CENTRAL EUROPEAN MEDIA ENTERPRISES LTD

FORM 10-K (Annual Report)

Filed 3/15/2001 For Period Ending 12/31/2000

C/O CME DEVELOPEMENT CORP 8TH FLOOR ALDWYCH HOUSE Address 71-91 ALDWYCH LONDON, WC2B 4HN Telephone 011442074305430 CIK 0000925645 Industry Broadcasting & Cable TV Sector Services Fiscal 12/31 Year SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549

FORM 10 -K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 COMMISSION FILE NUMBER: 0-24796 CENTRAL EUROPEAN MEDIA ENTERPRISES LTD. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

BERMUDA NOT APPLICABLE (STATE OR OTHER JURISDICTION OF INCORPORATION) (IRS EMPLOYER IDENTIFICATION NO.)

CLARENDON HOUSE CHURCH STREET HAMILTON HM CX BERMUDA (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

(441) 296-1431 (REGISTRANT'S TELEPHONE NUMBER)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: CLASS A COMMON STOCK, $0.08 PAR VALUE 9.375% NOTES DUE 2004 8.125% NOTES DUE 2004

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for each shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES X NO

Indicate by check mark if disclosure of delinquent filers pursuant to

Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]

The aggregate market value of the voting stock of registrant held by non -affiliates of the registrant as of March 9, 2001 was approximately $6,152,196

Number of shares of Class A Common Stock outstanding as of March 9, 2001: 2,313,346

Number of shares of Class B Common Stock outstanding as of March 9, 2001: 991,842

DOCUMENTS INCORPORATED BY REFERENCE

LOCATION IN FORM 10-K IN WHICH DOCUMENT DOCUMENT IS INCORPORATED ------Registrant's Proxy Statement Part III for the Annual General Meeting of Shareholders to be held on May 18, 2001

TABLE OF CONTENTS

Page PART I Item 1. Business...... 3 Item 2. Properties...... 21 Item 3. Legal Proceedings...... 21 Item 4. Submission of Matters to a Vote of Security Holders...... 23

PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters...... 24 Item 6. Selected Financial Data...... 24 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations...... 27 Item 7a. Quantitative and Qualitative Disclosures About Market Risk...... 42 Item 8. Financial Statements and Supplementary Data...... 42 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...... 67

PART III

Item 10. Directors and Officers of the Registrant...... 67 Item 11. Executive Compensation...... 68 Item 12. Security Ownership of Certain Beneficial Owners and Management...... 68 Item 13. Certain Relationships and Related Transactions...... 68

PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K...... 69

SIGNATURES

2 PART I

ITEM 1. BUSINESS

GENERAL

Central European Media Enterprises Ltd. ("CME") is a Bermuda corporation. All references to the "Company" include CME and its direct and indirect Subsidiaries, and all references to "Subsidiaries" include each corporation or partnership in which CME has a direct or indirect equity or voting interest.

The Company's national private television stations and networks in the Slovak Republic and Slovenia had the leading nationwide audience shares for 2000 and the Company's television network in Romania had the leading average audience share within its area of broadcast reach for 2000. In Ukraine, for 2000, the Company's national private television station and network had the leading nationwide average audience share for television stations broadcasting in the Ukrainian language.

The Company's television stations and networks, which reach an aggregate of approximately 70 million people in four countries, consist of the following:

POPULATION TECHNICAL ECONOMIC VOTING COUNTRY (1) STATIONS AND NETWORKS REACH (2) INTEREST (3) INTEREST (3) ------

Romania...... 22.5 PRO TV / Acasa...... 16.2 66.0% 66.0% Slovenia (4)...... 2.0 POP TV...... 1.7 85.5% 78.0% Kanal A (5)...... 1.6 90.0% 90.0% Slovak Republic...... 5.4 Markiza TV...... 5.1 80.0% 49.0% Ukraine...... 49.5 Studio 1+1...... 47.1 60.0% 60.0% ------Total...... 79.4 70.1 ======

(1) Country population in millions. Source: Business Central Europe.

(2) "Technical Reach" measures the number of people in millions who are able to receive the signals of the indicated stations and networks. Source: CME stations.

(3) See discussion below under the heading "Corporate Structure".

(4) See discussion below under the heading "Kanal A Purchase". Kanal A was acquired on October 11, 2000.

(5) The "Technical Reach" of Kanal A has been excluded from the total to avoid double counting.

Note: See "Status of Nova TV Dispute" below for a further discussion on Nova TV and the ongoing dispute between CNTS and CET.

Unless otherwise noted, all statistical and financial information presented in this report has been converted into United States dollars using exchange rates as of December 31, 2000. All references to '$' or 'dollars' are to United States dollars, all references to 'Kc' are to Czech korunas, all references to 'ROL' are to Romanian lei, all references to 'SIT' are to Slovenian tolar, all references to 'Sk' are to Slovak korunas, all references to 'Hrn' are to Ukrainian hryvna and all references to 'DM' are to German marks. The exchange rates as of December 31, 2000 used in this report are 25,880 ROL/$; 227.38 SIT/$; 47.39 Sk/$; 5.43 Hrn/$; 2.08 DM/$ and 37.81 Kc/$.

3 STATUS OF NOVA TV DISPUTE

The Company owns a 99% voting and economic interest in Ceska nezavisla televizni spolecnost, spol. s r.o. ("CNTS"). In January 1993, CET 21, spol. s r.o. ("CET") was awarded a terrestrial television broadcast license in the Czech Republic. This license expires in January 2005. CET was awarded the license with the full knowledge and understanding of the Council of the Czech Republic for Radio and Television Broadcasting (the "Media Council") that CEDC (the Company's direct predecessor in interest) was a direct participant in the license application. With the involvement of the Media Council, the Company and CET entered into a Memorandum of Association and Investment (the "Memorandum of Association") that provided for the creation of a company, CNTS, to operate and broadcast the planned television station. An associated agreement further provided that CET did not have the authority to broadcast without the direct participation of CEDC. Between 1993 and August 1999, CNTS performed essentially all of the activities associated with operating and broadcasting Nova TV. Nova TV became one of the most successful television stations in Europe.

In 1997, however, under compulsion resulting from proceedings initiated by the Media Council, the Company and CET amended the Memorandum of Association and entered into other contracts to reflect the change in the Memorandum of Association. One such contract (the "Cooperation Contract") expressly identified CET as the license holder and the "television broadcasting operator" of TV Nova. Pursuant to the Cooperation Contract CNTS prepared, completed and delivered television programming that was then distributed by CET, which broadcast the Nova TV signal. CNTS also collected all of Nova TV's advertising and other revenues, and retained the balance of those revenues net of Nova TV's operating expenses less Kc 100,000 ($2,600) per month payable to CET.

On August 5, 1999, CET pre-empted CNTS's transmission and began broadcasting a substitute signal for Nova TV from a site other than CNTS's studios. In addition, on the same day, CNTS received notification from CET that CET was withdrawing from the Cooperation Contract due to CNTS's alleged failure to supply CET with the daily program log for Nova TV on August 4, 1999. CET representatives also stated publicly that, in future, CET would not use CNTS to provide services for Nova TV. CET has continued to pre-empt all of CNTS's programming for Nova TV. CNTS believes that CET's withdrawal from the Cooperation Contract was not legally effective since CNTS did not materially breach the Cooperation Contract and that the Cooperation Contract therefore remains in effect.

On August 9, 1999, CNTS filed a motion in the Regional Commercial Court in Prague for an injunction enjoining CET from entering into service relationships with other companies and further requested the court to declare the Cooperation Contract to be in full force and effect. The Regional Commercial Court issued a favorable ruling on May 4, 2000 which was subsequently reversed by a December 14, 2000 ruling from the High Court. CNTS is appealing the High Court ruling to the Supreme Court. See Item 3, "Legal Proceedings."

As a result of CET's actions, CNTS has been unable to generate revenues and its operations have been suspended. On September 9, 1999, the Company announced the suspension of technical and production operations at CNTS and CNTS has since dismissed a majority of the employees.

4 CNTS is governed by a Memorandum of Association. The Company believes that the Memorandum of Association, the Cooperation Contract and the course of dealing over the life of Nova TV establish that CNTS is legally entitled and authorized to operate Nova TV in cooperation with CET.

On April 19, 1999, CNTS dismissed Dr. Vladimir Zelezny from his position as Executive and General Director of CNTS, for taking actions that exceeded his authority, breached his fiduciary duties and were against the interests of CNTS. After an internal investigation, it was learned that Dr. Zelezny had executed an unlimited CNTS guarantee for the liabilities of a Czech television program acquisition company, AQS a.s. ("AQS"), without any authorization. The investigation also indicated that Dr. Zelezny had reassigned the program acquisition department of CNTS to AQS, had notified international providers of television programming that AQS would replace CNTS as the program service provider to Nova TV, and had taken other serious and substantial actions contrary to the interests of CNTS.

On April 26, 1999, a wholly-owned subsidiary of the Company filed an arbitration claim against Dr. Zelezny before the International Chamber of Commerce Court of Arbitration in Paris, France (the "ICC Arbitration"). The Company sought the return of $23,350,000 paid to Dr. Zelezny, plus interest, and other unspecified damages, based on breaches by Dr. Zelezny of a share purchase agreement entered into in 1997 under which the Company purchased from Dr. Zelezny, Nova Consulting, a company owned by him whose sole asset was a 5.8% interest in CNTS. The Company also sought the forgiveness of the $5,188,000 unpaid balance of the purchase price under the 1997 share purchase agreement.

On February 9, 2001, the ICC Arbitration Tribunal issued a final award, finding that Dr. Zelezny had breached the share purchase agreement through his actions in relation to AQS and that the share purchase agreement was a valid and enforceable contract. In light of those holdings, the Tribunal ordered Dr. Zelezny to immediately refund to the Company the $23,350,000 it had paid him pursuant to the share purchase agreement, plus interest (a total of approximately $27,100,000, accruing further interest at approximately $3,200 per day) and costs of $250,000. The Tribunal ordered the Company to return the Nova Consulting shares to Dr. Zelezny, but only after receipt of the money owed by Dr. Zelezny. The Tribunal also rejected Dr. Zelezny's claim for the balance of the purchase price. Dr. Zelezny has not yet complied with the award. The Company is taking all steps possible to enforce the award and will continue to do so until the award is satisfied. There can be no assurance that the Company will be able to collect all or any significant part of the award of $27,100,000 plus the accrued interest.

On August 23, 1999, Ronald S. Lauder, the non-Executive Chairman of the Company's Board of Directors, instituted arbitration proceedings against the Czech Republic under the 1992 Bilateral Investment Treaty between the United States and the Czech Republic. Mr. Lauder initiated the proceedings in his personal capacity as a U.S. national who owns or controls (by virtue of his voting control over CME) an investment in the Czech Republic. The claim asserts that the Czech Republic harmed Mr. Lauder's investment in CNTS by, among other things, taking unfair and discriminatory actions by reversing its initial approval of an exclusive relationship between CNTS and CET, and by failing to act to remedy the effects of the improper actions of Dr. Zelezny. Mr. Lauder seeks monetary damages and other relief arising from harm caused to CNTS by the Czech Republic's actions. The arbitration was

5 heard before a tribunal of three arbitrators pursuant to the Arbitration Rules of the United Nations Commission on International Trade Law from March 5 to March 13, 2001. An award is expected in approximately the third quarter of this year.

On February 22, 2000, a wholly owned subsidiary of the Company instituted arbitration proceedings against the Czech Republic under the 1991 Bilateral Investment Treaty between The Netherlands and the Czech Republic. The claims asserted, remedies sought and procedure to be followed are substantially similar to those in the arbitration initiated by Mr. Lauder against the Czech Republic. The arbitration will be heard from April 23 to May 2, 2001, in Stockholm, Sweden.

The Company believes that CET's actions violate the Cooperation Contract and CET's obligations under the CNTS Memorandum of Association, as well as Czech media laws. The continued suspension of CNTS's operations has had a material adverse effect on the Company.

SBS TRANSACTION

On February 21, 2000, the Company sold to SBS Broadcasting S.A. ("SBS") substantially all of its Hungarian operations for $16,000,000. $12,700,000 of the purchase price was applied to pay the programming liabilities for the territory of Hungary which were assumed by SBS from CME and $3,300,000 plus the net current assets of the Hungarian operations was settled in cash in March 2000. The net current assets of the Hungarian operations are subject to final determination.

On February 21, 2000, the Company and SBS also entered into an option agreement with respect to the ITI Note (the "ITI Note Option Agreement"). The ITI Note was acquired by the Company in connection with the sale of its interest in the TVN television operations in Poland to International Trading and Investments Holding S.A. ("ITI") in December 1998. The ITI Note is in the principal amount of $40,000,000, bears interest at a rate of 5% per annum, matures on December 10, 2001 and was originally recorded by the Company at its present value of approximately $20,000,000. On June 29, 2000, SBS exercised its call option on the ITI Note for $37,250,000 plus accrued interest. This resulted in a gain of $17,186,000.

CORPORATE STRUCTURE

Central European Media Enterprises Ltd. was incorporated on June 15, 1994 under the laws of Bermuda. CME's assets are held through a series of Dutch and Netherlands Antilles holding companies.

Laws, regulations and policies in CME's markets generally restrict the level of direct or indirect interests that any non-local investor such as CME may hold in companies holding broadcast licenses. As a result, broadcast licenses are generally held by companies majority owned by CME's local partners and CME owns controlling interests in service companies which provide programming, advertising and other services to the licenseholding companies. References to POP TV, Kanal A, PRO TV, Acasa, Markiza TV and Studio 1+1 in this report may be to either the license company or the service companies or both, as the case may be.

6 The Company has no reason to believe that the licenses for the television license companies will not be renewed. However, no statutory or regulatory presumption exists for the current license holders and there can be no assurance that licenses will be renewed upon expiration of their initial term. The failure of any such license to be renewed could adversely affect the results of the Company's operations. However, to date, licenses have been renewed in the ordinary course of business.

CME CME LICENSE VOTING TV SERVICES VOTING COUNTRY EXPIRATION TV LICENSE COMPANY INTEREST COMPANY INTEREST ------Romania...... 2003 - 2008 Pro TV S.R.L...... 49% MPI...... 66% Media Pro S.R.L...... 0% Slovenia...... 2003 - 2007 Tele 59 ...... 10% Pro Plus...... 78% MMTV...... 10% Slovenia...... 2003 - 2010 Kanal A...... 90% Kanal A...... 90% Slovak Republic...... 2007 Markiza-Slovakia s.r.o...... 0% STS...... 49% Ukraine...... 2006 Studio 1+1...... 18% Innova, IMS, UAH...... 60%

Note: See "Status of Nova TV Dispute" above for a discussion on the ongoing dispute between CNTS and CET.

ROMANIA

The Company's interest in PRO TV is governed by a Co-operation Agreement (the "Romanian Agreement") among the Company, Adrian Sarbu and Ion Tiriac, forming Media Pro International S.A. ("MPI"), through which PRO TV and Acasa are operated. MPI provides programming to and sells advertising for the stations which comprise the PRO TV and Acasa network. Pursuant to the Romanian Agreement, the Company owns 66% of the equity of MPI. Interests in profits of MPI are equal to the partners' equity interests. The Company has the right to appoint three of the five members of the Council of Administration which directs the affairs of MPI. Although the Company has majority voting power in MPI, with respect to certain fundamental financial and corporate matters the affirmative vote of either Mr. Sarbu or Mr. Tiriac is required. The Company owns 49% of the equity of PRO TV, SRL which holds 20 of the 23 licenses for the stations which comprise the PRO TV and Acasa network. Messrs. Sarbu and Tiriac own substantially all of the remainder of PRO TV, SRL. The remaining three licenses for the PRO TV network together with the licenses for the PRO FM and PRO AM radio networks are held by Media Pro SRL, a company owned by Messrs. Sarbu and Tiriac. On March 7, 2000, the Company exercised its option to purchase 44% of Media Pro SRL for $1,300,000. This transaction is awaiting final documentation. In addition, in Romania, the Company owns 70% of each of Media Vision SRL ("Media Vision"), a production and dubbing company, and Video Vision International SRL ("Video Vision"), a post-production company.

