) — 897 5,457 Video machines ...... 646 214 (49) — — 811 44,068 10,326 (1,625) (93) 1,229 53,905 Carrying value ...... 138,548 15,088 (1,039) (2,574) (1,229) 148,794

(4) Includes EUR 17,884,000 construction in progress for entertainment purposes and cinema equipment to an amount of EUR 5,098,000 not operational as of 31 December 2004 (See also Note 21 (1) b. and c.). The impairment write-offs are further described in Note 25.

Note 6 — Investment in associate As at 31 December 2005, the Group holds a 25% interest in MO Sofia EAD, which is involved in the development of a shopping mall in Sofia, Bulgaria. As at 31 December 2004, the Group held a 50% interest in this company and therefore the investment was treated as a joint venture and as such was proportionally included in the Group’s consolidated financial statements. Towards the end of June 2005, the Group reached an agreement to sell half of its interest in MO Sofia EAD. The joint venture results up to the date of sale of half of the Group’s interest in MO Sofia EAD are included in the Group’s consolidated income statement. In the consolidated balance sheet as at 31 December 2005, the remaining 25% interest in MO Sofia EAD is no longer proportionally consolidated. MO Sofia EAD is a private entity that is not listed on any public exchange and therefore there is no quotation price for the fair value of this investment. The reporting date and reporting year of MO Sofia EAD is identical to the Group’s.

F-116 Cinema City International N.V.

Notes to the Consolidated Financial Statements (Continued)

Note 6 — Investment in associate (continued) The following table illustrates summarised information of the investment in MO Sofia EAD and represents the Company’s interests in the assets and liabilities of M.O. Sofia EAD as at 31 December 2005:

EUR (thousands) Current assets...... 683 Non-current assets ...... 9,983 Current liabilities ...... (2,888) Non-current liabilities ...... (5,495) Net assets...... 2,283

Note 7 — Loans to (unconsolidated) subsidiaries As at 31 December 2004, this item represented a loan to an unconsolidated subsidiary presented at cost. The loan was denominated in USD and bore annual interest at the rate of 7%. During the first half of 2005, upon the sale of a 50%-subsidiary (not consolidated) that owns real estate located in Central Europe, the loan was repaid. For further details of the sale of the interest, reference is made to Note 11.

Note 8 — Inventories Composition:

31 December 2005 2004 EUR (thousands) Concession products ...... 758 643 Video cassettes and DVDs ...... 459 570 IMAX films inventories ...... 1,512 1,416 Video machines ...... 94 64 Spare parts ...... 175 165 2,998 2,858

Valuation:

31 December 2005 2004 EUR (thousands) At cost...... 2,998 2,864 Provision for net realisable value ...... — (6) 2,998 2,858

All inventories included above are valued at cost.

Note 9 — Trade accounts receivable Composition:

31 December 2005 2004 EUR (thousands) Trade accounts receivable ...... 7,111 5,720 Allowance for doubtful accounts ...... (28) (13) 7,083 5,707

F-117 Cinema City International N.V.

Notes to the Consolidated Financial Statements (Continued)

Note 10 — Other accounts receivable and prepaid expenses

Composition:

31 December 2005 2004 EUR (thousands) Government institutions ...... 3,426 2,733 Advances to suppliers ...... 568 371 Prepaid expenses ...... 5,432 4,113 Prepaid cinema film and video film distribution costs(1) ...... 2,141 1,458 Film distribution costs and deferred expenses ...... — — Loans to other(2) ...... — 164 Other ...... 3,196 258 14,763 9,097

(1) Stated at cost, incurred by a subsidiary company, of video and cinema film which has not yet been distributed, after being reviewed for recoverability — see also Note 21 (1) d. (2) The Loans to other were fully repaid in March 2005 and earned an interest of 5% per annum.

Note 11 — Non-marketable securities — held for sale

As at 31 December 2004, this item concerned an investment in a subsidiary in Central Europe, which held an investment in real estate. The investment was presented at cost, since the investment was acquired and held exclusively with a view to its subsequent disposal (see also Note 7). The sale of the investment was completed during the first half of 2005 following approval by the Polish anti-monopoly authorities.

Note 12 — Cash and cash equivalents

Cash and cash equivalents comprise cash at bank and in hand and short-term deposits freely available for the Group. The short term deposits have an original maturity varying from one day to three months.

Composition:

31 December 2005 2004 EUR (thousands) Cash at bank and at hand ...... 2,915 3,936 Short-term deposits...... 2,252 601 5,167 4,537

Cash at bank and in hand earns interest at floating rates based on daily bank deposit rates. Short-term deposits are made for varying periods of between one day and three months depending on the immediate cash requirements of the Group, and earn interest at the respective short-term deposit rates. The fair value of the cash and cash equivalents is EUR 5,167,000 (2004: EUR 4,537,000).

Note 13 — Short-term bank deposits — collateralised

As at 31 December 2004, deposits with banks in Central Europe denominated in EUR and PLN for a total amount of EUR 715,000 were made to serve as collateral for credit facilities provided to a subsidiary. No such deposits existed as at 31 December 2005.

F-118 Cinema City International N.V.

Notes to the Consolidated Financial Statements (Continued)

Note 13 — Short-term bank deposits — collateralised (continued) Composition:

31 December 2005 2004 EUR (thousands) In EUR earn interest 0.5% - 2.5% ...... — 294 In PLN earn interest of 4% ...... — 421 — 715

Note 14 — Shareholders’ equity

a. Share capital consists of:

31 December 2005 Issued and Authorised outstanding Number of shares Ordinary shares of EUR 0.01 par value ...... 175,000,000 40,724,000

Ordinary shares entitle one vote per share and participation in payments of dividends. A1.21.1.1 b. As at 31 December 2003, the share capital of the Company consisted of 400 ordinary shares of EUR 45.38 par value each. As part of the restructuring that took place in 2003, the Company issued new shares to its 100% shareholder, ITIT, then split each existing share to a par value of EUR 0.01, and issued new shares to ITIT to bring the number of its issued and outstanding shares to 35,059,648. As at that time, ITIT was the 100% shareholder, the effect of this transaction is very similar to a stock split. The formalities regarding the registration of the new shares were completed in March 2004. Subsequent to the issuance and registration of the new shares on 24 March 2004, the authorised share capital of the Company consisted of 175,000,000 shares of EUR 0.01 par value each.

On 13 May 2004, the Company issued 4,940,352 new ordinary shares, and a further 724,000 new ordinary shares were issued by the Company on 15 June 2004. The total amount contributed to the Company’s share capital and share premium reserve in connection with these share issues amounted to EUR 3,842,000. As a result of the share issues during 2004, the total number of shares issued and outstanding at 31 December 2005 totalled 40,724,000 and has remained unchanged during the financial year ended 31 December 2005. All shares issued and outstanding at 31 December 2005 have been fully paid up.

Note 15 — Minority interests

31 December 2005 2004 EUR (thousands) Balance at beginning of the year ...... (174) 53 Minority interests in (losses)/earnings of consolidated subsidiaries...... (188) (247) Translation adjustments ...... (49) 20 Balance at end of the year ...... (411) (174)

Note 16 — Accrued employee retirement rights

a. According to the relevant laws, the Company’s subsidiaries in Europe are required to deposit amounts, on a monthly basis, to retirement and pension funds on behalf of their employees, and therefore have no such liabilities towards them.

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Notes to the Consolidated Financial Statements (Continued)

Note 16 — Accrued employee retirement rights (continued) b. Local applicable labour laws and agreements require Group companies to pay severance pay to dismissed or retiring employees (including those leaving their employment under certain other circumstances). The calculation of the severance pay liability was made in accordance with labour agreements in force and based on salary components that, in Management’s opinion, create entitlement to severance pay. Group companies’ severance pay liabilities to their employees are funded partially by regular deposits with recognised pension and severance pay funds in the employees’ names and by purchase of insurance policies and are accounted for as if they were a defined contribution plan. The amounts funded as above are netted against the related liabilities and are not reflected in the balance sheets since they are not under the control and management of the companies. c. The amounts of the liability for severance pay presented in the balance sheets (see (d) below) reflect that part of the liability not covered by the funds and the insurance policies mentioned in (b) above, as well as the liability that is funded by deposits with recognised central severance pay funds held under the name of the Company’s subsidiaries. d. The provision for accrued employee rights upon retirement, net, comprises: 31 December 2005 2004 EUR (thousands) Provision for severance pay ...... 1,896 1,662 Less: Amounts deposited with recognised central severance pay funds, including earnings thereon and other deposits...... (989) (868) 907 794

e. The movements in the provision for accrued employee rights upon retirement during the financial year is as follows: Financial year 2005 Amount Gross amount deposited Net amount EUR (thousands) Balance at beginning of the year ...... 1,662 (868) 794 Translation difference ...... 132 (69) 63 Monthly payments to deposit ...... — (52) (52) Net movement in provision charged to net profit ...... 102 — 102 Balance at end of the year...... 1,896 (989) 907

Financial year 2004 Amount Gross amount deposited Net amount EUR (thousands) Balance at beginning of the year ...... 1,696 (953) 743 Payments made upon retirement ...... (95) 51 (44) Monthly payments to deposit ...... — 34 34 Net movement in provision charged to net profit ...... 61 — 61 Balance at end of the year...... 1,662 (868) 794

Note 17 — Provision related to onerous lease contracts In July 2002, the Group purchased four multiplex cinemas in Poland from Ster Century Europe Limited. The multiplexes comprised a total of 46 screens and approximately 10,000 seats. As part of the transaction, the Group acquired all of the shares of Ster Century Europe’s Polish subsidiaries, and purchased shareholder loans provided to

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Notes to the Consolidated Financial Statements (Continued)

Note 17 — Provision related to onerous lease contracts (continued) these subsidiaries, for a total consideration of approximately EUR 19 million (USD 20 million). The acquisition also involved the assumption of certain long-term lease contracts with onerous terms, expiring in 2009 to 2010. A provision of EUR 12,731,000 (USD 13,369,000), relating to these onerous lease contracts, which the acquired subsidiaries were party to prior to the acquisition, has been recorded as part of the acquisition.

The provision is amortised over the non-cancellable periods of the lease contracts. Amortisation in 2005 amounted to EUR 1,608,000 (2004: EUR 1,608,000) and was credited to the lease expenses under operating expenses.

Movements:

Financial year 2005 2004 EUR (thousands) Balance at beginning of the year...... 8,389 9,997 Amortisation during the year ...... (1,608) (1,608) Balance at end of the year ...... 6,781 8,389

Note 18 — Long-term loans

A. Composition:

31 December Interest rates 2005 2004 % EUR (thousands) In Czech crowns ...... (1) 8,452 8,418 InEUR...... (2) 55,563 63,122 In US dollars ...... (3) 29 14,944 InNIS...... (4) 402 605 In Polish zloty ...... (5) 19,377 — Loan from minority interest holder ...... (6) 42 129 83,865 87,218 Less — current portion ...... 9,977 6,785 73,888 80,433

(1) Linked to the Czech crowns bearing interest at the rate of PRIBOR + 2%. (2) In euros, bearing interest at the rate of EURIBOR + 1.5%-2%. (3) Linked to the US dollar, bearing interest at the rate of LIBOR + 1%-1.75%. (4) In NIS, linked to the Israeli CPI and bearing interest at the rate of 5.7%. (5) In Polish zloty, bearing interest at the rate of 7.1%. (6) In US dollars, bearing no interest.

In 2004 and 2005, the Company, through a subsidiary, signed a loan agreement with a Polish bank under which agreement the Company can borrow up, in trenches, to a maximum of PLN 77 million. The loan is intended for the financing of new cinema projects in Poland. As at 31 December 2005, the whole amount of PLN 77,000,000 has been drawn down under this agreement (as at 31 December 2004: nil).

The interest rates shown concern the rates per the end of the appropriate financial years.

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Notes to the Consolidated Financial Statements (Continued)

Note 18 — Long-term loans (continued) B. The loans mature as follows:

31 December 2005 2004 EUR (thousands) First year — current maturities ...... 9,977 6,785 Second year ...... 9,986 7,671 Third year ...... 11,834 7,776 Fourth year ...... 9,286 9,640 Fifth year ...... 9,536 7,061 Sixth year and thereafter ...... 24,607 11,609 Undefined ...... 8,639 36,676 83,865 87,218

C. Liens — see Note 21(2).

Note 19 — Short-term bank credit Composition:

31 December Interest rates 2005 2004 % EUR (thousands) Current maturities...... 9,977 6,785 Short-term bank credit: Unlinked (NIS)(1) ...... 6.5% 8,322 4,299 18,299 11,084

(1) Variable The interest rates shown concern the rates per 31 December 2005.

Note 20 — Other accounts payable Composition:

31 December 2005 2004 EUR (thousands) Investment Creditors ...... 7,411 5,966 Accrued expenses ...... 2,986 1,981 Government institutions ...... 323 379 Advances and income received in advance(1) ...... 2,075 2,521 Forward currency contracts (see also Note 28) ...... — 448 Other ...... 106 278 12,901 11,573

(1) Consist mainly of advances received from several customers, for feature video rentals and film distribution.

Note 21 — Commitments, contingent liabilities and liens (1) Commitments a. The Company and its subsidiaries conduct most of their cinema, video library stores and corporate operations in leased premises. These leases, which have non-cancellable clauses, expire at various dates

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Notes to the Consolidated Financial Statements (Continued)

Note 21 — Commitments, contingent liabilities and liens (Continued) (1) Commitments (continued) after 31 December 2005. Many leases have renewal options. Most of the leases provide for contingent rentals based on the revenues of the underlying cinema or video library stores, while certain leases contain escalating minimum rental provisions. Most of the leases require the tenant to pay city taxes, insurance, and other costs applicable to the leased premises. Future minimum lease payments under non-cancellable operating leases from third parties for the years after 31 December 2005, are as follows:

EUR (thousands)* 2006 ...... 14,269 2007 ...... 15,025 2008 ...... 15,783 2009 ...... 15,051 2010 ...... 14,624 After 2010 ...... 52,538 127,290

* Does not include contingent rental, which is subject to the Company’s decision to exercise the option to extend the operating lease period. Rental expenses for theatres are summarised as follows:

31 December 2005 2004 EUR (thousands) Minimum rental ...... 12,514 11,378 Contingent rental ...... 31 215 12,545 11,593

b. The Group is party to a master agreement with a developer, Control Centres Ltd. (“Control Centres”), for the construction of theatre sites in shopping malls and other commercial centres throughout Hungary, Poland and the Czech Republic. Under this agreement, the Company currently has 17 mul- tiplexes that are already operating in shopping malls in Central Europe. c. As at 31 December 2005, the Group has unpaid commitments to invest in the development of properties of approximately EUR 13 million and further commitments to acquire equipment of approximately EUR 9 million in connection with the development of new systems and movie theatres. In addition, the Group is committed to pay a percentage of its revenues from movie systems, subject to a minimum monthly cost per system. d. In consideration for its rights to be the exclusive distributor of their films in Israel, Poland and Hungary, subsidiary companies are committed to pay fees to certain producers based on a percentage of its revenues (or in some cases, specific profits) from the films. In some cases, a minimum fee has been determined. e. Ya’af Network, a subsidiary company, has agreements for the rental of video library stores, and for the rental of space for videomats, which it uses in its operations. The rental terms pursuant to these agreements (including renewal options) granted to Ya’af Network are for periods of one to ten years. The rental expenses relating to these agreements are calculated as a lump-sum linked either to the Israeli CPI or to the US dollar, or as a percentage of the turnover. Annual rent expenses for 2005 amounted to EUR 728,000. f. Subsidiary companies signed agreements with third parties in Israel, Poland and Hungary. According to these agreements, the subsidiary companies grant the third parties exclusive broadcasting rights on Israeli, Polish and Hungarian television for specific movies.

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Notes to the Consolidated Financial Statements (Continued)

Note 21 — Commitments, contingent liabilities and liens (Continued) (1) Commitments (continued) These rights are for various periods and will end during the years 2006 - 2008. g. Movie films are typically licensed from film distributors representing film production companies. Film exhibition licences typically specify rental fees based upon a gross receipts formula, which is negotiated on a movie-by-movie basis in advance of distribution. The fees are generally related to the anticipated performance of the movie based on the distributor’s experience in other markets, if possible. Under such a formula, the distributor receives a specified percentage of box office receipts, with the percentage declining over the term of the run. h. In July 2003, the Company signed an agreement to buy the minority interest in IT Sofia B.V., for a consideration of EUR 526,000 (USD 600,000), with potential additional success payments. Through its Bulgarian subsidiary, IT Sofia B.V. is developing a shopping entertainment centre in Sofia, Bulgaria. The first part of the purchase price was paid in cash during 2003, the second part was paid during 2004 and 2005. The balance is due subject to milestones based on the progress of the project, and additional payments are subject to success of the shopping centre after opening. i. Lease contracts of certain cinema equipment of IMAX» systems are classified as finance lease and as such the equipment is included in Property & equipment under Cinema equipment. The total of the lease obligation at 31 December 2005 amounted to EUR 2,767,000 (31 December 2004: EUR 2,872,000), and is classified as Other long-term payables. The lease term expires on 31 December 2020, after which the ownership will be transferred to the Company.

(2) Liens a. As part of the reorganisation in 2003, the Company has assumed the majority of the Group’s bank debt, provided originally via ITIT. Based on the agreement between the Company and ITIT of December 2003, the bank will provide the Company with loans, which will be used to pay back ITIT’s loans to the bank. In order to secure the Company’s liabilities for such bank credits and loans in the amount of approximately EUR 43 million, the Company has provided the bank the following: (i) a registered first degree fixed lien on IT-2004’s (the Israeli subsidiary) outstanding share capital and goodwill; (ii) a first degree floating lien on IT-2004’s assets, including insurance benefits in respect of the assets and rights of any kind which ITIT has or will have in the future; (iii) that the assets of IT-2004 will not be pledged and the lien cannot be transferred without the agreement of the bank; (iv) ITIT has agreed to guarantee the debt of the Company, and ITIT has provided the bank with a fixed lien on 70% of the Company’s issued share capital; (v) that certain financial covenants will be fulfilled and maintained. b. The local subsidiaries in Poland and the Czech Republic have obtained financing from banks for some of the cinema complex projects. The securities given include: mortgage on the assets of the financed projects, pledge on the shares of the subsidiaries, and an assignment of all revenues and insurance policies of the projects. As 31 December 2005, the Company had issued a guarantee for EUR 12 million to a Polish bank in connection with a loan provided to a subsidiary. In addition, the Company has issued a guarantee for a total amount of PLN 115.5 million to a Polish bank in order to secure several loan agreements with this bank. c. In order to secure an outstanding loan from a Central European bank of approximately EUR 4.5 million, a subsidiary company has provided to the bank the following: (i) a registered first degree fixed lien on its outstanding share capital and goodwill; (ii) a first degree floating lien on its assets, including insurance benefits in respect of the assets and rights of any kind which the subsidiary has or will have in the future; (iii) that the assets of the subsidiary will not be pledged and the lien cannot be transferred without the agreement of the bank.

(3) Contingent Liabilities From time to time, the Group is involved in routine litigation and proceedings during the normal course of business.

F-124 Cinema City International N.V.

Notes to the Consolidated Financial Statements (Continued)

Note 21 — Commitments, contingent liabilities and liens (Continued) (3) Contingent Liabilities (continued) In August 2005, a Polish institute for copy right protection and collection filed a claim against the Company’s Polish subsidiary demanding payments of copy right fees for screening movies in Polish cinemas during the period 2001 - 2005 to an amount of approximately PLN 8.5 million (EUR 2.1 million). Based on similar law cases by the same Polish institute against two major competitors of the Company in Poland both of which have failed, and based on the advice by the Company’s Counsel that it is not probable that the action will succeed, no provision for any liability has been made in these financial statements following this claim.

Note 22 — Revenues

Financial year 2005 2004 EUR (thousands) Theatre sales...... 73,641 75,313 Distribution ...... 15,138 15,991 Video ...... 4,877 5,664 Other ...... 14,525 1,970 108,181 98,938

Note 23 — Operating costs

Financial year 2005 2004 EUR (thousands) Theatre operations ...... 58,077 55,627 Distribution operations ...... 12,349 12,959 Video operations...... 3,454 3,548 Other ...... 4,891 903 Depreciation and amortisation ...... 12,096 10,659 90,867 83,696

Cost of inventories recognised as an expense is included in Cost of sales for an amount of EUR 3,781,000 (2004: EUR 3,673,000).

Note 24 — Financial income/expenses A. Financial income

Financial year 2005 2004 EUR (thousands) Interest income ...... 769 1,260 Currency exchange gains ...... 1,429 3,194 Total financial income ...... 2,198 4,454

F-125 Cinema City International N.V.

Notes to the Consolidated Financial Statements (Continued)

Note 24 — Financial income/expenses (continued) B. Financial expenses

Financial year 2005 2004 EUR (thousands) Interest expenses incurred ...... (4,472) (3,827) Interest cost capitalised(1) ...... 999 483 Exchange loss arising from hedge transactions(2) ...... — (448) Other currency exchange losses...... (1,478) (1,789) Total financial expenses ...... (4,951) (5,581)

(1) The Company has capitalised interest expenses to the cost of buildings in progress as well as to other fixed assets components before being taken into operation. (2) During 2004, the Company hedged its US dollar rental obligations in respect of its Polish and Hungarian theatre operations against the Polish zloty and the euro, respectively. These forward foreign exchange contracts were valued in the consolidated balance sheet at 31 December 2004 at their fair value (see also Note 28).

Note 25 — Loss on disposals and write-off on other investments

Financial year 2005 2004 EUR (thousands) Capital loss on disposition of property, equipment and other assets, net ...... (151) — Impairment of video and DVD movies ...... — (897) Impairment of land and buildings ...... — (332) Other ...... — 25 (151) (1,204)

The impairment of video and DVD movies for the 12 months ended 31 December 2004 is explained by a shorter estimated life time of video and DVD movies that are kept for rental purposes. Previously, these items were depreciated in 4 years whereas the Company now estimates their economic lifetime to be 2 years. The effect of the shortened lifetime is presented as an impairment write-off for the 12 months ended 31 December 2004.

The impairment of land and buildings relates to a property in the Czech Republic.

For both impairment write-offs during 2004 reference is also made to Note 5.

Note 26 — Income taxes

I. Tax laws applicable to the Group

1. Results of operations for tax purposes of the Company and its Dutch subsidiaries are computed in accordance with Dutch tax legislation.

2. Tax rates applicable to the Company and its subsidiaries are as follows:

The subsidiary Tax rate Netherlands...... 31.5% Hungary ...... 16% Czech Republic ...... 26% Poland ...... 19% Israel ...... 34% Bulgaria ...... 15%

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Notes to the Consolidated Financial Statements (Continued)

Note 26 — Income taxes (continued) In several countries in which the Group is operating, tax rates will change as of 1 January 2006 as follows:

— Netherlands to 29.6% (as of 1 January 2007: 25.5%)

— Czech Republic to 24%

— Israel to 31%

3. Tax ruling in Israel

The Group has received a special ruling from the Israeli tax authorities to allow for the transfer of the Israeli activities to IT-2004, and to transfer the shares of all the operating Israeli subsidiaries to the Dutch company. Under the ruling, ITIT has committed not to sell its shares in the Company for a period of four years, and the Company has committed to pay tax in Israel on any future gains on the sale of Israeli subsidiaries.

II. Deferred income taxes

1. Deferred income taxes are primarily provided for all the temporary differences between the tax and the accounting basis of assets and liabilities based on the tax rate that is expected to be in effect at the time the deferred income taxes will be realised.

Realisation of the deferred income tax assets is dependent upon generating sufficient taxable income in the period that deferred income tax assets are realised. Based on all available information, Management believes that all of the deferred income tax assets are realisable and therefore has not provided for valuation allowance.

2. Changes in deferred income taxes in relation to tax assets are in respect of the following items:

31 December 2005 2004 EUR (thousands) Accrued employee rights ...... (79) (25) Fixed assets ...... (282) (349) Operating tax loss carry forwards ...... (2,146) 579 Long-term liabilities ...... 1,353 (89) Other ...... 574 (627) (580) (511)

3. Deferred income taxes in relation to tax liabilities are in respect of the following items:

Deferred income tax included in assets:

31 December 2005 2004 EUR (thousands) Accrued employee rights ...... 66 233 Fixed assets ...... 17 154 Operating tax loss carry forwards ...... 667 2,244 Other ...... 307 (115) 1,057 2,516

F-127 Cinema City International N.V.

