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IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE ) IN RE: APPRAISAL OF METROMEDIA ) Civil Action No. 3351-CC INTERNATIONAL GROUP, INC. ) ) OPINION Date Submitted: January 30, 2009 Date Decided: April 16, 2009 Stuart M. Grant, Geoffrey C. Jarvis, Diane T. Zilka, and Alessandra C. Phillips, of GRANT & EISENHOFER, P.A., Wilmington, Delaware; Lawrence C. Ashby, Stephen E. Jenkins, Philip Trainer, Jr., Richard L. Renck, and Toni-Ann Platia, of ASHBY & GEDDES, P.A., Wilmington, Delaware, Attorneys for Petitioners. Arthur L. Dent, Michael A. Pittenger, and Berton W. Ashman, Jr., of POTTER ANDERSON & CORROON LLP, Wilmington, Delaware; OF COUNSEL: Steven Klugman, Gary W. Kubek, Helen V. Cantwell, Eliza M. Sporn, Courtney M. Dankworth, and Andrea Glen, of DEBEVOISE & PLIMPTON LLP, New York, New York, Attorneys for Respondent. CHANDLER, Chancellor In this consolidated appraisal proceeding, dissenting petitioners seek a judicial determination of the “fair value” of the 7.25% Cumulative Convertible Preferred Stock of respondent Metromedia International Group, Inc. (“MIG”). This litigation arises from the August 22, 2007 merger of CaucusCom Mergerco Corp. (“MergerSub”), a wholly-owned subsidiary of CaucusCom Ventures, L.P. (“CaucusCom”), with MIG, in which MIG was the surviving entity. The merger occurred after MergerSub had already acquired in a tender offer approximately 77% of MIG’s outstanding common shares. After the tender offer, the merger agreement between MIG, CaucusCom, and MergerSub granted MergerSub the option (referred to as the “Top-Up Option”), which MergerSub exercised, to obtain additional common shares from MIG in order to raise MergerSub’s ownership stake to 90%. The Top-Up Option was followed by a short-form merger under 8 Del. C. § 253 in which the remaining common shares were cashed out, and which led to this appraisal proceeding. MIG asserts that the highest value of the preferred shares is based on the preferred’s being converted into common shares under the certificate of designation. According to MIG, the certificate of designation imposed limitations on the consideration that preferred holders would receive upon conversion, which tops out at $18.07 for each preferred share. In contrast, petitioners rely upon three different valuation approaches, which yield a range of values from $67.50 per 1 share to $79.76 per share. They view their methodologies as vindicated by virtue of their “convergence” on the preferred stock’s $79.76 redemption price under the certificate of designation, even though (as I determine) no redemption has ever occurred. The case was tried before the Court on December 12, 15, 16, and 17, 2008. This is the Court’s post-trial decision. After considering the record of over 220 exhibits, the testimony of one fact and three expert witnesses, and having weighed all of the evidence, I determine the fair value of MIG preferred shares on August 22, 2007 to be $38.92 for each share. I also award interest on this amount at the statutorily prescribed rate. I. FACTUAL OVERVIEW A. MIG’s Business, Pre-Appraisal Date In September 1997, when MIG issued the preferred shares, MIG’s total enterprise value was approximately $1 billion. MIG owned all or part of telecommunications businesses in fourteen countries throughout Eastern Europe, the republics of the former Soviet Union, and other emerging markets. One of MIG’s holdings was an indirect interest in Magticom, the leading mobile telephone company in the Republic of Georgia. MIG issued the preferred shares at a price of $50 per share, with a 7.25% annual dividend, payable quarterly in cash or common stock. 2 Until March 15, 2001, MIG had regularly paid quarterly dividends due to the preferred holders under the certificate of designation. At that time, however, it stopped paying dividends1 because it faced liquidity pressures as a result of slumping performance in its company investments, burdensome overhead expenditures, and a significant outflow of cash as a result of the acquisition and development of its other businesses. These investments substantially depleted MIG’s cash reserves. Following the suspension of its preferred dividend, MIG sold many of its nonessential businesses and significantly reduced its overhead expenditures. In August 2005, MIG sold its interest in ZAO Peterstar, the leading fixed line telephone operator in Russia, for $215 million in cash. A portion of the purchase price was used to pay off MIG’s outstanding 10.5% senior notes, and another portion was used to increase MIG’s stake in Magticom to 50.1%. From that point on, from September 2005 through the appraisal date, MIG has had no debt outstanding, and its main asset, Magticom, generated positive free cash flow. Although MIG had excess cash generated from the sale of its assets, the reduction of its debt, and the dividend revenues it received from its controlling interest in Magticom, it did not resume paying its dividend to the preferred holders. 