SLOVENIA

The Company's interest in POP TV is governed by a Partnership Agreement among the Company, MMTV 1 d.o.o. Ljubljana ("MMTV") and Tele 59 d.o.o. Maribor

7 ("Tele 59"), forming Produkcija Plus d.o.o. ("Pro Plus"). Pro Plus provides programming to and sells advertising for the broadcast licenseholders MMTV and Tele 59 as well as additional affiliates. The Company currently owns 78% of the equity in Pro Plus, but has an effective economic interest of 85.5% as a result of its right to 33% of the profits of MMTV and 33% of the profits of Tele 59. Tele 59 currently owns a 21% equity interest in Pro Plus and MMTV currently owns a 1% equity interest in Pro Plus. The Company owns 10% of the equity of both Tele 59 and MMTV. The Company also owns a 20% equity interest in MTC Holding d.o.o. ("MTC") which owns the remaining 90% equity interest in MMTV. 76% of MTC's equity is being separately held by a Slovene person, in trust for the Company, until the Slovene media law is clarified or until the Company determines final ownership. Voting power and interests in profits of Pro Plus are equal to the partners' equity interests. All major decisions concerning the affairs of Pro Plus are made by the general meeting of partners and require a 70% affirmative vote. Certain fundamental financial and corporate matters require an 85% affirmative vote of the partners.

Kanal A Purchase

On October 11, 2000, the Company completed a transaction through which the Company acquired control over the economics and the programming of Kanal A, for $12,500,000 plus the value of the net current assets and net programming assets of Kanal A, which are subject to final determination. Kanal A is the second leading commercial television broadcaster in Slovenia. As a result of the transaction, 90% of the Kanal A shares are being held by Superplus Holding d.d. ("Superplus") which is owned by individuals who are holding the share of Superplus in trust for the Company until the Slovene media law is clarified or until the Company determines final ownership. Consequently, Pro Plus ceased producing programming under the name of Gabja TV and frequencies previously used for Gajba TV are now used for Kanal A. From January 2001, Pro Plus has entered into an agreement with Kanal A, under which Pro Plus provides all programming to Kanal A and sells its advertising.

SLOVAK REPUBLIC

The Company's interest in Markiza TV is governed by a Participants Agreement dated September 28, 1995 (the "Slovak Agreement") between the Company and Markiza-Slovakia s.r.o. ("Markiza") forming Slovenska Televizna Spolocnost, s.r.o. ("STS"). Pursuant to the Slovak Agreement, the Company is required to fund all of the capital requirements of, and holds a 49% voting interest and an 80% economic interest in, STS. Markiza, which holds the television broadcast license, and STS have entered into an agreement under which STS is entitled to conduct television broadcast operations pursuant to the license. On an ongoing basis, the Company is entitled to 80% of the profits of STS, except that until the Company is repaid its capital contributions plus a priority return at the rate of 6% per annum on such capital contributions, 90% of the profits will be paid to the Company. A Board of Representatives directs the affairs of STS, the composition of which includes two designees of the Company and three designees (two of whom have been named) of Markiza; however, all significant financial and operational decisions of the Board of Representatives require a vote of 80% of its members. In addition, certain fundamental corporate matters are reserved for decision by a general meeting of partners and require a 67% affirmative vote of the partners. There is currently litigation pending with respect to the ownership of Markiza. See Item 3, "Legal Proceedings".

8 UKRAINE

The Studio 1+1 Group consists of several entities in which the Company holds direct or indirect interests. The Company owns a 60% equity interest in each of Innova Film GmbH ("Innova"), Ukraine Advertising Holding B.V. ("UAH") and International Media Services ("IMS"). Innova holds 100% of Intermedia, a Ukrainian company, which in turn holds a 30% equity interest in Studio 1+1, the license holding company in the Ukraine. UAH held a 50% interest in Prioritet, the main vehicle for advertising sales up until January 1, 2001.

Current Ukrainian legislation limits direct foreign equity holdings in broadcasting companies to 30%. At present the Company's interest in Studio 1+1 is, indirectly, 18%. Existing agreements commit all the shareholders of Studio 1+1 to increase the direct holding of the Company, or one of its subsidiaries, when legislation permits this.

Innova, IMS, Intermedia and UAH have entered into arrangements regarding the provision of programming and advertising sales services to Studio 1+1. An agreement has been signed to transfer UAH's 50% interest in Prioritet to Video International ("VI"), a Russian based company. This transfer forms part of an overall agreement signed with VI on March 14, 2001, for VI to sell advertising for Studio 1+1 on an exclusive basis up until the end of the broadcasting license in 2006.

All significant decisions of the entities in the Studio 1+1 Group are taken by the shareholders, requiring a majority vote (other than decisions of the shareholders of the Studio 1+1 Group, which require a 75% vote). Certain fundamental corporate matters of the other entities require 61% shareholder approval.

CORPORATE

CME Development Corporation, a wholly owned subsidiary of the Company, provides sales, financial and legal services to the Company. CME Programming Services, Inc., a wholly owned subsidiary of the Company, provides programming services to the Company's television broadcast operations in Central and Eastern Europe. See below under the heading "Corporate Operations."

The Company's registered offices are located at Clarendon House, Church Street, Hamilton HM CX Bermuda, and its telephone number is 441- 296-1431. Certain of the Subsidiaries maintain offices at, 8th Floor, Aldwych House, 71-91 Aldwych, London, WC2B 4HN, England, telephone number 44-20-7430-5430/1.

OPERATING ENVIRONMENT

The following two tables set forth (i) the population, number of TV households, per capita GDP and cable penetration for those countries of Central and Eastern Europe where the Company has broadcast operations and (ii) the recent growth in television advertising expenditures in those countries.

9 TV POPULATION (1) HOUSEHOLDS (2) PER CAPITA GDP % CABLE COUNTRY (IN MILLIONS) (IN MILLIONS) 2000 (3) PENETRATION (4) ------Romania...... 22.5 6.7 $1,538 55% Slovenia...... 2.0 0.6 $10,450 40% Slovak Republic...... 5.4 1.8 $3,727 33% Ukraine...... 49.5 18.6 $644 35% ------Total...... 79.4 27.7 ======

(1) Source: Business Central Europe

(2) Source: IP European Key Facts: Television '99. A TV household is a residential dwelling with one or more television sets

(3) Source: Business Central Europe

(4) Source: IP European Key Facts: Television '99 (except Slovenia, Source: CME stations)

TELEVISION ADVERTISING EXPENDITURES

COUNTRY 1996 1997 1998 1999 2000 ------US DOLLARS (MILLIONS) ------Romania...... 44 74 87 69 69 Slovenia ...... 35 39 51 49 47 Slovak Republic...... 39 47 56 43 42 Ukraine...... 21 53 65 32 35

Note: All figures are current Company estimates.

In Romania, television advertising revenues remained flat throughout 2000 due to a lack of economic reform and political uncertainties resulting from recent elections. In the Slovak Republic, television advertising revenues increased by 10% in local currency terms but the Slovak koruna depreciated by 12% against the US dollar during 2000, thus television advertising expenditures decreased in dollar terms. In Slovenia, television advertising revenues increased by 11% in local currency terms but the Slovenian tolar depreciated by 16% against the US dollar during 2000, thus the television advertising expenditures decreased in dollar terms. In Ukraine, television advertising revenues experienced a moderate increase from the very low levels recorded in 1999.

EUROPEAN REGULATIONS

Access to the available frequencies is controlled by regulatory bodies in each country in which the Company operates. New awards of licenses to use broadcast frequencies occur infrequently.

THE EUROPEAN UNION

If any Central or Eastern European country in which the Company operates becomes a member of the European Union (the "EU"), the Company's broadcast operations in such country would be subject to relevant legislation of the EU, including programming content regulations. Romania, the Slovak Republic and Slovenia have entered into or signed Association Agreements with the EU and some

10 or all of these countries may be admitted to the EU in the first wave of the enlargement process.

The EU's Television Without Frontiers directive (the "EU Directive") sets forth the legal framework for television broadcasting in the EU. It requires broadcasters, where "practicable and by appropriate means," to reserve a majority proportion of their broadcast time for "European works." Such works are defined as originating from an EU member state or a signatory to the Council of Europe's Convention on Transfrontier Television, as well as written and produced mainly by residents of the EU or Council of Europe member states. In addition, the EU Directive provides for a 10% quota of either broadcast time or programming budget for programs made by European producers who are independent of broadcasters. News, sports, games, advertising, teletext services and teleshopping are excluded from the calculation of these quotas. Further, the EU Directive provides for regulations on advertising, including limits on the amount of time that may be devoted to advertising spots, including direct sales advertising. Member states are free to introduce stricter content requirements than those in the EU Directive for broadcasters within their jurisdiction. The Company intends to align its broadcast operations with any applicable EU legislation. The Company believes that the EU Directive, as currently drafted, will not have a material adverse effect on its operations.

COUNCIL OF EUROPE

The Company's broadcast operations are all located in countries which are members of the Council of Europe, a supranational body through which international conventions are negotiated. In 1990, the Council of Europe adopted a Convention on Transfrontier Television, which provides for European programming content quotas similar to those in the EU Directive. This Convention has been ratified by some of the countries in which the Company operates, but all countries in which the Company operates have already implemented its principles into their national media legislation.

CORPORATE OPERATIONS

The Company's London based central service organization provides each television operation with a central resource. The service functions provided include sales, financial and legal services, including financial planning and analysis, cost control and network management. Through CME Programming Services Inc, the Company also provides program-related services including facilitating international contacts, scheduling advice and co-ordinating the exchange of best practices and expertise among the stations and various programming related studies.

The rankings of the Company's stations in their respective markets are reflected below.

TECHNICAL 2000 AUDIENCE RANK IN CME STATION (1) LAUNCH DATE REACH (2) SHARE (3) MARKET (3) ------PRO TV...... December 1995 72% 31.0% 1 POP TV...... December 1995 84% 40.0% 1 Kanal A (4)...... October 2000 81% 15.0% 3 Markiza TV...... August 1996 95% 51.0% 1 Studio 1+1...... January 1997 95% 28.0% 2

11 (1) Second channel in Romania (Acasa) is not included in this table.

(2) Source: CME stations.

(3) Nationwide audience share and rank (except Romania, which is audience share and rank within coverage area). Source: (Romania: CSOP Gallup/Taylor Nelson Sofres, Slovenia: POP TV CATI, Kanal A AGB Slovenia, Slovak Republic: Visio/MVK, Ukraine: Peoplemeters AGB Ukraine).

(4) Kanal A was acquired on October 11, 2000. See above under the heading "Slovenia".

OPERATIONS IN ROMANIA: PRO TV AND ACASA

General

Romania is a parliamentary democracy of approximately 22.5 million people. Per capita GDP was an estimated $1,538 in 2000 ($1,515 in 1999). Approximately 86% of Romanian households have one or more television sets, and cable penetration is approximately 55%. According to the Company's estimates, television advertising totalled approximately $69 million in 2000.

PRO TV is a national television broadcast network in Romania which was launched in December 1995. PRO TV reaches approximately 72% of the Romanian population of 22.5 million, including 100% of the urban population. PRO TV broadcasts from studios located in Bucharest via digitally encoded satellite signals which deliver programming to terrestrial broadcast facilities and to approximately 417 cable systems throughout Romania. Independent research from CSOP Gallup/Taylor Nelson Sofres in Romania shows that PRO TV is currently the top-rated television station in its broadcast area, with an average television viewer share for December 2000 of 29% for the whole day and 31% for prime time.

In February 1998, MPI launched Acasa, a station reaching approximately 60% of the Romanian population, including approximately 86% of the urban population via satellite and cable distribution. For 2000 Acasa had an average television viewer share in its broadcast area of approximately 9%.

The Company has a controlling interest in Media Vision and Video Vision. Media Vision is the leading television production company in Romania and produces a significant portion of PRO TV's entertainment programming, performs dubbing and produces advertising spots for third party clients such as Coca Cola, Procter & Gamble and Unilever. Video Vision, Romania's leading provider of television post-production and graphics, provides a significant portion of PRO TV's and Acasa's graphics.

MPI also operates PRO FM, a radio network which is broadcast through owned and affiliate stations to approximately 9.5 million people in Romania. In 2000, PRO FM had an average audience share of 24% in the Bucharest area.

12 Programming

PRO TV's programming strategy is to appeal to a mass market audience through a wide range of programming, including movies and series, news, sitcoms, telenovellas, soap operas and game shows. PRO TV broadcasts 24 hours of programming daily by means of cable and satellite. Approximately 40% of PRO TV's programming is comprised of locally produced programming, including, news and news related programs, sports, a breakfast show, talk shows, entertainment and comedy shows.

PRO TV has secured exclusive broadcast rights in Romania to a large number of quality American and Western European programs and films produced by such companies as Warner Bros. and Twentieth Century Fox. PRO TV also receives foreign news reports and film footage from Reuters, APTN and ENEX to integrate into its news programs. All foreign language programs and films are subtitled in Romanian.

Acasa broadcasts 24 hours of programming daily by means of cable and satellite. Its programming strategy is to target a female audience with programming including telenovellas, films and soap operas as well as news, daily local production for women and family, talk shows and entertainment. Acasa's viewer demographics are complementary to PRO TV's, providing an attractive advertising medium for small to medium sized companies that would not otherwise advertise on television. Approximately 40% of Acasa's total programming is locally produced, including 19 hours of original self-produced programming per week.

Advertising

PRO TV derives revenues principally from the sale of commercial advertising time, sold both through independent agencies and media buying groups. PRO TV currently serves approximately 250 advertisers, including multinational companies such as Wrigley, Henkel, Mobifon, Unilever and Procter & Gamble. Procter & Gamble was the largest advertiser on PRO TV, accounting for 10.7% of the station's revenue and Henkel was the largest advertiser on Acasa, accounting for 14.1% of the station's revenue.

PRO TV is permitted to broadcast advertising for up to 20% of its broadcast time in any hour, subject to an overall daily limit of 15% of broadcast time. An additional 5% of broadcast time may be used for direct sales advertising. There are also restrictions on the frequency of advertising breaks (for example, news and children's programs shorter than 30 minutes cannot be interrupted). These restrictions are the same for public and private broadcasters.

Competition

Prior to the launch of PRO TV, TVR 1, a public station, was the dominant broadcaster in Romania. In December 2000, PRO TV achieved an average audience share of 31% in its coverage area, while TVR 1's December 2000 average audience share in PRO TV's coverage area was approximately 15%. TVR 1 reaches 99% of the Romanian population. Other competitors include the second public national station, TVR 2, with a 70% broadcast reach, and privately owned Antena 1, Tele 7 ABC and Prima TV, which reach approximately 70%, 60% and 65% of the population, respectively.

13 Additional competitors include cable and satellite stations. Cable and satellite currently penetrate approximately 55% and 9%, respectively, of the Romanian market. PRO TV competes for advertising revenues with other media such as newspapers, radio, magazines, outdoor advertising, telephone directory advertising and direct mail.

Regulation

Licenses for the television stations which show programming provided by PRO TV and which broadcast advertising sold by PRO TV are regulated by Romania's National Audio-Visual Commission. PRO TV's television licenses have been granted for nine-year periods. Licenses which cover 17% of the Romanian population, including the license for Bucharest, expire in 2003. The remaining licenses expire on dates ranging from 2004 to 2008. Under regulations established by the National Audio-Visual Commission and the various licenses of stations which broadcast PRO TV, programming and advertising provided by PRO TV is required to comply with certain restrictions. These restrictions include a requirement that at least 40% of programming be "own" produced.

Regulations relating to advertising content include (i) a ban on tobacco and restrictions on alcohol advertising, (ii) advertising targeted at children or during children's programming must account for the overall sensitivity of that age group and (iii) members of the news department of PRO TV are prohibited from appearing in advertisements.

OPERATIONS IN SLOVENIA: POP TV AND KANAL A

General

Slovenia, a parliamentary democracy of 2.0 million people, had an estimated per capita GDP of approximately $10,450 in 2000, the highest among the former Eastern bloc countries. Approximately 96% of Slovenian households have one or more televisions. According to the Company's estimates, television advertising totalled $47 million in 2000.

The national television broadcast network POP TV reaches approximately 84% of the population of Slovenia, including Ljubljana, the capital of Slovenia, and Maribor, Slovenia's second largest city. Independent research shows that in the areas of Slovenia in which POP TV can be seen, the network had an average television viewer share of approximately 40% for 2000, the largest share of television viewers in Slovenia.

Kanal A reaches approximately 81% of the population of Slovenia, including Ljubljana and Maribor. Independent research shows that in the areas of Slovenia in which Kanal A can be seen, the network had an average television viewer share of approximately 15% for 2000, making it the third most watched television channel in Slovenia.

In October 1997, the Company launched Gajba TV. Gajba TV was operated through Pro Plus and provided programming to, and sold advertising for, its affiliate broadcasters. In connection with the acquisition of Kanal A in October 2000, Gajba TV ceased broadcasting in October 2000.

14 Programming

POP TV's programming strategy is to appeal to a mass market audience through a wide variety of programming including series, movies, news, variety shows and features. POP TV broadcasts 18 hours of programming daily, of which approximately 25% is locally produced programming, including news, game shows, music shows and variety shows.