Notes to the Consolidated Financial Statements (Continued)

Note 26 — Income taxes (continued) Deferred income tax included in liabilities:

31 December 2005 2004 EUR (thousands) Fixed assets ...... 2,890 2,627 Other ...... (972) 77 1,918 2,704

III. Income taxes in the income statement comprise:

Financial year 2005 2004 EUR (thousands) Current taxes ...... 648 921 Deferred income taxes ...... 550 615 In respect of previous years ...... — 13 1,198 1,549

IV. Tax reconciliation The difference between the amount of tax calculated on income before taxes at the regular tax rate and the tax expenses included in the financial statements is explained as follows:

Financial year 2005 2004 EUR (thousands) Tax calculated at the regular rate (2005: 31.5%; 2004: 34.5%)...... 2,842 2,292 Adjustment for reduced tax rate in foreign subsidiaries ...... (221) (455) Non-deductible expenses ...... 115 166 Effect of tax losses utilised...... 360 502 Income exempt from taxes ...... (2,608) (2,089) Unrealised exchange rate differences ...... — 1,742 Taxes in respect of previous years ...... — 13 Other differences ...... 710 (622) Actual tax charged ...... 1,198 1,549

Note 27 — Related party transactions Related parties Parties are considered to be related if one party has the ability to control or exercise significant influence over the other party in making financial and reporting decisions. Such relationships include: 1. Parent-subsidiary relationships. 2. Entities under common control. 3. Individuals who, through ownership, have significant influence over the enterprise and close members of their families. 4. Key management personnel.

F-128 Cinema City International N.V.

Notes to the Consolidated Financial Statements (Continued)

Note 27 — Related party transactions (continued) Related parties (continued) Transactions with related parties:

a. Income (expenses):

Financial year 2005 2004 EUR (thousands) Financing ...... — 43 Rental fees ...... (610) (965) Management services ...... 392 117

b. In June 1998, Israel Theatres Ltd. (the parent company of ITIT) leased to ITIT the real estate properties on which four of the Company’s theatres are located, until 30 November 2007, subject to the Company’s right to terminate any lease prior to its original termination date. The annual lease payments for the above properties aggregate to EUR 278,000 (USD 392,000). These leases were assigned to IT-2004, a 100% subsidiary of the Company, as part of the reorganisation.

c. In December 2003, employment agreements with Mr. Moshe Greidinger and Mr. Israel Greidinger, both managers in the Company, whose family members control Israel Theatres, and with Mr. Amos Weltsch, its Chief Operating Officer (“Managing Directors”), signed originally with ITIT in 1998, were assigned to the Company. The fulfilment of the Company’s obligation under the agreements will be performed by the Company, or by its Israeli subsidiaries.

In accordance with the said agreement, the aggregate gross monthly remuneration for the Managing Directors amounts to EUR 27,000 (USD 37,000) per month (not linked), which, together with related employee benefits, will amount to EUR 32,000 (USD 44,000) per month.

In addition, the Managing Directors will be entitled to an annual bonus aggregating to 7% of the Company’s consolidated profits before tax for any fiscal year. The above mentioned Managing Directors undertook to be employed by the Company for an indefinite period, with 6 month notice of termination, and to refrain from competing with the Company’s business for a period of 12 months following termination of their employment with the Company.

Forum Film Ltd., a 50% subsidiary, will participate in the aforementioned remunerations to Mr. Moshe Greidinger and Mr. Israel Greidinger at the rate of 33% thereof and will fully cover the portion of the above mentioned bonuses that relate to its own revenues.

The Managing Directors of the Company received remuneration totalling EUR 1,178,000 (2004: EUR 854,000). The members of the Supervisory Board received fees totalling EUR 51,500 (2004: EUR 48,500). The total remuneration is included in general and administrative expenses.

d. In May 1998, ITIT entered into a management services agreement with Israel Theatres pursuant to which the Company will provide Israel Theatres for an indefinite period, but not less than three years, with certain management services. Management services include office and accounting services through providing Israel Theatres with senior personnel and administration of Israel Theatres’ business. The management services agreement is for a fixed annual sum of EUR 299,000 (USD 377,000). In December 2003, this agreement was assigned to IT-2004, the 100% Israeli subsidiary of the Company.

e. Forum Film Ltd. and Giant Video have been leasing offices and storage space from Israel Theatres since February 1994, for consideration of EUR 10,000 (USD 13,000) per month, linked to the changes in the CPI.

Israel Theatres leased offices in Herzlia and in Haifa to IT-2004 until 30 November 2007, in consid- eration of EUR 49,000 (NIS 286,000) per annum. The rental fees are linked to the Israeli CPI.

F-129 Cinema City International N.V.

Notes to the Consolidated Financial Statements (Continued)

Note 27 — Related party transactions (continued) Related parties (continued) f. The minority interests mainly represent a 50% indirect share in the equity of Forum Film Ltd. by related parties. Pursuant to Forum Film Ltd’s Articles of Association, the Company has the right to appoint three of Forum Film Ltd’s five directors, and accordingly, maintains control over all major company decisions. g. The Company has entered into an indemnification agreement with each executive officer and director. These agreements endeavour to fully indemnify and limit the personal liability of the officers and directors, in certain circumstances, both to the Company and to its shareholders, for acts or omissions by them in their official capacity. The Company had obtained officers’ and directors’ liability insurance. h. Israel Theatres, ITIT and its directors and principal officers undertook not to compete, whether directly or indirectly, with the Company’s business in the film exhibition, distribution and video rental fields. The length of this undertaking is for as long as they are directors or officers in either of the companies, or beneficially own a controlling interest in the Company. The agreement specifically states that Israel Theatres and ITIT may not engage in the development, sale or lease of property for theatrical or video rental use without the prior written consent of the Company, unless it is to be used by the Company.

Note 28 — Financial instruments The Group’s principal financial instruments, other than derivatives, comprise bank loans, loans from the shareholder, operating leases and short-term bank credits. The main purpose of these financial instruments is to raise finance for the Group’s operations. The Group has various other financial instruments such as trade debtors and trade creditors, which arise directly from its operations. The Group also enters into derivative transactions, principally forward currency contracts. The purpose is to manage the currency risks arising from the Group’s operations and its sources of finance. It is, and has been throughout the financial year 2005 and 2004, the Group’s policy that no trading in financial instruments shall be undertaken. The main risks arising from the Group’s financial instruments are interest rate risk, liquidity risk, foreign currency risk and credit risk. The Board reviews and agrees policies for managing each of these risks and they are summarised below. The Group also monitors the market price risk arising from all financial instruments. The Group’s accounting policies in relation to derivatives are set out in Note 2.

Credit risk Financial instruments that potentially subject the Group to concentrations of credit risk consist principally of cash and cash equivalents, short-term investments and receivables. The Group places its cash and cash equivalents and short-term investments in financial institutions with high credit ratings. Management does not expect any counterparty to fail to meet its obligations. Concentrations of credit risk with respect to trade receivables are limited due to the large number of customers comprising the Group’s customer base.

Interest rate risk The Group adopts a policy of a mixture of flat and floating interest rates (see Notes 18 and 19). At 31 December 2005, the Group has no borrowings at fixed rates of interest.

Foreign currency risk The Group incurs foreign currency risk on sales, purchases and borrowings that are denominated in a currency other than the euro. The currencies giving rise to this risk are primarily USD, PLN, NIS, HUF and CZK. In order to minimise exposure to foreign currency risk, among other things, the Group converted a major part of its long-term loans into euros during 2003. During the financial year 2005, the Company had hedged some of its US dollar investment and expenses in respect of its Hungarian and Polish theatre operations, against the Hungarian forint and the Polish zloty, respectively. In connection with these obligations, the Company had entered into forward foreign exchange

F-130 Cinema City International N.V.

Notes to the Consolidated Financial Statements (Continued)

Note 28 — Financial instruments (continued) Foreign currency risk (continued) contracts. These forward foreign exchange contracts were valued in the consolidated balance sheet at 31 December 2005 at their fair value.

Fair values The following are details of the fair values of all of the Group’s financial instruments that are carried in the financial statements at other than fair values and for which it is practicable to estimate such value: a. Cash and cash equivalents, short-term bank deposit and short-term bank credit. The carrying amounts approximate their fair value because of the short maturity of these instruments. b. Marketable securities. The carrying amounts approximate their fair value. c. Trade accounts receivable, other accounts receivable, accounts payable and accrued liabilities. The carrying amounts approximate their fair value because of the short-term nature of these instruments. d. Investment in non-marketable securities. See Note 11. e. Debt - as of 31 December 2005, the aggregate fair value of the Company’s long-term debt obligations is similar to its carrying value of EUR 87 million. As of 31 December 2004, the aggregate fair value of the Company’s long-term debt obligation was approximately EUR 95 million compared to the carrying value of EUR 95 million. The above fair values have been based on terms for debts with conditions and maturities similar to those of the Company’s debts as prevailing in the market at balance sheet date.

Note 29 — Write-off of IPO costs in 2004 During 2004, the Company started a process aiming to list the Company’s shares on the Warsaw stock exchange, with the plan to issue 20% of new shares to the public. After having filed a prospectus with the Polish Security and Exchange Commission (‘Polish SEC’), in November 2004, the Company was granted admission to the Warsaw Stock Exchange. Following the clearance by the Polish SEC, the Company started a road show, aiming at issuing the new shares through an Initial Public Offering (‘IPO’). At the end of the road show, after consulting with its broker, Management concluded that the demand for the new shares was not strong enough to ensure successful future trading of the Company’s shares. The Company therefore decided to delay the IPO without setting a new date and to write off an amount of EUR 1,765,000 against the Company’s net income for 2004, representing the total investment regarding the IPO process. The expenditures include mainly legal and accounting fees, public relations and marketing costs. The Company is planning to try and list its shares again on the Warsaw Stock Exchange as early as market conditions look favourable to the Company.

F-131 Cinema City International N.V.

Notes to the Consolidated Financial Statements (Continued)

Note 30 — Linkage terms of monetary items

31 December 2005 In or linked In or linked to US In or linked to euro dollar to foreign currencies Total EUR (thousands) Assets Cash and cash equivalents ...... 1,568 197 3,402 5,167 Trade accounts receivable ...... — — 7,083 7,083 Other accounts receivable...... 2,958 — 11,805 14,763 Related parties receivable...... 1,445 54 203 1,702 Marketable securities ...... — — 55 55 5,971 251 22,548 28,770 Liabilities Short-term bank credit ...... — — 8,322 8,322 Trade accounts payable ...... 54 806 9,063 9,923 Employee and payroll accruals ...... — — 1,312 1,312 Other accounts payable ...... 1,648 — 11,253 12,901 Due to related parties...... 5 — 432 437 Long-term loans (including current - maturities) . . . 55,562 71 28,232 83,865 Accrued employee rights upon retirement ...... — — 907 907 57,269 877 59,521 117,667

31 December 2004 In or linked In or linked In or linked to US to foreign to euro dollar currencies Total EUR (thousands) Assets Cash and cash equivalents ...... 719 317 3,501 4,537 Short-term bank deposits ...... 294 — 421 715 Trade account receivable ...... 1 — 5,706 5,707 Other accounts receivable...... 479 34 8,581 9,094 Related parties receivable...... 12 — 604 616 Marketable securities ...... — — 173 173 Loans to unconsolidated subsidiaries ...... — 13,790 — 13,790 1,505 14,141 18,986 34,632 Liabilities Short-term bank credit ...... — — 4,299 4,299 Trade accounts payable ...... 122 84 9,217 9,423 Employee and payroll accruals ...... 4 — 1,280 1,284 Other accounts payable ...... 2,648 3,249 5,677 11,574 Due to related parties...... 5 — 845 850 Long-term loans (including current - maturities) ...... 63,122 15,073 9,023 87,218 Accrued employee rights upon retirement ...... — — 794 794 65,901 18,406 31,135 115,442

Note 31 — Segment reporting

Segment information is presented in respect of the Group’s business and geographical segments. The primary format, business segments, is based on the Group’s management and internal reporting structure.

F-132 Cinema City International N.V.

Notes to the Consolidated Financial Statements (Continued)

Note 31 — Segment reporting (continued) The Group’s operations in Israel and Central Europe are organised under the following major business segments: • Theatre operations. • Distribution — Distribution of movies. • Video + DVD — Rental and sale of video cassettes and DVD. Business segments:

Financial year 2005 Theatre Video & Operations Distribution DVD Other Eliminations Consolidated EUR (thousands) Revenues External sales ...... 73,641 15,138 4,877 14,525 — 108,181 Inter-segment sales ...... — 3,778 325 — (4,103) — Total revenues...... 73,641 18,916 5,202 14,525 (4,103) 108,181 Results Segment results before depreciation, amortisation and impairment write downs ...... 12,867 2,048 1,012 8,096 — 24,023 Depreciation, amortisation and impairment write downs ...... 9,787 137 1,720 452 — 12,096 Segment results ...... 3,080 1,911 (708) 7,644 — 11,927 Net financial expense ...... (2,753) Gain and loss on disposals...... (151) IPO cost write-off ...... — Net loss from associates ...... (103) Income taxes...... (1,198) Minority interests ...... 188 Net income ...... 7,910

31 December 2005 Theatre Video & operations Distribution DVD Other Unallocated Consolidated EUR (thousands) Assets Segment assets ...... 172,923 7,280 3,016 17,745 1,057 202,021 Liabilities Segment liabilities ...... 28,867 2,584 1,851 1,497 94,105 128,904 Other information Capital expenditure ...... 29,795 1,011 1,292 3,168 — 35,266

F-133 Cinema City International N.V.

Notes to the Consolidated Financial Statements (Continued)

Note 31 — Segment reporting (continued) Financial year 2004 Theatre Video & Operations Distribution DVD Other Eliminations Consolidated EUR (thousands) Revenues External sales ...... 75,313 15,991 5,664 1,970 — 98,938 Inter-segment sales ...... — 5,095 — — (5,095) — Total revenues...... 75,313 21,086 5,664 1,970 (5,095) 98,938 Results Segment results before depreciation, amortisation and impairment write-downs ...... 16,355 2,861 1,746 435 — 21,397 Depreciation, amortisation and impairment write-downs ...... 8,426 99 1,600* 534 — 10,659* Segment results...... 7,929 2,762 146* (99) — 10,738* Net financial expense ...... (1,127) Gain and loss on disposals ...... (1,204)* Income taxes ...... (1,765) Minority interests ...... (1,549) Net income ...... 247 5,340

31 December 2004 Theatre Video & Operations Distribution DVD Other Unallocated Consolidated EUR (thousands) Assets Segment assets...... 153,545 6,763 3,634 23,021 2,516 189,479 Liabilities Segment liabilities ...... 26,874 4,916 1,995 1,398 94,222 129,405 Other information Capital expenditure ...... 18,084 120 1,479 5,869 — 25,552

* reclassified for comparison purposes

In addition to the information on business segments based on the structure of the Group, the figures below present information for geographical segments. Determination of geographical segments is based on location of assets and is identical to customer location.

31 December 2005 Central Europe Israel Unallocated Consolidated EUR (thousands) Revenues External sales ...... 77,116 31,065 — 108,181 Assets Segment assets ...... 175,075 25,889 1,057 202,021 Capital expenditure ...... 31,289 3,977 — 35,266

F-134 Cinema City International N.V.

Notes to the Consolidated Financial Statements (Continued)

Note 31 — Segment reporting (continued) 31 December 2004 Central Europe Israel Unallocated Consolidated EUR (thousands) Revenues External sales ...... 62,235 36,703 — 98,938 Assets Segment assets ...... 162,011 24,952 2,516 189,479 Capital expenditure ...... 23,484 2,068 — 25,552

Note 32 — Personnel Personnel costs are specified as follows:

31 December 2005 2004 EUR (thousands) Salaries and wages ...... 12,703 10,560 Pension costs ...... 349 303 Other social charges ...... 1,780 1,828 Total personnel costs...... 14,832 12,691

For 2005 and 2004, the pension costs comprise defined contribution expenses only. The average number of personnel, in full-time equivalents, employed by the Company and its subsidiaries during the year 2005 were 1,450 (financial year 2004: 1,269), of which 7 employees (2004: 1 employee) were employed by the 50% consolidated joint venture. A geographical allocation of the average number of personnel is as follows:

31 December 2005 2004 Israel ...... 546 560 Central Europe ...... 903 708 Netherlands ...... 1 1 Total average number of personnel ...... 1,450 1,269

Note 33 — Events after the balance sheet date Towards the beginning of 2006, the Company signed an agreement with a major European private equity financing company to sell its remaining holdings in the mall development project in Sofia Bulgaria, immediately following the opening of the Mall. Such transaction is expected to close after the opening and therefore has no effect on the 2005 financial results. As part of this new agreement the Sellers (including the Company) will remain responsible for the completion of the office building, part of the project, which is expected to be completed about three months later. In addition, the Company will continue to lease the multiplex and IMAX» theatre in the mall.

F-135 Cinema City International N.V.

Notes to the Consolidated Financial Statements (Continued)

Note 34 — Details of corporations in the Group

31 December 2005 Direct/indirect voting right The Company’s of the equity share Company in subsidiary Consolidation Currency %% % I.T. International Theatres 2004 Ltd...... 100% 100% FULL (6) I.T. Magyar Cinemas Kft ..... 100% 100% FULL (2) Kino 2005 a.s...... 100% 100% FULL (3) I.T. Sadyba B.V...... 100% 100% FULL (1) Cinema City Poland Sp.Z.oo . . 100% 100% FULL (4) IT Development 2003...... 100% 100% FULL (4) I.T. Czech Cinemas S.R.O. .... 100% 100% FULL (3) I.T.SofiaB.V...... 100% 100% FULL (1) MO Sofia EAD ...... 25% 25% Netequity value (5) New Age Media Sp.Zoo ...... 100% 100% FULL (4) Forum Film Poland Sp.Zoo . . . 100% 100% FULL (4) All Job Poland Sp. Zoo ...... 100% 100% FULL (4) Norma Film Ltd...... 60% 50% FULL (6) Forum Film Ltd...... 60% 50% FULL (6) Ya’af — Giant Video Library Network Ltd...... 60% 30% FULL (6) Ya’af — Automatic Video Machines Ltd...... 60% 50% FULL (6) Mabat Ltd...... 100% 100% FULL (6) Teleticket Ltd...... 100% 100% FULL (6) Cinema Plus Ltd...... 100% 100% FULL (6) I.T. Bulgaria EOOD ...... 100% 100% Unconsolidated — Not (5) operational

(1) A holding company in the Netherlands. (2) Hungarian corporation. (3) Czech corporation. (4) Polish corporation. (5) Bulgarian corporation. (6) An Israeli corporation. The details of corporation during 2004 were similar to the details of corporation in 2005 as shown above, except for the changes in consolidation disclosed in Note 3.

F-136 Cinema City International N.V.

Parent Company Balance Sheet (before appropriation of the result)

31 December Note 2005 2004 EUR (thousands) ASSETS FIXED ASSETS Property and equipment ...... 3 1,755 5,098 Financial fixed assets Investment in subsidiaries ...... 4 62,685 39,153 Loans to subsidiaries...... 5 2,944 69,815 Total fixed assets ...... 67,384 114,066 CURRENT ASSETS Receivables Short-term loans to subsidiaries ...... 6 — 13,790 Receivable from subsidiaries ...... 7,863 1,581 Income taxes receivable ...... 56 20 Other accounts receivable and prepaid items ...... 445 116 Liquid funds Cash and cash equivalents ...... 1,436 390 Total current assets...... 9,800 15,897 TOTAL ASSETS ...... 77,184 129,963

See accompanying notes to the Parent Company Financial Statements.

F-137 Cinema City International N.V.

Parent Company Balance Sheet (before appropriation of the result)

31 December Note 2005 2004 EUR (thousands) SHAREHOLDERS’ EQUITY AND LIABILITIES SHAREHOLDERS’ EQUITY ...... 7 Share capital ...... 407 407 Premium on share capital ...... 43,553 43,553 Retained earnings...... 17,089 11,749 Net profit for the year ...... 7,910 5,340 Accumulated currency translation adjustments...... 4,158 (975) Total shareholders’ equity ...... 73,117 60,074 LONG-TERM LIABILITIES Long-term loans, net of current portion...... 8 — 58,225 Total long-term liabilities ...... — 58,225 CURRENT LIABILITIES Short-term bank credit ...... — 5,000 Trade accounts payable ...... 77 104 Payable to subsidiaries ...... 3,990 6,244 Employee and payroll accruals ...... — 4 Other accounts payable ...... — 312 Total current liabilities ...... 4,067 11,664 TOTAL SHAREHOLDERS’ EQUITY AND LIABILITIES ...... 77,184 129,963

See accompanying notes to the Parent Company Financial Statements.

F-138 Cinema City International N.V.

Parent Company Income Statement

31 December Note 2005 2004 EUR (thousands) Revenue ...... 834 208 General and administrative expenses ...... (431) (415) Operating result ...... 403 (207) Financial income ...... 9 482 2,965 Financial expenses ...... 10 (2,025) (2,054) Currency exchange gain ...... 773 1,144 IPO costs ...... — (1,765) Result before taxation ...... (367) 83 Income taxes ...... 11 — — Result after taxation ...... (367) 83 Result from subsidiaries after taxation ...... 4 8,277 5,257 Net income ...... 7,910 5,340

See accompanying notes to the Parent Company Financial Statements.

F-139 Cinema City International N.V.

Note 1 — General

Cinema City International N.V. (“the Company”) was incorporated on 12 April 1994, and has its statutory seat in Amsterdam, the Netherlands, and its corporate office in Rotterdam, the Netherlands. The Company is a subsidiary of I.T. International Theatres Ltd. (“ITIT”), incorporated in Israel.

The Company holds and owns various companies in Europe and Israel that are active in the entertainment business in various countries, including Poland, the Czech Republic, Hungary, Bulgaria and Israel. The Company is also engaged in managing and establishing its own entertainment real estate projects for rental purposes, in which the Company operates motion picture theatres. In addition, the Company is involved in short-term and long-term real estate trading in Central Europe. The Company’s business is dependent both upon the availability of suitable motion pictures from third parties for exhibition in its theatres, and the performance of such films in the Company’s markets.

Note 2 — Accounting principles

The accounting principles and measurement basis of the Company’s statutory accounts are similar to those applied with respect to the consolidated financial statements (see Note 2 to the Consolidated Financial Statements). The Parent Company Financial Statements have been prepared in conformity with generally accepted accounting principles in the Netherlands (“Dutch GAAP”), whereas the Consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the EU and Dutch GAAP as described in Note 2 to the Consolidated Financial Statements.

Note 3 — Property and equipment

Composition:

For the year ended 31 December 2005 Balance at Additions Sales and beginning of the during the disposals during Balance at year year the year year-end EUR (thousands) Cost Cinema equipment(1) ...... 5,083 547 (3,893) 1,737 Computers, furniture and office equipment ...... 15 3 — 18 5,098 550 (3,893) 1,755 Carrying value ...... 5,098 550 (3,893) 1,755

For the year ended 31 December 2004 Sales and Balance at Additions disposals beginning of the during the during the Balance at year year year year end EUR (thousands) Cost Cinema equipment(1) ...... 5,400 2,172 (2,489) 5,083 Computers, furniture and office equipment ...... 12 3 — 15 5,412 2,175 (2,489) 5,098 Carrying value ...... 5,412 2,175 (2,489) 5,098

(1) Consists of prepayments on account of IMAX» systems not operated yet. Therefore, no depreciation has been incurred.

F-140 Cinema City International N.V.

Note 4 — Investment in subsidiaries The subsidiaries of the Company are valued at their net equity value.

The movements in subsidiaries are as follows:

For the year ended 31 December 2005 2004 EUR (thousands) Balance at beginning of the year ...... 39,153 34,840 Currency translation adjustment ...... 5,315 (977) Investments in subsidiaries ...... 9,940 33 Net result subsidiaries during the year ...... 8,277 5,257 Balance at the end of the year ...... 62,685 39,153

Note 5 — Loans to subsidiaries

For the year ended 31 December 2005 2004 EUR (thousands) Balance at beginning of the year ...... 69,815 59,883 Loans added ...... — 13,608 Loans redeemed ...... — (3,676) Loan assigned to subsidiary company* ...... (66,871) — Balance at the end of the year ...... 2,944 69,815

* As of 1 January 2005 all loans to subsidiaries were assigned by the Company to a fully-owned subsidiary company.

Note 6 — Short-term loans to subsidiaries Reference is made to Note 7 to the Consolidated Financial Statements.