1 If deferred, the dividends accumulate and compound at an annual rate of 7.25%. See Trial Ex. JX-7, 5. 3 As of the time of the Merger, the accrued and unpaid dividends totaled $121,732,028, or $29.40 for each preferred share. Since 2005, MIG’s principal asset has been its ownership of 50.1% of the stock of International Telcell Cellular LLC (“ITC”), which owns all the issued and outstanding common stock of Magticom. The remaining ownership stake of ITC was held primarily by Dr. George Jokhtaberidze, a Georgian national who founded Magticom. As of the appraisal date, Magticom maintained an approximately 50% share of the Georgian mobile telephone market and owned interests in three smaller telecommunications companies in Georgia: Ayety TV, a cable television provider, Telecom Georgia, a long-distance transit operator, and Telenet, a high- speed data communication and internet access service provider. B. The Transaction Early in 2006, a group of investors expressed interest in purchasing MIG’s share in Magticom. Under Delaware law and MIG’s certificate of incorporation, a sale of all or substantially all of MIG’s assets required the affirmative vote of a majority of the common shareholders.2 MIG was advised that, due to its non- compliance with financial reporting requirements, it was prohibited from holding a meeting of its common shareholders to obtain approval of the proposed transaction. In order to effectuate an asset sale without a vote of its common 2 See 8 Del. C. § 271. Additionally, according to Section 8(g) of the certificate of designation, preferred holders of MIG have no right to vote on a merger. 4 shareholders, MIG proposed to file a voluntary bankruptcy petition and then seek reorganization under Chapter 11 of the United States Bankruptcy Code. According to MIG, a bankruptcy petition would not have required a vote by its common shareholders, but it would have to be approved by the preferred holders. One of the offers MIG received was from Salford Capital Partners Inc. (“Salford”). Salford is a private equity investment management firm that specializes in the former Soviet Union and other Central and Eastern European countries. In October 2006, a consortium of buyers, including Salford, offered to purchase substantially all of MIG’s assets for $480 million. Because the bankruptcy reorganization required the approval of the preferred holders, MIG sought agreements with large holders of preferred shares as to an allocation of the potential sale proceeds. By October 1, 2006, approximately 80% of the preferred holders had agreed to support MIG’s Chapter 11 plan of reorganization under which they would receive approximately $68 per preferred share, assuming that a transaction with the investor group was completed on the terms described in the letter of intent. Several common shareholders challenged the proposed transaction in this Court. On November 29, 2006, Vice Chancellor Stephen Lamb issued an order enjoining MIG from entering into an agreement to 5 sell all or substantially all of its assets unless such agreement was subject to a vote of the common shareholders.3 Salford then conducted further due diligence; it concluded that MIG’s assets were worth less than $400 million and withdrew its $480 million cash offer. In February 2007, Salford informed MIG that it would be prepared to make a tender offer for MIG’s common shares at $1.80 per share. Sun Capital Partners Ltd., a United Kingdom principal investment group (“Sun”), joined Salford as a partner in the discussions with MIG regarding a tender offer. Salford and Sun agreed with MIG to include a back-end merger as part of the transaction. The back-end merger would allow Salford and Sun to acquire all of the common shares at the same price and would enable MIG to avoid the substantial costs of completing its delayed public financial reporting and of continuing as a public company. Salford and Sun also understood that completing the merger would give preferred holders appraisal rights. MIG’s board retained Evercore Partners to provide an opinion as to whether the tender offer price of $1.80 per share was fair to the common shareholders. On July 13, 2007, Evercore delivered its opinion that the $1.80 per share cash offer from Salford was fair to MIG’s common shareholders because $1.80 fell within the 3 See Esopus Creek Value LP v. Hauf, 913 A.2d 593 (Del. Ch. 2006). 6 range of implied values of $1.05 to $2.58 per MIG common share.4 Evercore did not express any opinion as to the fair value of the preferred shares. Based upon advice from Evercore and legal advisors regarding the various proposals that MIG had received, MIG’s board concluded that Salford’s proposed tender offer was superior to the proposals submitted by other potential acquirers. On July 17, 2007, MIG’s board entered into a merger agreement with CaucusCom pursuant to which MergerSub would conduct the tender offer for all outstanding common shares at $1.80 per share followed by a back-end short-form merger.

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