Pro Plus, the broadcast servicing company for POP TV, has secured exclusive program rights in Slovenia to a number of successful American and Western European programs and films produced by studios such as Warner Bros., Twentieth Century Fox and Paramount. Special events aired in 2000 included the Academy Awards, Miss World and Formula One Racing. POP TV currently holds exclusive rights for the Slovenian version of "Who Wants to be a Millionaire". Pro Plus has agreements with CNN, Reuters and APTN to receive foreign news reports and film footage to integrate into news programs. All foreign language programs and films are subtitled in Slovenian.

Kanal A's programming strategy is to complement the programming strategy of POP TV with a mixture of locally produced and acquired foreign programs including films and series. Kanal A broadcasts for 16 hours daily, including locally produced formats for Blind Date, the Newlywed game show, music shows and basketball.

Advertising

POP TV derives revenues principally from the sale of commercial advertising time. Current multinational advertisers include firms such as Benckiser, Henkel, Procter & Gamble, Wrigley and Colgate, though no one advertiser dominates the market. During 1999 and 2000, "Peoplemeter" devices were placed in a number of television homes, although they are not yet the primary source for POP TV's rating information. POP TV is permitted to broadcast advertising for up to 15% of its daily broadcast time and there are also restrictions on the frequency of advertising breaks during films and other programs. The same rules apply to its competitors.

Kanal A derives revenues principally from the sale of commercial advertising time and has clients similar to those of POP TV.

Competition

Historically, the television market in Slovenia has been dominated by SLO 1, a national public television station. The other national public station, SLO 2 provides programming which is complementary to SLO 1. SLO 1 reaches nearly all of Slovenia's TV households, and SLO 2 reaches 97% of Slovenia's TV households. No national private television frequency has been made available in Slovenia. One other private television station competes with POP TV and Kanal A in Slovenia, TV3, it has achieved a relatively small audience share, less than 1.2%, due primarily to their low budget programming and lack of extensive news programming.

POP TV and Kanal A also compete with foreign television stations, particularly Croatian, Italian, German and Austrian stations. Cable penetration at 40% is

15 relatively high compared with other countries in Central and Eastern Europe and approximately 21% of households have satellite dishes. In addition, POP TV and Kanal A compete for revenues with other media, such as newspapers, radio, magazines, outdoor advertising, telephone directory advertising and direct mail.

Regulation

The POP TV and Kanal A network stations operate under licenses regulated pursuant to the Law on Public Media adopted in 1994 and pursuant to the Law on Telecommunications adopted in 1997. The licenses granted to POP TV's affiliate stations have been granted for 10-year terms expiring in 2003 with respect to licenses reaching 53% of the population and in 2006 and 2007 with respect to the remaining licenses. The licenses granted to Kanal A expire between 2003 and 2010.

Under Slovenian television regulations, POP TV, its affiliate stations and Kanal A are required to comply with a number of restrictions on programming and advertising. These restrictions include that 10% of the station's broadcast time must be internally produced programming, certain films and other programs may only be broadcast between 11:00 p.m. and 6:00 am, and POP TV or Kanal A news editors, journalists and correspondents must not reflect a biased approach toward news reporting.

In addition to the restrictions discussed above and under the sub-heading "Advertising," advertising is not permitted during news, documentary or children's programming under 30 minutes in duration, or during religious programming. Restrictions on advertising content include a prohibition on tobacco advertising and on the advertising of alcoholic beverages other than low alcohol content beer.

OPERATIONS IN THE SLOVAK REPUBLIC: MARKIZA TV

General

The Slovak Republic is a parliamentary democracy with a population of 5.4 million where nearly 99% of households have television. Per capita GDP was an estimated $3,727 in 2000. Television advertising was approximately $42 million in 2000, according to the Company's estimates.

Markiza TV was launched as a national television station in the Slovak Republic in August 1996. Markiza TV reaches approximately 95% of the Slovak Republic's population, including virtually all of its major cities. According to independent research, Markiza TV had an average national television viewer share for 2000 of approximately 51% versus 14% for its nearest competitor, STV 1. See Item 3, "Legal Proceedings".

Programming

Markiza TV's programming strategy is to appeal to a broad audience with specific groups targeted in marginal broadcasting hours. Markiza TV provides an average of 21 hours of programming daily, including news, movies, entertainment programmes and sport (including coverage of European Champion's League soccer, Formula One racing and Ice Hockey World Championships). Approximately 42% of

16 Markiza TV's programming is locally produced, including a daily breakfast show, game shows, talk shows and news.

Markiza TV has secured exclusive broadcast rights in the Slovak Republic to a large number of popular United States and European series, films and telenovellas produced by major international studios including Warner Bros., Columbia Tri Star, Polygram, Paramount Pictures, Twentieth Century Fox, Walt Disney Television International and RTL Television. Markiza TV currently holds exclusive rights for the Slovakian version of "Who Wants to be a Millionaire". All foreign language programming (other than that in the Czech language) is dubbed into the Slovak language. Markiza TV also receives foreign news reports and film footage from CNN, Reuters and APTN, which it integrates into news programs.

Advertising

Markiza TV derives revenues principally from the sale of commercial advertising time through media buying groups and independent agencies. Advertisers include large multinational firms such as Procter & Gamble, Henkel, Unilever, Wrigley, Kraft Jacobs, Ferrero, Suchard, Danone Group, Nestle and Benckiser though no one advertiser dominates the market. Television stations are permitted to broadcast advertising for up to 10% of total daily broadcast time and up to 20% of broadcast time in any single hour.

Currently, approximately 30% of Markiza TV's advertising revenues are sourced from agencies based in the Czech Republic.

Competition

The Slovak Republic is served by two national public television stations, STV1 and STV2, which dominated the ratings until Markiza TV began broadcasting in 1996. STV1 and STV2 reach nearly all of the Slovak population. Nova TV had an approximate 9% audience share in the Slovak Republic for 2000. Markiza TV also competes with the private broadcasters TV Luna and Global TV (which began broadcasting in April 2000). TV Luna and Global TV reach 36% and 17% of the population, respectively. Markiza TV also competes with public television stations located in Austria, the Czech Republic and Hungary with signals that reach the Slovak Republic; additional foreign private television stations; and foreign satellite stations.

Regulation

Markiza TV's broadcast operations are subject to regulations imposed by the Act on Broadcasting and Retransmission, the Act on Advertising and conditions contained in the license granted by the Council of the Slovak Republic for Broadcasting and Television Transmission (the "Slovak Broadcasting and Retransmission Council"). The Slovak Television Council granted the license to operate Markiza TV to the Company's local partner in STS for a period of 12 years, expiring in September 2007, under terms requiring the Company's local partner to enter into a partnership with the Company to found STS. The license granted to the Company's local partner remains valid under the new Act on Broadcasting and Retransmission.

17 Under the license pursuant to which Markiza TV operates and the new legal regulatory framework, Markiza TV is required to comply with several restrictions on programming, including but not limited to the origin of the programming content. These restrictions include the following broadcast time rules: a minimum of 40% must be Slovak production; 10% must be programming for children or youth; broadcasts of first run films and series must have a minimum of 47% European production (of which there must be a minimum of 8% Slovak production) and no more than 45% of production from the United States; and no more than 40% of foreign first run films and series may be in the Czech language (decreasing to 20% by the fourth year of broadcasting).

In addition to the restrictions discussed above and under "Advertising", there are additional regulations that relate to advertising content. These include, but are not limited to: (a) a ban on tobacco advertising, and (b) a ban on advertisements of alcoholic beverages between 6.00am and 10.00pm, save for beer. There are also restrictions as to the frequency of advertising breaks both during and between programs.

OPERATIONS IN UKRAINE: STUDIO 1+1 GROUP

General

Ukraine, a parliamentary democracy of 49.5 million people, is the most populous market served by the Company. Nearly 100% of Ukrainian households have television and cable penetration is approximately 35% in main regional centers. Per capita GDP of approximately $644 for 2000 is the lowest of all the Company's markets. After a decade of negative growth, 2000 saw a recovery with GDP rising by approximately 5%. However, economic, political and privatisation programs have lagged behind schedule.

Studio 1+1 broadcasts programming and sells advertising on Ukrainian National Channel Two ("UT-2"), one of Ukraine's state-owned television channels. UT-2 reaches approximately 95% of Ukraine's population. Television advertising revenue staged a slight recovery in 2000, to approximately $35 million. However, this is still substantially less than the level attained prior to the 1998 Russian financial crisis. Studio 1+1 attained 28% average prime time audience share during 2000 (32% in the target under 45 age group). Studio 1+1 began broadcasting on UT-2 in January 1997.

Programming

Studio 1+1's programming strategy is to appeal to a mass market audience with an emphasis on the below aged 45 target audience. During the fourth quarter 2000, Studio 1+1 had established itself as the leader, in terms of revenue share, in the Ukrainian market. This success was achieved due to a new programming strategy that resulted in a balanced combination of both United States originated programming and new, popular, local programs, including Russian criminal and action series and self-produced Ukrainian shows, programs and news scheduled in prime-time. The station broadcasts for 13 hours per day, including locally produced news, variety shows, game shows and magazine programs as well as a broad range of popular and high quality films from international distributors. Studio 1+1 broadcasts a Ukrainian version of "Who Wants to be a Millionaire". In 2000, Studio

18 1+1 produced and co-produced approximately 1,500 hours of programming, which primarily consists of a daily breakfast show, news broadcasts and news related programs, talk shows, criminal investigations, game shows, sport and lifestyle magazine shows and comedy shows. In 2000, such original local programming together with other Ukrainian programming considered local programming by Ukrainian laws comprised approximately 55% of Studio 1+1's total broadcast time.

Studio 1+1 has secured exclusive territorial or local language broadcast rights in Ukraine to a large number of successful high quality American, Russian and Western European programs and films from many of the major studios, including Twentieth Century Fox, Warner Bros., Paramount Pictures, Walt Disney, Universal Pictures and CBS. Special events aired include the Academy Awards ceremony as well as several important political events such as exclusive coverage of then President Bill Clinton's visit to Ukraine which included a live broadcast of President Clinton's speech to the citizens of Ukraine and `Dialogues on Democracy', a one hour live talk show with then Secretary of State Madeline Albright. Studio 1+1 has agreements with Reuters for foreign news packages and other footage to be integrated into its programming. In 2000, Studio 1+1 became a member of ENEX, the European News Exchange Organisation. All foreign language programs and films (other than those in the Russian language) are dubbed into the Ukrainian language. Studio 1+1 broadcasts more than 80% of its total air time in the Ukrainian language.

Advertising

Studio 1+1 derives revenues principally from the sale of commercial advertising time through both media buying groups and independent agencies. Advertisers include large multinational firms such as Wrigley, Procter & Gamble, Colgate - Palmolive, Coca-Cola, Unilever, Nestle, Mars and Kraft Jacobs. In 2000, Wrigley accounted for 11% of Studio 1+1's advertising revenues. Studio 1+1 is permitted to sell 15% of its overall broadcast time for advertising and is subject to restrictions on the frequency of advertising breaks. The advertising restrictions are the same for public and private broadcasters.

Competition

Ukraine is served by six television channels: UT-1, UT-2 (on which Studio 1+1 broadcasts) and UT-3 (all with effective national coverage), which are state owned, and ICTV, STB and Novi Canal, which are private broadcasters. Novi Canal began broadcasting in 2000 and has attained an average prime time share of approximately 4%. Studio 1+1, through UT-2, has a broadcast reach of 95% of the Ukrainian population. The state run station UT-1 has a broadcast reach of approximately 98% of the Ukrainian population. ICTV and STB, both private stations, reach approximately 32% of Ukraine's population. The private station Inter, through UT-3, has a broadcast reach of approximately 78% of the Ukrainian population. Inter, Studio 1+1's main competitor, has a program schedule which consists primarily of rebroadcasts of the Russian-language ORT network. In 2000, Inter's average prime time audience share decreased from 40% to 32% and for the month of December, Studio 1+1 led Inter in terms of prime time audience share. In addition, there are numerous cable and satellite stations that provide pirate broadcasting of European and US networks.

19 Regulation

Studio 1+1 provides programming to UT-2 pursuant to a ten-year television broadcast license contract expiring in 2006. Broadcasts of Studio 1+1's programming and advertising on UT-2 are regulated by the State Committee on Television and Radio of Ukraine and the National Council on Television and Radio of Ukraine. These agencies enforce Ukraine's media laws, which include restrictions on the content of programming and advertising and limitations on the amount and placement of advertising in programs. All advertising of alcohol and tobacco on TV is banned in Ukraine. Programming produced in Ukraine must account for at least 70% of all programming (including dubbing of purchased programming into the Ukrainian language) and programming produced by Studio 1+1 must account for 49% of all programming.

SEASONALITY

The Company, like other television operators, experiences seasonality, with advertising sales tending to be lowest during the third quarter of each calendar year, which includes the summer holiday period (typically July and August), and highest during the fourth quarter of each calendar year.

EMPLOYEES

As of March 1, 2001, CME had a corporate operations staff of 19 employees (versus 19 as of December 31, 1999) and its Subsidiaries had a total of approximately 1,910 employees (versus 2,000 as of December 31, 1999). None of CME's employees or the employees of any of its Subsidiaries are covered by a collective bargaining agreement. The Company believes that its relations with its employees are good.

For additional information with regard to Segment Data see Part II, Item 8, Note 14, "Segment Data".

ITEM 2. PROPERTIES

CME Development Corporation leases office space in London in one location. The lease, for 3,958 square feet of office space, expires in 2015.

The Company has entered into an agreement on behalf of MPI which gives the Company the option to acquire the facility in Bucharest which contains PRO TV's studios for a purchase price of approximately $1.8 million. The Company owns a portion of a building in Ljubljana which contains POP TV's studios and offices. STS owns its principal office facility near Bratislava. Studio 1+1 leases office and studio space.

CNTS owns a building of approximately 65,000 square feet which contains modern studios in Prague, Czech Republic.

ITEM 3. LEGAL PROCEEDINGS

On April 26, 1999, a wholly-owned subsidiary of the Company filed an arbitration claim against Dr. Vladimir Zelezny before the International Chamber of Commerce Court of Arbitration in Paris, France (the "ICC Arbitration"). The

20 Company sought the return of $23,350,000 paid to Dr. Zelezny, plus interest, and other unspecified damages, based on breaches by Dr. Zelezny of a share purchase agreement entered into in 1997 under which the Company purchased from Dr. Zelezny, Nova Consulting, a company owned by him whose sole asset was a 5.8% interest in CNTS. The Company also sought the forgiveness of the $5,188,000 unpaid balance of the purchase price under the 1997 share purchase agreement.

On February 9, 2001, the ICC Arbitration Tribunal issued a final award in this proceeding, finding that Dr. Zelezny had breached the share purchase agreement through his actions in relation to AQS and that the share purchase agreement was a valid and enforceable contract. In light of those holdings, the Tribunal ordered Dr. Zelezny to immediately refund to the Company the $23,350,000 it had paid him pursuant to the share purchase agreement, plus interest (a total of approximately $27,100,000, accruing further interest at approximately $3,200 per day) and costs of $250,000. The Tribunal ordered the Company to return the Nova Consulting shares to Dr. Zelezny, but only after receipt of the money owed by Dr. Zelezny. The Tribunal also rejected Dr. Zelezny's claim for the balance of the purchase price. Dr. Zelezny has not yet complied with the award. The Company is taking all steps possible to enforce the award and will continue to do so until the award is satisfied. There can be no assurance that the Company will be able to collect all or any significant part of the award of $27,100,000 plus the accrued interest.

In May 1999, CET filed an action with the Regional Commercial Court in Prague, requesting that the court declare the Cooperation Contract invalid for vagueness and other reasons. On December 14, 2000, the High Court confirmed the Regional Commercial Court's decision denying the application.

On June 30, 1999, CNTS filed an action with the Regional Commercial Court of Prague requesting that the court declare invalid an agreement between CET and another Czech company, Produkce, a.s. under which CET purported to transfer CET's 1% participation interest in CNTS to Produkce, a.s., since that transfer did not comply with the CNTS Memorandum of Association. The Court determined that the transfer was invalid; CET and Produkce have appealed and the appeal is pending.

On August 9, 1999, CNTS filed a motion in the Regional Commercial Court of Prague for an injunction enjoining CET from entering into service relationships with other companies and further requested the court to declare the Cooperation Contract to be in full force and effect. The Regional Commercial Court issued a favorable ruling on May 4, 2000, which was subsequently reversed by a December 14, 2000 ruling from the High Court. CNTS is appealing the High Court ruling to the Supreme Court.