Note 7 — Shareholders’ equity

Accumulated Net profit currency Share Share Retained for translation capital Premium earnings the year adjustments Total EUR (thousands) Balance as of 1 January 2004 ...... 18 40,100 8,592 3,157 2 51,869 Profit appropriation prior year ...... — — 3,157 (3,157) — — Net profit for the year 2004...... — — — 5,340 — 5,340 Currency translation ...... — — — — (977) (977) New shares issued...... 389 3,453 — — — 3,842 Balance as of 31 December 2004 ...... 407 43,553 11,749 5,340 (975) 60,074 Profit appropriation prior year ...... — — 5,340 (5,340) — — Net profit for the year 2005...... — — — 7,910 — 7,191 Currency translation ...... — — — — 5,133 5,133 Balance as of 31 December 2005 ...... 407 43,553 17,089 7,910 4,158 73,117

As of 31 December 2005 and as of 31 December 2004, the authorised share capital of the Company consisted of 175,000,000 ordinary shares with a par value of EUR 0.01 each. For details on shares issued during 2004, reference is made to Note 14 of the Consolidated Financial Statements.

F-141 Cinema City International N.V.

Note 8 — Long term loans, net of current portion

A. Composition:

Interest rate as of 31 December 31 December 31 December 2004 2005 2004 % EUR (thousands) EUR (thousands) In euros ...... (1) — 48,281 In US dollars ...... (2) — 14,944 — 63,225 Less: current portion ...... — (5,000) — 58,225

(1) In euros, bearing interest at the rate of EURIBOR + 1.5%-2.25%. (2) Linked to the US dollar bearing interest at the rate of LIBOR + 1%-1.75%.

B. The movements of long-term loans are as follows:

For the year ended 31 December 2005 2004 EUR (thousands) Balance at beginning of the year ...... 63,225 60,374 Loans added ...... — 11,606 Loans redeemed ...... — (7,522) Currency exchange difference ...... — (1,233) Loan assigned to subsidiary company*...... (63,225) — Balance at the end of the year ...... — 63,225

* As of 1 January 2005 all long term-loans were assigned by the Company to a fully-owned subsidiary company.

Note 9 — Financial income

Financial income for the years 2005 and 2004 mainly consisted of interest income on inter-company loans and receivables.

Note 10 — Financial expenses

The financial expenses for the year 2004 related to the interest paid on the long-term bank and shareholder loans that were transferred to the Company at 31 December 2003 as part of the restructuring and that were fully redeemed during 2004.

Note 11 — Income taxes

No Dutch income taxes have been recorded primarily because of available tax losses carried forward from prior years. Realisation of this deferred income tax asset is dependent upon generating sufficient taxable income in the period that deferred income tax asset is realised. Based on all available information, it is not probable that the deferred income tax asset is realisable and therefore the deferred tax asset is valued at nil.

Note 12 — Personnel

The Company employed two members of staff during the year (2004: two employees).

F-142 Cinema City International N.V.

Note 13 — Directors’ remuneration The Board of Managing Directors of the Company consists of 3 members; the board members are entitled to a total remuneration of EUR 1,178,000 during the year 2005. The amount of remuneration also includes fees, salaries and bonuses paid and has been paid through the Company’s subsidiaries. The Supervisory Board of the Company consists of 5 members; the supervisory directors are entitled to an annual fee of EUR 8,500 plus an amount of EUR 1,500 per board meeting. The total amount due in respect of supervisory board fees during 2005 is EUR 51,500.

Rotterdam, 6 June 2006 The Management Board

Moshe Greidinger Amos Weltsch Israel Greidinger

Supervisory Board

Coleman Kenneth Greidinger Carrie Twist Frank Pierce

Scott Rosenblum Peter Weishut

F-143 Cinema City International N.V. Interim Report for the half year ended 30 June 2006 unaudited

F-144 Cinema City International N.V.

GENERAL INFORMATION

Management Board Moshe Greidinger Amos Weltsch Israel Greidinger Supervisory Board Coleman Kenneth Greidinger Carrie Twist Frank Pierce Scott Rosenblum Peter Weishut Registered office Weena 210 - 212 3012 NJ Rotterdam The Netherlands Auditors KPMG Accountants N.V. Burg. Rijnderslaan 10-20 1185 MC Amstelveen The Netherlands

F-145 Cinema City International N.V.

Interim Report for the half year ended 30 June 2006

Contents

Page Auditors’ report...... F-147 Interim Consolidated Financial Statements for the half year ended 30 June 2006 Interim Consolidated Balance Sheet as of 30 June 2006 ...... F-148 Interim Consolidated Income Statement for the half year ended 30 June 2006 ...... F-150 Interim Consolidated Statement of Changes in Shareholders’ Equity for the half year ended 30 June 2006 ...... F-151 Statement of Recognised Income and Expenses ...... F-152 Interim Consolidated Statement of Cash Flows for the half year ended 30 June 2006...... F-153 Notes to the Interim Consolidated Financial Statements ...... F-154

F-146 Cinema City International N.V. Auditors’ Report

To the Shareholders of Cinema City International N.V.

Introduction We have reviewed the accompanying consolidated balance sheet of Cinema City International N.V., Amster- dam as at 30 June 2006, and the related consolidated statements of income, changes in shareholders’ equity and cash flows for the six month period then ended as set out on pages F-148 to F-185 (“the consolidated interim financial information”). This consolidated interim financial information is the responsibility of the Company’s management. Our responsibility is to issue a report on this consolidated interim financial information based on our review.

Scope We conducted our review in accordance with International Standards on Review Engagements 2400 that are also accepted in the Netherlands. These standards require that we plan and perform the review to obtain moderate assurance about whether the consolidated interim financial information is free of material misstatement. A review is limited primarily to inquiries of Company personnel and analytical procedures applied to financial data and therefore provides less assurance than an audit. We have not performed an audit and, accordingly, we do not express an audit opinion.

Opinion Based on our review, nothing has come to our attention that causes us to believe that the accompanying consolidated interim financial information is not prepared, in all material respects, in accordance with IAS 34, “Interim Financial Reporting” as adopted by the EU.

Amstelveen, 18 October 2006

KPMG ACCOUNTANTS N.V.

P. Mizrachy RA

F-147 Cinema City International N.V.

Interim Consolidated Balance Sheet

30 June 31 December 30 June Note 2006 2005 2005 *) (unaudited) (audited) (unaudited) EUR (thousands) ASSETS FIXED ASSETS Intangible fixed assets ...... 4 312 198 249 Property and equipment ...... 5 164,715 166,610 153,857 Deferred tax asset ...... 23 771 1,057 2,141 Investment in associates ...... 6 — 2,283 2,550 Total fixed assets ...... 165,798 170,148 158,797 CURRENT ASSETS Inventories...... 7 3,224 2,998 2,944 Receivables Trade accounts receivable ...... 8 6,037 7,083 5,822 Receivable from related parties ...... 24 325 1,702 1,722 Income taxes receivable ...... 163 105 227 Other amounts receivable and prepaid expenses ..... 9 11,535 14,763 17,029 Total receivables ...... 18,060 23,653 24,800 Securities Marketable securities ...... 52 55 46 Total securities ...... 52 55 46 Liquid funds Cash and cash equivalents ...... 10 5,764 5,167 5,069 Total liquid funds...... 5,764 5,167 5,069 Total current assets ...... 27,100 31,873 32,859 TOTAL ASSETS ...... 192,898 202,021 191,656

*) Restated to reflect the change of functional currencies for operations in Central Europe as of the year 2005 (see Note 2 B).

See accompanying Notes to the Interim Consolidated Financial Statements.

F-148 City Cinema International N.V.

Interim Consolidated Balance Sheet

30 June 31 December 30 June Note 2006 2005 2005*) (unaudited) (audited) (unaudited) EUR (thousands) EQUITY AND LIABILITIES EQUITY Shareholders’ equity Share capital ...... 11 407 407 407 Share premium ...... 43,553 43,553 43,553 Retained earnings ...... 32,797 24,999 21,534 Accumulated currency translation adjustment ...... (1,237) 4,158 524 Total shareholders’ equity ...... 75,520 73,117 66,018 Minority interests ...... 12 (671) (411) (239) Total equity ...... 74,849 72,706 65,779 LONG TERM LIABILITIES Long-term loans, net of current portion ...... 15 65,282 73,888 75,912 Accrued employee retirement rights, net ...... 13 700 907 893 Deferred tax liabilities ...... 23 1,676 1,918 2,373 Provision related to onerous lease contracts ...... 14 5,977 6,781 7,585 Other long-term payables ...... 18(1)h 2,462 2,767 2,995 Income received in advance...... 100 182 144 Total long-term liabilities ...... 76,197 86,443 89,902 CURRENT LIABILITIES Short-term bank credit and current portion of long term-loans ...... 16 21,694 18,299 16,390 Trade accounts payable ...... 7,702 9,923 8,467 Payable to related parties...... 24 358 437 108 Employee and payroll accruals ...... 1,154 1,312 1,357 Other accounts payable ...... 17 10,944 12,901 9,653 Total current liabilities ...... 41,852 42,872 35,975 TOTAL EQUITY AND LIABILITIES ...... 192,898 202,021 191,656

*) Restated to reflect the change of functional currencies for operations in Central Europe as of the year 2005 (see Note 2 B).

See accompanying Notes to the Interim Consolidated Financial Statements.

F-149 Cinema City International N.V.

Interim Consolidated Income Statement

For the For the For the 6 months 12 months 6 months ended ended ended 30 June 31 December 30 June Note 2006 2005 2005*) (unaudited) (audited) (unaudited) EUR (thousands) Revenues ...... 19 75,501 108,181 51,058 Operating costs ...... 20 62,333 90,867 42,209 Gross margin ...... 13,168 17,314 8,849 General and administrative expenses ...... 3,302 5,387 2,520 Operating profit ...... 9,866 11,927 6,329 Financial income ...... 21 251 2,198 1,423 Financial expenses ...... 21 (2,360) (4,951) (3,146) Gain/(loss) on disposals and write-off on other investments ...... 22 (1) (151) 4 Income before result from associates ...... 7,756 9,023 4,610 Net result from associates ...... — (103) — Income before taxation ...... 7,756 8,920 4,610 Income taxes ...... 23 (231) (1,198) (198) Net income before minority interests ...... 7,525 7,722 4,412 Attributable to: Shareholders of the parent company ...... 7,798 7,910 4,445 Minority interests ...... 12 (273) (188) (33) Net income before minority interests ...... 7,525 7,722 4,412 Number of average equivalent shares...... 40,724,000 40,724,000 40,724,000 Net earnings per ordinary share (basic and diluted of EUR 0.01 each) **) ...... 11 0.19 0.19 0.11

*) Restated to reflect the change of functional currencies for operations in Central Europe as of the year 2005 (see Note 2 B). **) The net earnings per share is calculated based on the number of average equivalent shares during the period.

See accompanying Notes to the Interim Consolidated Financial Statements.

F-150 Cinema City International N.V.

Interim Consolidated Statement of Changes in Shareholders’ Equity

Accumulated currency Number of Share Share Retained translation Shares capital premium earnings adjustments Total EUR (thousands) except number of shares Balance as of 31 December 2004 (audited) ...... 40,724,000 407 43,553 17,089 (975) 60,074 Net income for the year 2005 ...... — — — 7,910 — 7,910 Foreign currency translation adjustment ...... — — — — 5,133 5,133 Balance as of 31 December 2005 (audited) ...... 40,724,000 407 43,553 24,999 4,158 73,117 Net income first half year 2006 ...... — — — 7,798 — 7,798 Currency translation adjustment .... — — — — (5,395) (5,395) Balance as of 30 June 2006 (unaudited) ...... 40,724,000 407 43,553 32,797 (1,237) 75,520

Changes in shareholders’ equity during the 6 months ended 30 June 2005*) Balance as of 31 December 2004 (audited) ...... 40,724,000 407 43,553 17,089 (975) 60,074 Net income first half year 2005 ...... — — — 4,445 — 4,445 Currency translation adjustment ...... — — — — 1,499 1,499 Balance as of 30 June 2005 (unaudited) ...... 40,724,000 407 43,553 21,534 524 66,018

*) Restated to reflect the change of functional currencies for operations in Central Europe as of the year 2005 (see Note 2 B).

See accompanying Notes to the Interim Consolidated Financial Statements.

F-151 Cinema City International N.V.

Statement of Recognized Income and Expenses

For the For the For the 6 months ended 12 months ended 6 months ended 30 June 2006 31 December 2005 30 June 2005*) (unaudited) (audited) (unaudited) EUR (thousands) Foreign exchange translation differences before minority interest ...... (5,382) 5,084 1,465

Net income recognised directly in equity ...... (5,382) 5,084 1,465 Net income before minority interest ...... 7,525 7,722 4,412 Total recognised income and expense for the period ... 2,143 12,806 5,877 Attributable to: Shareholders of the Company ...... 2,403 13,043 5,944 Minority interests ...... (260) (237) (67) Total recognised income and expense for the period ... 2,143 12,806 5,877

*) Restated to reflect the change of functional currencies for operations in Central Europe as of the year 2005 (see Note 2 B).

See accompanying Notes to the Interim Consolidated Financial Statements.

F-152 Cinema City International N.V.

Consolidated Statement of Cash Flows

For the For the For the 6 months ended 12 months ended 6 months ended 30 June 2006 31 December 2005 30 June 2005*) (unaudited) (audited) (unaudited) EUR (thousands) Cash flows from operating activities Operating profit ...... 9,866 11,927 6,329 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortisation ...... 6,546 12,096 5,515 Decrease in value of other assets (including write offs) ...... 80 367 180 Decrease in provision related to onerous lease contracts ...... (804) (1,608) (804) (Decrease)/increase in accrued employee rights upon retirement . . (175) 50 49 Effect of foreign currency exchange ...... (23) 1 (235) Interest received...... 215 670 533 Interest paid ...... (2,463) (3,492) (2,662) Income taxes paid ...... (240) (306) (31) Operating income before working capital ...... 13,002 19,705 8,874 Increase in inventories ...... (207) (309) (198) Decrease/(increase) in accounts receivable ...... 2,397 (1,012) (4,507) Increase in prepaid expenses ...... (8) (2,004) (373) Decrease/(increase) in governmental institutions ...... 1,436 (693) 500 Increase in long-term film distribution costs...... (311) (683) (972) Increase/(decrease) in accounts payable ...... 1,868 (204) (450) (Decrease)/increase in employee and payroll accruals ...... (103) (47) 27 Increase/(decrease) in related parties ...... 1,306 (133) (478) Increase in income received in advance ...... (76) (4) (40) Net cash provided by operating activities ...... 19,304 14,616 2,383 Cash flows from investing activities Purchase of property and equipment and other assets ...... (16,909) (33,614) (21,759) Investment in development of video vending machines ...... (40) (198) (208) Investment in associates ...... 2,239 164 — Proceeds from disposition of property and equipment ...... 309 6,542 227 Increase in long-term receivables ...... — (2,054) — Short-term bank deposits ...... — 678 565 Loans to unconsolidated subsidiaries ...... — 14,599 14,599 Loans to third party ...... — 164 164 Proceeds from disposition of marketable securities ...... 2 132 138 Proceeds from disposition of other assets ...... — 117 117 Net cash used in investing activities ...... (14,399) (13,470) (6,157) Cash flows from financing activities Proceeds from long-term loans ...... 13,934 36,623 29,942 Repayment of long-term loans ...... (21,345) (40,927) (29,363) (Decrease)/increase in long-term payables ...... (182) (265) 123 Short-term bank credit, net ...... 3,476 3,945 3,604 Net cash (used in)/provided by financing activities ...... (4,117) (624) 4,306 Effect of changes in consolidation ...... — (69) (69) Foreign currency exchange differences on cash ...... (191) 177 69 Increase in cash and cash equivalents ...... 597 630 532 Cash and cash equivalents at beginning of period ...... 5,167 4,537 4,537 Cash and cash equivalents at end of period ...... 5,764 5,167 5,069

*) Restated to reflect the change of functional currencies for operations in Central Europe as of the year 2005 (see Note 2 B).

See accompanying Notes to the Interim Consolidated Financial Statements.

F-153 Cinema City International N.V.

Notes to the Interim Consolidated Financial Statements

Note 1 — General and principle activities The accompanying Interim Consolidated Financial Statements present the financial position, results of operations, changes in shareholders’ equity, and cash flows of Cinema City International N.V. (“the Company”, or “the Group”). These financial statements were authorised for issue by the directors on 18 October 2006. Cinema City International N.V., incorporated in the Netherlands, is a subsidiary of I.T. International Theatres Ltd. (“ITIT” or “parent company”), incorporated in Israel. The Group is principally engaged in the operation of entertainment activities in various countries, including Poland, Hungary, Czech Republic, Bulgaria and Israel. The Company is also engaged in managing and establishing its own entertainment real estate projects for rental purposes, in which the Company operates motion picture theatres. In addition, the Company is involved in short- term and long-term real estate trading in Central Europe. The Company’s business is dependent both upon the availability of suitable motion pictures from third parties for exhibition in its theatres, and the performance of such films in the Company’s markets. Historically, the film exhibition, distribution and video rental operations in Israel, as well as the assets related to these operations, were divided among ITITand other subsidiaries of ITIT. As a result of the continuing expansion into Central Europe, and the increasing significance of Central Europe operations to the Group, during 2003, ITIT restructured its operations in Israel to be included within the Company (the ‘Restructuring’). Upon completion of the Restructuring, the Company became owner and holder of all the operations of the Group in both Europe and Israel.

Note 2 — Summary of Significant Accounting Policies A. Statement of compliance The Interim Consolidated Balance Sheets as of 30 June 2006 and 30 June 2005, the Interim Consolidated Income Statements for the 6 months ended 30 June 2006 and 30 June 2005, the Interim Consolidated Statements of Changes in Shareholders’ Equity, the Statements of Recognised Income and Expenses for the 6 months ended 30 June 2006 and 30 June 2005 and the Interim Consolidated Statements of Cash Flows for the 6 months ended 30 June 2006 and 30 June 2005 are unaudited. The results of the interim periods are not necessarily indicative of the results for the entire year. The Consolidated Balance Sheet as at 31 December 2005, the Consolidated Income Statement for the year ended 31 December 2005, the Consolidated Statement of Cash Flows for the year ended 31 December 2005, and the Statement of Shareholders’ Equity for the year ended 31 December 2005 are extracted from the 2005 Annual Accounts. The Interim Consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards (IFRS) adopted by the International Accounting Standards Board (IASB) and interpretations issued by the International Financial Interpretations Committee of the IASB, as endorsed by the European Union. In the preparation of these financial statements, the Company has followed the same accounting policies used in the Company’s 2005 Annual Accounts.

B. Basis of presentation (1) Measurement basis The financial statements are presented in euro, rounded to the nearest thousand. They are prepared on the historical cost basis. Unless otherwise stated, monetary assets and liabilities are presented at nominal value. Marketable securities are presented at fair value. (2) Functional and presentational currency Up to and including the financial year ended 31 December 2004, the functional currency of the operations in Central Europe was the euro. Management was of the opinion, at that time, that the euro better reflected the economic substance of the underlying events and circumstances and thus the euro was considered to be the relevant currency for the Central European subsidiaries. In 2005 management considered that with the growth of the size of the operations and activities of the Company in Central Europe, the local Central European currencies increasingly showed a more significant impact on the

F-154 Cinema City International N.V.

Notes to the Interim Consolidated Financial Statements

Note 2 — Summary of Significant Accounting Policies (continued) B. Basis of presentation (continued) Company in comparison to the euro. In addition, a transition from local currencies into the euro by the relevant Central European countries was expected less likely to happen in the near future. Therefore, starting the financial year ended 31 December 2005, the functional currencies of those Central European countries are the respective local currencies rather than the euro. The financial statements of all foreign operations are translated from the functional currency into euros (presentation currency) as follows: assets and liabilities, both monetary and non-monetary are translated at the closing exchange rate. Income statement items are translated at the average exchange rate for the year. Foreign exchange differences arising on translation are recognised directly in equity. Since this change of functional currency was not reflected in the Interim Report for the Half Year ended 30 June 2005, the comparative figures relating to the 6 months ended 30 June 2005 as derived from the Interim Report for the Half Year ended 30 June 2005 have been restated to reflect the above described change of functional currency for the operations in Central Europe. The total effect of this restatement is an increase of EUR 1,175 thousands in total assets (mainly property and equipment), EUR 350 thousands in net income attributable to Shareholders of the parent company and an increase of EUR 825 thousands in foreign currency translation adjustment (recognised directly into Shareholders’ equity).

C. Exchange rates Information relating to the relevant euro exchange rates (at end of (half) year and averages for the relevant periods):

Exchange rate of euro Czech Hungarian Polish US Israeli crown forint zloty dollar shekel As of (CZK) (HUF) (PLN) (USD) (NIS) 30 June 2006 ...... 28.49 282.42 4.04 1.26 5.64 31 December 2005 ...... 29.00 252.62 3.86 1.18 5.45 30 June 2005 ...... 30.11 247.93 4.04 1.21 5.53

Change during the period % % % % % 2006 (6 months) ...... (1.76) 11.8 4.66 6.78 3.49 2005 (12 months)...... (4.95) 2.61 (5.62) (13.24) (7.3) 2005 (6 months) ...... (1.31) 0.71 (1.22) (11.03) (5.95)

Exchange rate of euro Czech Hungarian Polish US Israeli crown forint zloty dollar shekel Average for the period (CZK) (HUF) (PLN) (USD) (NIS) 2006 (6 months) ...... 28.52 260.99 3.89 1.23 5.64 2005 (12 months) ...... 29.80 248.54 4.03 1.25 5.58 2005 (6 months) ...... 30.12 247.85 4.08 1.28 5.64

Change year over year % % % % % 2006 (6 months) ...... (4.30) 5.01 (3.47) (1.60) 1.08 2005 (12 months)...... (6.73) (1.42) (11.03) 0.81 0.00 2005 (6 months) ...... (5.73) (1.69) (9.93) 3.23 1.08

D. Principles of consolidation The Interim Consolidated Financial Statements include the accounts of the Company, its subsidiaries, and jointly controlled entities.

F-155 Cinema City International N.V.

Notes to the Interim Consolidated Financial Statements

Note 2 — Summary of Significant Accounting Policies (continued) D. Principles of consolidation (continued) Subsidiaries are those enterprises controlled by the Company. Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of an enterprise so as to obtain benefits from its activities. The financial statements of subsidiaries are included in the Interim Consolidated Financial Statements from the date that control effectively commences until the date that control effectively ceases.

Jointly controlled entities are those enterprises over whose activities the Company has joint control, established by contractual agreements. The Interim Consolidated Financial Statements include the Company’s proportionate share of the enterprises’ assets, liabilities, revenues and expenses with items of similar nature on a line-by-line basis, from the date that joint control commences until the date that joint control ceases.

All intercompany accounts and transactions are eliminated when preparing the Interim Consolidated Financial Statements.

A list of the companies whose financial statements are included in the Interim Consolidated Financial Statements and the extent of ownership and control appears in Note 29 to these financial statements.

E. Use of estimates

The preparation of financial statements in conformity with IFRS requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

F. Intangible assets

Intangible assets that are acquired by the Group are stated at cost less accumulated amortisation, calculated over the estimated useful life of the assets, and impairment losses, if any.

The amortization is calculated mainly by means of the straight-line method over the estimated useful lives of the assets (annual amortisation rates vary from 10% to 25%).

Intangible assets that are related to video machines are amortised as soon as these machines are marketed and the sale of the video machines has commenced.

The recoverable amount is estimated at least at each balance sheet date. Under IAS 36, the carrying amount of the intangible assets mentioned above is reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the recoverable amount is estimated as the higher of net selling price and value in use.

G. Investment in associates

The investment in associates comprises minority interests held by the Group and is accounted for using the equity method.

H. Property and equipment

(1) Property and equipment are stated at cost less accumulated depreciation and impairment losses. Expenditures for maintenance and repairs are charged to expenses as incurred, while renewals and betterments of a permanent nature are capitalised.

(2) Depreciation is calculated by means of the straight-line method over the estimated useful lives of the assets.

F-156 Cinema City International N.V.

Notes to the Interim Consolidated Financial Statements

Note 2 — Summary of Significant Accounting Policies (continued) H. Property and equipment (continued) Annual rates of depreciation are as follows:

% Buildings ...... 2-3 Cinema equipment ...... Mainly 10 Leasehold improvements...... Mainly 5 Computers, furniture and office equipment ...... 6-33 Vehicles ...... 15-20 Video movie cassettes and DVDs ...... 50 Video machines ...... 20 (3) Leasehold improvements are depreciated over the estimated useful lives of the assets, or over the period of the lease, including certain renewal periods, if shorter. (4) Leases in terms of which the Group assumes substantially all the risks and rewards of ownership are classified as finance leases. Plant and equipment acquired by way of finance lease is stated at an amount equal to the lower of its fair value and the present value of the minimum lease payments at inception of the lease, less accumulated depreciation. (5) According to IAS 36, the carrying amount of assets mentioned above is reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the recoverable amount is estimated as the higher of net selling price and value in use. (6) Financing expenses relating to short-term and long-term loans, which were taken for the purpose of purchasing or constructing property and equipment, as well as other costs which refer to the purchasing or constructing of property and equipment, are capitalised to property and equipment, in accordance with IAS 23.

I. Inventories Inventories are valued at the lower of cost or net realisable value, and include concession products, spare parts, music cassettes, CDs and video cassettes, and are stated at the lower of cost or net realisable value. Cost is determined by means of the “first in, first out” method. Cost of music cassettes is determined on the basis of the average purchase price. Net realisable value is the estimated selling price during the normal course of business, less the estimated costs of completion and selling expenses.

J. Trade accounts receivable Trade accounts receivable are stated at cost less allowance for doubtful accounts. The allowance for doubtful accounts is determined based upon management’s evaluation of receivables doubtful for collection on a case-by-case basis.

K. Marketable securities The investments in securities held by the Group are classified as trading securities. Trading securities are bought and held principally for the purpose of selling them in the short term and are recorded at fair value. The fair value of investments held for trading is their quoted bid price as of the balance sheet date. Unrealised gains and losses on these securities are included in the income statement. Dividends and interest income are recognised when earned.

L. Cash and cash equivalents Cash and cash equivalents comprise cash balances and short-term highly liquid investments, that are readily convertible to known amounts of cash, and which are subject to insignificant risk of changes in value.

F-157 Cinema City International N.V.

Notes to the Interim Consolidated Financial Statements

Note 2 — Summary of Significant Accounting Policies (continued) M. Employee benefits — defined contribution plans Obligations for contributions to defined contribution pension plans are recognised as an expense in the income statement as incurred.

N. Employee benefits — severance pay In certain countries in which the Group operates, employees are entitled to a severance pay at the end of their employment. The Group’s liability for these severance payments is calculated pursuant to local applicable severance pay laws and employee agreements based on the most recent salary of the employees. The Group’s liability for all of its employees is partly provided by monthly deposits with insurance policies and by accruals. The deposited funds include profits accumulated up to the balance sheet date. The deposited funds may be withdrawn only upon the fulfilment of the obligation pursuant to local severance pay law or labour agreements. The value of the deposited funds is principally based on the cash value of these policies. The unfunded portion of the Group’s liability is taken up in the balance sheet as a provision under the heading “Accrued employee retirement rights, net”. The provision is stated at nominal value.

O. Provision related to onerous lease contracts During July 2002, the Group acquired a cinema chain in Poland at a discount, which was allocated to the lease agreements of the cinemas acquired. In the financial statements of the Company the discount is presented as a provision related to onerous lease contracts and is released to the income statement over the term of the lease (see also Note 14).

P. Long-term loans All long-term loans and borrowings are initially recognised at the fair value of the consideration received net of issue costs associated with the borrowing. After initial recognition, interest-bearing loans are subsequently measured at amortised cost using the effective interest rate method. Amortised cost is calculated by taking into account any issue costs, and any discount or premium on settlement. Gains and losses are recognised in net profit or loss when the liabilities are derecognised or impaired, as well as through the amortisation process. For information regarding the fair value of long-term liabilities reference is made to Note 25.

Q. Revenue recognition (1) Revenues from admission (ticket sales) and concession sales (snack-bars operated by the Company) are recognised when services are provided. (2) Revenues from distribution of cinema films are recognised on an accrual basis by a percentage of admissions from the related films. (3) Revenues from distribution of films to cable television companies and television stations are recognised over the agreed period for the screening of the film. (4) Revenues from sales of video cassettes and DVDs are recognised upon delivery to the customer. (5) Revenues from video cassette and DVD rentals are recognised as the rental services are provided. (6) Revenues from “on screen” advertising contracts are included in other revenues and are recognised when the related advertisement or commercial is screened, or, in some cases, over the period of the contract. (7) Revenues from rental contracts are included in other revenues and are recognised on an accrual basis.

F-158 Cinema City International N.V.

Notes to the Interim Consolidated Financial Statements

Note 2 — Summary of Significant Accounting Policies (continued) Q. Revenue recognition (continued) (8) Revenues from the sale of real estate are included in other revenues and are recognised when the significant risks and benefits of the ownership have been transferred, when the buyer is committed to the purchase, and when the sales price is considered collectible.

R. Operating costs (1) Cost of theatre sales — Include direct concession product and joint theatre facility costs such as employee costs, theatre rental and utilities, which are common to both ticket sales and concession operations. (2) Cost of films distributed — Cost of films distributed are capitalised until the time the films are distributed for screening. Once the films have been distributed and screening has begun, the costs are amortised at a rate equal to the ratio of revenues in the period to total estimated revenues for the films. (3) Advertising expenses — General advertising expenses are expensed as incurred. Film advertising expenses are expensed when the film is distributed or is shown to the public.

S. Net financing cost Net financing costs comprise interest payable on borrowings calculated using the effective interest rate method, and interest receivable on funds invested. Foreign exchange gains and losses, and gains and losses that are recognised on hedging instruments are recognised in the income statement. Interest income is recognised in the income statement as it accrues, taking into account the effective yield on the asset.

T. Derivative financial instruments The Group uses derivative financial instruments to hedge its exposure to foreign exchange rate risks arising from operational and financing activities. Derivative financial instruments are recognised initially at cost. Subsequent to initial recognition, derivative financial instruments are stated at fair value. The fair value of foreign contracts is based on the relevant current exchange rates at balance sheet date. Where a derivative financial instrument is used to economically hedge the foreign exchange exposure of a recognised monetary asset or liability, no hedge accounting is applied and any gain or loss due to the change in the fair value of the hedging instrument is recognised in the income statement.

U. Income taxes Income tax on the profit or loss for the year comprises current and deferred tax. Income tax is recognised in the income statement except to the extent that it relates to items recognised directly to equity, in which case it is recognised in equity. Income tax is calculated at the applicable local tax rates. Deferred income tax is provided using the balance sheet liability method on all temporary differences at the balance sheet date between the carrying amounts of assets and liabilities for financial reporting purposes and the tax bases of assets and liabilities. The amount of deferred tax provided is based on the expected timing of the reversal of the temporary differences, using tax rates enacted or substantially enacted at the balance sheet date. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the unused tax losses and credits can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Additional income taxes that arise from the distribution of dividends are recognised at the same time as the liability to pay the related dividend.

V. Earnings per share Earnings per share are computed according to IAS 33. The computation is determined on the basis of the weighted average number of ordinary shares issued and outstanding during the year.

F-159 Cinema City International N.V.

Notes to the Interim Consolidated Financial Statements

Note 2 — Summary of Significant Accounting Policies (continued) W. Segment reporting A segment is a distinguishable component of the Group that is engaged either in providing products or services (business segment), or in providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments.

X. New accounting pronouncements New Accounting Standards, amendments to Standards and Interpretations which are not yet effective as at 30 June 2006, have not been applied in preparing these consolidated financial statements. These new pronounce- ments (see below) concern disclosers and consequently will not have an impact on the Group’s reported financial position or results. IFRS 7 — Financial Instruments: Disclosures, is effective for the annual periods beginning on or after 1 January 2007 and requires increased disclosure in respect of financial instruments. Amendment to IAS 1 Presentation of Financial Statements — Capital Disclosures is effective from 1 January 2007 and are complementary amendments arising from IFRS 7. The amendment will require increased disclosure in respect of a company’s capital structure.

Note 3 — Changes in Consolidated Entities (I) Changes in consolidated and associated entities during the first half of 2006: (a) In May 2006, the Israeli government anti-monopoly office approved the merger of the Company’s video retail operations in Israel, which operate under the name Video Giant Ltd., with its main competitor, Blockbuster. Under the agreement signed between the parties, Video Giant Ltd. and Kafan Video Libraries Ltd. (operator of the Blockbuster video libraries in Israel) formed a 50/50 joint venture to operate the combined video chain under the brand name Blockbuster. The Company will provide the MD (chief executive officer) for the new JV,while Kafan will provide the chairman of the board. The JV will be jointly controlled between Kafan and the Company and the Company will consolidate the results of operations of this entity proportionally (50%). (b) During the first half of 2006, the Company sold its remaining 25% interest in the MO Sofia EAD, for which the Company has received EUR 13.1 million (see also Notes 3 II (b) and 6). The Company will continue to be responsible to cover its part (50%) for the completion of the project, which consists primarily of finishing the public areas of the office building related to the Mall, which has not yet opened. The Company believes these obligations will be substantially completed before the end of the year. The Company has made accrual to cover these obligations.

(II) Changes in consolidated entities during 2005: (a) Forum Hungary Film Distribution KFT — 100% shares. New subsidiary, incorporated in Hungary. This company commenced operation in February 2005 and specialises in distribution of films in Hungary. (b) During the first half of 2005, the Company, through a subsidiary, sold 25% of the shares in MO Sofia EAD after which the Company still held a further 25% interest in this company. The remaining 25% interest was sold during the first half of 2006 (see Note 3 I (b)). The 25% interest in MO Sofia EAD owned by the Company during the remainder of 2005 has been included in the consolidated balance sheets per 30 June 2005 and per 31 December 2005 as “Investments in associate” under “Financial fixed assets”. In previous years, the 50% interest was proportionally consolidated in the Company’s financial statements. (c) All Job Poland S.p.Z.oo — 100% shares. New subsidiary, incorporated in Poland. This company commenced operation in November 2005 and specialises in recruitment and employment of the company staff in Poland.

F-160 Cinema City International N.V.

Notes to the Interim Consolidated Financial Statements

Note 4 — Intangible fixed assets The intangible fixed assets mainly comprise investments in the development of video vending and renting machines and are stated at cost less accumulated amortisation and impairment losses, if any.

Composition:

First half year 2006 (unaudited) Foreign Balance at Additions currency beginning of during translation Balance at the period the period adjustments 30 June EUR (thousands) Cost ...... 966 204 (36) 1,134 Accumulated amortisation ...... 768 79 (25) 822 Carrying value ...... 198 125 (11) 312

Financial year 2005 (audited) Foreign Balance at Additions currency beginning of during translation Balance at the year the year adjustments 31 December EUR (thousands) Cost ...... 708 198 60 966 Accumulated amortisation ...... 539 181 48 768 Carrying value ...... 169 17 12 198

First half year 2005 (unaudited) Foreign Balance at Additions currency beginning of during translation Balance at the period the period adjustments 30 June EUR (thousands) Cost ...... 708 208 50 966 Accumulated amortisation ...... 539 137 41 717 Carrying value ...... 169 71 9 249

F-161 Cinema City International N.V.

Notes to the Interim Consolidated Financial Statements

Note 5 — Property and equipment, net Composition

First half year 2006 Foreign Sales and Balance at Additions currency disposals beginning of during the translation during Balance at the period period adjustments the period 30 June (unaudited) EUR (thousands) Cost Land and buildings(1) ...... 67,666 126 (1,967) — 65,825 Cinema equipment(1) ...... 68,450 5,017 (2,968) (367) 70,132 Leasehold improvements ...... 77,494 5,546 (3,672) (480) 78,888 Computers, furniture and office equipment . . . 10,029 723 (396) (772) 9,584 Vehicles ...... 1,187 59 (52) (135) 1,059 Video movies ...... 9,520 697 (353) (3,897) 5,967 Video machines ...... 1,138 35 (40) (549) 584 235,484 12,203 (9,448) (6,200) 232,039 Accumulated depreciation Land and buildings...... 9,674 1,604 (357) — 10,921 Cinema equipment ...... 30,684 2,735 (1,602) (187) 31,630 Leasehold improvements ...... 12,478 1,086 (603) (271) 12,690 Computers, furniture and office equipment . . . 7,129 313 (284) (493) 6,665 Vehicles ...... 579 80 (23) (62) 574 Video movies ...... 7,263 511 (224) (3,243) 4,307 Video machines ...... 1,067 22 (37) (515) 537 68,874 6,351 (3,130) (4,771) 67,324 Carrying value ...... 166,610 5,852 (6,318) (1,429) 164,715

(1) Includes EUR 680,000 construction in progress for entertainment purposes and EUR 8,284,000 cinema equipment not operated yet (see also Note 18 (1) b and c).

F-162 Cinema City International N.V.

Notes to the Interim Consolidated Financial Statements

Note 5 — Property and equipment, net (continued) Financial year 2005 Foreign Balance at Additions currency Sales and Balance at beginning during translation disposals end of of the year the year adjustments during the year(2) the year (audited) EUR (thousands) Cost Land and buildings(1) ...... 68,064 8,456 3,320 (12,174) 67,666 Cinema equipment(1) ...... 58,466 8,102 2,682 (800) 68,450 Leasehold improvements ...... 57,184 16,639 3,854 (183) 77,494 Computers, furniture and office equipment ...... 9,173 494 654 (292) 10,029 Vehicles...... 1,033 179 68 (93) 1,187 Video movies...... 7,733 1,189 598 — 9,520 Video machines ...... 1,046 9 83 — 1,138 202,699 35,068 11,259 (13,542) 235,484 Accumulated depreciation Land and buildings ...... 6,516 2,711 447 — 9,674 Cinema equipment ...... 24,157 5,208 1,321 (2) 30,684 Leasehold improvements ...... 10,082 1,875 626 (105) 12,478 Computers, furniture and office equipment ...... 6,431 446 463 (211) 7,129 Vehicles...... 451 147 29 (48) 579 Video movies...... 5,457 1,341 465 — 7,263 Video machine ...... 811 187 69 — 1,067 53,905 11,915 3,420 (366) 68,874 Carrying value ...... 148,794 23,153 7,839 (13,176) 166,610

(1) Includes EUR 5,758,000 construction in progress for entertainment purposes and cinema equipment to an amount of EUR 7,731,000 not operational yet (see also Note 18 (1) b and c). (2) Includes EUR 10,939,000 property and equipment of a subsidiary which was no longer consolidated starting from 30 June 2005 (see Note 3 II (b)).

F-163 Cinema City International N.V.

Notes to the Interim Consolidated Financial Statements

Note 5 — Property and equipment, net (continued) First half year 2005 Sales and Balance at Additions Foreign currency disposals beginning of the during translation during the Balance at period the period adjustments period(2) 30 June (unaudited) EUR (thousands) Cost Land and buildings(1) ...... 68,064 3,071 583 (12,174) 59,544 Cinema equipment(1) ...... 58,466 1,539 1,103 — 61,108 Leasehold improvements ...... 57,184 14,832 1,368 — 73,384 Computers, furniture and office equipment ...... 9,173 169 526 (23) 9,845 Vehicles ...... 1,033 136 51 (77) 1,143 Video movies ...... 7,733 711 404 — 8,848 Video machines ...... 1,046 8 66 — 1,120 202,699 20,466 4,101 (12,274) 214,992 Accumulated depreciation Land and buildings ...... 6,516 1,184 73 — 7,773 Cinema equipment ...... 24,157 2,392 724 — 27,273 Leasehold improvements ...... 10,082 882 309 — 11,273 Computers, furniture and office equipment ...... 6,431 238 371 (8) 7,032 Vehicles ...... 451 73 22 (50) 496 Video movies ...... 5,457 515 356 — 6,328 Video machines ...... 811 94 55 — 960 53,905 5,378 1,910 (58) 61,135 Carrying value ...... 148,794 15,088 2,191 (12,216) 153,857

(1) Includes EUR 2,386,000 construction in progress for entertainment purposes and EUR 6,827,000 cinema equipment not operated yet (see also Note 18(1)b and c). (2) Includes EUR 10,939,000 property and equipment of a subsidiary which was no longer consolidated as of 30 June 2005 (see Note 3 II(b)).

Note 6 — Investment in associates As at 31 December 2005, the Group held a 25% interest in MO Sofia EAD, which is involved in the development of a shopping mall in Sofia, Bulgaria. During the first half of 2006, the Group reached an agreement to sell the 25% interest in MO Sofia EAD, for which the Group has received EUR 13.1 million. As at 31 December 2004, the Group held a 50% interest in this company and therefore the investment was treated as a joint venture and as such was proportionally included in the Group’s consolidated financial statements. Towards the end of June 2005, the Group reached an agreement to sell half of its interest in MO Sofia EAD. The joint venture results up to the date of sale (June 2005) of half of the Group’s interest in MO Sofia EAD are included in the Group’s consolidated income statement. In the consolidated balance sheet as at 31 December 2005, the remaining 25% interest in MO Sofia EAD was no longer proportionally consolidated, and presented under “Investment in associates” in accordance with the net equity method (until the date of the disposition in 2006). MO Sofia EAD is a private entity that is not listed on any public exchange and therefore there is no quotation price for the fair value of this investment. The reporting date and reporting year of MO Sofia EAD is identical to the Group’s.

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Notes to the Interim Consolidated Financial Statements

Note 6 — Investment in associates (continued) The following table illustrates summarised information of the investment in MO Sofia EAD and represents the Company’s interests in the assets and liabilities of MO Sofia EAD as at 31 December 2005:

EUR (thousands) Current assets...... 683 Non-current assets ...... 9,983 Current liabilities ...... (2,888) Non-current liabilities ...... (5,495) Net assets...... 2,283

Note 7 — Inventories Composition:

30 June 31 December 30 June 2006 2005 2005 (unaudited) (audited) (unaudited) EUR (thousands) Concession products ...... 844 758 704 Video cassettes and DVDs ...... 719 459 585 IMAX films inventories ...... 1,497 1,512 1,370 Video machines ...... 12 94 91 Spare parts ...... 152 175 194 3,224 2,998 2,944

All inventories included above are valued at cost.

Note 8 — Trade accounts receivable Composition:

30 June 31 December 30 June 2006 2005 2005 (unaudited) (audited) (unaudited) EUR (thousands) Trade accounts receivable ...... 6,061 7,111 5,836 Allowance for doubtful accounts ...... (24) (28) (14) 6,037 7,083 5,822

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Notes to the Interim Consolidated Financial Statements

Note 9 — Other amounts receivable and prepaid expenses

Composition:

30 June 31 December 30 June 2006 2005 2005 (unaudited) (audited) (unaudited) EUR (thousands) Government institutions ...... 1,869 3,426 2,143 Advances to suppliers ...... 588 568 522 Prepaid expenses ...... 5,248 5,432 4,505 Prepaid cinema film and video film distribution costs(1) ...... 2,376 2,141 2,464 Receivable in respect of sale of interest in joint venture (see Note 6) . . — — 6,875 Other...... 1,454 3,196 520 11,535 14,763 17,029

(1) Stated at cost, incurred by a subsidiary company, of video and cinema film which has not yet been distributed, after being reviewed for recoverability — see also Note 18(1)f.

Note 10 — Cash and cash equivalents

Cash and cash equivalents comprise cash at bank and in hand and short-term deposits freely available for the Group. The short-term deposits have an original maturity varying from one day to three months.

30 June 31 December 30 June 2006 2005 2005 (unaudited) (audited) (unaudited) EUR (thousands) Cash at bank and at hand ...... 2,619 2,915 2,073 Short-term deposits ...... 3,145 2,252 2,996 Cash at bank and at hand ...... 5,764 5,167 5,069

Cash at bank and in hand earns interest at floating rates based on daily bank deposit rates. Short-term deposits are made for varying periods of between one day and three months depending on the immediate cash requirements of the Group, and earn interest at the respective short-term deposit rates. The fair value of the cash and cash equivalents is EUR 5,764,000 (31 December 2005: EUR 5,167,000; 30 June 2005: EUR 5,069,000).

Note 11 — Share capital

The authorised share capital of the Company consists of 175,000,000 shares of EUR 0.01 par value each.

The number of issued and outstanding ordinary shares as at 1 January 2005 amounted 40,724,000 and remained unchanged during the financial year 2005 and the first six months of the financial year 2006.

Note 12 — Minority interests

First half Financial First half year 2006 year 2005 year 2005 (unaudited) (audited) (unaudited) EUR (thousands) Balance at beginning of period ...... (411) (174) (174) Minority interests in (losses)/earnings of consolidated subsidiaries ...... (273) (188) (33) Translation adjustments ...... 13 (49) (32) Balance at closing date ...... (671) (411) (239)

F-166 Cinema City International N.V.

Notes to the Interim Consolidated Financial Statements

Note 13 — Accrued employee retirement rights, net a. According to the relevant laws, the Company’s subsidiaries in Europe are not required to deposit amounts, on a monthly basis, to retirement and pension funds on behalf of their employees, and therefore have no such liabilities towards them. b. Local applicable labour laws and agreements require Group companies to pay severance pay to dismissed or retiring employees (including those leaving their employment under certain other circumstances). The calculation of the severance pay liability was made in accordance with labour agreements in force and based on salary components that, in Management’s opinion, create entitlement to severance pay. Group companies’ severance pay liabilities to their employees are funded partially by regular deposits with recognised pension and severance pay funds in the employees names and by purchase of insurance policies and are accounted for as if they were a defined contribution plan. The amounts funded as above are netted against the related liabilities and are not reflected in the balance sheets, since they are not under the control and management of the companies. c. The amounts of the liability for severance pay presented in the balance sheets (see (d) below) reflect that part of the liability not covered by the funds and the insurance policies mentioned in (b) above, as well as the liability that is funded by deposits with recognised central severance pay funds held under the name of the Company’s subsidiaries. d. The provision for accrued employee rights upon retirement, net, comprises:

30 June 31 December 30 June 2006 2005 2005 (unaudited) (audited) (unaudited) EUR (thousands) Provision for severance pay ...... 1,670 1,896 1,851 Less: Amounts deposited with recognised central severance pay funds, including earnings thereon and other deposits ...... (970) (989) (958) Net amount...... 700 907 893 e. The movements in the provision for accrued employee rights upon retirement during the financial year are as follows:

First half year 2006 Gross amount Amount deposited Net amount (unaudited) EUR (thousands) Balance beginning of the period...... 1,896 (989) 907 Translation difference ...... (67) 35 (32) Monthly payments to deposit ...... — (16) (16) Net movement in provision (credited)/charged to net profit...... (159) — (159) Balance at 30 June ...... 1,670 (970) 700

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Notes to the Interim Consolidated Financial Statements

Note 13 — Accrued employee retirement rights, net (continued)

Financial year 2005 Gross amount Amount deposited Net amount (audited) EUR (thousands) Balance beginning of the year ...... 1,662 (868) 794 Translation difference ...... 132 (69) 63 Monthly payments to deposit ...... — (52) (52) Net movement in provision (credited)/charged to net profit...... 102 — 102 Balance at 31 December ...... 1,896 (989) 907

First half year 2005 Gross amount Amount deposited Net amount (unaudited) EUR (thousands) Balance beginning of the period ...... 1,662 (868) 794 Translation differences ...... 105 (55) 50 Monthly payments to deposit ...... — (35) (35) Net movement in provision (credited)/charged to net profit .... 84 — 84 Balance at 30 June...... 1,851 (958) 893

Note 14 — Provisions related to onerous lease contracts In July 2002 the Group purchased four multiplex cinemas in Poland from Ster Century Europe Limited. The multiplexes comprised a total of 46 screens and approximately 10,000 seats. As part of the transaction, the Group acquired all of the shares of Ster Century Europe’s Polish subsidiaries and purchased shareholder loans provided to these subsidiaries, for a total consideration of approximately EUR 19 million (USD 20 million as per July 2002). The acquisition also involved the assumption of certain long-term lease contracts with onerous terms, expiring in 2009 to 2010. A provision of EUR 12,731,000 (USD 13,369,000 as per July 2002) relating to these onerous lease contracts, which the acquired subsidiaries were party to prior to the acquisition, has been recorded as part of the acquisition.