In December 1999, the Media Council approved CET's request for a share capital increase, which was subsequently approved by CET. As a result of the CET share capital increase, Dr. Zelezny's participation interest in CET was reduced from 60% to 11.8% since he did not subscribe to any of the additional share capital. CME believes that the reduction of Dr. Zelezny's participation interest in CET was designed to frustrate the enforcement of the preliminary order issued in the arbitration, as well as any final award of damages against Dr. Zelezny.

21 On February 22, 2000, a wholly owned subsidiary of the Company instituted arbitration proceedings against the Czech Republic under the 1991 Bilateral Investment Treaty between The Netherlands and the Czech Republic. The claims asserted, remedies sought and procedure to be followed are substantially similar to those in the arbitration proceedings initiated by Mr. Lauder against the Czech Republic. See Item 1, "Status of Nova TV Dispute". The arbitration will be heard from April 23, to May 2, 2001, in Stockholm, Sweden.

In August 1998, Gamatex Ltd., a Slovak company, asserted that it had obtained 100% ownership of Markiza-Slovakia s r.o. through an auction process arising out of an unsatisfied claim against Markiza-Slovakia s r.o. Markiza-Slovakia s r.o. holds the Markiza TV broadcast license and owns a 51% voting interest in STS. A number of legal proceedings were initiated in the District Court of Bratislava and Regional Court of Bratislava in which the original owners of Markiza-Slovakia s r.o. have claimed that Gamatex's ownership claims are not legally valid. STS has materially supported Markiza-Slovakia s r.o. in a number of such proceedings, in particular proceedings to; (i) confirm the interests of the original owners of Markiza-Slovakia s r.o.; (ii) declare invalid Markiza-Slovakia s r.o. and STS shareholders' meetings called by Gamatex without proper notice; and (iii) declare invalid Gamatex's claim to ownership in Markiza-Slovakia s r.o. Ultimately STS acquired 100% of the shares in a company that controlled Gamatex to ensure that whatever the outcome of the ongoing litigation it will not be negatively affected by any decision supporting Gamatex's claims to ownership in Markiza-Slovakia s.r.o. As a separate matter, certain owners of Markiza-Slovakia s r.o. are still involved in litigation concerning their ownership of Markiza-Slovakia s r.o. and the matter remains unresolved.

In July 1996, the Company, together with MMTV and Tele 59, entered into an agreement to purchase a 66% equity interest in Kanal A, a privately owned television station in Slovenia (the "Kanal A Agreement"). SBS claimed to have certain rights to the equity of Kanal A pursuant to various agreements and challenged the validity of the CME-Kanal A Agreement in a United Kingdom court. The Court enjoined both SBS and the Company from taking certain actions either to enforce such entity's claim to equity in Kanal A or to block the claim of the other entity to equity in Kanal A. The Company instituted a number of actions in courts in Slovenia to resolve these claims. As a result of the Kanal A purchase these actions have been terminated. See Item 1, under the heading "Slovenia" for further details.

In January 2001, AITI, a television station in Ukraine commenced an action, in Ukraine, against the National Council for TV and Radio Broadcasting (the "Ukraine TV Council") challenging the validity of the modifications made to Studio 1+1's license which extended the number of hours per day that Studio 1+1 could broadcast. The basis of this challenge is the allegation that the Ukraine TV Council failed to follow the correct procedure when granting an extension to the number of hours per day that Studio 1+1 could broadcast. Studio 1+1 is involved in this litigation as a third party acting together with the Ukraine TV Council. While Ukrainian media legislation does not set out the procedure for modifying a broadcasting license, the Company believes that this action is without merit.

The Company is, from time to time, a party to litigation that arises in the normal course of its business operations. The Company is not presently a party to

22 any such litigation which could reasonably be expected to have a material adverse effect on its business or operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

CME's Class A Common Stock began trading on the Nasdaq National Market on October 13, 1994 under the trading symbol "CETV." On October 10, 2000, CME's Class A Common Stock was delisted from the Nasdaq National Market and began trading on the quotation service provided by the National Quotation Bureau, LLC "Pink Sheets" and on the OTC Bulletin Board under the trading symbol "CETVF.OB". On March 9, 2001, the last reported sales price for the Class A Common Stock was $2.5625. The following table sets forth the high and low sales prices for the Class A Common Stock for each quarterly period during the last two fiscal years of the Company and for the first quarter of 2001. All share information has been adjusted to reflect the one-for-eight reverse stock split which took effect on December 15, 1999.

PRICE PERIOD HIGH LOW

1999 First Quarter...... 104.000 55.000 Second Quarter...... 100.000 41.000 Third Quarter...... 63.000 8.000 Fourth Quarter...... 22.000 9.504 2000 First Quarter...... 19.250 6.500 Second Quarter...... 12.063 6.750 Third Quarter...... 10.813 1.594 Fourth Quarter...... 3.125 0.219 2001 First Quarter (through March 9, 2001)...... 3.250 0.344

At March 9, 2001, there were 31 holders of record (including brokerage firms and other nominees) of the Class A Common Stock and five holders of record of the Class B Common Stock. There is no established public trading market for the Class B Common Stock.

DIVIDEND POLICY

The Company has not declared or paid and has no present intention to declare or pay in the foreseeable future any cash dividends in respect to any class of its Common Stock. The Company's ability to pay cash dividends is primarily

23 dependent upon receipt of dividends or distributions from its Subsidiaries over which it has limited control. In addition, the indentures which govern the Company's 9.375% Senior Notes Due 2004 and 8.125% Senior Notes Due 2004 restrict the ability of CME to declare and pay cash dividends. See "Management's Discussion and Analysis of Financial Condition and Results of Operations."

ITEM 6. SELECTED FINANCIAL DATA

(Selected Financial Data begins on the following page and ends on the page immediately preceding Item 7).

SELECTED CONSOLIDATED FINANCIAL DATA (dollars in thousands, except per share data)

The selected financial information presented below for the five years ended December 31, 2000 is derived from the audited Consolidated Financial Statements of the Company. The following selected financial information should be read in conjunction with the Company's Consolidated Financial Statements and Notes thereto for the years ended December 31, 2000, 1999 and 1998, included elsewhere herein.

YEARS ENDED DECEMBER 31, 2000 1999 1998 1997 1996 ------OPERATING DATA: (DOLLARS IN THOUSANDS) Net revenues...... $76,813 $129,323 $174,291 $146,155 $134,278 ------Total station operating costs and expenses...... 77,808 139,405 112,836 92,925 83,888 Selling, general and administrative expenses...... 19,402 25,898 25,250 21,162 20,458 Corporate operating costs and development expenses...... 11,417 18,753 22,670 25,467 15,782 Amortization of goodwill and allowance for development costs...... 1,670 49,091 10,606 14,584 2,940 Capital registration tax...... ------809 Restructuring charge ...... -- -- 2,552 ------Total operating expenses...... 110,297 233,147 173,914 154,138 123,877 ------Operating (loss)/income...... (33,484) (103,824) 377 (7,983) 10,401 Equity in loss of unconsolidated affiliates...... (514) (11,021) (3,398) (10,340) (17,867) Loss on impairment of investments in unconsolidated affiliates (1)...... ------(20,707) -- Interest and other income...... 3,543 5,974 25,094 10,087 2,590 Interest expense...... (21,788) (20,003) (42,644) (15,858) (4,700) Foreign currency exchange (losses)/gains...... (2,286) 12,983 (6,999) (5,283) (2,861) Gain on sale of investment...... 17,186 25,870 ------Other income...... -- 8,250 ------Loss before provision for income taxes, minority interest and discontinued operations..... (37,343) (81,771) (27,570) (50,084) (12,437) Provision for income taxes...... (96) (1,518) (15,856) (14,608) (16,410) ------Loss before minority interest and discontinued operations...... (37,439) (83,289) (43,426) (64,692) (28,847) Minority interest in (income)/loss of consolidated subsidiaries...... (59) 213 (156) 1,066 (1,072) ------Net loss from continuing operations...... (37,498) (83,076) (43,582) (63,626) (29,919)

Discontinued operations (2): Operating loss of discontinued operations (Hungary)...... -- (10,208) (37,576) (4,480) (84) Gain on disposal of discontinued operations (Hungary)...... -- 3,414 ------

24 Operating loss on discontinued operations (Poland)...... -- -- (15,289) -- -- Loss on disposal of discontinued operations (Poland)...... -- -- (28,805) (16,986) ------

Net loss...... $(37,498) $(89,870) $(125,252) $(85,092) $(30,003) ======Net loss per common share from: Continuing operations - basic and diluted..... $(11.35) $(25.78) $(14.45) $(21.29) $(12.36) Discontinued operations - basic and diluted...... -- (2.11) (27.08) (7.18) (0.03) ------$(11.35) $(27.89) $(41.53) $(28.47) $(12.39) ======Common shares used in computing per share amounts (000s) Basic and diluted...... 3,305 3,223 3,016 2,988 2,421 ======OTHER DATA: Broadcast cash flow (3)...... $4,260 $15,366 $49,938 $42,695 $41,444 Cash flow from operations...... (15,529) (12,702) (9,172) (21,210) (2,537) BALANCE SHEET DATA: Current assets...... $91,666 $103,070 $152,283 $174,631 $145,515 Total assets...... 197,099 236,187 374,507 447,997 364,380 Total debt...... 191,482 198,128 230,771 230,720 55,096 Shareholders' (deficit)/equity...... (65,878) (35,236) 65,707 157,582 249,320

(1) On May 13, 1997, the Company announced its decision to discontinue funding of 1A TV Beteiligungsgessellschaft GmbH & Co. Betriebs KG ("1A TV"), which operated PULS, a regional television station in the Berlin-Brandenburg area of Germany. In May 1997, 1A TV declared bankruptcy. The Company wrote down its investments in Germany by $20,707,000 in 1997, thereby fully eliminating the carrying value of such investments.

(2) During the third quarter of 1999 the Company announced that is was selling substantially all of its Hungarian operations to SBS. The Company's financial statements have been restated for all periods presented in order to reflect the operations of Hungary as discontinued operations. During the fourth quarter of 1998, the Company sold its interests in the TVN television operations in Poland at a loss, resulting in the treatment of these interests and related operations as discontinued operations for all periods presented. The Company's financial statements have been restated for all periods presented in order to reflect the operations of Poland as discontinued operations.

(3) "Broadcast cash flow", a broadcasting industry measure of performance, is defined as net broadcast revenues, less (i) station operating costs and expenses (excluding depreciation and amortization of acquired programming and of intangible assets), (ii) broadcast selling, general and administrative expenses, and (iii) cash program rights costs. Cash program rights costs are included in the period in which payment is made, which may not necessarily correspond to the timing of program use or amortization. Broadcast cash flow should not be considered as a substitute measure of operating performance or liquidity prepared in accordance with GAAP (see the accompanying Consolidated Financial Statements).

QUARTERLY RESULTS AND SEASONALITY

The following table sets forth unaudited financial data for each of CME's last eight fiscal quarters

YEAR ENDED DECEMBER 31, 2000 ------FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER ------(DOLLARS IN THOUSANDS) ------INCOME STATEMENT DATA: Net revenues...... 15,370 19,955 13,940 27,548 Operating loss...... (9,732) (11,720) (8,458) (3,574) Net loss...... (13,669) (3,105) (10,994) (9,730) NET LOSS PER SHARE: Basic and diluted...... (4.14) (0.94) (3.33) (2.94)

25 YEAR ENDED DECEMBER 31, 1999 ------FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER (2) QUARTER ------(DOLLARS IN THOUSANDS) ------INCOME STATEMENT DATA: Net revenues...... 35,506 46,776 17,538 29,503 Operating (loss)/income...... (11,172) 2,812 (86,785) (8,679) Income/(loss) from continuing operations 15,039 (1,515) (86,943) (9,657) Operating loss of discontinued operations (Hungary)...... (2,951) (1,997) (2,957) (2,171) (Loss)/Gain on disposal of discontinued operations (Hungary)...... - - (1,913) 5,327 Net income/(loss)...... 12,088 (3,512) (91,945) (6,501) NET INCOME/(LOSS) PER SHARE: Basic and diluted (1)...... 3.77 (1.09) (28.65) (2.02)

(1) Basic and diluted earning per share for fiscal 1999 in total is $0.1 lower than the sum of the applicable amount for each of the quarters of fiscal 1999 due to the impact of stock issuances on the weighted average number of shares outstanding.

(2) Differences of $132,000 in operating loss from continuing operations and operating loss of discontinued operations in the table above compared to the quarterly reported numbers relate to a reclassification due to the disposal of the Hungarian operations in the third quarter of 1999.

The decline in net revenues from the second quarter of 1999 is primarily due to the cessation of broadcasting by CNTS. See Part I, Item 1, "Status of Nova TV Dispute" for a further discussion of Nova TV and the ongoing dispute between CNTS and CET.

The Company, like other television operators, experiences seasonality, with advertising sales tending to be lowest during the third quarter of each calendar year, which includes the summer holiday period (typically July and August), and highest during the fourth quarter of each calendar year.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

INTRODUCTION

The Company's revenues are derived principally from the sale of television advertising to local, national and international advertisers. To a limited extent, the Company engages in barter transactions in which its stations exchange commercial advertising time for goods and services. The Company, like other television operators, experiences seasonality, with advertising sales tending to be lowest during the third quarter of each calendar year, which includes the summer holiday period, and highest during the fourth quarter of each calendar year. The primary expenses incurred in television operations are programming and production costs, employee salaries, broadcast transmission expenses and selling, general and administrative expenses.

The primary internal sources of cash available for corporate operating costs are dividends and other distributions from Subsidiaries. To date, the only Subsidiary to distribute dividends has been CNTS which suspended operations on August 5, 1999. See Part 1, Item 1, "Status of Nova TV Dispute" for a further discussion on Nova TV and the ongoing dispute between CNTS and CET. As a result, CNTS will be unable to distribute dividends in the future and consequently the major internal source of cash available for corporate operating costs and development expenses has been affected. The Company's ability to obtain dividends or other distributions is subject to, among other things, restrictions on dividends under applicable local

26 laws and foreign currency exchange regulations of the jurisdictions in which its Subsidiaries operate. The Subsidiaries' ability to make distributions is also subject to the legal availability of sufficient operating funds not needed for operations, obligations or other business plans and, in some cases, the approval of the other partners, shareholders or creditors of these entities. The laws under which the Company's operating Subsidiaries are organized provide generally that dividends may be declared by the partners or shareholders out of yearly profits subject to the maintenance of registered capital and required reserves and after the recovery of accumulated losses.

SELECTED COMBINED AND ATTRIBUTABLE FINANCIAL INFORMATION

The following two tables are neither required by United States generally accepted accounting principles ("GAAP") nor intended to replace the Consolidated Financial Statements prepared in accordance with GAAP. The tables set forth certain combined and attributable financial information for the years ended December 31, 2000, 1999 and 1998 for the Company's operating entities. This financial information departs materially from GAAP.

In the table "Selected Combined Financial Information," revenues and operating expenses of Markiza TV and the Studio 1+1 Group (for 1998 only) not consolidated in the Consolidated Statements of Operations during the periods shown, are aggregated with those of the Company's consolidated operations. Certain entities of the Studio 1+1 Group (for 2000 and 1999 only) not consolidated in the Consolidated Statements of Operations during the periods shown, are aggregated with those of the Company's consolidated operations. In the table "Selected Attributable Financial Information", combined information is adjusted for CME's economic interest in each entity, which economic interest is the basis used for consolidation and equity method accounting in the Company's GAAP Consolidated Financial Statements as of December 31, 2000.

The tables are presented solely for additional analysis and not as a presentation of results of operations of each component, nor as combined or consolidated financial data presented in accordance with GAAP. See "Application of Accounting Principles". The following supplementary unaudited combined and attributable information includes certain financial information of Markiza TV and the Studio 1+1 Group on a line-by- line basis, similar to that of the Company's consolidated entities. Intercompany transactions such as management service charges are not reflected in the tables. The Company believes that this unaudited combined and attributable information provides useful disclosure.

Total Stations refer to PRO TV, POP TV, Kanal A, Markiza TV and the Studio 1+1 Group. PRO TV and POP TV began operations in December 1995, Markiza TV began operations in August 1996, Studio 1+1 began to generate significant revenues during the second quarter of 1997 and Kanal A was acquired on October 11, 2000.

EBITDA consists of earnings before interest, income taxes, depreciation and amortization of intangible assets (which does not include programming rights). EBITDA is provided because it is a measure of operating performance commonly used in the television industry. It is presented to enhance an understanding of the Company's operating results and is not intended to represent results of operations or cash flows in accordance with GAAP for the periods indicated, both of which are

27 discussed elsewhere in Management's Discussion and Analysis of Financial Conditions and Results of Operations.