The provision is amortised over the non-cancellable periods of the lease contracts. Amortisation in the 6 months ended 30 June 2006 amounted to EUR 804,000 (for the year ended 31 December 2005: EUR 1,608,000) and was credited to the lease expenses under operating expenses. Movements:

First half Financial First half year 2006 year 2005 year 2005 (unaudited) (audited) (unaudited) EUR (thousands) Balance at beginning of year/period ...... 6,781 8,389 8,389 Amortisation during the year/period ...... (804) (1,608) (804) Balance at end of year/period ...... 5,977 6,781 7,585

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Notes to the Interim Consolidated Financial Statements

Note 15 — Long-term loans A. Composition

Interest 30 June 31 December 30 June rates 2006 2005 2005 % (unaudited) (audited) (unaudited) EUR (thousands) In Czech crowns...... (1) 8,134 8,452 8,269 InEUR...... (2)(6) 45,372 55,563 62,033 InPLN...... (3) 21,661 19,377 13,366 In US dollars ...... (4) 39 29 95 InNIS...... (5) 263 402 517 Loan from minority interest holder . . . . (6) — 42 — 75,469 83,865 84,280 Less — current portion ...... 10,187 9,977 8,368 65,282 73,888 75,912

(1) Linked to the Czech crowns bearing interest at the rate of PRIBOR +2%. (2) In euro, bearing interest at the rate of EURIBOR + 1.5%-2.0%. (3) In Polish zloty, bearing an interest rate of 7.1%. (4) Linked to the US Dollar bearing interest at the rate of LIBOR + 1.0 Ϫ 1.75%. (5) In NIS, linked to the Israeli CPI and bearing interest at the rate of 5.7%. (6) In US dollar bearing no interest. In 2004 the Company, through a subsidiary, signed a loan agreement with a Polish bank under which agreement the Company can borrow up, in trenches, to a maximum of PLN 77 million. The loan is intended for the financing of new cinema projects in Poland. As at 30 June 2006 and as at 31 December 2005, the whole amount of PLN 77,000,000 has been drawn down under this agreement (as at 30 June 2005: PLN 54,009,000). The interest rates showed concern the rates per the end of the financial period. B. The loans mature as follows:

30 June 31 December 30 June 2006 2005 2005 (unaudited) (audited) (unaudited) EUR (thousands) First year — current maturities ...... 10,187 9,977 8,368 Second year ...... 10,066 9,986 9,767 Third year...... 11,425 11,834 9,753 Fourth year ...... 9,271 9,286 11,178 Fifth year ...... 10,120 9,536 9,100 Sixth year and thereafter ...... 11,949 24,607 12,307 Undefined...... 12,451 8,639 23,807 75,469 83,865 84,280

C. Liens — see Note 18(2).

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Notes to the Interim Consolidated Financial Statements

Note 16 — Short-term bank credit and current portion of long-term loans Composition: 30 June 31 December 30 June Interest rates 2006 2005 2005 % (unaudited) (audited) (unaudited) EUR (thousands) Current portion of long term loans ...... (see Note 15) 10,187 9,977 8,368 Short-term bank credit: Unlinked (NIS) ...... (1) 6.4% 11,507 8,322 8,022 21,694 18,299 16,390

(1) Variable The interest rates shown concern the rates per 30 June 2006.

Note 17 — Other accounts payable Composition:

30 June 31 December 30 June 2006 2005 2005 (unaudited) (audited) (unaudited) EUR (thousands) Investment creditors...... 1,533 7,411 4,288 Accrued expenses ...... 3,169 2,986 2,386 Payable in respect of sale of associate ...... 3,550 —— Deferred income ...... 1,559 —— Government institutions ...... 97 323 163 Advances and income received in advance(1) ...... 165 2,075 2,708 Other...... 871 106 108 10,944 12,901 9,653

(1) Consist mainly of advances received from several customers, for feature video rentals and film distribution.

Note 18 — Commitments, contingent liabilities and liens (1) Commitments a. The Company and its subsidiaries conduct most of their cinema, video library stores and corporate operations in leased premises. These leases, which have non-cancellable clauses, expire at various dates after 30 June 2006. Many leases have renewal options. Most of the leases provide for contingent rentals based on the revenues of the underlying cinema or video library stores, while certain leases contain escalating minimum rental provisions. Most of the leases require the tenant to pay city taxes, insurance, and other costs applicable to the leased premises.

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Notes to the Interim Consolidated Financial Statements

Note 18 — Commitments, contingent liabilities and liens (continued) (1) Commitments (continued) Future minimum lease payments under non-cancellable operating leases from third parties for the coming 5 years, are as follows:

EUR (thousands)* 2006 (second half year) / 2007 (first half year) ...... 15,962 2007 (second half year) / 2008 (first half year) ...... 14,787 2008 (second half year) / 2009 (first half year) ...... 14,761 2009 (second half year) / 2010 (first half year) ...... 14,388 2010 (second half year) / 2011 (first half year) ...... 14,298 After 30 June 2011 ...... 49,521 123,717

* Does not include contingent rental, which is subject to the Company’s decision to exercise the option to extend the operating lease period. Rental expenses for theatres are summarised as follows:

First half Financial First half year 2006 year 2005 year 2005 (unaudited) (audited) (unaudited) EUR (thousands) Minimum rental ...... 7,510 12,514 6,136 Contingent rental ...... — 31 17 7,510 12,545 6,153

b. The Group is a party to a master agreement with a developer, Control Centres Ltd. (“Control Centres”), for the construction of theatre sites in shopping malls and other commercial centres throughout Hungary, Poland and the Czech Republic. Under this agreement, the Company currently has 15 multiplexes that are already operating in shopping malls in Central Europe. c. As at 30 June 2006, the Group has unpaid commitments to invest in the development of properties of approximately EUR 7.7 million and further commitments to acquire equipment of approximately EUR 9.6 million in connection with the development of new systems and movie theatres. In addition, the Group is committed to pay a percentage of its revenues from some of these new systems, subject to a minimum monthly cost per system. d. In consideration for its rights to be the exclusive distributor of their films in Israel, Poland and Hungary, subsidiary companies are committed to pay fees to certain producers based on a percentage of its revenues (or in some cases, specific profits) from the films. In some cases, a minimum fee has been determined. e. Ya’af Network, a subsidiary company, has agreements for the rental of video library stores, and for the rental of space for videomats, which it uses in its operations. The rental terms pursuant to these agreements (including renewal options) granted to Ya’af Network are for periods of one to ten years. The rental expenses relating to these agreements are calculated as a lump-sum linked either to the Israeli CPI or to the US dollar, or as a percentage of the turnover. Semi-annual rent expenses for 2006 amounts to EUR 304,000. f. Subsidiary companies signed agreements with third parties in Israel, Poland and Hungary. According to these agreements, the subsidiary companies grant the third parties exclusive broadcasting rights on Israeli, Polish and Hungarian television for specific movies. These rights are for various periods and will end during the years 2006-2008. g. Movie films are typically licensed from film distributors representing film production companies. Film exhibition licences typically specify rental fees based upon a gross receipts formula, which is negotiated

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Notes to the Interim Consolidated Financial Statements

Note 18 — Commitments, contingent liabilities and liens (continued) (1) Commitments (continued) on a movie-by-movie basis in advance of distribution. The fees are generally related to the anticipated performance of the movie based on the distributor’s experience in other markets, if possible. Under such a formula, the distributor receives a specified percentage of box office receipts, with the percentage declining over the term of the run.

h. Lease contracts of certain cinema equipment of IMAX»systems are classified as finance lease and as such, the equipment is included in Tangible fixed assets under Cinema equipment. The total of the lease obligation at 30 June 2006 amounted to EUR 2,462,000 (31 December 2005: EUR 2,767,000; 30 June 2005: EUR 2,995,000) and is classified as other long-term payables. The lease term expires on 31 December 2020, after which the ownership will be transferred to the Company.

(2) Liens

a. As part of the Restructuring (see Note 1), the Company has assumed the majority of the Group’s bank debt, provided originally via ITIT. Based on the agreement between the Company and ITITof December 2003, the bank will provide the Company with loans, which will be used to pay back ITIT’s loans to the bank. In order to secure the Company’s liabilities for such bank credits and loans in the amount of approximately EUR 33 million, the Company has provided the bank the following: (i) a registered first degree fixed lien on IT-2004’s (the Israeli subsidiary) outstanding share capital and goodwill; (ii) a first degree floating lien on IT-2004’s assets, including insurance benefits in respect of the assets and rights of any kind which the ITIT has or will have in the future; (iii) that the assets of IT-2004 will not be pledged and the lien cannot be transferred without the agreement of the bank; (iv) ITIT has agreed to guarantee the debt of the Company, and ITIT has provided the bank with a fixed lien on 70% of the Company’s issued share capital; (v) that certain financial covenants will be fulfilled and maintained.

b. The local subsidiaries in Poland and the Czech Republic have obtained financing from banks for some of the cinema complex projects. The securities given include: mortgage on the assets of the financed projects, pledge on the shares of the subsidiaries, and an assignment of all revenues and insurance policies of the projects. As 30 June 2006, the Company had issued a guarantee for EUR 12 million to a Polish bank in connection with a loan provided to a subsidiary. In addition, the Company has issued a guarantee for a total amount of EUR 40.8 million (165 million) to a Polish bank in order to secure several loan agreements with this bank

Certain financial covenants should be fulfilled and maintained in relation to the loans from the Polish bank as mentioned above.

c. In order to secure an outstanding loan from a central European bank of approximately EUR 4 million, a subsidiary company has provided to the bank the following: (i) a registered first degree fixed lien on its outstanding share capital and goodwill; (ii) a first degree floating lien on its assets, including insurance benefits in respect of the assets and rights of any kind which the subsidiary has or will have in the future; (iii) that the assets of the subsidiary will not be pledged and the lien cannot be transferred without the agreement of the bank.

(3) Contingent Liabilities

From time to time, the Group is involved in routine litigation and proceedings during the normal course of business. As of balance sheet date, the Group is not involved in any litigations or proceedings except for the following: in August 2005 a Polish institute for copy right protection and collection filed a claim against the Company’s Polish subsidiary demanding payments of copy right fees for screening movies in Polish cinemas during the period 2001-2005 to an amount of approximately PLN 8.5 million (EUR 2.1 million). Based on similar law cases by the same Polish institute against two major competitors of the Company in Poland both of which have

F-172 Cinema City International N.V.

Notes to the Interim Consolidated Financial Statements

Note 18 — Commitments, contingent liabilities and liens (continued) (3) Contingent Liabilities (continued) failed, and based on the advice by the Company’s Counsel that it is not probable that the action will succeed, no provision for any liability has been made in these financial statements following this claim.

Note 19 — Revenues

For the For the For the 6 months ended 12 months ended 6 months ended 30 June 2006 31 December 2005 30 June 2005 (unaudited) (audited) (unaudited) EUR (thousands) Theatre sales ...... 47,452 73,641 32,726 Distribution ...... 11,668 15,138 5,439 Video...... 2,056 4,877 2,452 Other ...... 14,325 14,525 10,441 75,501 108,181 51,058

Note 20 — Operating costs

For the For the For the 6 months ended 12 months ended 6 months ended 30 June 2006 31 December 2005 30 June 2005 (unaudited) (audited) (unaudited) EUR (thousands) Cost of theatre sales ...... 35,080 58,077 26,301 Distribution operations ...... 11,062 12,349 4,682 Video operations ...... 1,579 3,454 1,768 Other ...... 8,182 4,891 3,943 Depreciation and amortisation...... 6,430 12,096 5,515 62,333 90,867 42,209

Cost of inventories recognised as an expense is included in Cost of sales for an amount of EUR 2,814,000 (2005 (12 months): EUR 3,781,000; 2005 (6 months): EUR 1,137,000).

Note 21 — Financial income/(expenses) A. Financial income

For the For the For the 6 months ended 12 months ended 6 months ended 30 June 2006 31 December 2005 30 June 2005 (unaudited) (audited) (unaudited) EUR (thousands) Interest income ...... 231 769 533 Currency exchange gains ...... 20 1,429 890 Total financial income ...... 251 2,198 1,423

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Notes to the Interim Consolidated Financial Statements

Note 21 — Financial income/(expenses) (continued) B. Financial expenses

For the For the For the 6 months ended 12 months ended 6 months ended 30 June 2006 31 December 2005 30 June 2005 (unaudited) (audited) (unaudited) EUR (thousands) Interest expenses incurred ...... (2,494) (4,472) (2,585) Interest cost capitalised(1) ...... 212 999 419 Currency exchange losses ...... (78) (1,478) (980) Total financial expenses ...... (2,360) (4,951) (3,146)

(1) The Company has capitalised interest expenses to the cost of buildings in progress as well as to other fixed asset components before being taken into operation.

Note 22 — Gain/(loss) on disposals and write-off on other investments This item comprises a net capital loss on the disposal of property, equipment and other assets (financial year 2006: a net capital loss; first half of 2006: a net capital gain).

Note 23 — Income taxes I. Tax laws applicable to the Group: 1. Results of operations for tax purposes of the Company and its Dutch subsidiaries are computed in accordance with Dutch tax legislation. 2. Tax rates applicable in 2006 to the Company and its subsidiaries are as follows:

The subsidiary Tax rate Netherlands...... 29.6% Hungary ...... 16% Czech Republic ...... 24% Poland ...... 19% Israel ...... 31% Bulgaria ...... 15% 3. Tax ruling in Israel The Group has received a special ruling from the Israeli tax authorities to allow for the transfer of the Israeli activities to IT-2004, and to transfer the shares of all the operating Israeli subsidiaries to the Dutch company. Under the ruling, ITIT has committed not to sell its shares in the Company for a period of four years, and the Company has committed to pay tax in Israel on any future gains on the sale of Israeli subsidiaries.

II. Deferred income taxes 1. Deferred income taxes are primarily provided for all the temporary differences between the tax and the accounting basis of assets and liabilities based on the tax rate that is expected to be in effect at the time the deferred income taxes will be realised.

Realisation of the deferred income tax assets is dependent upon generating sufficient taxable income in the period that deferred income tax assets are realised. Based on all available information, Management believes that all of the deferred income tax assets are realisable and therefore has not provided for valuation allowance.

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Notes to the Interim Consolidated Financial Statements

Note 23 — Income taxes (continued) II. Deferred income taxes (continued)

2. Changes in deferred income taxes are in respect of the following items:

30 June 31 December 30 June 2006 2005 2005 (unaudited) (audited) (unaudited) EUR (thousands) Accrued employee rights ...... 6 (79) 14 Fixed assets ...... (91) (282) (218) Operating tax loss carry-forwards ...... 23 (2,146) 333 Long-term liabilities ...... — 1,353 — Other ...... 37 574 (142) (25) (580) (13)

3. Deferred income taxes are in respect of the following items: Deferred income tax included in assets:

30 June 31 December 30 June 2006 2005 2005 (unaudited) (audited) (unaudited) EUR (thousands) Accrued employee rights ...... 71 66 85 Fixed assets ...... (309) 17 76 Operating tax loss carry-forwards ...... 927 667 2,236 Other ...... 82 307 (256) 771 1,057 2,141

Deferred tax included in liabilities:

30 June 31 December 30 June 2006 2005 2005 (unaudited) (audited) (unaudited) EUR (thousands) Fixed assets ...... 2,503 2,890 2,835 Other ...... (827) (972) (461) 1,676 1,918 2,374

III. Income taxes in the income statements comprises:

For the For the For the 6 months ended 12 months ended 6 months ended 30 June 2006 31 December 2005 30 June 2005 (unaudited) (audited) (unaudited) EUR (thousands) Current taxes ...... 233 648 214 Deferred income taxes ...... (2) 550 (16) 231 1,198 198

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Notes to the Interim Consolidated Financial Statements

Note 23 — Income taxes (continued) IV. Tax reconciliation The difference between the amount of tax calculated on income before taxes at the regular tax rate and the tax expenses included in the financial statements is explained as follows:

For the For the For the 6 months ended 12 months ended 6 months ended 30 June 2006 31 December 2005 30 June 2005 (unaudited) (audited) (unaudited) EUR (thousands) Tax calculated at the regular rate (2006: 29.6%; 2005: 31.5%) ...... 2,296 2,842 1,452 Adjustment for reduced tax rate in foreign subsidiaries . . . (398) (221) 65 Non-deductible expenses ...... 460 115 (18) Effect of tax losses utilized...... (504) 360 374 Income exempt from taxes ...... (2,242) (2,608) (2,271) Unrealized exchange rate differences ...... (12) — 162 Taxes in respect of previous years...... — —— Other differences ...... 631 710 434 Actual tax charged ...... 231 1,198 198

Note 24 — Related party transactions Related parties Parties are considered to be related if one party has the ability to control or exercise significant influence over the other party in making financial and reporting decisions. Such relationships include: 1. Parent-subsidiary relationships. 2. Entities under common control. 3. Individuals who, through ownership, have significant influence over the enterprise and close members of their families. 4. Key management personnel.

Transactions with related parties: a. Income (expenses):

For the For the For the 6 months ended 12 months ended 6 months ended 30 June 2006 31 December 2005 30 June 2005 (unaudited) (audited) (unaudited) EUR (thousands) Rental fees ...... (151) (610) (358) Management services ...... 157 392 2

b. In June 1998, Israel Theatres Ltd. (the parent company of ITIT) leased to ITIT the real estate properties on which four of the Company’s theatres are located, until 30 November 2007, subject to the Company’s right to terminate any lease prior to its original termination date. The annual lease payments for the above properties aggregate to EUR 278, 000. These leases were assigned to IT-2004, a 100% subsidiary of the Company, as part of the restructuring in 2003. c. In December 2003, employment agreements with Mr. Moshe Greidinger and Mr. Israel Greidinger, both managers in the Company, whose family members control Israel Theatres, and with Mr. Amos Weltsch,

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Notes to the Interim Consolidated Financial Statements

Note 24 — Related party transactions (continued) Transactions with related parties: (continued) its Chief Operating Officer (Managing Directors), signed originally with ITIT in 1998, were assigned to the Company. The fulfilment of the Company’s obligation under the agreements will be performed by the Company, or by its Israeli subsidiaries. In accordance with the said agreement, the aggregate gross monthly remuneration for the Managing Directors amounts to EUR 27,000 per month (not linked), which, together with related employee benefits, will amount to EUR 32,000 per month. In addition, the Managing Directors will be entitled to an annual bonus aggregating to 7% of the Company’s consolidated profits before tax for any fiscal year. The above Managing Directors undertook to be employed by the Company for an indefinite period, with 6 month notice of termination, and to refrain from competing with the Company’s business for a period of 12 months following termination of their employment with the Company. Forum Film Ltd., a 50% subsidiary, will participate in the aforementioned remunerations to Mr Moshe Greidinger and Mr Israel Greidinger at the rate of 33% thereof and will fully cover the portion of the above mentioned bonuses that relate to its own revenues. The Managing Directors of the Company are entitled to remuneration totalling EUR 975,000 during the first half of 2006 (2005 (12 months): EUR 1,178,000). For the first 6 months of 2006, the members of the Supervisory Board are entitled to fees totalling EUR 25,750 (2005 (12 months): EUR 51,500). The total remuneration is included in general and administrative expenses. d. In May 1998, ITIT entered into a management services agreement with Israel Theatres pursuant to which the Company will provide Israel Theatres for an indefinite period, but not less than three years, with certain management services. Management services include office and accounting services through providing Israel Theatres with senior personnel and administration of Israel Theatres’ business. The management services agreement is for a fixed annual sum of EUR 299,000 (USD 377,000). In December 2003, this agreement was assigned to IT-2004, the 100% Israeli subsidiary of the Company. e. Forum Film Ltd. and Giant Video have been leasing offices and storage space from Israel Theatres since February 1994, for consideration of EUR 10,000 (USD 13,000) per month, linked to the changes in the CPI. Israel Theatres leased offices in Herzlia and in Haifa to IT-2004 until 30 November 2007, in consid- eration of EUR 49,000 (NIS 286,000) per annum. The rental fees are linked to the Israeli CPI. f. The minority interests mainly represent a 50% indirect share in the equity of Forum Film by related parties. Pursuant to Forum Film’s Articles of Association, the Company has the right to appoint three of Forum Film’s five directors, and accordingly, maintains control over all major company decisions. g. The Company has entered into an indemnification agreement with each executive officer and director. These agreements endeavour to fully indemnify and limit the personal liability of the officers and directors, in certain circumstances, both to the Company and to its shareholders, for acts or omissions by them in their official capacity. The Company had obtained a directors and officers liability insurance. h. Israel Theatres, ITIT and its directors and principal officers undertook not to compete, whether directly or indirectly, with the Company’s business in the film exhibition, distribution and video rental fields. The length of this undertaking is for as long as they are directors or officers in either of the companies, or beneficially own a controlling interest in the Company. The agreement specifically states that Israel Theatres and ITIT may not engage in the development, sale or lease of property for theatrical or video rental use without the prior written consent of the Company, unless it is to be used by the Company.

Note 25 — Financial instruments The Group’s principal financial instruments, other than derivatives, comprise bank loans, operating leases and short-term bank credits. The main purpose of these financial instruments is to raise finance for the Group’s

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Notes to the Interim Consolidated Financial Statements

Note 25 — Financial instruments (continued) operations. The Group has various other financial instruments such as trade debtors and trade creditors, which arise directly from its operations. The Group also enters into derivative transactions, principally forward currency contracts. The purpose is to manage the currency risks arising from the Group’s operations and its sources of finance. It is, and has been throughout the financial year 2005 and the first half year 2006, the Group’s policy that no trading in financial instruments shall be undertaken. The main risks arising from the Group’s financial instruments are interest rate risk, liquidity risk, foreign currency risk and credit risk. The board reviews and agrees policies for managing each of these risks and they are summarised below. The Group also monitors the market price risk arising from all financial instruments. The Group’s accounting policies in relation to derivatives are set out in Note 2.

Credit risk Financial instruments that potentially subject the Group to concentrations of credit risk consist principally of cash and cash equivalents, short-term investments and receivables. The Group places its cash and cash equivalents and short-term investments in financial institutions with high credit ratings. Management does not expect any counterparty to fail to meet its obligations. Concentrations of credit risk with respect to trade receivables are limited due to the large number of customers comprising the Group’s customer base.

Interest rate risk The Group adopts a policy of a mixture of flat and floating interest rates (see Note 15 and 16). The Group’s policy is to manage its interest cost using a mix of fixed and variable rate debt. At 30 June 2006, the Group had no borrowings at fixed rates of interest.

Foreign currency risk The Group incurs foreign currency risk on sales, purchases and borrowings that are denominated in a currency other than the euro. The currencies giving rise to this risk are primarily USD, PLN, NIS, HUF and CZK. In order to minimise exposure to foreign currency risk, among other things, the Group converted a major part of its long-term loans into EUR during 2003. As at 30 June 2006, the Company has hedged some of its USD and EUR expenses through June 2006 in respect of its Polish theatre operations, against the Polish Zloty. In connection with these obligations, the Company has entered into forward foreign exchange contracts comprising a commitment to buy USD 400,000 at the beginning of each month during the second quarter of 2006 and until December 2008 at fixed prices denominated in Polish Zloty. The Company has also entered into forward foreign exchange contracts comprising a commitment to buy EUR 350,000 at the beginning of each month during the second quarter of 2006 and until December 2008 at fixed prices denominated in Polish Zloty. These forward foreign exchange contracts have been valued in the consolidated balance sheet at 30 June 2006 at their fair value.

Fair values The following are details of the fair values of all of the Group’s financial instruments that are carried in the financial statements at other than fair values and for which it is practicable to estimate such value: a. Cash and cash equivalents, short-term bank deposit and short-term bank credit. The carrying amounts approximate fair value because of the short maturity of these instruments. b. Marketable securities. The carrying amounts approximate fair value.

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Notes to the Interim Consolidated Financial Statements

Note 25 — Financial instruments (continued) Fair values (continued) c. Trade accounts receivable, other accounts receivable, accounts payable and accrued liabilities. The carrying amounts approximate fair value because of the short-term nature of these instruments. d. Debt — as of 30 June 2006, the aggregate fair value of the Company’s long-term debt obligations is similar to its carrying value of EUR 75 million. As of 31 December 2005, the aggregate fair value of the Company’s long-term debt obligation was similar to its carrying value of EUR 84 million (30 June 2005: fair value of EUR 84 million compared to carrying value of EUR 84 million). The above fair values have been based on terms for debts with conditions and maturities similar to those of the Company’s debts as prevailing in the market at balance sheet date.

Note 26 — Linkage terms of monetary items

30 June 2006 In or linked In or linked to foreign to euros currencies Total (unaudited) EUR (thousands) Assets: Cash and cash equivalents ...... 3,294 2,470 5,764 Trade accounts receivable ...... — 6,037 6,037 Other accounts receivable ...... 885 10,650 11,535 Related parties receivable ...... 71 254 325 Marketable securities...... —5252 4,250 19,463 23,713 Liabilities: Short-term bank credit ...... — 11,507 11,507 Trade accounts payable ...... 471 7,231 7,702 Employee and payroll accruals ...... 7 1,147 1,154 Other accounts payable ...... 5,816 5,128 10,944 Due to related parties ...... 5 353 358 Long-term loans (including current maturities) ...... 45,372 30,097 75,469 Accrued employee rights upon retirement ...... — 700 700 51,671 56,163 107,834

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Notes to the Interim Consolidated Financial Statements

Note 26 — Linkage terms of monetary items (continued) 31 December 2005 In or linked In or linked to foreign to euros currencies Total EUR (thousands) Assets Cash and cash equivalents ...... 1,568 3,599 5,167 Trade accounts receivable ...... — 7,083 7,083 Other accounts receivable ...... 2,958 11,805 14,763 Related parties receivable ...... 1,445 257 1,702 Marketable securities...... — 55 55 5,971 22,799 28,770 Liabilities Short-term bank credit ...... — 8,322 8,322 Trade accounts payable ...... 54 9,869 9,923 Employee and payroll accruals ...... — 1,312 1,312 Other accounts payable ...... 1,648 11,253 12,901 Due to related parties ...... 5 432 437 Long-term loans (including current maturities) ...... 55,562 28,303 83,865 Accrued employee rights upon retirement ...... — 907 907 57,269 60,398 117,667

30 June 2005 In or linked In or linked to euros to foreign currencies Total (unaudited) EUR (thousands) Assets: Cash and cash equivalents ...... 2,206 2,863 5,069 Short-term bank deposits ...... — — — Trade accounts receivable ...... — 5,822 5,822 Other accounts receivable ...... 7,335 9,694 17,029 Related parties receivable ...... 1,377 345 1,722 Marketable securities ...... — 46 46 Loans to unconsolidated subsidiaries ...... — — — 10,918 18,770 29,688 Liabilities: Short-term bank credit ...... — 8,021 8,021 Trade accounts payable ...... 222 8,245 8,467 Employee and payroll accruals ...... 5 1,352 1,357 Other accounts payable...... 1,730 7,923 9,653 Due to related parties ...... 5 103 108 Long-term loans (including current maturities) ...... 62,034* 22,246* 84,280 Accrued employee rights upon retirement ...... — 893 893 63,996 48,783 112,779

* Restated for comparison reasons.

Note 27 — Segment reporting

Segment information is presented in respect of the Group’s business and geographical segments. The primary format, business segments, is based on the Group’s management and internal reporting structure.

F-180 Cinema City International N.V.

Notes to the Interim Consolidated Financial Statements

Note 27 — Segment reporting (continued) The Group’s operations in Israel and Central Europe are organised under the following major business segments: — Theatre operations. — Distribution — Distribution of movies. — Video + DVD — Rental and sale of video cassettes and DVD. Business segments:

First half year 2006 Theatre Video & Operations Distribution DVD Other Eliminations Consolidated (unaudited) EUR (thousands) Revenues External sales ...... 47,452 11,668 2,056 14,325 — 75,501 Inter-segment sales ...... — 1,206 — — (1,206) — Total revenues...... 47,452 12,874 2,056 14,325 (1,206) 75,501 Results Segment results before depreciation, amortisation and impairment write-downs ...... 11,130 181 213 4,772 — 16,296 Depreciation, amortisation and impairment write-downs ...... 5,590 66 585 189 — 6,430 Segment results ...... 5,540 115 (372) 4,583 — 9,866 Net financial expense ...... (2,109) Gain and loss on disposals...... (1) Income taxes...... (231) Minority interests ...... 273 Net income ...... 7,798 Assets Segment assets ...... 166,479 7,383 3,214 15,051 771 192,898 Liabilities Segment liabilities...... 18,737 3,533 937 5,519 88,652 117,378 Other information Capital expenditure ...... 11,030 6 1,293 78 — 12,407

F-181 Cinema City International N.V.

Notes to the Interim Consolidated Financial Statements

Note 27 — Segment reporting (continued) Financial year 2005 Theatre Video & Operations Distribution DVD Other Eliminations Consolidated EUR (thousands) Revenues External sales ...... 73,641 15,138 4,877 14,525 — 108,181 Inter-segment sales ...... — 3,778 325 — (4,103) — Total revenues...... 73,641 18,916 5,202 14,525 (4,103) 108,181 Results Segment results before depreciation, amortisation and impairment write-downs ...... 12,867 2,048 1,012 8,096 — 24,023 Depreciation, amortisation and impairment write-downs ...... 9,787 137 1,720 452 — 12,096 Segment results ...... 3,080 1,911 (708) 7,644 — 11,927 Net financial expense ...... (2,753) Gain and loss on disposals...... (151) IPO cost write-off ...... — Net loss from associates ...... (103) Income taxes...... (1,198) Minority interests ...... 188 Net income ...... 7,910

31 December 2005 Theatre Video & operations Distribution DVD Other Unallocated Consolidated EUR (thousands) Assets Segment assets ...... 172,923 7,280 3,016 17,745 1,057 202,021 Liabilities Segment liabilities ...... 28,867 2,584 1,851 1,497 94,105 128,904 Other information Capital expenditure ...... 29,795 1,011 1,292 3,168 — 35,266

F-182 Cinema City International N.V.

Notes to the Interim Consolidated Financial Statements

Note 27 — Segment reporting (continued) First half year 2005 Theatre Video & Operations Distribution DVD Other Eliminations Consolidated (unaudited)*) EUR (thousands) Revenues External sales ...... 32,726 5,439 2,452 10,441 — 51,058 Inter-segment sales ...... — 1,707 214 — (1,921) — Total revenues* ...... 32,726 7,146 2,666 10,441 (1,921) 51,058 Results Segment results before depreciation, amortisation and impairment write-downs ...... 4,920 482 505 5,938 — 11,845 Depreciation, amortisation and impairment write-downs ...... 4,444 129 702 241 — 5,516 Segment results* ...... 476 353 (197) 5,697 — 6,329 Net financial expense ...... (1,723) Gain and loss on disposals...... 4 Income taxes...... (198) Minority interests ...... 33 Net income ...... 4,445 Assets Segment assets* ...... 157,910 5,610 3,706 22,288 2,142 191,656 Liabilities Segment liabilities* ...... 24,190 4,246 2,005 522 94,675 125,638 Other information Capital expenditure* ...... 16,496 255 803 3,120 — 20,674

*) Restated to reflect the change of functional currencies for operations in Central Europe as of the year 2005 (see Note 2 B). In addition to the information on business segments based on the structure of the Group, the figures below present information for geographical segments. Determination of geographical segments is based on location of assets and is identical to customer location.

30 June 2006 Central Europe Israel Unallocated Consolidated (unaudited) EUR (thousands) Revenues External sales ...... 62,024 13,477 — 75,501 Assets Segment assets ...... 165,568 26,559 771 192,898 Capital expenditure ...... 8,299 4,108 — 12,407

F-183 Cinema City International N.V.

Notes to the Interim Consolidated Financial Statements

Note 27 — Segment reporting (continued) 31 December 2005 Central Europe Israel Unallocated Consolidated (unaudited) EUR (thousands) Revenues External sales ...... 77,116 31,065 — 108,181 Assets Segment assets ...... 175,075 25,889 1,057 202,021 Capital expenditure ...... 31,289 3,977 — 35,266

30 June 2005 Central Europe Israel Unallocated Consolidated (unaudited) EUR (thousands) Revenues External sales ...... 36,333 14,725 — 51,058 Assets Segment assets ...... 162,339* 27,175* 2,142* 191,656* Capital expenditure ...... 17,720* 2,954 — 20,674*

*) Restated to reflect the change of functional currencies for operations in Central Europe as of the year 2005 (see Note 2 B)

Note 28 — Personnel

Personnel costs are specified as follows:

For the For the For the 6 months ended 12 months ended 6 months ended 30 June 2006 31 December 2005 30 June 2005 (unaudited) (audited) (unaudited) EUR (thousands) Salaries and wages ...... 7,105 12,703 6,073 Pension costs ...... 164 349 178 Other social charges ...... 887 1,780 1,029 Total personnel costs ...... 8,156 14,832 7,280

For 2006 (6 months) and 2005, the pension costs comprise defined contribution expenses only.

The average number of personnel, in full time equivalents, employed by the Company and its subsidiaries during the first half year 2006 was 1,484 (2005 (12 months): 1,450; 2005 (6 months): 1,376). A geographical allocation of the average number of personnel is as follows:

For the For the For the 6 months ended 12 months ended 6 months ended 30 June 2006 31 December 2005 30 June 2005 (unaudited) (audited) (unaudited) EUR (thousands) Israel ...... 528 546 560 Central Europe ...... 955 903 814 Netherlands ...... 1 12 Total average number of personnel ...... 1,484 1,450 1,376

F-184 Cinema City International N.V.

Notes to the Interim Consolidated Financial Statements

Note 29 — Details of corporations in the Group

30 June 2006 Direct/indirect The Company’s Voting right equity share By the Company in subsidiary Consolidation Currency %% % (unaudited) I.T. International Theatres 2004 Ltd. .... 100% 100% FULL (6) I.T. Magyar Cinemas Kft ...... 100% 100% FULL (2) Kino 2005 a.s...... 99% 99% FULL (3) I.T. Sadyba, B.V...... 100% 100% FULL (1) Cinema City Poland Sp.Z.oo...... 100% 100% FULL (4) IT Development 2003 ...... 100% 100% FULL (4) I.T. Czech Cinemas S.R.O...... 100% 100% FULL (3) I.T.SofiaB.V...... 100% 100% FULL (1) New Age Media Sp.Zoo ...... 100% 100% FULL (4) Forum Film Poland Sp.Zoo...... 100% 100% FULL (4) Norma Film Ltd...... 60% 50% FULL (6) Forum Film Ltd...... 60% 50% FULL (6) Ya’af — Giant Video Library Network Ltd...... 60% 30% FULL (6) Ya’af — Automatic Video Machines Ltd...... 60% 50% FULL (6) Mabat Ltd...... 100% 100% FULL (6) Teleticket Ltd...... 100% 100% FULL (6) Mercaz Ltd...... 100% 100% FULL (6) Cinema Plus Ltd...... 100% 100% FULL (6) I.T. Bulgaria EOOD ...... 100% 100% Unconsolidated — (5) Not operational MO Sofia EAD ...... — — (7)

(1) A holding company in the Netherlands. (2) Hungarian corporation. (3) Czech corporation. (4) Polish corporation. (5) Bulgarian corporation. (6) An Israeli corporation. (7) Sold in 2006 (see note 6).

Note 30 — Subsequent events The Company is seeking to have its shares listed on the Polish Stock exchange towards the end of 2006. The Company applied for the Dutch Authority for the Financial Markets (“AFM”) to issue a passport for admission of its shares for listing and trading on the Polish Stock exchange.

F-185 (This page has been left blank intentionally) ANNEX I DEFINITIONS The following definitions apply throughout this document, unless the context otherwise requires: “Act on Offerings” The Polish Act on Public Offerings, Conditions Governing the Intro- duction of Financial Instruments to Organised Trading System and on Public Companies “Act on Trading in Financial Instruments” The Polish Act on Trading in Financial Instruments “Admission” Admission of the Shares to trading on the WSE “Affiliated Shareholder” Israel Theatres Limited, the parent company of the Principal Shareholder “AFM” The Netherlands Authority for the Financial Markets “All Job (Poland)” All Job Poland sp.z.o.o “Allotment Date” 4 December 2006, the date on which the Offer Shares will be allotted to investors that have placed their subscription orders in the Offering “Allotment List” allotment list prepared by the Issuer and the Affiliated Shareholder based upon the recommendation and with the agreement of the Lead Manager “Annual Audited Financial Statements” The audited consolidated financial statements as at and for the years ended 31 December 2005, 2004 and 2003 “Appointment Committee” The selection and appointment committee of the Company “Articles of Association” The Company’s Articles of Association “Audit Committee” The audit committee of the Company “Authorised Shares” Authorised but unissued shares of the Company “Buena Vista” Buena Vista International, Inc. “B.V.” A private (besloten vennootschap) limited liability company under Dutch law “Cinema City” Cinema City International N.V. “Cinema City Bulgaria (Bulgaria)” Cinema City Bulgaria International EOOD “Cinema City Finance (Holland)” Cinema City Finance B.V. “Cinema City International (Poland)” Cinema City International Poland sp.z.o.o “Cinema City (Poland)” Cinema City Poland sp.z.o.o “Cinema Plus (Israel)” IT Cinema Plus Limited “Code” The Dutch Corporate Governance Code “Company” Cinema City International N.V. and its subsidiaries “Current Report” The official electronic information dissemination service as defined in article 56.1 of the Polish Act on Public Offerings. “Customer Service Points” Meaning “Punkty Obsługi Klienta” of Centralny Dom Maklerski Pekao S.A. and ,,Punkty Przyjmowania Zlecen´” of Biuro Maklerskie Banku BPH S.A. “DEM” German Mark “Disney” The Walt Disney Company

A-1 “Dodona” Dodona Research, a specialist research organisation for the cinema industry “Dutch Securities Act” The Dutch Securities Act 1995 (Wet toezicht effectenverkeer 1995) “Employee Stock Incentive Plan” The Company’s incentive-based stock plan as approved by the shareholders on 7 November 2006. “ES Media” The company that maintains the website www.boxoffice.pl “EURIBOR” Euro InterBank Offered Rate “European Union” An economic union of 25 European countries “Euros”, “EUR” or E” Lawful currency of the European Economic and Monetary Union “Firm Shares” New Shares together with the Sale Shares “Forint” or “HUF” Lawful currency of the Republic of Hungary “Forum Film (Hungary)” Forum Film Distribution Kft “Forum Film (Israel)” Forum Film Israel Limited “Forum Film (Poland)” Forum Film Poland sp.z o.o “Forum Home Entertainment (Hungary)” Forum Film Home Entertainment Kft “FSC” The Polish Financial Supervisory Commission “FSMA” The Financial Services and Markets Act 2000 “General Meeting of Shareholders” General Meeting of the Shareholders of the Cinema City “IFRS” International Financial Reporting Standards “IFRS Financial Statements” Financial statements prepared in accordance with International Finan- cial Reporting Standards “Institutional Investors” Corporate entities (legal persons) and non-corporate entities other than individuals, to whom the Offering is addressed and who have received from the Managers the invitation to submit a subscription for Firm Shares, or the Managers or the entity selected by the Managers. For the avoidance of doubt, the term shall exclude US persons (as defined by Regulation S) “Interim Financial Statements” Unaudited consolidated financial statements as at and for the six- month periods ended 30 June 2006 and 30 June 2005 “Investors” Institutional Investors and Retail Investors “IPO” Initial public offering “Issuer” Cinema City International N.V. “IT Czech Cinemas (Czech)” IT Czech Cinemas S.R.O “ITIT” I.T. International Theatres Limited “IT Magyar Cinemas (Hungary)” IT Magyar Cinema Kft “IT Poland Development 2003 (Poland)” IT Poland Development 2003 sp.z o.o. “IT Sofia (Holland)” IT Sofia B.V. “Kafan” Kafan Video Libraries Limited “Kino 2005 (Czech)” Kino 2005 a.s. “Koruna” or “CZK” Lawful currency of the Czech Republic “KPMG Netherlands” KPMG Accountants N.V., the Netherlands

A-2 “Lead Manager” Bank Austria Creditanstalt AG “Lev” or “BGN” Lawful currency of the Republic of Bulgaria “LIBOR” London InterBank Offered Rate “Listing Date” The date on which trading of the Firm Shares and any Overallotment Shares, issued in connection with full or partial exercise of the Overallotment Option on the Allotment Date, on the WSE will commence “Lock-up Period” The period of 180 days after the Allotment Date “Mall of Sofia” The first modern shopping mall in Bulgaria “Management Board” The management board of the Company “Managers” Bank Austria Creditanstalt AG and ING Bank N.V., London Branch “Maximum Price” The maximum price per Offer Share offered for subscription to Retail Investors “Media Salles” An initiative of the European Union’s Media Programme with the support of the Italian Government “Member State” A member country of the European Union “MPA” Motion Picture Association of Israel “MPAA” Motion Picture Association of America “NATO” US National Association of Theatre Owners “NDS” Polish National Depository for Securities “New Age Media” New Age Media Sp. Z.o.o “New Israeli Shekel” or “NIS” Lawful currency of the State of Israel “New Shares” 10,000,000 newly issued shares to be offered in the Offering “Norma Film (Israel)” Norma Film Limited “N.V.” A public limited liability (naamloze vennootschap) company under Dutch law “Offering” The offering of 15,664,352 Shares with a nominal value of A0.01 per Share based on this Prospectus “Offeror” CA IB Securities S.A. “Offer Price” The offer price per Offer Share determined on the Pricing Date “Offer Shares” Firm Shares together with the Overallotment Shares “Overallotment Option” The option that the Principal Shareholder has granted to the Managers, exercisable for up to 30 days following the Allotment Date, to purchase up to 2,349,652 Shares, the maximum number of which is equal to 15% of the Firm Shares, solely to cover overallotments, if any, made in connection with the Offering and short positions result- ing from stabilisation transactions “Overallotment Shares” The number of additional shares representing 15% of the Firm Shares under the Overallotment Option “PAP” Polish Press Agency “Plaza Centres” Plaza Centres (Europe) B.V. “Pre-Meeting” Preliminary meeting with shareholders to be held not more than 10 business days and not less than one business day prior to the date of each general meeting of shareholders of Cinema City

A-3 “Pricing Date” 30 November 2006, the date on which the Offer Price and the final number of the Offer Shares to be offered in the Offering are determined “Principal Shareholder” The Issuer’s direct majority shareholder, I.T. International Theatres Limited “Prospectus Directive” Directive 2003/71/EC of the European Parliament and the Council of the European Union “Relevant Member State” A member state of the European Economic Area which has imple- mented the Prospective Directive “Remuneration Committee” The remuneration committee of the Company “Retail Investors” Individuals, corporate entities (legal persons) and non-corporate enti- ties other than individuals, except for US persons, as defined in Regulation S, to whom the Offering within the territory of Poland is addressed “Sale Shares” 5,664,352 existing ordinary shares in the Issuer included in the Offering to be sold by the Selling Shareholders “Screen Digest” A specialist in business intelligence, research and analysis on global audiovisual media “Selected Annual Financial Information” Selected consolidated financial and operating information for the Company as at and for the three years ended 31 December 2005 “Selected Interim Financial Information” Selected consolidated financial and operating information for the Company as at and for each of the six-month periods ended 30 June 2005 and 30 June 2006 “Selling Shareholders” The Affiliated Shareholder, a senior member of management of the Company and an affiliated person who holds the Sale Shares included in the Offering “Settlement Date” Date of delivery of the Firm Shares to the securities accounts held by Retail Investors and Institutional Investors that have been allotted such Shares “Shareholders” Shareholders of the Company “Shares” The Issuer’s shares “Summary Annual Financial Information” Summary consolidated financial and operating data for the Company as at and for the three years ended 31 December 2005 “Summary Interim Financial Information” Summary consolidated financial and operating data for the Company as at and for each of the six-month periods ended 30 June 2005 and 30 June 2006 “Supervisory Board” The supervisory board of the Company “Supervisory Director” Member of the Supervisory Board “Underwriting Agreement” The underwriting agreement to be entered into by the Issuer, the Selling Shareholders, the Managers and the Offeror in connection with the Offering on or about the Pricing Date “US Dollars”, “USDs”, “US$”, “$” or “U.S. Dollars” Lawful currency of the United States “US Securities Act” United States Securities Act of 1933

A-4 “VAT” Value-added tax “WIBOR” Warsaw Interbank Offer Rate “WSE Corporate Governance Rules” The Polish corporate governance rules contained in the “Best Prac- tices in Public Companies in 2005” adopted by the WSE “WSE” The Warsaw Stock Exchange “Yaaf Video Machines (Israel)” Ya’af Automatic Video Machines Limited “ZAIKS” The Polish Association of the Authors and Composers (Zwiazek Autorów ZAIKS) “Zloty” or “PLN” Lawful currency of the Republic of Poland

A-5 (This page has been left blank intentionally) ANNEX II ARTICLES OF ASSOCIATION

UNOFFICIAL ENGLISH TRANSLATION OF THE DEED OF AMENDMENT OF THE ARTICLES OF ASSOCIATION OF CINEMA CITY INTERNATIONAL N.V. AS AMENDED ON 31 OCTOBER 2006

In this translation, an attempt has been made to be as literal as possible without jeopardising the overall continuity. Inevitably, differences may occur in the translation and if so, the Netherlands text of the Articles of Association will prevail.

CHAPTER I Definitions Article 1

In these articles of association, the following terms shall mean:

a. general meeting: the general meeting of shareholders;

b. shares: registered shares and bearer shares, unless the opposite is explicitly mentioned;

c. shareholders: holders of registered shares and holders of bearer shares, unless the opposite is explicitly mentioned;

d. depositary receipts: depositary receipts for shares in the company. Unless the context proves otherwise, such receipts include depositary receipts issued with or without the company’s co-operation;

e. depositary receipt holders: holders of depositary receipts issued with the company’s co-operation. Unless otherwise shown such holders include persons who, as a result of any right of usufruct or right of pledge created on any share, have the rights conferred by law upon the holders of depositary receipts issued with the company’s co-operation;

f. annual accounts: the balance sheet and profit and loss account plus explanatory notes;

g. subsidiary:

— a legal entity in respect whereof the company or any of its subsidiaries have, whether or not pursuant to an agreement with other persons entitled to vote, can exercise either individually or collectively, more than one-half of the voting rights at the general meeting;

— a legal entity of which the company or any of its subsidiaries are members or shareholders, and in respect of which the company or any of its subsidiaries have, either individually or collectively, the right to appoint or dismiss more than half of such legal entity’s managing directors or supervisory directors, whether or not pursuant to any agreement with other persons having voting rights, and even if all persons having voting rights in fact cast their vote;

h. auditor: a registered accountant or any such other accountant as referred to in article 2:393 of the Netherlands Civil Code, or any organization in which such accountants co-operate;

i. regulated stock exchange: the securities exchange, as referred to in article 1.13 of the directive with number 93/22/EC of the European Council dated March 15, 1993 on investment services in the securities field;

j. affiliate:

— a subsidiary;

— a shareholder holding majority of votes at the general meeting;

— a subsidiary of a shareholder holding majority of votes at the general meeting;

k. ICC: an industrial central custodian being an entity authorized to keep in custody a global share certificate or global share certificates in accordance with the respective laws and regulations of the jurisdiction where the regulated stock exchange, where the shares are or shall be listed, is located.

B-1 CHAPTER II Name. Corporate seat. Objects Article 2. Name and corporate seat 2.1 The name of the company is Cinema City International N.V. 2.2 The company has its corporate seat at Amsterdam.

Article 3. Objects The objects of the company are: a. to show, distribute, sell and rent films, to build and develop shopping centers, amusement centers, movie theatre complexes, video clubs and to enter into other real property transactions; b. to incorporate, participate in, conduct the management of and take any other financial interest in other companies and enterprises; c. to acquire, dispose of, manage and exploit real and personal property, including patents, marks, licenses, permits and other industrial property rights; d. to render administrative, technical, financial, economic or managerial services to other companies, persons or enterprises; e. to borrow and/or lend moneys, act as surety or guarantor in any other manner, and bind itself jointly and severally or otherwise in addition to or on behalf of others, the foregoing whether or not in collaboration with third parties and inclusive of the performance and promotion of all activities which directly and indirectly relate to those objects, all this in the broadest sense of the terms.

CHAPTER III Capital and shares. Register of shareholders Article 4. Authorized capital 4.1 The authorized capital amounts to one million seven hundred and fifty thousand euro (EUR 1,750,000.—) and is divided into one hundred and seventy-five million (175,000,000) shares, each with a nominal value of one eurocent (EUR 0.01). 4.2. All shares shall be in bearer form or in registered form. 4.3 The shares are non-divisible. 4.4 The bearer shares shall be embodied in one or more global share certificates. Each global share certificate shall be kept in custody by the ICC to be appointed by the board of managing directors. 4.5 The administration of a global share certificate shall irrevocably be placed in charge of the ICC in its capacity as custodian of the global share certificate. The resolution by the board of managing directors to deposit and register shares with the ICC, shall be subject to the approval of the general meeting. The ICC shall be irrevocably authorized to do anything required thereto on behalf of all participants, including the acceptance, transfers, debiting and inclusion of shares in the global share certificate as kept in custody all in accordance with the applicable laws and regulations of the country in which the shares of the company have been admitted to an official listing on a regulated stock exchange. 4.6 A participant in a global share certificate as kept in custody may request the company to exchange such participation up to a maximum of the amount of shares to which he is entitled, for registered shares. To effectuate such exchange of shares: i. the ICC shall transfer the shares by private deed; ii. the ICC shall enable the company to debit the relevant shares to the global share certificate as kept in custody; iii. the company shall register the shareholder in the register of shareholders. 4.7 A holder of a registered share may exchange such share into a bearer share. To effectuate such exchange of shares: i. the shareholder shall transfer the shares to the ICC;

B-2 ii. the ICC shall enable the company to include the shares in the global share certificate as kept in custody; iii. the company shall register the exchange in the register of shareholders. 4.8 No share certificates shall be issued for registered shares.

Article 5. Register of shareholders 5.1 The board of managing directors shall keep a register in which the names and addresses of all holders of registered shares shall be recorded, specifying the date on which they acquired their shares, the date of acknowledgment by or service upon the company, as well as the amount paid up on each share. The register shall also contain the names and addresses of all owners of a right of usufruct or pledge on registered shares, specifying the date on which they acquired such right, the date of acknowledgment by or service upon the company and what rights they have been granted attached to the shares under articles 12 and 13. 5.2 The register shall furthermore be governed by the relevant statutory provisions. 5.3 Part of the register may be kept abroad in compliance with applicable laws or pursuant to the regulations of a stock exchange to which shares are listed.