The term "station expenses" used in the discussion of EBITDA immediately following the tables refers to the total of a station's (i) other operating costs and expenses, (ii) amortization of programming rights and (iii) selling, general and administrative expenses.

"Broadcast cash flow", a broadcasting industry measure of performance, is defined as net broadcast revenues, less (i) station operating costs and expenses (excluding depreciation and amortization of acquired programming and of intangible assets), (ii) broadcast selling, general and administrative expenses, and (iii) cash program rights costs. Cash program rights costs are included in the period in which payment is made, which may not necessarily correspond to the timing of program use or amortization. Broadcast cash flow should not be considered as a substitute measure of operating performance or liquidity prepared in accordance with GAAP (see the accompanying Consolidated Financial Statements).

28 SELECTED COMBINED FINANCIAL INFORMATION (1) (UNAUDITED)

($000S)

YEAR ENDED DECEMBER 31,

------NET REVENUE EBITDA BROADCAST CASH FLOW ------2000 1999 1998 2000 1999 (3) 1998 (3) 2000 1999 (3) 1998 (3) ------PRO TV...... 39,591 40,627 41,937 1,564 (2,987) (1,916) 1,584 3,655 (2,969) Markiza TV ...... 33,155 32,217 37,793 4,368 2,739 2,583 4,670 5,214 2,734 POP TV...... 21,651 23,347 22,122 4,954 4,655 (709) 6,261 4,372 (1,915) Kanal A (2)...... 2,517 - - 1,070 - - 945 - - Studio 1+1...... 17,164 14,501 23,598 775 (8,443) (1,947) 581 (6,270) (4,050) ------TOTAL STATIONS...... 114,078 110,692 125,450 12,731 (4,036) (1,989) 14,041 6,971 (6,200) ======

(1) Important information about this table appears under the heading "Selected Combined and Attributable Financial Information" immediately preceding this table. (2) Kanal A was acquired on October 11, 2000. (3) EBITDA and Broadcast Cash Flow data for 1999 and 1998 has been restated to exclude the effect of intercompany transactions.

29 SELECTED ATTRIBUTABLE FINANCIAL INFORMATION (1) (UNAUDITED)

($000S)

YEAR ENDED DECEMBER 31,

------ECONOMIC INTEREST NET REVENUE EBITDA BROADCAST CASH FLOW ------2000 1999 1998 2000 1999 (3) 1998 (3) 2000 1999 (3) 1998 (3) ------PRO TV...... 66% 26,130 26,814 27,678 1,032 (1,971) (1,265) 1,045 2,412 (1,960) Markiza TV...... 80% 26,524 25,774 30,234 3,494 2,191 2,066 3,736 4,171 2,187 POP TV ...... 85.5% 18,512 19,962 18,914 4,236 3,980 (606) 5,353 3,738 (1,637) Kanal A (2)...... 90% 2,265 - - 963 - - 851 - - Studio 1+1...... 60% 10,298 8,701 14,159 465 (5,066) (1,168) 349 (3,762) (2,430) ======TOTAL STATIONS...... 83,729 81,251 90,985 10,190 (866) (973) 11,334 6,559 (3,840) ======

(1) Important information about this table appears under the heading "Selected Combined and Attributable Financial Information" immediately preceding this table. (2) Kanal A was acquired on October 11, 2000. (3) EBITDA and Broadcast Cash Flow data for 1999 and 1998 has been restated to exclude the effect of intercompany transactions.

30 Combined EBITDA for the year ended December 31, 2000 compared to the year ended December 31, 1999

The total combined EBITDA for the Company's Stations increased by $16,767,000 from negative $4,036,000 to positive $12,731,000 for the year ended December 31, 2000 compared to the year ended December 31, 1999. This increase was due to increases in EBITDA at Studio 1+1 of $9,218,000, PRO TV of $4,551,000, Markiza TV of $1,629,000 and POP TV of $299,000. Additionally, Kanal A, acquired on October 11, 2000, recorded EBITDA of $1,070,000.

Studio 1+1's EBITDA increased by $9,218,000 to positive $775,000 for 2000 compared to negative $8,443,000 for 1999. This increase was partially as a result of an increase in net revenues but primarily as a result of a decrease in operating costs. Throughout 2000, there was a slight recovery in the Ukrainian television advertising market which resulted in Studio 1+1 recording an increase in net revenues of $2,663,000, or 18%. Despite the slight recovery experienced by the Ukrainian television advertising market during 2000 the market is still 46% below its highest level recorded in 1998. Studio 1+1 reduced operating costs by $6,555,000, or 29%, primarily as a result of reductions in amortization of program rights costs, production expenses and broadcast operations and engineering expenses. Reductions in amortization of program rights costs are as a result of lower programming purchases and more efficient programming scheduling.

PRO TV's EBITDA increased by $4,551,000 to positive $1,564,000 for 2000 compared to negative $2,987,000 for 1999. This increase in EBITDA was achieved despite a reduction in net revenues of $1,036,000, or 3%, for 2000 compared to 1999. This reduction in net revenues was as a result of increased competition within Romania combined with a television advertising market that remained flat year over year. This increase in EBITDA was as a result of reductions of $5,587,000, or 13%, in operating costs. Reduction in operating costs was primarily as a result of reductions in amortization of program rights costs. This reduction was as a result of lower programming purchases.

Markiza TV's EBITDA increased by $1,629,000 to $4,368,000 for 2000 compared to $2,739,000 for 1999. This increase was partially as a result of an increase in net revenues and partially as a result of a decrease in operating costs. Markiza TV increased net revenues by $938,000, or 3%, due to a slight increase in the local currency denominated television advertising market. Markiza TV reduced operating costs by $691,000, or 2%, primarily as a result of reductions in amortization of programming rights costs, broadcast operations and engineering expenses and selling, general and administrative costs partially offset by an increase in salary and benefits costs. This increase in salary and benefits costs was as a result of increases in staff levels and higher commission for the sales staff.

POP TV's EBITDA increased by $299,000 to $4,954,000 for 2000 compared to $4,655,000 for 1999. This increase was despite a reduction of $1,696,000, or 7%, in the dollar denominated net revenues for 2000 compared to 1999. In local currency terms POP TV recorded an increase of 14% in net revenues for 2000 compared to 1999. This increase in EBITDA was as a result of a $1,995,000, or 11%, reduction in operating costs. This reduction in operating costs was primarily as a result of reductions in acquired programming costs, salary and benefits costs and selling, general and administrative costs partially offset by an increase in production expenses. This increase in production expenses was as a result of higher set costs and increased prize money awarded on game shows.

31 Kanal A, the second leading commercial television broadcaster in Slovenia, was acquired by the Company on October 11, 2000. EBITDA from October 11, 2000 to December 31, 2000 was positive $1,070,000.

For the reasons described above total combined EBITDA increased by $16,767,000 to positive $12,731,000 in 2000 compared to negative $4,036,000 in 1999.

Broadcast Cash Flow

Differences between EBITDA and broadcast cash flow are the result of timing differences between programming use and programming payments. See "Liquidity and Capital Resources" for a complete discussion of cash flows from operating, investing and financing activities.

APPLICATION OF ACCOUNTING PRINCIPLES

Although the Company conducts operations largely in foreign currencies, the Company prepares its consolidated financial statements in United States dollars and in accordance with GAAP. In CME's Consolidated Statements of Operations, consolidated entities include wholly-owned Subsidiaries and the results of PRO TV, POP TV, Kanal A, and certain entities of the Studio 1+1 Group (for 2000 and 1999 only), Media Vision, Video Vision and CNTS and separately set forth the minority interests attributable to other owners of such companies. The results of Markiza TV and Studio 1+1 (for the year ending December 31, 1998 only) and certain entities of the Studio 1+1 group (for the years ended December 31, 2000 and 1999) have been accounted for using the equity method such that CME's interests in net earnings or losses of those operations is included in the consolidated earnings and an adjustment is made to the carrying value at which the investment is recorded on the Consolidated Balance Sheet. The Company records other investments at the lower of cost or market value.

FOREIGN CURRENCY

The Company generates revenues primarily in Romanian lei ("ROL"), Slovak korunas ("Sk"), Slovenian tolar ("SIT"), Ukrainian hryvna ("Hrn") and Czech korunas ("Kc") and incurs expenses in those currencies as well as German marks, British pounds and United States dollars. The Romanian lei, Slovak koruna, Slovenian tolar and Ukrainian hryvna are managed currencies with limited convertibility. The Company incurs operating expenses for acquired programming in United States dollars and other foreign currencies. For entities operating in economies considered non-highly inflationary, including POP TV, Kanal A, Markiza TV, certain entities of the Studio 1+1 Group and CNTS, balance sheet accounts are translated from foreign currencies into United States dollars at the relevant period end exchange rate and statement of operations accounts are translated from foreign currencies into United States dollars at the weighted average exchange rates for the respective periods. The resulting translation adjustments are reflected in a component of shareholders' equity (in accumulated other comprehensive income (loss)) with no effect on the consolidated statements of operations.

PRO TV and certain entities of the Studio 1+1 Group operate in economies considered highly inflationary. Accordingly, non-monetary assets are translated at historical exchange rates, monetary assets are translated at current exchange rates and translation adjustments are included in the determination of net income. Currency translation adjustments relating to transactions of the Company in currencies other than the functional currency of the entity involved are reflected in the operating results of the Company.

32 The exchange rates at the end of and for the periods indicated are shown in the table below.

BALANCE SHEET INCOME STATEMENT ------AT DECEMBER 31, WEIGHTED AVERAGE FOR THE YEARS ENDING DECEMBER 31, 2000 1999 % CHANGE 2000 1999 % CHANGE ------Czech koruna equivalent of $1.00 37.81 35.98 (5.1)% 38.60 34.73 (11.1)% German mark equivalent of $1.00 2.08 1.95 (6.7)% 2.12 1.89 (12.2)% Romanian lei equivalent of $1.00 25,880 18,255 (41.8)% 21,659 15,310 (41.5)% Slovak koruna equivalent of $1.00 47.39 42.27 (12.1)% 46.76 41.71 (12.1)% Slovenian tolar equivalent of $1.00 227.38 196.77 (15.6)% 226.05 183.98 (22.9)% Ukrainian hryvna equivalent of $1.00 5.43 5.22 (4.0)% 5.44 4.13 (31.7)%

The Company's results of operations and financial position during 2000 were impacted by changes in foreign currency exchange rates since December 31, 1999.

RESULTS OF OPERATIONS

Discontinued Operations

On February 21, 2000, the Company sold substantially all of its operations in Hungary to SBS. This has resulted in these operations being treated as discontinued operations for all periods described in Results of Operations. The Company's financial statements have been restated for all periods presented in order to reflect the operations in Hungary as discontinued operations.

During the fourth quarter of 1998, the Company sold its interests in the TVN television operations in Poland at a loss, resulting in the treatment of these interests and operations as discontinued operations. The Company's financial statements for 1998 reflect these operations in Poland as discontinued operations.

Year ended December 31, 2000 compared to year ended December 31, 1999

CME's consolidated net revenues decreased by $52,510,000, or 41%, to $76,813,000 for 2000 from $129,323,000 for 1999. The decrease was primarily attributable to the suspension of the broadcast operations of CNTS and partially due to decreases in the net revenues of POP TV, PRO TV and the consolidated entities of the Studio 1+1 Group. CNTS suspended broadcast operations on August 5, 1999 and has not generated any material revenues since that time. See Part I, Item 1, "Status of Nova TV Dispute" and below for a further discussion on Nova TV and the ongoing dispute between CNTS and CET.

POP TV's US dollar net revenues declined for 2000 compared to 1999; however in local currency terms, POP TV's net revenues increased by 14%. The net revenues of PRO TV declined year over year as a result of increased competition in an advertising market which showed no growth year over year. The Romanian advertising market was adversely affected by the elections at the end of 2000 and a lack of Government reforms.

Total station operating costs and expenses (including amortization of program rights and depreciation of fixed assets and other intangibles) decreased by $61,597,000, or 44%, to $77,808,000 for 2000 from $139,405,000 for 1999. The decrease in total station operating costs and expenses was primarily due to the cessation of broadcasting

33 by CNTS and partially attributable to reductions in total station operating costs and expenses at PRO TV and POP TV. See Part I, Item 1, "Status of Nova TV dispute" for a further discussion of Nova TV and the on-going dispute between CNTS and CET. The decrease at PRO TV is as a result of a reduction in amortization of programming rights of $5,984,000 and a reduction in depreciation of station fixed assets and other intangibles of $1,053,000. This reduction was partially off-set by an increase in other operating costs and expenses of $475,000 as a result of an increase in production expenses relating to new show formats. The decrease at POP TV is as a result of a reduction in amortization of programming rights of $879,000, other operating costs and expenses of $735,000 and depreciation of station fixed assets and other intangibles of $377,000 for 2000 compared to 1999. The consolidated entities of the Studio 1+1 Group recorded a decrease in amortization of programming rights of $2,716,000 and a decrease in other operating costs and expenses of $1,080,000 for 2000 compared to 1999. These decreases were off-set by an increase in depreciation of station fixed assets and other intangibles of $9,235,000. This increase was primarily the result of a Company review of the carrying value of the goodwill relating to the Studio 1+1 asset and the subsequent determination to write the goodwill down. This review was conducted according to SFAS 121, "Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to be Disposed of", and the remaining goodwill relating to the Studio 1+1 asset is $4,916,000. See Item 8, Consolidated Financial Statements, Note 4, "Impairment of Studio 1+1 Goodwill".

Station selling, general and administrative expenses decreased by $6,496,000, or 25%, to $19,402,000 for 2000 from $25,898,000 for 1999. The decrease is primarily attributable the cessation of broadcasting by CNTS and partially attributable to reductions in total station selling, general and administrative expenses at PRO TV and POP TV. See Part I, Item 1, "Status of Nova TV dispute" for a further discussion of Nova TV and the on-going dispute between CNTS and CET. PRO TV recorded a reduction in station selling, general and administrative expenses of $78,000. POP TV recorded a reduction in station selling, general and administrative expenses of $381,000 primarily due to a reduction in taxes. The consolidated entities of the Studio 1+1 Group recorded an increase in station selling, general and administrative expenses of $62,000.

Corporate operating costs and development expenses decreased by $7,336,000, or 39%, to $11,417,000 in 2000 from $18,753,000 in 1999, mainly due to lower corporate operating expenses.

Amortization of goodwill and allowance for development costs decreased by $47,421,000, or 97%, to $1,670,000 in 2000 from $49,091,000 in 1999. This decrease is primarily attributable to the charge of $40,511,000 recorded in 1999 which resulted from a write-down of the goodwill relating to the purchases of additional equity interests in CNTS made by the Company in August 1996 and August 1997. No such charge was recorded in 2000. See Part I, Item 1, "Status of Nova TV dispute" for a further discussion of Nova TV and the on-going dispute between CNTS and CET.

As a result of the above factors, the Company generated an operating loss of $33,484,000 in 2000 compared to an operating loss of $103,824,000 in 1999.

Equity in loss of unconsolidated affiliates decreased by $10,507,000 to a loss of $514,000 in 2000 compared to a loss of $11,021,000 in 1999. This decrease is as a result of Markiza TV recording a loss of $1,773,000 in 2000 compared to a loss of $4,611,000 in 1999 and certain entities of the Studio 1+1 group that are not consolidated recording a net income of $1,259,000 in 2000 compared to a loss of $6,410,000 in 1999.

34 Net interest and other income changed by $4,216,000 to an expense of $18,245,000 in 2000 compared to an expense of $14,029,000 in 1999. This increase is as a result of a company review of the potential interest and penalties relating to outstanding tax obligations of PRO TV and a determination to provide for these charges in the amount of $4,000,000.

Net foreign currency exchange loss of $2,286,000 in 2000 compares to a net foreign exchange gain of $12,983,000 in 1999. In 1999 the Company recorded a large foreign exchange gain due to the significant weakening of the German mark and the Czech koruna. In 2000, the Company recorded a loss on the dividends declared by CNTS due to weakening of the Czech Koruna against the Dollar between the date of declaration and the date the income was recorded.

Gain on sale of investment of $17,186,000 in 2000 relates to SBS exercising its call option on the ITI Note, see Item 8, Consolidated Financial Statements, Note 15, "Sale of Investment in ITI Note".

Provision for income taxes was $96,000 in 2000 compared to $1,518,000 in 1999. This decrease is due to the suspension of the broadcasting operations of CNTS and the resulting decrease in net income. See Part I, Item 1, "Status of Nova TV Dispute" for a further discussion on Nova TV and the ongoing dispute between CNTS and CET.

Minority interest in income of consolidated subsidiaries was $59,000 in 2000 compared to a minority interest in loss of $213,000 in 1999. This change was due to the losses incurred by CNTS off-set by income of Kanal A. See Part I, Item 1, "Status of Nova TV Dispute" for a further discussion on Nova TV and the ongoing dispute between CNTS and CET and see Item 8, Consolidated Financial Statements, Note 16, "Kanal A Purchase".

As a result of these factors, the net loss of the Company was $37,498,000 in 2000 compared to $89,870,000 in 1999.

Year ended December 31, 1999 compared to year ended December 31, 1998

CME's consolidated net revenues decreased by $44,968,000, or 26%, to $129,323,000 for 1999 from $174,291,000, for 1998. The decrease was due to a decrease of $55,463,000 in the net revenues of CNTS and the decrease of $1,310,000 in the net revenues of PRO TV, offset by a $1,225,000 increase in net revenues at POP TV and the inclusion of Studio 1+1 as a consolidated entity for the year ended December 31, 1999. CNTS suspended broadcast operations on August 5, 1999 and has not generated any material revenues since that time. See Part I, Item 1, "Status of Nova TV Dispute" for a further discussion on Nova TV and the ongoing dispute between CNTS and CET. The suspension of operations at CNTS led to a large reduction in net revenues in 1999 compared to 1998.

POP TV's net revenues increased as it continued to capitalize on its market leading position. In Ukraine and Romania the advertising markets declined year over year as the economies experienced recessionary effects from the Russian financial crisis and lack of economic reform.

Total station operating costs and expenses (including amortization of program rights and depreciation of fixed assets and other intangibles) increased by $26,569,000, or 24%, to $139,405,000 for 1999 from $112,836,000 for 1998. The increase in total station operating costs and expenses was primarily due to the inclusion of Studio 1+1 as a

35 consolidated entity for the year ended December 31, 1999 and an increase in amortization of programming rights of $30,132,000. This increase is primarily due to the write-down of $21,480,000 on the full value of the CNTS programming library and the increase of $5,691,000 in amortization of programming rights at PRO TV. See Part I, Item 1 "Status of Nova TV Dispute" for a further discussion on Nova TV and the ongoing dispute between CNTS and CET. The increase in amortization of programming rights was partially offset by a reduction in amortization of programming rights at POP TV of $1,204,000. The increase in total station operating costs and expenses was partially offset by reductions in station operating costs and expenses at PRO TV of $2,594,000, due to reduced salary and benefit costs and POP TV of $1,382,000, primarily due to lower production expenses and reduced salary and benefit costs.

Station selling, general and administrative expenses increased by $648,000, or 3%, to $25,898,000 for 1999 from $25,250,000 for 1998. The increase was attributable to the inclusion of Studio 1+1 as a consolidated entity for the year ended December 31, 1999 offset by reductions in selling, general and administrative costs at PRO TV of $3,337,000 and POP TV of $1,553,000. In 1999, PRO TV reduced marketing costs and administrative costs and POP TV reduced marketing costs compared to 1998.

Corporate operating costs and development expenses decreased by $3,917,000, or 17%, from $22,670,000 in 1998 to $18,753,000 in 1999, mainly due to reduced corporate headcount and lower corporate operating expenses.

Amortization of goodwill and allowance for development costs increased by $38,485,000 from $10,606,000 for 1998 to $49,091,000 for 1999. This increase was attributable to the additional $40,511,000 write-down of the goodwill relating to the purchases of additional equity interests in CNTS made by the Company in August 1996 and August 1997.

In the second quarter of 1998, the Company recorded a restructuring charge of $2,552,000 based on its decision to change its focus from aggressive development and growth to further enhancing the operating performance of the Company's existing assets and pursuing opportunities for focused growth. The restructuring charge was comprised of severance and other associated costs and has been fully expensed.

As a result of the above factors, the Company generated an operating loss of $103,824,000 for 1999 compared to operating income of $377,000 for 1998.

Equity in loss of unconsolidated affiliates increased by $7,623,000 to a loss of $11,021,000 for 1999 from a loss of $3,398,000 for 1998. This increase was a result of Markiza TV recording a higher loss for 1999 than 1998 and certain entities of the Studio 1+1 group that are not consolidated recording a loss of $6,410,000 for 1999.

Net interest and other income changed by $3,521,000 to an expense of $14,029,000 for 1999 from an expense of $17,550,000 for 1998. This decrease was due to reduced borrowing at all stations with the exception of POP TV.

The net foreign currency exchange gain of $12,983,000 for 1999 compared to the net foreign exchange loss of $6,999,000 for 1998 was primarily attributable to the effect of a weaker German mark on the Deutsche mark denominated portion of CME's Senior Notes obligations and the effect of a weaker Czech koruna on the Czech koruna debt funding for the 1996 purchase by the Company of CS Bank's economic interest in CNTS.

36 Gain on sale of investment of $25,870,000 in 1999 related to the sale by the Company of its interest in a Romanian mobile telephone company MobilRom S.A.

Other income of $8,250,000 related to the cash received from SBS on the termination of the agreement entered into in March 1999 under which SBS would have purchased all of the assets and assumed all of the liabilities of the Company in exchange for the Company's shareholders receiving shares of SBS capital stock.

Provision for income taxes was $1,518,000 for 1999 compared to $15,856,000 for 1998. This decrease was due to the suspension of the broadcasting operations of CNTS and the resulting decrease in net income. See Part I, Item 1, "Status of Nova TV Dispute" for a further discussion on Nova TV and the ongoing dispute between CNTS and CET.

Minority interest in loss of consolidated subsidiaries was $213,000 in 1999 compared to minority interest in income of $156,000 for 1998. This change was due to the losses incurred by CNTS. See Part I, Item 1, "Status of Nova TV Dispute" for a further discussion on Nova TV and the ongoing dispute between CNTS and CET.

As a result of these factors, the net loss of the Company was $89,870,000 for 1999 compared to $125,252,000 for 1998.

LIQUIDITY AND CAPITAL RESOURCES

Net cash used in operating activities was $15,529,000 in 2000 compared to $12,702,000 in 1999. The change of $2,827,000 is primarily the result of the cessation of broadcasting by CNTS. See Part I, Item 1, "Status of Nova TV Dispute" for a further discussion on Nova TV and the ongoing dispute between CNTS and CET.

Net cash provided by investing activities was $19,516,000 in 2000 compared to $14,364,000 in 1999. The increase of $5,152,000 was primarily attributable to no investments in discontinued operations, lower fixed asset purchases, a decrease in the amount of restricted cash and cash received from the sale of the ITI Note in 2000.

Net cash used in financing activities for 2000 was $2,398,000 compared to $6,377,000 in 1999. The change of $3,979,000 was primarily due to lower payments on credit facilities and capital leases for 2000 compared to 1999.

The Company had cash and cash equivalents of $37,510,000 at December 31, 2000 compared to $36,990,000 at December 31, 1999.

In August 1997, CME issued two tranches of Senior Notes (the "Senior Notes") the principal of which becomes due in August 2004. The United States dollar tranche totals $100,000,000 in principal amount and bears interest at a rate of 9.375% per annum. The German mark tranche totals DM 140,000,000 ($67,308,000) in principal amount and bears interest at a rate of 8.125% per annum. The Senior Notes raised net proceeds of approximately $170,000,000. The Senior Notes are denominated in United States dollars, in part, and in German marks, in part. The indentures governing the Senior Notes contain certain restrictions relating to the ability of CME and its Subsidiaries and affiliates to incur additional indebtedness, incur liens on assets, make investments in unconsolidated companies, declare and pay dividends (in the case of CME), sell assets and engage in extraordinary transactions.

37 On October 20, 2000, the Company entered into an agreement (the "Noteholders Agreement") with certain of its Noteholders ("Consenting Holders"). The Noteholders Agreement was reached with holders of over 60% of the 9.375% Senior Notes and holders of over 60% of the 8.125% Senior Notes. The Noteholders Agreement resulted from discussions commenced with a group of holders of the Senior Notes in August 2000 relating to a possible consensual restructuring of the Senior Notes. CME determined the need to restructure the Senior Notes as a result of an ongoing dispute involving its operations in the Czech Republic.

Pursuant to the Noteholders Agreement, on October 20, 2000, the Company made the semi-annual interest payment on the Senior Notes which was due on August 15, 2000. Due to the delayed interest payment the Company was in default under the indentures between September 15 and October 20, 2000. As a result of such payment, the Company is no longer in default under the indentures relating to the Senior Notes. The Consenting Holders had agreed to accept their pro rata share of $100 million in cash (including the interest payment due on August 15, 2000), 25% of the equity of the Company and four-year warrants for 5% of the equity of the Company in exchange for their Senior Notes if such an offer was made by the Company to the holders of the Senior Notes and such restructuring of the Senior Notes was consummated on or prior to January 15, 2001. The Company was unable to raise new financing to provide it with the financial resources to purchase the Senior Notes on the terms previously described and as such the Noteholders Agreement expired on January 15, 2001. The Company made the semi-annual interest payment on the Senior Notes which was due on February 15, 2001.

On August 1, 1996, the Company purchased Ceska Sporitelna's ("CS's") 22% economic interest and virtually all of CS's voting rights in CNTS for a purchase price of Kc 1 billion ($36,590,000). The Company also entered into a loan agreement with CS to finance 85% of the purchase price. The principal outstanding at December 31, 2000 was Kc 335,080,600 ($8,862,000). Quarterly repayments on the loan are required in the amount Kc 42,500,000 ($1,124,000) during the period from February 2001 through May 2002, and Kc 37,580,000 ($994,000) in August 2002. In November 2000 the Company approached CS to seek a restructuring of the loan. The Company and CS have agreed that the Company would receive a principal repayment holiday until November 20, 2001. At that time, CS will review the financial condition of the Company to assess whether another annual principal repayment holiday is required. This agreement is subject to final documentation and approval.

In April 1998, POP TV entered into a multicurrency $5,000,000 loan agreement with Creditanstalt AG which matures in May 2005. As of December 31, 2000, the loan was fully drawn. The loan is secured by the land, buildings and equipment of POP TV and is guaranteed by CME. This credit agreement contains certain covenants with which the Company is not in compliance, but for which the Company has received a waiver.

PRO TV has one borrowing facility with Tiriac Bank in Romania. This facility is for $4,000,000 and matures in December 2002. At December 31, 2000, $1,827,000 was borrowed under this facility. This facility is secured by PRO TV's equipment and vehicles. In addition, PRO TV has an overdraft facility with Tiriac Bank in Romania for $3,000,000 which matures in October 2001. As at December 31, 2000, $2,477,000 was drawn under this overdraft facility. This overdraft facility is secured by an assignment of receivables and a promissory note.

38 CNTS has been the subject of a VAT inspection by the Czech Republic tax authorities for the years 1997 and 1998. As a result of this inspection the Czech tax authorities had levied an assessment seeking VAT payments of Kc232,777,000 ($6,156,000). The Czech authorities asserted that CNTS was providing certain services to CET and that these services should have been subject to VAT. On February 28, 2001, CNTS received notification from the Czech Republic tax authorities that all tax investigations and assessments had been cancelled. The Czech tax authorities had previously frozen CNTS' 1998 and 1999 income tax prepayments in the amount of Kc281,790,000 ($7,452,000). These income tax prepayments were returned to CNTS on February 20, 2001.

The Company's subsidiary in Slovenia, Produkcija Plus d.o.o. ("Pro Plus") has been the subject of an income tax inspection by the Republic of Slovenia tax authorities for the years 1995 to 1998. As a result of these inspections the Slovene tax authorities had levied an assessment seeking unpaid income taxes, customs duties and interest charges of SIT1,073,000,000 ($4,719,000). The Slovene authorities have asserted that capital contributions and loans made by CME in the years 1995 and 1996 to Pro Plus should be extraordinary revenue to Pro Plus. On this basis, the Slovene authorities claim that Pro Plus made a profit in 1995 and 1996 for which it owes income taxes and interest. Additionally, the Slovene tax authorities claim that the fixed assets imported as capital contributions were subject to customs duties which were not paid. On February 9, 2001, the Slovene tax authorities approved the cash capital contributions for 1995 and 1996. This has reduced the assessment to SIT636,800,000 ($2,801,000). The Administrative Court of Ljubljana has issued an injunction to prevent the tax authorities from demanding payment until a hearing on the matter has been concluded. There is currently no date set for this hearing.

The laws under which CME's operating Subsidiaries are organized provide generally that dividends may be declared by the partners or shareholders out of yearly profits subject to the maintenance of registered capital, required reserves and after the recovery of accumulated losses. In the case of the Company's Dutch and Netherlands Antilles subsidiaries, the Company's voting power is sufficient to compel the making of distributions. In the case of PRO TV, distributions may be paid from the profits of PRO TV subject to a reserve of 5% of annual profits until the aggregate reserves equal 20% of PRO TV's registered capital. A majority vote can compel PRO TV to make distributions. There are no legal reserve requirements in Slovenia. In the case of Markiza TV, distributions may be paid from net profits subject to an initial reserve requirement of 10% of net profits until the reserve fund equals 5% of registered capital. Subsequently, the reserve requirement is equal to 5% of net profits until the reserve fund equals 10% of registered capital. The Company's voting power in Markiza TV is not sufficient to compel the distribution of dividends. The Company's voting power in the Studio 1+1 Group is sufficient to compel the distribution of dividends.

The Company's future cash needs, over and above working capital requirements, will depend on the Company's overall financial performance and its future acquisition and development decisions. The Company believes that, taken together, its current cash balances, internally generated cash flow and local financing of broadcast operations should result in the Company having adequate cash resources to meet its debt service and other financial obligations for the next 12 months. The Senior Notes in the amount of $167,308,000 mature in August 2004. The Company's ability to refinance or repay the

39 Senior Notes will depend upon market conditions, pending litigation, renewals of broadcasting licenses, the financial performance of the Company and other factors through to August 2004.

EURO CONVERSION

As part of the European Economic and Monetary Union (EMU), a single currency, the euro, will replace the national currencies of many of the member countries of the European Union. Although the Company does not currently conduct business in any of the countries which are adopting the euro, it holds debt denominated in German marks, one of the currencies scheduled to be replaced by the euro. Additionally, it is expected that several of the countries in which the Company operates are likely to join EMU at some point in the future.

The conversion rates between the euro and the participating nations' currencies were fixed irrevocably as of January 1, 1999 and the participating national currencies will be removed from circulation between January 1, and June 30, 2002 and replaced by euro notes and coinage. During the "transition period" from January 1, 1999 through December 31, 2001, public and private entities as well as individuals may pay for goods and services using either checks, drafts, or wire transfers denominated in euro or the participating country's national currency.

Under the regulations governing the transition to a single currency, there is a "no compulsion, no prohibition" rule which states that no one is obliged to use the euro until the notes and coinage have been introduced on January 1, 2002. In keeping with this rule, the Company expects to be euro "compliant" (able to receive euro denominated payments and able to invoice in euros as requested by vendors and suppliers, respectively) by the time national currencies are removed from circulation. The cost of software and business process conversion is not expected to be material.

FORWARD-LOOKING STATEMENTS

Statements made in Part I, Item 1, under the heading "Status of Nova TV Dispute", Part 2, Item 7, under the heading "Results of Operations" and "Liquidity and Capital Resources" as well as statements regarding future operations of CNTS, the ongoing dispute between CNTS and CET, future investments in existing television broadcast operations, business strategies and commitments, anticipated corporate cash expenditures and ability to repay or refinance the Senior Notes are forward-looking statements. Forward-looking statements are inherently subject to risks and uncertainties, many of which cannot be predicted with accuracy and some of which might not even be anticipated. Future events and actual results, financial and otherwise, could differ materially from those described in or contemplated by the forward-looking statements. Important factors that contribute to such risks include the ability to acquire programming, the ability to attract audiences, the rate of development of advertising markets in countries where the Company currently operates and general market and economic conditions in these countries. Important factors with respect to the future operations of CNTS in the Czech Republic and the ongoing dispute between CNTS and CET, include legal, political and regulatory conditions and developments in the Czech Republic.

ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company conducts business in a number of foreign currencies. As a result, it is subject to foreign currency exchange rate risk due to the effects that foreign exchange

40 rate movements of these currencies have on the Company's costs and on the cash flows it receives from certain Subsidiaries. Several of the Company's Subsidiaries hold long-term debt under credit facilities that provide for interest at a spread above a basis rate (such as LIBOR). A significant rise in these basis rates would not materially adversely affect the Company's business, financial condition or results of operations. The Company does not utilize derivative financial instruments to hedge against changes in interest rates. The Company believes that it currently has no material exposure to market risk associated with activities in derivative or other financial instruments.

In limited instances the Company enters into forward foreign exchange contracts to hedge foreign currency exchange rate risk. At December 31, 2000 the Company held no foreign exchange contracts.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

(Financial Statements and Supplementary data begin on the following page and end on the page immediately preceding Item 9.)