CHAPTER IV Issue of shares. Own shares Article 6. Issue of shares. Authorized corporate body 6.1 The company shall only issue shares pursuant to a resolution of the general meeting or of another corporate body designated to do so by a resolution of the general meeting for a fixed period not exceeding five years. The designation must be accompanied by a stipulation as to the number of shares that may be issued. The designation may each time be extended for a period of up to five years. The designation may not be cancelled, unless the designation provides otherwise. 6.2 A decision by the general meeting to issue shares or to designate another body to issue shares can only be taken upon the proposal of the board of managing directors. The proposal is subject to the approval of the board of supervisory directors. 6.3 Within eight days after the resolution of the general meeting to issue shares or to designate a corporate body, the company shall deposit a full text thereof at the trade register where the company is registered. 6.4 Within eight days after each issue of shares, the company shall notify the trade register referred to in the preceding paragraph of this article of such issue, stating the number. 6.5 The provisions of paragraph 1 up to and including paragraph 4 of this article shall apply accordingly to the granting of rights to subscribe to shares, but does not apply to the issue of shares to someone who exercises a previously acquired right to subscribe to shares. 6.6 The issue of a registered share, not being a share as mentioned in article 2:86c Netherlands Civil Code, shall require a notarial deed, executed before a civil law notary authorized to practice in the Netherlands, and to which those involved are party.

Article 7. Terms and conditions of issue. Pre-emptive rights 7.1 If a resolution to issue shares is adopted, the issue price of the shares and the other conditions of the issue shall also be determined. 7.2 Each shareholder shall have a pre-emptive right with respect to any further share issue in proportion to the aggregate amount of his shares, except if shares are issued for a non-cash consideration or if shares are issued to employees of the company or/of a group company. 7.3 The company shall announce the issue of shares which are subject to pre-emptive rights and the period of time during which such rights may be exercised, in the “Staatscourant” (Official Gazette), as well as by publication thereof in accordance with the provisions of article 35.7. The previous sentence does not apply if all shares are registered shares and all shareholders are notified in writing at the address indicated by each of them.

B-3 7.4 Pre-emptive rights may be exercised within at least two weeks after the day when the announcement in the “Staatscourant” (Official Gazette) was published or after the notification was sent to the shareholders. 7.5 Pre-emptive rights may be restricted or excluded by a resolution of the general meeting. A decision by the general meeting to restrict or to exclude pre-emptive rights can only be taken upon the proposal of the board of managing directors. The proposal is subject to the approval of the board of supervisory directors. The reasons for such proposal and the issue price of the shares must be given in writing in the proposal thereto. Pre-emptive rights may also be excluded or restricted by the authorized corporate body referred to in article 6.1 if such corporate body is authorized by the resolution of the general meeting for a fixed period, not exceeding five years, to restrict or exclude the pre-emptive rights. The designation may each time be extended for a period of up to five years. Unless determined otherwise, the designation can not be cancelled. Upon termination of the authority of the corporate body to issue shares, its authority to restrict or exclude pre-emptive rights shall also terminate. 7.6 A resolution of the general meeting to restrict or exclude pre-emptive rights or to authorize a corporate body for that purpose shall require a majority of at least two-thirds of the votes cast if less than one-half of the issued capital is represented at the general meeting. Within eight days after the resolution, the company shall deposit the full text thereof at the trade register. 7.7 If, on the issue of shares, an announcement is made as to the amount to be issued and only a lesser amount can be placed, such lower amount shall be placed only if the conditions of issue explicitly provide therefore. 7.8 At the granting of rights to subscribe to shares, the shareholders shall have a preemptive right. The provisions of the previous paragraphs of this article shall apply accordingly at the granting of rights to subscribe to shares. Shareholders shall have no pre-emptive rights in respect to shares issued to a person who exercises right to acquire shares granted to him at an earlier date.

Article 8. Payment for shares. Payment in cash. Non-cash Contribution 8.1 Upon the issue of each share, the nominal value must be fully paid up, and, in addition, if the share is subscribed at a higher amount, the difference between such amounts. It may be stipulated that a part, not exceeding three quarters of the nominal value needs only be paid after such part is called up by the company. 8.2 Persons who are professionally engaged in the placing of shares for their own account may be permitted, by agreement, to pay less than the nominal value for the shares subscribed by them, provided that no less than ninety-four percent of such amount is paid in cash not later than on the subscription for the shares. 8.3 Payment for shares shall be made in cash unless a non-cash contribution has been agreed. Payment in foreign currency may only be made with the company’s approval. If payment is made in foreign currency, the payment obligation shall be considered fulfilled up to the Netherlands currency amount into which the foreign currency can be freely converted. The basis for determination shall be the rate of exchange on the day of payment. If the shares or depositary receipts will without delay, upon issue, be quoted on the price list of an stock exchange outside the Netherlands, the company may demand that payment is made at the rate of exchange on a fixed day within two months before the last day on which payment must be made. If payment is made in foreign currency, a banker’s statement as referred to in article 2:93a paragraph 2 of the Netherlands Civil Code shall be deposited at the trade register within two weeks after payment. 8.4 The board of managing directors is authorized to enter into a agreement relating to payment for shares other than in cash. A non-cash contribution shall occur without delay after acceptance of the share or following the day on which an additional payment is called up or agreed upon. In accordance with article 2:94b paragraph 1 of the Netherlands Civil Code, a description shall be drawn up of the contribution to be made. The description shall relate to the situation on a day no less than five months prior to the day the shares are subscribed for or the additional payment is called up or agreed upon. The managing directors shall sign

B-4 the description; if the signature of any of them is lacking, this fact shall be recorded and the reasons therefore so noted. 8.5 An auditor as mentioned in article 2:393 paragraph 1 of the Netherlands Civil Code shall issue a statement on the description of the contribution to be made. 8.6 The provisions set out in this article relating to the description and auditor’s statement shall not apply to the cases referred to in article 2:94b paragraph 3 or paragraph 5 of the Netherlands Civil Code.

Article 9. Own shares 9.1 The company may not subscribe for its own shares upon the issue thereof. 9.2 Any acquisition by the company of shares which are not fully paid up in its capital, or depositary receipts, shall be null and void. Any acquisition by the company of fully paid up registered shares in its capital, in violation of paragraph 3 of this article shall be null and void. Fully paid up bearer shares or depositary receipts which the company acquired in violation of paragraph 3 of this article shall, simultaneously with the acquisition, devolve on the managing directors jointly. 9.3 The company may only acquire its own fully-paid shares or depositary receipts without consideration, or if: a. the equity decreased by the acquisition price is not less than the paid and called up part of the capital increased with the reserves which must be maintained by law; b. the nominal amount of the shares or depositary receipts for shares in the company’s capital to be acquired, and all such shares or depositary receipts in its capital already held by the company and its subsidiaries collectively does not exceed one/tenth of the issued capital; and c. authorization to the acquisition has been granted to the board of managing directors by the general meeting. Such authorization shall be valid for a period of no longer than eighteen months. The general meeting must state in the authorization the number of shares that may be acquired, how the shares may by acquired and the limits within which the price of the shares must be set. No authorization shall be required in case the company acquires shares in its capital, which are officially listed on a regulated stock exchange, for the purpose of transferring such shares to employees of the company or of a group company, under a scheme applicable to such employees. 9.4 Definitive for the validity of the acquisition shall be the value of the company’s equity according to the most recently adopted balance sheet decreased with the acquisition price of shares in the company’s capital or depositary receipts, and any distributions to others out of profits or reserves which became payable by the company and its subsidiaries after the date of the balance sheet. If more than six months have lapsed since the expiration of a financial year without adoption of the annual accounts, an acquisition in accordance with the provisions in paragraph 3 of this article is permitted. 9.5 The provisions of paragraphs 2 up to and including 4 of this article do not apply to shares or depositary receipts acquired by the company under universal succession of title (‘onder algemene titel’) without prejudice of the provisions in article 2:98a paragraph 3 and paragraph 4 of the Netherlands Civil Code. 9.6 A decision of the board of managing directors to obtain fully paid shares or, as the case may be, depositary receipts of shares under onerous title with due observance of the provisions of paragraph 1 of this article requires the prior approval of the board of supervisory directors. 9.7 The company may not with a view to any other party subscribing to or acquiring the company’s shares or depositary receipts, grant loans, provide security or any price guarantee, act as surety in any other manner, or bind itself jointly and severally or otherwise in addition to or on behalf of others. This prohibition shall also apply to its subsidiaries. This prohibition shall not apply if shares or depository receipts are subscribed for or acquired by employees of the company or a group company.

B-5 9.8 Shares in the company’s capital may, upon issue, not be subscribed for by or on behalf of any of its subsidiaries. The subsidiaries may acquire or order to acquire such shares or depositary receipts and for their own account only insofar as the company is permitted to acquire own shares or depositary receipts pursuant to paragraphs 2 up to and including 4 of this article. 9.9 Disposal of any own shares or depositary receipts held by the company shall require a resolution of the general meeting provided that the general meeting has not granted this authority to another corporate body. 9.10 The company may not cast votes in respect of own shares held by the company or own shares on which the company has a right of usufruct or pledge. Nor may any votes be cast by the pledgee or usufructuary of own shares held by the company if the right has been created by the company. No votes may be cast in respect of the shares whereof depositary receipts are held by the company. The provisions of this paragraph shall also apply to shares or depositary receipts held by any subsidiary or in respect of which any subsidiary owns a right of usufruct or pledge. 9.11 When determining to what extent the company’s capital is represented, or whether a majority represents a certain part of the capital, the capital shall be reduced by the amount of the shares for which no votes can be cast.

Article 10. Capital reduction 10.1 At the proposal of the board of supervisory directors the general meeting may, with due observance of the relevant statutory provisions, resolve to reduce the issued capital by a cancellation of shares or by a reduction of the nominal amount of the shares by amendment of the articles of association. 10.2 For a resolution to reduce the capital, a majority of at least two-thirds of the votes cast shall be required if less than one-half of the issued capital is represented at the meeting. 10.3 The convening notice calling a general meeting at which a motion for capital reduction shall be tabled, shall specify the purpose of the capital reduction as well as the method of reduction.

CHAPTER V Transfer of shares. Usufruct. Pledge Article 11. Transfer of shares 11.1 The following articles 11.2 and 11.3 shall apply to the transfer of registered shares or of restricted rights thereto only in case the company is a company whose shares or depositary receipts issued for its shares are admitted to official listing on a regulated securities exchange, which is subject to supervision by the government or by a public recognized authority or institution, or whose shares or the depositary receipts issued for its shares may reasonably be expected at the time of the legal act to be shortly admitted thereto. 11.2 The transfer of a registered share or of a restricted right thereto shall require an instrument intended for such purpose and, save when the company itself is a party to such legal act, the written acknowledge- ment by the company of the transfer. The acknowledgement shall be made in the instrument or by a dated statement on the instrument or on a copy or extract thereof mentioning the acknowledgement signed as a true copy by the notary or the transferor. Service of such instrument or such copy or extract on the company shall be considered to have the same effect as an acknowledgement. In the case of a transfer of shares not paid up in full, the acknowledgement may be made only if the instrument has a recorded, or otherwise fixed date. 11.3 A pledge may also be established without an acknowledgement by or service on the company. In that case article 3:239 of the Netherlands Civil Code shall similarly apply, whereby the acknowledgement by or service on the company shall take the place of the notification referred to in paragraph 3 of that article. 11.4 The transfer of registered shares or any restricted rights thereon to shares to which article 11.1 does not apply shall require a notarial deed, executed before a civil law notary authorized to practice in the Netherlands, to which those involved are party. 11.5 The transfer of registered shares or any restricted rights thereon as referred to in article 11.4 — including the creation and relinquishment of restricted rights — shall, by operation of law, also be valid vis-à-vis the company.

B-6 The rights attached to shares cannot be exercised until the company either acknowledges the juristic act or is officially served with the notarial deed in accordance with the relevant statutory provisions, except in case the company is party to the juristic act. 11.6 The provisions of article 11.2. 11.4 and 11.5 shall also apply to the allotment of registered shares or any restricted rights thereon in case of any division of any joint interest.

Article 12. Usufruct 12.1 A shareholder may freely create a right of usufruct on one or more of his shares. 12.2 The shareholder shall have the voting rights attached to the shares on which the usufruct has been established. 12.3 In deviation of the previous paragraph of this article, the voting rights shall be vested in the usufructuary if such is determined upon the creation of the right of usufruct. 12.4 The shareholder without voting rights and the usufructuary with voting rights shall have the rights conferred by law upon depositary receipt holders. The usufructuary without voting rights shall also have such rights unless these are withheld from him upon the creation or transfer of the usufruct. 12.5 Any rights arising from the share to acquire other shares, shall vest in the shareholder on the understanding that he must compensate the usufructuary for the value thereof to the extent the usufructuary is entitled thereto pursuant to his right of usufruct.

Article 13. Pledge 13.1 A shareholder may create a right of pledge on one or more of his shares. 13.2 The shareholder shall have the voting rights attached to the shares on which the pledge has been established. 13.3 In deviation of the previous paragraph of this article, the voting rights shall be vested in the pledgee if such is provided upon the creation of the pledge. 13.4 The shareholder without voting rights and the pledgee with voting rights shall have the rights conferred by law upon depositary receipt holders. Pledgees without voting rights shall also have such rights unless these are withheld from him upon the creation or transfer of the pledge. 13.5 A pledge may also be created without acknowledgement by or service on the company. In that case article 3:239 of the Netherlands Civil Code shall apply accordingly, whereby the acknowledgement by or service on the company shall take the place of the notification referred to in paragraph 3 of that article. 13.6 If a pledge is created without acknowledgement by or service on the company, the rights pursuant to the provisions of this article shall vest in the pledgee only after the pledge has been acknowledged by or has been served on the company.

CHAPTER VI Board of managing directors Article 14. Board of managing directors The board of managing directors shall be in charge of managing the company, subject to the restrictions set forth in these articles of association.

Article 15. Appointment 15.1 The board of managing directors shall consist of one or more managing directors. The general meeting shall determine the precise number of managing directors. 15.2 The managing directors shall be appointed by the general meeting. 15.3 Unless the general meeting explicitly resolves otherwise a managing director is appointed for a period of four years, it being understood that this period of appointment expires no later than at the end of the following general meeting of to be held in the fourth year after the year of his appointment, or if applicable on a later pension or other contractual termination date in that year. A resolution by the general meeting to deviate from the four year term shall require a majority of at least two-thirds of the votes cast.

B-7 15.4 Reappointment is possible on each occasion for a period determined in accordance with paragraph 3 of this article. 15.5 The general meeting shall grant to one of the managing directors the title of “Chief Executive Officer”, who will be the chairman of the board of managing directors. The general meeting may also grant a title to the other managing directors.

Article 16. Suspension and dismissal 16.1 The general meeting shall at all times have the power to suspend or dismiss each managing director. 16.2 Each managing director may at all times be suspended by the board of supervisory directors. The suspension may at all times be canceled by the general meeting. 16.3 Any such suspension may be extended several times but the total term of the suspension may not exceed three months. The suspension shall expire on lapse of this period if no resolution has been adopted either to lift the suspension or to dismiss the managing director.

Article 17. Remuneration 17.1 The company has a policy regarding the remuneration of the board of managing directors. The remuneration policy is adopted by the general meeting upon the proposal of the board of supervisory directors. The remuneration policy contains at least the items as set forth in article 383c up to and including article 383e of Book 2 Netherlands Civil Code. 17.2 The company is under the obligation to present for information to the works council, if installed pursuant to law, the remuneration policy in written form and simultaneously with the presentation to the general meeting. 17.3 The remuneration and the other terms and conditions of employment of each member of the board of managing directors are determined by the board of supervisory directors, with due observance of the remuneration policy. 17.4 Schemes providing for remuneration for managing directors in the form of shares or rights to acquire shares shall be submitted by the board of supervisory directors to the general meeting for approval. The proposal shall at least state the number of shares or rights to acquire shares that may be granted to the board of managing directors and the criteria for granting them or changes therein. 17.5 The board of supervisory directors shall annually prepare a remuneration report which shall contain an overview of the application of the remuneration policy during the preceding financial year and an overview of the remuneration policy planned by the board of supervisory directors for the next financial years and the subsequent years.

Article 18. Decision-making. Division of duties 18.1 The board of managing directors shall meet as often as a managing director may deem necessary. 18.2 In the meeting of the board of managing directors each managing director has a right to cast one vote. All resolutions by the board of managing directors shall be adopted by an absolute majority of the votes cast. 18.3 A managing director may grant another managing director a written proxy to represent him at the meeting. 18.4 The board of managing directors may adopt resolutions without holding a meeting, provided that the resolution is adopted in writing and all managing directors have expressed themselves. 18.5 With approval of the board of supervisory directors the board of managing directors may adopt rules and regulations governing its decision-making process. 18.6 The board of managing directors may make a division of duties, specifying the individual duties of every managing director. Such division of duties shall require the approval of the board of supervisory directors. 18.7 Without prejudice to article 20.5, a managing director shall not take part in any discussion or decision- making that involves a subject or transaction in relation to which he has a conflict of interest with the company.

B-8 Article 19. Representative authority 19.1 The board of managing directors shall represent the company. The authority to represent the company shall also be vested in two managing directors acting jointly. 19.2 The board of managing directors may appoint officers and grant them a general or special power of attorney. Every attorney in fact shall represent the company within the bounds of his authorization. Their title shall be determined by the board of managing directors. 19.3 In the event that the company has a conflict of interest with a managing director, in the sense that the managing director in private enters into an agreement with, or is party in a (legal) proceeding between him and the company, the company shall be represented by one of the other managing directors and without prejudice of the provisions in article 19.1. If there are no such other managing directors, the board of supervisory directors shall appoint a person to that effect. Such person may be the managing director in relation to whom the conflict of interest exists. In all other cases of a conflict of interest between the company and a managing director, the company can also be represented by that managing director without prejudice to the provisions in article 19.1. The general meeting shall at all times be authorized to appoint one or more other persons to that effect.

Article 20. Approval of board resolutions 20.1 At least once per year the board of managing directors shall submit to the board of supervisory directors for approval the strategy designed to achieve the company’s operational and financial objectives and, if necessary, the parameters to be applied in relation to that strategy. 20.2 The general meeting may resolve that specific resolutions by the board of managing directors shall be subject to approval of the board of supervisory directors. All such resolutions shall be clearly described and reported to the board of managing directors in writing. The absence of approval as meant in this paragraph does not affect the representative authority of the board of managing directors or the managing directors. 20.3 The board of managing directors must comply with any such instructions outlining the company’s general financial, social, economic (including strategic policy, the general and financial risks and the management and control system) and staffing policy as may be given by the board of supervisory directors. 20.4 Without prejudice to the other provisions in these articles of association, the approval of the general meeting shall be required for decisions by the board of managing directors leading to an important change in the company’s or its business enterprise’s identity or character, including in any case: a. the transfer of the business of the company or almost the entire business of the company to a third party; b. the entering into or termination of any long-term co-operation of the company or any subsidiary of the company with another legal entity or company or as a fully liable partner in a limited or general partnership, if such co-operation or termination is of far-reaching significance for the company; or c. the acquisition or disposal of a participation in the capital of a company with a value of at least one third of the amount of the assets according to the balance sheet with explanatory notes, or in case the company prepares a consolidated balance sheet, according to the consolidated balance sheet with explanatory notes, forming part of the most recently adopted annual accounts of the company. 20.5 Decisions to enter into transactions in which there are conflicts of interest with supervisory directors and/or managing directors that are of material significance to the company and/or to the relevant managing director or supervisory director require the approval of the board of supervisory directors.

Article 21. Absence or inability to act If a managing director is absent or unable to act, the remaining managing director(s) shall be temporarily charged with the management of the company. If the sole managing director is or all managing directors are absent or unable to act, a person appointed by the board of supervisory directors shall be temporarily charged with the management of the company.

B-9 CHAPTER VII Board of supervisory directors Article 22. Number of members 22.1 The company shall have a board of supervisory directors, consisting of at least three (3) and at most six (6) natural persons of which at least two (2) supervisory directors shall be independent. 22.2 A supervisory director shall be deemed independent if the following criteria of dependence do not apply to him. The said criteria of dependence are that the supervisory director concerned or his spouse, registered partner or other life companion, foster child or relative by blood or marriage up to the second degree: a. is or has been an employee or member of the management board of the company (including an affiliate) in the five years prior to the appointment; b. receives personal financial compensation from the company, or a company associated with it, other than the compensation received for the work performed as a supervisory director and in so far as this is not in keeping with the normal course of business; c. has had an important business relationship with the company, or a company associated with it, in the year prior to the appointment. This includes the case where the supervisory director, or the firm of which he is a shareholder, partner, associate or adviser, has acted as adviser to the company (consultant, external advisor, civil law notary and lawyer) and the case where the supervisory director is a management board member or an employee of any bank with which the company has a lasting and significant relationship; d. is a member of the management board of a company in which a member of the managing board of the company which he supervises is a supervisory board member; e. holds at least five percent of the shares in the company (including the shares held by natural persons or legal entities which cooperate with him under an express or tacit, oral or written agreement); f. is a member of the management board or supervisory board — or is a representative in some other way — or employee of a legal entity which holds at least five percent of the shares in the company; g. has temporarily managed the company during the previous twelve months where managing directors have been absent or unable to discharge their duties

Article 23. Appointment 23.1 The supervisory directors shall be appointed by the general meeting. 23.2 The board of supervisory directors shall prepare a profile of its size and composition, taking account of the nature of the business, its activities and the desired expertise and background of the supervisory directors. 23.3 Unless the general meeting explicitly resolves otherwise a supervisory director is appointed for a period of four years, it being understood that this period of appointment expires no later than at the end of the following general meeting to be held in the fourth year after the year of his appointment, or if applicable on a later pension or other contractual termination date in that year. A resolution by the general meeting to appoint for a period exceeding the four years term as described in the previous sentence shall require a majority of at least two-thirds of the votes cast. 23.4. After held office for the first period of four years, supervisory directors are eligible for re-election only twice for a full period of four years, as referred to in article 23.3. 23.5 In case a recommendation is made for the appointment of a supervisory director, the following information will be provided of a candidate: his age, his profession, the amount of shares in the capital of the company held by him and his current or past occupations in so far as they are of interest for the fulfillment of a supervisory director’s duties. Legal persons of which he is already a supervisory director shall also be mentioned; if these include legal persons belonging to the same group, it is sufficient to name the group. Motivation must be given with regard to the recommendation for the appointment or reappointment. Upon reappointment the past functioning of the candidate as supervisory director will be taken into account.

B-10 23.6 The board of supervisory directors may appoint one of its members to be a delegated director and in doing so determine the period of such appointment. The appointment shall be of a temporary nature only. The delegated director remains a director of the board of supervisory directors. 23.7 Without prejudice to the duties and responsibilities of the board of supervisory directors and of its individual members, the delegated director shall, on behalf of the board of supervisory directors, maintain more frequent contact with the board of managing directors with regard to the general course of affairs. In doing so, the delegated director shall assist the board of managing directors with advice. 23.8 The board of supervisory directors may, without prejudice to its responsibilities, designate one or more committees from among its directors, who shall be entrusted with the tasks specified by the board of supervisory directors. 23.9 The board of supervisory directors shall appoint from their members a chairman and may appoint a vice- chairman. 23.10 The company secretary shall, whether or not on the initiative of the board of supervisory directors or otherwise, be appointed and dismissed by the board of managing directors, after the approval of the board of supervisory directors has been obtained.

Article 24. Suspension and dismissal. Retirement 24.1 A supervisory director can at any time be suspended and dismissed by the general meeting. 24.2. The supervisory directors shall periodically retire in accordance with a schedule drawn up by the general meeting. A retiring supervisory director can be reappointed.

Article 25. Remuneration 25.1 Upon a proposal made by the board of supervisory directors, the general meeting shall determine the remuneration of the supervisory directors. The remuneration of the supervisory directors shall not depend on the results of the company, and shall not consist of shares or rights to acquire shares. 25.2 The general meeting may choose to additionally remunerate the members of the committee(s) for their services.