41 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Central European Media Enterprises Ltd:

We have audited the accompanying consolidated balance sheets of Central European Media Enterprises Ltd. (a Bermuda corporation) and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of operations, shareholders' equity (deficit) and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of Produkcija Plus d.o.o. and Super Plus Holding d.d. (acquired on October 11, 2000) which statements reflect total assets and total revenues of 4 percent and 31 percent in 2000, and 2 percent and 18 percent in 1999, respectively, of the related consolidated totals. Those statements were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to the amounts included for those entities, is based solely on the reports of the other auditors.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of other auditors provide a reasonable basis for our opinion.

In our opinion, based on our audits and the reports of the other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of Central European Media Enterprises Ltd. as of December 31, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States.

ARTHUR ANDERSEN

Hamilton, Bermuda March 15, 2001

42 INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Partners of Produkcija Plus d.o.o. Ljubljana, Slovenia

We have audited the accompanying balance sheets of Produkcija Plus d.o.o. as of December 31, 2000 and 1999, and related statements of operations and cash flows for the years ended December 31, 2000 and 1999 (not presented separately herein). These financial statements are the responsibility of the Company's management. Our responsibility is to express an option on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing standards in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such financial statements present fairly, in all material respects, the financial position of the Produkcija Plus d.o.o. at December 31, 2000 and 1999, and the results of its operations and cash flows for the years ended December 31, 2000 and 1999 in conformity with United States generally accepted accounting principles.

Deloitte & Touche Ljubljana, Slovenia February 16, 2001

43 INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Partners of Super Plus Holding d.d. Ljubljana, Slovenia

We have audited the accompanying consolidated balance sheets of Super Plus Holding d.d. as of December 31, 2000, and related consolidated statements of operations and cash flows for the period then ended, and its subsidiary (Kanal A d.d.) from October 11, 2000 to December 31, 2000 (not presented separately herein). These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an option on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing standards in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements referred to in the first paragraph above present fairly, in all material respects, the financial position of Super Plus Holdings d.d. and its subsidiary at December 31, 2000, and the consolidated results of its operations and cash flows for the period ended December 31, 2000 in conformity with United States generally accepted accounting principles.

Deloitte & Touche Ljubljana, Slovenia February 26, 2001

44 CENTRAL EUROPEAN MEDIA ENTERPRISES LTD. CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2000 AND 1999 (US$000S, EXCEPT PER SHARE DATA)

ASSETS DECEMBER 31, ------2000 1999 ------CURRENT ASSETS: Cash and cash equivalents...... $ 37,510 $ 36,990 Restricted cash...... 1,527 4,784 Accounts receivable (net of allowances of $3,539 , $2,597)...... 23,785 15,099 Program rights costs...... 7,090 9,883 Advances to affiliates...... 9,081 20,507 Income taxes receivable...... 7,452 7,640 Other short-term assets...... 5,221 8,167 ------TOTAL CURRENT ASSETS...... 91,666 103,070

Investments in unconsolidated affiliates...... 20,428 23,095 Loans to affiliates...... 15,606 4,863 Property, plant and equipment (net of depreciation of $63,343, $56,292)...... 32,824 48,471 Program rights costs...... 6,305 8,911 License costs and other intangibles (net of amortization of $6,609, $10,376)... 2,158 2,912 Goodwill (net of amortization of $90,674, $79,263)...... 20,909 19,393 Note receivable...... - 20,071 Deferred tax asset...... 175 138 Other assets...... 7,028 5,263 ------TOTAL ASSETS...... $ 197,099 $ 236,187 ======

LIABILITIES AND SHAREHOLDERS' DEFICIT

CURRENT LIABILITIES: Accounts payable and accrued liabilities...... $ 50,799 $ 51,504 Duties and other taxes payable...... 11,421 11,678 Income taxes payable...... 374 864 Current portion of credit facilities and obligations under capital leases...... 10,006 6,409 Investments payable...... 6,444 5,188 Advances from affiliates...... 2,241 1,028 ------TOTAL CURRENT LIABILITIES...... 81,285 76,671

Long-term portion of credit facilities and obligations under capital leases... 8,078 15,115 $100,000,000 9 3/8 % Senior Notes...... 99,920 99,897 DM 140,000,000 8 1/8 % Senior Notes...... 67,034 71,519 Other Liabilities...... 6,493 7,843 Minority interest in consolidated subsidiaries...... 167 378

Commitments and contingencies (Note 11)

SHAREHOLDERS' DEFICIT: Class A Common Stock, $0.08 par value: authorized: 100,000,000 shares at December 31, 2000 and December 31, 1999; issued and outstanding: 2,313,346 at December 31, 2000 and December 31, 1999...... 185 185 Class B Common Stock, $0.08 par value: authorized: 15,000,000 shares at December 31, 2000 and December 31, 1999; issued and outstanding: 991,842 at December 31, 2000 and December 31, 1999...... 79 79 Additional paid-in capital...... 356,385 356,385 Accumulated deficit...... (415,716) (378,218) Accumulated other comprehensive loss...... (6,811) (13,667) ------

TOTAL SHAREHOLDERS' DEFICIT...... (65,878) (35,236) ------

TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT...... $ 197,099 $ 236,187 ======

The accompanying notes are an integral part of these consolidated financial statements.

45 CENTRAL EUROPEAN MEDIA ENTERPRISES LTD. CONSOLIDATED STATEMENTS OF OPERATIONS (US$000S, EXCEPT PER SHARE DATA)

FOR THE YEARS ENDED DECEMBER, 31 ------2000 1999 1998 ------

Gross revenues...... $ 91,739 $158,388 $ 225,442

Discounts and agency commissions...... (14,926) (29,065) (51,151) ------Net revenues...... 76,813 129,323 174,291

STATION EXPENSES: Other operating costs and expenses...... 37,160 59,747 68,799 Amortization of programming rights...... 15,994 57,991 27,859 Depreciation of station fixed assets and other intangibles...... 24,654 21,667 16,178 ------Total station operating costs and expenses...... 77,808 139,405 112,836 Selling, general and administrative expenses ...... 19,402 25,898 25,250

CORPORATE EXPENSES: Corporate operating costs and development expenses...... 11,417 18,753 22,670 Amortization of goodwill and allowance for development costs..... 1,670 49,091 10,606 Restructuring charge ...... - - 2,552 ------13,087 67,844 35,828 ------

Operating (loss)/income...... (33,484) (103,824) 377

Equity in loss of unconsolidated affiliates (Note 13)...... (514) (11,021) (3,398) Net interest and other income/(expense)...... (18,245) (14,029) (17,550) Foreign currency exchange (loss)/gain,net...... (2,286) 12,983 (6,999) Gain on sale of investment (Note 15)...... 17,186 25,870 - Other Income ...... - 8,250 ------

Loss before provision for income taxes, minority interest and discontinued operations...... (37,343) (81,771) (27,570) Provision for income taxes...... (96) (1,518) (15,856) ------

Loss before minority interest and discontinued operations...... (37,439) (83,289) (43,426) Minority interest in (income)/loss of consolidated subsidiaries...... (59) 213 (156) ------

Net loss from continuing operations...... (37,498) (83,076) (43,582)

Discontinued operations: Operating loss of discontinued operations (Hungary)...... - (10,208) (37,576) Gain on disposal of discontinued operations (Hungary)...... - 3,414 -

Operating loss on discontinued operations (Poland)...... - - (15,289) Loss on disposal of discontinued operations (Poland)...... - - (28,805) ------(6,794) (81,670) ------

NET LOSS...... $ (37,498) $(89,870) $ (125,252) ======

PER SHARE DATA Net loss per share (Note 3) Continuing operations - Basic and diluted...... $ (11.35) $ (25.78) $ (14.45) Discontinued operations - Basic and diluted...... - (2.11) (27.08) ======Total...... $ (11.35) $ (27.89) $ (41.53) ======

Weighted average common shares used in computing per share amounts: Basic and diluted...... 3,305 3,223 3,016 ======

The accompanying notes are an integral part of these consolidated financial statements.

46 CENTRAL EUROPEAN MEDIA ENTERPRISES LTD. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT) FOR THE PERIOD FROM DECEMBER 31, 1997 TO DECEMBER 31, 2000 (US$000S, EXCEPT PER SHARE DATA)

ACCUMULATED OTHER COMPREHENSIVE CLASS A CLASS B ACCUMULATED COMPREHENSIVE TOTAL INCOME COMMON COMMON CAPITAL DEFICIT INCOME SHAREHOLDERS' (LOSS) STOCK STOCK SURPLUS (a) (LOSS) (b) EQUITY/(DEFICIT) ------

BALANCE, December 31, 1997 169 71 332,386 (163,096) (11,947) 157,583

Comprehensive income (loss): Net Loss (125,252) (125,252) (125,252) Other comprehensive income (loss): Unrealized translation adjustments 9,367 9,367 9,367 ------Comprehensive loss (115,885) ======

Stock issued: Capital contributed by shareholders, net of costs of $227 12 5 23,992 - - 24,009 ------BALANCE, December 31, 1998 181 76 356,378 (288,348) (2,580) 65,707

Comprehensive income (loss): Net Loss (89,870) (89,870) (89,870) Other comprehensive income (loss): Unrealized translation adjustments (11,087) (11,087) (11,087) ------Comprehensive loss (100,957) ======

Stock issued: Capital contributed by shareholders 4 3 7 - - 14 ------

BALANCE, December 31, 1999 185 79 356,385 (378,218) (13,667) (35,236) Comprehensive income (loss): Net Loss (37,498) (37,498) (37,498) Other comprehensive income (loss): Unrealized translation adjustments 6,856 6,856 6,856 ------Comprehensive loss (30,642) ======

Stock issued: Capital contributed by shareholders - -

------BALANCE, December 31, 2000 185 79 356,385 (415,716) (6,811) (65,878) ======

(a) Of the accumulated deficit of $ 415,716 at December 31, 2000, $ 96,699 represents accumulated losses in unconsolidated affiliates.

(b) Represents foreign currency translation adjustments.

The accompanying notes are an integral part of these consolidated financial statements.

47 CENTRAL EUROPEAN MEDIA ENTERPRISES LTD CONSOLIDATED STATEMENTS OF CASH FLOWS (US$000S)

FOR THE YEARS ENDED DECEMBER 31, 2000 1999 1998 ------CASH FLOWS FROM OPERATING ACTIVITIES: Net Loss ...... $ (37,498) $ (89,870) $(125,252)

Adjustments to reconcile net loss to net cash used in operating activities: Equity in loss of unconsolidated affiliates ...... 514 11,021 3,398 Depreciation and amortization (excluding amortization of barter programs) ...... 43,930 130,361 55,817 Discontinued operations ...... -- 6,794 81,670 Gain on disposal of investment ...... (17,186) (25,870) -- interest in income (loss) of consolidated subsidiaries ...... 59 (213) 156 Foreign currency exchange loss (gain), net ...... 2,286 (12,983) 6,999 Accounts receivable ...... (9,033) 19,007 705 Cash paid for program rights ...... (15,518) (28,312) (30,304) Advances to affiliates ...... 10,756 (7,000) (1,158) Other short-term assets ...... 2,238 6,398 (3,417) Accounts payable and accrued liabilities ...... 4,736 (14,361) 3,062 Income and other taxes payable ...... (813) (7,674) (848) ------Net cash used in operating activities ...... (15,529) (12,702) (9,172) ------

CASH FLOWS FROM INVESTING ACTIVITIES: Investments in unconsolidated affiliates ...... -- -- (7,148) Other investments ...... (13,163) (6,063) (34) Investments in discontinued operations ...... -- (9,373) (46,770) Cash proceeds from disposal of discontinued operations ...... 4,416 39,260 10,000 Cash proceeds from disposal of investment ...... 37,250 -- -- Restricted cash ...... 3,161 (4,717) 733 Acquisition of fixed assets ...... (617) (6,052) (14,884) Acquisition of minority interest ...... -- -- (9,930) Loans and advances to affiliates ...... (8,171) 1,383 (5,051) Payments for license costs, other assets and intangibles ...... (3,360) (74) (1,773) ------Net cash provided by (used in) investing activities ...... 19,516 14,364 (74,857) ------

CASH FLOWS FROM FINANCING ACTIVITIES: Credit facilities and payments under capital leases ...... (2,087) (6,358) (2,495) Dividends paid to minority shareholders ...... (311) -- (1,777) Capital contributed by shareholders ...... -- 14 24,007 Other long term liabilities ...... -- (33) 2,532 ------Net cash (used in) provided by financing activities ...... (2,398) (6,377) 22,267 ------

IMPACT OF EXCHANGE RATE FLUCTUATIONS ON CASH ...... (1,069) (1,649) 1,344 ------Net increase (decrease) in cash and cash equivalents ...... 520 (6,364) (60,418) CASH AND CASH EQUIVALENTS, beginning of period ...... 36,990 43,354 103,772 ------CASH AND CASH EQUIVALENTS, end of period ...... 37,510 $ 36,990 $ 43,354 ======

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid for: Interest ...... $ 16,664 $ 19,522 $ 20,413 Income Taxes ...... $ 623 $ 9,488 $ 16,519

SUPPLEMENTAL DISCLOSURES OF NONCASH FINANCING TRANSACTIONS Capital lease obligations incurred $ 195 $ 516 --

Supplemental disclosures of non-cash financing transactions: As part of the February 21, 2000 sale of substantially all of its Hungarian operations to SBS, programming rights valued at $12,700 and associated liabilities of $12,195 were transferred to SBS.

The accompanying notes are an integral part of these consolidated financial statements.

48 1. ORGANIZATION AND BUSINESS

Central European Media Enterprises Ltd. ("CME"), a Bermuda corporation, was formed in June 1994. CME has been in operation since 1991. CME, together with its subsidiaries and affiliates (CME and its subsidiaries and affiliates are collectively referred to as the "Company"), invests in, develops, and operates national and regional commercial television stations and networks in Central and Eastern Europe.

On December 15, 1999, the Company effected a one-for-eight reverse stock split. Except as otherwise noted, all share and per share information in this Form 10-K has been retroactively adjusted to reflect the one-for-eight reverse stock split.

The Company owns a 99% voting and economic interest in Ceska nezavisla televizni spolecnost, spol. s.r.o. ("CNTS"). In January 1993, CET 21, spol. s.r.o. ("CET") was awarded a terrestrial television broadcast license in the Czech Republic. That license expires in January 2005. CET was awarded that license with the full knowledge and understanding of the Council of the Czech Republic for Radio and Television Broadcasting (the "Media Council") that CEDC (the Company's direct predecessor in interest) was a direct participant in the license application. With the involvement of the Media Council, the Company and CET entered into a Memorandum of Association and Investment (the "Memorandum of Association") that provided for the creation of a company, CNTS, to operate and broadcast the planned television station. An associated agreement further provided that CET did not have the authority to broadcast without the direct participation of CEDC. Between 1993 and August 1999, CNTS performed essentially all of the activities associated with operating and broadcasting Nova TV.

On August 5, 1999, CET pre-empted CNTS's transmission and began broadcasting a substitute signal for Nova TV from a site other than CNTS's studios. In addition, on the same day, CNTS received notification from CET that CET was withdrawing from the Cooperation Contract due to CNTS's alleged failure to supply CET with the daily program log for Nova TV on August 4, 1999. CET representatives also stated publicly that, in future, CET would not use CNTS to provide services for Nova TV. CET has continued to pre-empt all of CNTS's programming for Nova TV. As a result of this situation, CNTS has been unable to generate revenues and its operations have been suspended. On September 9, 1999, the Company announced the suspension of technical and production operations at CNTS and CNTS has since dismissed a majority of the employees.

The Company and Ronald S. Lauder, the non-executive Chairman of the Company's Board of Directors, have sought remedies in a number of court and arbitration proceedings. See Note 17, "Subsequent Events". The Company is seeking various forms of relief, reinstatement of its status and rights, and reimbursement of previous amounts paid to Dr. Zelezny and of costs incurred and damages sustained during or as a result of this dispute. No gains for such claims have been recorded.

In Romania, the Company and its local partners operate PRO TV, a commercial television network, and a second channel, Acasa, through Media Pro International S.A. ("Media Pro International"). The Company owns a 66% equity interest in Media Pro International. The Company owns 49% of the equity of PRO TV, SRL, an affiliate station of Media Pro International holding many of the licenses for the stations comprising the PRO TV and Acasa network.