Article 26. Duties and powers 26.1 The duty of the board of supervisory directors shall be to supervise the policies of the board of managing directors and the general course of affairs of the company and its affiliated business. It shall give advice to the board of managing directors. When performing their duties, the supervisory directors shall be guided by the interests of the company and its affiliated business. 26.2 The board of supervisory directors shall be assisted by the company secretary. The company secretary shall see to it that correct procedures are followed and that actions are taken in accordance with statutory obligations and obligations under the articles of association. He shall assist the chairman of the board of supervisory directors in the actual organization of the affairs of the board of supervisory directors (information, agenda, evaluation, training program, et cetera). 26.3 The board of supervisory directors may make a division of duties, specifying the individual duties of every supervisory director. 26.4 The board of managing directors shall timely provide the board of supervisory directors with any such information as may be necessary for the board of supervisory directors to perform its duties. 26.5 At least once per year the board of managing directors shall inform the board of supervisory directors in writing of the outline of the company’s general financial, social, economic (including strategic policy, the general and financial risks and the management and control system) and staffing policy. 26.6 The board of supervisory directors shall have access to the buildings and grounds of the company and be authorized to inspect the books, records and other carriers of data of the company. The board of supervisory directors may appoint one or more persons from their midst or any expert to exercise such powers. The board of supervisory directors may also seek assistance of experts in other cases.

B-11 Article 27. Decision-making 27.1 The board of supervisory directors shall meet as often as a supervisory director or the board of managing directors may deem necessary. 27.2 In the meeting of the board of supervisory directors each supervisory director has a right to cast one vote. All resolutions by the board of supervisory directors shall be adopted by an absolute majority of the votes cast. In case the votes are equally divided the chairman does not have a decisive vote. 27.3 Without prejudice to article 20.5 a supervisory director shall not take part in any discussion or decision- making that involves a subject or transaction in relation to which he has a conflict of interest with the company. 27.4 A supervisory director may grant another supervisory director a written proxy to represent him at the meeting. 27.5 The board of supervisory directors may pass resolutions outside a meeting, provided that the resolution is adopted in writing and all supervisory directors have expressed themselves. 27.6 The board of supervisory directors may adopt rules and regulations governing its decision-making process. 27.7 The board of supervisory directors shall have a meeting with the board of managing directors as often as the board of supervisory directors or the board of managing directors deems necessary. 27.8 The meetings of the board of supervisory directors shall be chaired by the chairman of the board of supervisory directors.

CHAPTER VIII Annual accounts. Profits Article 28. Financial year. Drawing up the annual accounts 28.1 The company’s financial year shall correspond with the calendar year. 28.2 Within five months of the end of the company’s financial year, the board of managing directors shall draw up the annual accounts unless, in special circumstances, an extension of this term by not more than six months is approved by the general meeting. 28.3 The annual accounts shall be signed by all the managing directors and supervisory directors; if the signature of any of them is missing, this fact and the reason for such omission shall be stated. 28.4 The board of supervisory directors may submit to the general meeting a preliminary advice on the annual accounts.

Article 29. Auditor 29.1 The external auditor is appointed by the general meeting. If the general meeting fails to do so, the board of supervisory directors is authorized, or if the board of supervisory directors fails to do so, the board of managing directors. 29.2 The board of supervisory directors shall nominate a candidate for this appointment, for which purpose the board of managing directors and the audit committee, if installed, advise the board of supervisory directors. 29.3 The remuneration of the external auditor, and instructions to the external auditor to provide non-audit services, shall be approved by the board of supervisory directors on the recommendation of the audit committee, if installed, and after consultation with the board of managing directors. 29.4 The auditor shall report his findings to the board of supervisory directors and the board of managing directors. 29.5 The auditor shall record his findings in a report commenting on the true and fair nature of the annual accounts.

B-12 29.6 The external auditor may be questioned by the general meeting in relation to his statement on the fairness of the annual accounts. The external auditor shall therefore attend and be entitled to address this meeting.

Article 30. Presentation to the shareholders. Availability. Adoption 30.1 The annual accounts shall be deposited at the company’s office for inspection by the shareholders and depositary receipt holders within the period of time specified in article 28.2. The board of managing directors shall also submit the annual report within the same term. 30.2 The company shall ensure that the annual accounts, the annual report, the preliminary advice of the board of supervisory directors, if any, and the additional data to be added pursuant to article 2:392 paragraph 1 of the Netherlands Civil Code shall be available at its office from the day notice is sent out of the annual meeting. Shareholders and depositary receipt holders may inspect these documents at the company’s office and may obtain a complimentary copy thereof. 30.3 In case of bearer shares or bearer depositary receipts or if the company has bearer debt instruments outstanding, the documents, insofar as the same must be published after adoption, may also be inspected by any third party who may obtain a copy thereof at no more than cost. This right shall lapse as soon as the said documents have been deposited with the trade register. 30.4 The general meeting shall adopt the annual accounts. The annual accounts cannot be adopted if the general meeting has not been able to examine the auditor’s report referred to in article 29.4, unless under the additional data a lawful ground has been stated for the absence of the auditor’s report. 30.5 The provisions set out in these articles of association regarding the annual report and the additional data to be added under article 2:392 paragraph 1 of the Netherlands Civil Code shall not apply if the company is a member of a group and article 2:396 paragraph 6, first sentence or article 2:403 of the Netherlands Civil Code applies to the company.

Article 31. Publication 31.1 The company shall be required to publish its annual accounts within eight days of their adoption. Publication shall be accomplished by depositing the Netherlands text of the accounts, or if no Netherlands text has been drawn up, a French, German or an English version, at the trade register. The date of adoption must be indicated on the accounts so deposited. Publication is also required in each country in which the shares of the company have been admitted to an official listing on a regulated stock exchange. 31.2 If the annual accounts are not adopted within two months after the end of the requisite term in conformity with the statutory requirements, the board of managing directors shall immediately publish the annual accounts in the manner prescribed in paragraph 1 of this article; the annual accounts must state that they have not yet been adopted. 31.3 A copy of the annual report and the additional data required to be added under article 2:392 of the Netherlands Civil Code shall also be published, along with and in the same manner and language as the annual accounts. This shall, except for the information referred to in article 2:392 paragraph 1 under (a), (c), (f) and (g) of the Netherlands Civil Code, not apply if the documents are deposited at the company’s registered office for public inspection and full or partial copies shall be supplied upon request at cost; the company shall file this fact with the trade register.

Article 32. Profits 32.1 The board of managing directors, with prior approval of the board of supervisory directors, shall determine which portion of the profits — the positive balance of the profit and loss account — shall be reserved. The profit remaining after application of the previous sentence, if any, shall be at the disposal of the general meeting. The general meeting may resolve to partially or totally reserve such remaining profit. A resolution to pay a dividend shall be dealt with as a separate agenda item at the general meeting. 32.2 The company can only make profit distributions to the extent its equity exceeds the paid and called up part of the capital increased with the reserves which must be maintained pursuant to the law. 32.3 Dividends shall be paid after the adoption of the annual accounts evidencing that the payment of dividends is lawful. The general meeting shall, upon a proposal of the board of managing directors,

B-13 which proposal must be approved by the board of supervisory directors, at least determine (i) the method of payment in case payments are made in cash (ii) the date and (iii) the address or addresses on which the dividends shall be payable. 32.4 The board of managing directors may resolve to pay interim dividends, upon prior approval of the board of supervisory directors, and if the requirement of paragraph 2 of this article has been met as evidenced by an interim statement of assets and liabilities. Such interim statement shall relate to the condition of such assets and liabilities on a date no earlier than the first day of the third month preceding the month in which the resolution to distribute is published. It shall be prepared on the basis of generally acceptable valuation methods. The amounts to be reserved under law shall be included in such statement of assets and liabilities. The interim statement of assets and liabilities shall be signed by the managing directors, if the signature of one of them is missing, this fact and the reason for such omission shall be stated. The company shall deposit the statement of assets and liabilities with the trade register within eight days after the day on which the resolution to distribute is published. 32.5 The general meeting may, with due observance of paragraph 2 of this article and upon a proposal of the board of managing directors, which proposal has been approved by the board of supervisory directors, resolve to make distributions out of a reserve which need not be kept by law. 32.6 Cash payments in relation to bearer shares if and in as far as the distributions are payable outside the Netherlands, shall be made in the currency of the country where the shares are listed and in accordance with the applicable laws and regulations of the country in which the shares of the company have been admitted to an official listing on a regulated stock exchange. If such currency is not the same as the legal tender in the Netherlands the amount shall be calculated against the exchange rate determined by the board of managing directors at the end of the day prior to the day on which the general meeting shall resolve to make the distributions in accordance with article 32.1. If and in as far as the company on the first day on which the distribution is payable, pursuant to governmental measures or other extraordinary circumstances beyond its control is not able to pay on the place outside the Netherlands or in the relevant foreign currency, the board of managing directors is authorized to determine to that extent that the payments shall be made in Netherlands currency and on one or more places in the Netherlands. In such case the provisions of the first sentence of this paragraph shall not apply. 32.7 The general meeting may upon a proposal of the board of managing directors, which proposal was approved by the board of supervisory directors, resolve to pay dividends or make distributions out of a reserve which need not be kept by law, wholly or partially, in the form of shares in the capital of the company. 32.8 A claim of a shareholder to receive a distribution expires after five years. 32.9 For the calculation of the amount of the profit distribution, the shares held by the company in its own capital shall be excluded.

CHAPTER IX General meetings Article 33. Annual General Meeting 33.1 Within six months of the end of the company’s financial year the annual general meeting shall be held. 33.2 The agenda of that meeting shall, among other matters, contain the following items: a. the annual report; b. adoption of the annual accounts; c. discussion of any substantial changes in corporate governance; d. discussion of remuneration policy board of managing directors; e. discharge of the board of managing directors for the management over the past financial year; f. discussion of remuneration supervisory board; g. discharge of the board of supervisory directors for the supervision over the past financial year;

B-14 h. policy on additions to reserves and dividends i. adoption of the profit appropriation; j. filling of any vacancies; k. any such other motions as the board of supervisory directors, the board of managing directors, or the shareholders or any other persons representing solely or jointly at least one-hundredth of the issued capital or holding shares of the company, may file and notify with due observance of the provisions of article 35.

Article 34. Other general meetings 34.1 Within three months after the board of managing directors has considered it plausible that the equity of the company has decreased to an amount equal to or less than half of the paid and called up part of the capital, a general meeting shall be held to discuss the measures to be taken, if necessary. 34.2 Without prejudice of the provisions of article 33.1 and 34.1 general meetings shall be held as often as the board of managing directors, the board of supervisory directors, or shareholders and depositary receipt holders together representing at least one-tenth of the issued capital, hereinafter referred to as the “requesting shareholders”, deem necessary.

Article 35. Convocation. Agenda 35.1 General meetings shall be called by the board of managing directors, the board of supervisory directors, or by the requesting shareholders. The requesting shareholders are only authorized to call the general meeting themselves if it is evidenced that the requesting shareholders have requested the board of managing directors to call a general meeting in writing, exactly stating the matters to be discussed, and the board of managing directors has not taken the necessary steps so that the general meeting could be held within six weeks after the request. If the requesting shareholders represent more than half of the issued capital, however, they shall be authorized to call the general meeting themselves without first having to request the board of managing directors to call the general meeting. 35.2 Convocation shall take place not later than on the fifteenth day prior to the day of the meeting. 35.3 The convening notice shall specify the items to be discussed. Items which have not been specified in the convening notice may be announced with due observance of the requirements of this article. 35.4 The agenda shall contain such business as may be placed thereon by the board of managing directors and/or the board of supervisory directors. Furthermore, the agenda shall contain such items as requested in writing by one or more persons entitled to attend the general meeting, representing solely or jointly at least one-hundredth of the issued capital or holding shares of the company which according to the official price list of the regulated stock exchange represent a value of at least fifty million euros (EUR 50,000,000. — ), at least sixty days before the date of the meeting. The board of managing directors board and the board of supervisory directors may resolve not to place such items proposed by shareholders on the agenda if they are of the opinion that such request would be detrimental to the serious interest of the company. The meeting shall not adopt resolutions on matters other than those that have been placed on the agenda. 35.5 The board of managing directors and the board of supervisory directors shall inform the general meeting by means of a shareholder circular of all facts and circumstances relevant to the approval, delegation or authorization to be granted if a right of approval is granted to the general meeting. 35.6 Unless bearer shares or bearer depositary receipts with co-operation of the company have been issued, all convocations for the general meetings and all notifications to shareholders and depositary receipt holders shall be given by letters to the addresses according to the register of shareholders and the register of depository receipt holders. 35.7 If bearer shares or bearer depositary receipts with co-operation of the company have been issued, all convocations for the general meetings and all notifications to shareholders and depositary receipt holders shall be given by publication in at least one daily newspaper which is nationally distributed in the Netherlands as well as publication in each country in which the shares of the company have been admitted to an official listing on a regulated stock exchange in accordance with the applicable laws and

B-15 regulations, as well as by means of any additional publications as the board of managing directors deems necessary.

Article 36. Place of the meetings General meetings shall be held in Amsterdam, Rotterdam or Haarlemmermeer (Schiphol). In a meeting held elsewhere, valid resolutions can only be taken if the entire issued capital is represented. The convening notice shall state the place where the general meeting shall be held.

Article 37. Imperfect convocation general meeting 37.1 Valid resolutions in respect of matters which were not mentioned on the agenda in the convocation letter or which have not been published in the same manner and with due observance of the period set for convocation, can only be taken by unanimous votes in a meeting where the entire issued capital is represented. 37.2 If the period for convocation mentioned in article 35.2 was shorter or if no convocation has taken place, valid resolutions can only be taken by unanimous votes in a meeting where the entire issued capital is represented.

Article 38. Chairman 38.1 The general meetings shall be chaired by a chairman to be appointed by the supervisory board. 38.2 If no chairman for a meeting has been appointed in accordance with paragraph 1 of this article, the meeting shall appoint its chairman itself.

Article 39. Minutes 39.1 Minutes shall be taken of the matters discussed at every general meeting by a secretary to be appointed by the chairman. 39.2 The minutes of the general meeting shall be made available, on request, to shareholders no later than three months after the end of the meeting, after which the shareholders shall have the opportunity to react to the report in the following three months. 39.3 The minutes shall be adopted by the chairman and the secretary and signed by them to that effect. 39.4 The chairman, or the person who requested the meeting, may decide that an official notarial report should be drawn up of the matters discussed at the meeting. This report must be co-signed by the chairman.

Article 40. Rights exercisable during a meeting. Admission 40.1 Every person entitled to vote and every usufructuary and pledgee having voting rights shall be authorized to attend the general meeting, address the meeting and exercise their voting rights. 40.2 If the voting rights attached to a share is vested in the usufructuary or pledgee instead of the shareholder, also the shareholder shall be authorized to attend the general meeting and to address the meeting. 40.3 Furthermore, depositary receipt holders shall be authorized to attend and address the general meeting. 40.4 Before being allowed into a meeting, a shareholder or his proxy must sign an attendance register, stating his name and the number of votes which he has at the meeting and, if the attendant is a proxy, the name (names) of the person(s) whom he is representing. 40.5 A holder of registered shares and a person who has a right of usufruct or pledge over registered shares and who has the rights conferred by law upon depositary receipt holders, or his proxy, is only allowed to attend the meeting if he or the person whom he is representing is registered as such in the register of shareholders and the company has received written notice of his intention to attend the meeting at the location and no later than on the day set out in paragraph 9 of this article. 40.6 Notwithstanding the above, the board of managing directors may determine that the persons who are entitled to vote and to attend the general meeting, regardless who will be shareholder at the time of the general meeting, are those who: (i) at a moment to be determined by the board of managing directors are shareholders or are deemed shareholders, such moment hereinafter referred to as: “record date”; and

B-16 (ii) as such are registered in a register indicated by the board of managing directors (or one or more parts of such register), hereinafter referred to as: “register”, unless, (iii) the holder of the register on the request of the relevant shareholder or deemed shareholder has before the general meeting notified the company in writing that such a person has the intention to attend the general meeting, regardless who is shareholder or deemed shareholder at the moment of the general meeting. The notice shall include the name of the person referred to above and the number of shares for which he is entitled to attend the general meeting, and to the extent applicable accompanied by a written statement of an ICC associated financial institution stating that the number of bearer shares mentioned in the statement belongs to its global share certificate as kept in custody and that the person mentioned in the statement is a joint owner of its global share certificate as kept in custody for the said bearer shares. The provisions of paragraph (iii) above regarding the notice to the company apply mutatis mutandis to a proxy holder of a shareholders or a deemed shareholders as the case may be. 40.7 The record date referred to in paragraph 6 of this article cannot be determined earlier than on a certain time on the seventh day and not later than on the third day, prior to the date of the general meeting. The convocation of the general meeting will contain those times, the place of meeting and the proceedings for registration. 40.8 If the board of managing directors does not use the authority mentioned above in paragraph 6 of this article, a holder of registered shares and a person who has a right of usufruct or pledge over registered shares and who has the voting right on such shares, or a proxy holder of such a person, is only allowed to attend the general meeting if he or the person whom he is representing is registered as such in the register referred to in article 5 and the company has received written notice of his intention to attend the meeting, if applicable with submission of the proxy, at the latest at the place and on the day referred to in paragraph 9 of this article. 40.9 If the board of managing directors does not use the authority mentioned above in paragraph 6 of this article, the company shall, with regard to the voting rights and/or meeting rights of holders of bearer shares, deem as shareholder the person mentioned in a written statement by an ICC associated affiliated institution declaring that the number of bearer shares referred to in the statement belongs to its global share certificate as kept in custody and that the person mentioned in the statement is a participant in its global share certificate as kept in custody for the said ordinary shares and will remain a participant until after the meeting, provided that the statement in question has been deposited in time at the office of the company or at some other location determined by the board of managing directors. The provisions of the preceding sentence apply mutatis mutandis to a person who has a right of usufruct or pledge over one ore more bearer shares and who has the rights conferred by law upon depositary receipt holders. In the notice for the general meeting, the location where the statement of an ICC associated affiliated institution should be filed shall be stipulated, as well as the latest day on which the notice to the board of managing directors or the filing of the statement of an ICC associated affiliated institution should occur; this day may not be earlier than the seventh day prior to the general meeting. 40.10 The notice for a general meeting will always set out the provisions referred to in paragraphs 5 and 9 of this article. 40.11 Every share shall give the right to cast one vote. 40.12 The rights referred to in the previous paragraphs of this article may be exercised by a person acting upon a written power of attorney. A power of attorney shall mean any power of attorney transmitted via standard means of communication and received in written form. The attorney shall be admitted to the general meeting on presentation of the power of attorney. 40.13 The supervisory directors and the managing directors shall have an advisory vote at the general meeting. 40.14 Admission to the general meeting of persons other than those referred to these articles shall be decided by the board of managing directors.

Article 41. Decision making general meeting 41.1 The board of managing directors and the board of supervisory directors shall provide the general meeting with all information that it requires, unless this would be contrary to an overriding interest of

B-17 the company. In the event of such an overriding interest, the board of managing directors and the board of supervisory directors shall give its motivation. 41.2 Resolutions shall be passed by an absolute majority of the votes cast, unless the law or the articles of association prescribe a greater majority. 41.3 If no absolute majority is reached by a vote taken with respect to the election of persons, a second vote shall be taken whereby the voters are not required to vote for the previous candidates. If, again, no one has gained an absolute majority of the votes, new votes shall be held until either one person has gained an absolute majority or, if the vote was between two persons, the votes are equally divided. Such new votes (except for the second vote) shall only take place between the candidates who were voted for in the previous vote, except for the person who received the least number of votes. If in the previous vote two or more persons have the least number of votes, it shall be decided by lot who cannot be voted for at the new vote. If, in the event of an election between two candidates, the votes are equally divided, it shall be decided by lot who has been elected. 41.4 If a vote is taken in respect of matters other than in relation to election of persons and the votes are equally divided, the relevant motion shall be considered rejected. 41.5 All votings shall take place on orally unless the chairman decides or any person entitled to vote requests a voting in writing. A voting in writing shall take place by means of unsigned ballot papers. 41.6 Abstentions and invalid votes shall be deemed not to have been cast. 41.7 Votes by acclamation shall be allowed unless one of the persons present and entitled to vote objects. 41.8 The chairman’s view at the meeting expressing that the general meeting has passed a resolution shall be decisive. The same shall apply to the contents of the resolution so passed, provided that the relevant motion was not put down in writing. However, if the chairman’s view is challenged immediately after it is expressed, a new vote shall be taken when the majority of the persons present and entitled to vote so require or, if the original vote was not by call or by ballot, when one person present and entitled to vote so requires. The new vote shall nullify the legal consequences of the original vote.

Article 42. Resolutions passed outside a meeting 42.1 Subject to the provision set out in the following paragraph of this article, rather than at a general meeting, the shareholders may also pass resolutions in writing, provided that they do so by a unanimous vote representing the company’s entire issued capital. 42.2 This manner of decision-making shall not be possible if bearer shares or depositary receipts with the co- operation of the company have been issued.

CHAPTER X Amendment to the articles of association and dissolution. Liquidation Article 43. Amendment to the articles of association and dissolution 43.1. A decision to amend the articles of association or to dissolve the company can only be taken at the proposal of the board of managing directors, which has been approved by the board of supervisory directors. 43.2. If a proposal to amend the articles of association or to dissolve the company is to be submitted to the general meeting, the convening notice must state this fact. At the same time, if the proposal is for an amendment to the articles of association, a copy of the motion containing a verbatim text of the proposed amendment must be deposited at the company’s office for inspection by the shareholders and depositary receipt holders until the meeting is adjourned.

Article 44. Liquidation 44.1 If the company is dissolved pursuant to a resolution by the general meeting, the managing directors shall be the liquidators of the dissolved company, unless the general meeting appoints other persons to that effect. The board of supervisory directors shall supervise the liquidation. 44.2 The provisions of these articles of association shall, to the fullest extent possible, continue to be in force during the liquidation.

B-18 44.3 The surplus remaining after payment of the debts shall be paid to the shareholders in proportion to the total value of the their individual shareholdings. 44.4 After the company has ceased to exist the books, records and other carriers of data shall be kept by the person designated thereto by the liquidators for seven years.

Chapter XI Indemnity Article 45. Indemnity for members of the board of managing directors and board of supervisory directors. Unless Netherlands law provides otherwise and to the fullest extent possible, current and former members of the board of managing directors and board of supervisory directors shall be reimbursed for all costs and expenses, including but not limited to: (i) the reasonable costs of conducting a defense against claims based on acts or failures to act in the exercise of their duties or any other duties currently or previously performed by them at the company’s request; (ii) any damages or fines payable by them as a result of an act or failure to act as referred to under (i) of this article; (iii) the reasonable costs of appearing in other legal proceedings in which they are involved as current or former members of the board of managing directors or board of supervisory directors, with the exception of proceedings primarily aimed at pursuing a legal claim on their own behalf. There shall be no entitlement to reimbursement as referred to above if and to the extent that (i) a competent court has established in a final and conclusive decision that the act or failure to act of the person concerned may be characterized as willful (“opzettelijk”), intentionally reckless (“bewust roekeloos”) or seriously culpable (“ernstig verwijtbaar”) conduct, unless Netherlands law provides otherwise or this would, in view of the circumstances of the case, be unacceptable according to standards of reasonableness and fairness, or (ii) the costs or financial loss of the person concerned are covered by an insurance and the insurer has paid out the costs or financial loss. The company may take out liability insurance for the benefit of the persons concerned. The board of supervisory directors may give further implementation to the above with respect to members of the board of managing directors. The board of managing directors may give further implementation to the above with respect to members of the board of supervisory directors.

B-19 THE ISSUER

Cinema City International N.V. A3.10.1 3012 NJ, Weena 210-212 Rotterdam The Netherlands

GLOBAL COORDINATOR, LEAD MANAGER AND BOOKRUNNER Bank Austria Creditanstalt AG (“CA IB”) Vordere Zollamtsstrasse 13 A-1030, Vienna Austria

CO-LEAD MANAGER ING Bank N.V., London Branch 60 London Wall London EC2M 5TQ England

POLISH OFFEROR CA IB Securities S.A. ul. Emilii Plater 53 00-113 Warsaw Poland

LEGAL ADVISERS TO THE ISSUER As to U.S. law and the law of As to Dutch law As to Polish law England and Wales Baker & McKenzie LLP Baker & McKenzie Baker & McKenzie 100 New Bridge Street Amsterdam N.V. Gruszczyn´ski & Partners London EC4V 6JA Claude Debussylaan 54 Attorneys at Law LP England 1082 MD Amsterdam Rondo ONZ 1, 00-124 Warsaw The Netherlands Poland

LEGAL ADVISERS TO THE MANAGERS Hogan & Hartson Jamka Galos Sp.K. Al. Jana Pawla II 25 00-854 Warsaw Poland

INDEPENDENT AUDITORS OF THE ISSUER KPMG Accountants N.V. Burgemeester Rijnderslaan 10 1185 MC Amstelveen The Netherlands

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