In Slovenia, the Company operates POP TV, together with MMTV 1 d.o.o. Ljubljana ("MMTV") and Tele 59 d.o.o. Maribor ("Tele 59"), through Produkcija Plus d.o.o. ("Pro Plus"). Under the name POP TV, Pro Plus provides programming to, and sells advertising

49 for, affiliated stations. The Company owns 78% of the equity of Pro Plus, but has an effective economic interest of 85.5% as a result of a 33% economic interest in MMTV and a 33% economic interest in Tele 59. Tele 59 owns a 21% equity interest in Pro Plus, and MMTV currently owns a 1% equity interest in Pro Plus. The Company also owns a 20% equity interest in MTC Holding d.o.o. ("MTC") which owns the remaining 90% equity interest in MMTV. 76% of MTC's equity is being separately held by a Slovene person, in trust for the Company, until the Slovene media law is clarified or until the Company determines final ownership.

On October 11, 2000, the Company completed a transaction through which the Company acquired control over the economics and the programming of Kanal A, for $12,500,000 plus the value of the net current assets and net programming assets of Kanal A, which are subject to final determination. Kanal A is the second leading commercial television broadcaster in Slovenia. As a result of the transaction, 90% of the Kanal A shares are being held by Superplus Holding d.d. ("Superplus") which is owned by individuals who are holding the share of Superplus in trust for the Company until the Slovene media law is clarified or until the Company determines final ownership. Consequently, Pro Plus ceased producing programming under the name of Gabja TV and frequencies previously used for Gajba TV are now used for Kanal A. From January 2001, Pro Plus has entered into an agreement with Kanal A, under which Pro Plus provides all programming to Kanal A and sells its advertising. See Note 16, "Kanal A Purchase".

In the Slovak Republic, the Company owns an 80% non-controlling economic interest and a 49% voting interest in Slovenska Televizna Spolocnost s.r.o. ("STS"), which operates the national television station Markiza TV. Markiza-Slovakia s.r.o., the broadcast license holder, and STS have entered into an agreement pursuant to which STS is entitled to provide exclusive commercial television services to Markiza-Slovakia s.r.o.

In Ukraine, the Company owns a 60% interest in a group of companies (collectively, the "Studio 1+1 Group"), which have the right to broadcast programming and sell advertising on Ukrainian National Channel 2 ("UT-2"). The Company owns a 60% equity interest in each of Innova Film GmbH ("Innova"), Ukraine Advertising Holding B.V. ("UAH") and International Media Services ("IMS"). Innova holds 100% of Intermedia, a Ukrainian company, which in turn holds a 30% equity interest in Studio 1+1, the license holding company in the Ukraine. UAH held a 50% interest in Prioritet, the main vehicle for advertising sales up until January 1, 2001. See Note 17, "Subsequent Events".

2. FINANCING OF OPERATING AND CAPITAL NEEDS

The Company had cash of $37,510,000 at December 31, 2000 to enable it to finance its future activities.

In 2000, the Company used the cash proceeds of $3,300,000 from the sale of its Hungarian assets to SBS, the cash proceeds of $37,250,000 plus accrued interest from the exercise of the option on the ITI Note granted to SBS and cash received from its stations.

The Company's future cash needs, over and above working capital requirements, will depend on the Company's overall financial performance and its future acquisition and development decisions. The Company believes that, taken together, its current cash balances, internally generated cash flow and local financing of broadcast operations should result in the Company having adequate cash resources to meet its debt service and other financial obligations for the next 12 months. The Senior Notes in the amount of $167,308,000 mature in August 2004. The Company's ability to refinance or repay the Senior Notes will depend upon market conditions, pending litigation, renewals of

50 broadcasting licenses, the financial performance of the Company and other factors through to August 2004.

DIVIDENDS FROM CONSOLIDATED SUBSIDIARIES AND UNCONSOLIDATED AFFILIATES

The laws under which CME's operating Subsidiaries are organized provide generally that dividends may be declared by the partners or shareholders out of yearly profits subject to the maintenance of registered capital, required reserves and after the recovery of accumulated losses. In the case of the Company's Dutch and Netherlands Antilles subsidiaries, the Company's voting power is sufficient to compel the making of distributions. In the case of PRO TV, distributions may be paid from the profits of PRO TV subject to a reserve of 5% of annual profits until the aggregate reserves equal 20% of PRO TV's registered capital. A majority vote can compel PRO TV to make distributions. There are no legal reserve requirements in Slovenia. In the case of Markiza TV, distributions may be paid from net profits subject to an initial reserve requirement of 10% of net profits until the reserve fund equals 5% of registered capital. Subsequently, the reserve requirement is equal to 5% of net profits until the reserve fund equals 10% of registered capital. The Company's voting power in Markiza TV is not sufficient to compel the distribution of dividends. The Company's voting power in the Studio 1+1 Group is sufficient to compel the distribution of dividends.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

These financial statements have been prepared in accordance with accounting principles generally accepted in the United States. The significant accounting policies are summarized as follows:

DISCONTINUED OPERATIONS

On February 21, 2000, the Company sold substantially all of its operations in Hungary to SBS. This has resulted in these operations being treated as discontinued operations for all periods described in Results of Operations. The Company's financial statements have been restated for all periods presented in order to reflect the operations in Hungary as discontinued operations.

During the fourth quarter of 1998, the Company sold its interests in the TVN television operations in Poland at a loss, resulting in the treatment of these interests and operations as discontinued operations. The Company's financial statements for 1998 reflect these operations in Poland as discontinued operations.

PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements include the accounts of the Company's wholly-owned subsidiaries and the results of PRO TV, POP TV, Kanal A, and certain entities of the Studio 1+1 Group (for 2000 and 1999 only), Media Vision, Video Vision and CNTS (the "Consolidated Affiliates"), as consolidated entities and reflect the interests of the minority owners of these entities for the periods presented, as applicable. The results of Markiza TV and Studio 1+1 (for 1998 only) and certain entities of the Studio 1+1 Group (for 2000 and 1999 only), (the "Unconsolidated Affiliates") in which the

51 Company has, or during the periods presented had, minority or non-controlling ownership interests, are included in the accompanying consolidated financial statements using the equity method.

REVENUE RECOGNITION

Revenues primarily result from the sale of advertising time and are recognized in the period in which advertising is aired.

BARTER TRANSACTIONS

Revenue from barter transactions (television advertising time provided in exchange for goods and services) is recognized as income when commercials are broadcast, and programming, merchandise or services received are charged to expense or capitalized as appropriate when received or used.

The Company records barter transactions at the estimated fair market value of goods or services received. In cases where bartered programs can only be obtained through a barter agreement, the Company values the barter at the value of the asset conveyed in exchange for the programs. In other cases where the Company has elected to enter into barter agreements as an alternate method of payment, strictly for economic reasons, the Company values the barter agreement at the value of the asset received. If merchandise or services are received prior to the broadcast of a commercial, a liability is recorded. Likewise, if a commercial is broadcast by the Company's station prior to receiving the merchandise or services, a receivable is recorded.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents includes unrestricted cash in banks and highly liquid investments with original maturities of less than three months. Restricted cash (restricted for guarantees to third parties or vendors) at December 31, 2000 and 1999 is $1,527,000 and $4,784,000 respectively.

LONG-LIVED ASSETS

The Company periodically evaluates its long-lived assets using projected undiscounted future cash flows and operating income for each subsidiary as a measure of the expected recovery of these costs. (See Note 4, "Impairment of Studio 1+1 Goodwill").

PROGRAM RIGHTS AND PRODUCTION COSTS

Program rights acquired by the Company under license agreements and the related obligations incurred are recorded as assets and liabilities when the program is available and the license period begins. The assets are amortized using straight-line and accelerated methods based on the estimated period of usage, ranging from one to five years. The unamortized cost of such rights and liability for future payments under these agreements are included in the accompanying Consolidated Balance Sheets. Amortization estimates for program rights are reviewed periodically and adjusted prospectively.

Payments made for program rights in which the license period has not begun before year end are classified as prepaid expenses.

Production costs for self-produced programs are expensed when first broadcast except where the programming has potential to generate future revenues. When this is the

52 case, production costs are capitalized and amortized on the same basis as programming obtained from third parties.

INTANGIBLE ASSETS

Intangible assets include goodwill, broadcast license, license acquisition costs and capitalized debt costs.

Goodwill represents the Company's excess cost over the fair value of net assets acquired and is being amortized on a straight-line basis over the estimated useful life of the assets. Amounts recognized to date have been amortized over periods ranging from 2 to 10 years from the original date of acquisition. (See Note 4, "Impairment of Studio 1+1 Goodwill").

License costs and other intangibles reflect the costs of acquiring licenses to broadcast and the excess of the Company's investment above the Company's share of net assets received from newly formed, consolidated entities as well as the amounts paid to secure licenses. Broadcast license costs are capitalized and amortized over the life of the related license. License acquisition costs are amortized over the lives of the related licenses which range from 5 to 10 years. These costs are reviewed for impairment whenever events or circumstances provide evidence that suggests that the carrying amount of license acquisition costs may not be recoverable.

Capitalized debt costs represent the costs incurred in connection with obtaining debt financing. These costs are amortized over the life of the related debt instrument.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company accounts for the fair value of financial instruments in accordance with SFAS No. 107, "Disclosures about Fair Value of Financial Instruments". To meet the reporting requirements of SFAS No. 107, the Company calculates the fair value of financial instruments and includes this additional information in the notes to financial statements when the fair value is different from book value of those financial instruments. When the fair value is equal to the book value, no additional disclosure is made. The Company uses quoted market prices whenever available to calculate these fair values. When quoted market prices are not available, the Company uses standard pricing models for various types of financial instruments which take into account the present value of estimated future cash flows. The market value of the Senior Notes as at December 31, 2000 was $25,000,000 with regard to the $100,000,000 9.375% Senior Notes and DM 40,593,000 ($19,516,000) with regard to the DM 140,000,000 8.125% Senior Notes. The Company does not record these at market value because the Company is obligated to pay the Senior Notes in full in August 2004. At December 31, 2000 and 1999, the carrying value of all financial instruments (primarily loans payable and receivable and, in limited circumstances, foreign exchange contracts) approximated fair value.

INCOME TAXES

Deferred income taxes are provided on temporary differences between financial statement and taxable income. The primary sources of these differences are depreciation, amortization and tax losses carried forward.

53 FOREIGN CURRENCY TRANSLATION

The Company generates revenues primarily in Czech korunas ("Kc"), Romanian lei ("ROL"), Slovak korunas ("Sk"), Slovenian tolar ("SIT") and Ukrainian hryvna ("Hrn") and incurs expenses in those currencies as well as German marks, British pounds and United States dollars. The Romanian lei, Slovak koruna, Slovenian tolar and Ukrainian hryvna are managed currencies with limited convertibility. The Company incurs operating expenses for acquired programming in United States dollars and other foreign currencies. For entities operating in economies considered non-highly inflationary, including CNTS, POP TV, Markiza TV and certain entities of the Studio 1+1 Group, balance sheet accounts are translated from foreign currencies into United States dollars at the relevant period end exchange rate; statement of operations accounts are translated from foreign currencies into United States dollars at the weighted average exchange rates for the respective periods. The resulting translation adjustments are reflected in a component of shareholders' equity with no effect on the consolidated statements of operations.

PRO TV and certain entities of the Studio 1+1 Group operate in economies considered highly inflationary. Accordingly, non-monetary assets are translated at historical exchange rates, monetary assets are translated at current exchange rates and translation adjustments are included in the determination of net income. Currency translation adjustments relating to transactions of the Company in currencies other than the functional currency of the entity involved are reflected in the operating results of the Company.

The exchange rates at the end of and for the periods indicated are shown in the table below.

BALANCE SHEET INCOME STATEMENT ------AT DECEMBER 31, WEIGHTED AVERAGE FOR THE YEARS ENDING DECEMBER 31, 2000 1999 % CHANGE 2000 1999 % CHANGE ------

Czech koruna equivalent of $1.00 37.81 35.98 (5.1)% 38.60 34.73 (11.1)% German mark equivalent of $1.00 2.08 1.95 (6.7)% 2.12 1.89 (12.2)% Romanian lei equivalent of $1.00 25,880 18,255 (41.8)% 21,659 15,310 (41.5)% Slovak koruna equivalent of $1.00 47.39 42.27 (12.1)% 46.76 41.71 (12.1)% Slovenian tolar equivalent of $1.00 227.38 196.77 (15.6)% 226.05 183.98 (22.9)% Ukrainian hryvna equivalent of $1.00 5.43 5.22 (4.0)% 5.44 4.13 (31.7)%

In the accompanying notes, $ equivalents of Kc, DM, ROL, Sk, SIT and Hrn amounts have been included at December 31, 2000, 1999 or historical rates, as applicable, for illustrative purposes only. In limited instances, the Company enters into forward foreign exchange contracts and purchases foreign currency options to hedge foreign currency transactions for periods consistent with its identified exposures. Premiums on foreign currency options are amortized over the option period being hedged.

EARNINGS PER SHARE

The Company accounts for earnings per share pursuant to SFAS No. 128, "Earnings Per Share." Basic net income per common share ("Basic EPS") is computed by dividing net income by the weighted average number of common shares outstanding. Diluted net income per common share ("Diluted EPS") is computed by dividing net income by the weighted average number of common shares and dilutive common share equivalents then outstanding. SFAS No. 128 requires the presentation of both Basic EPS and Diluted EPS on the face of the consolidated statement of operations. A reconciliation between the numerator and denominator of Basic EPS and Diluted EPS is as follows:

54 FOR THE YEARS ENDED DECEMBER 31,

NET LOSS COMMON SHARES NET LOSS PER COMMON SHARE ------2000 1999 1998 2000 1999 1998 2000 1999 1998 ------Basic EPS ------Net loss attributable to common stock $(37,498) $(89,870) $(125,252) 3,305 3,223 3,016 $(11.35) $(27.89) $(41.53) Effect of dilutive securities: stock options ------

Diluted EPS ------Net loss attributable to common stock and assumed option exercises ______$(37,498) $(89,870) $(125,252) 3,305 3,223 3,016 $(11.35) $(27.89) $(41.53) ======

Diluted EPS for the years ended December 31, 2000, 1999 and 1998 do not include the impact of stock options then outstanding as their inclusion would be anti-dilutive. See Note 10, "Stock Option Plan".

USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting year. Actual results could differ from those estimates.

RECLASSIFICATIONS

Certain reclassifications were made to prior period amounts to conform to current period classifications.

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES - NEW ACCOUNTING PRONOUNCEMENT

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133 establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. SFAS No. 133 requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement, and requires that a company must formally document, designate, and assess the effectiveness of transactions that receive hedge accounting.

SFAS No. 133, as amended by SFAS 137 and SFAS 138, will be effective for fiscal years beginning after June 15, 2000. A company may also implement the Statement as of the beginning of any fiscal quarter after issuance (that is, fiscal quarters beginning June 16, 1999 and thereafter). SFAS No. 133 cannot be applied retroactively. The Company occasionally enters into forward foreign exchange contracts. There was no material impact as a result of the adoption of SFAS No. 133 when it was adopted on January 1, 2001.

55 4. IMPAIRMENT OF STUDIO 1+1 GOODWILL

Due to the economic conditions prevailing in Ukraine and the large decrease in the advertising market since its levels of 1998, the Company has reviewed the carrying value of the goodwill relating to the Studio 1+1 asset. This review was conducted according to SFAS 121, "Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to be Disposed of". The Company has determined an impairment in goodwill, and determined to write the goodwill down, in the amount of $9,836,000. The remaining goodwill relating to the Studio 1+1 asset is $4,916,000 with a remaining useful life of 6 years.

5. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment is carried at cost, less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets. It consists of the following:

DECEMBER 31, USEFUL ------LIVES 2000 1999 ------YEARS $000 $000

Land and buildings...... 25-50 20,036 23,170 Station machinery, fixtures and equipment...... 4-8 69,782 67,887 Other equipment...... 3-8 4,174 10,114 Construction in progress...... -- 2,175 3,592 ------96,167 104,763 Less - Accumulated depreciation...... (63,343) (56,292) ======32,824 48,471 ======

6. OTHER ASSETS

Other assets consist of the following:

DECEMBER 31, ------2000 1999 ------$000 $000 Current: Net receivable on Hungary Disposal...... - 3,353 Prepaid program rights and dubbing...... - 509 VAT recoverable...... 419 492 Other...... 4,802 3,813 ======5,221 8,167 ======Long term: Satellite transponder deposits (See Note 11, "Commitments and Contingencies)...... 796 824 Capitalized debt costs...... 3,415 4,379 Other...... 2,817 60 ======7,028 5,263 ======

Capitalized debt costs represent the costs incurred in connection with obtaining debt financing. These costs are amortized over the life of the related debt instrument.

56 7. INCOME TAXES PAYABLE

Provision for income taxes related primarily to the profits of CNTS. Due to the suspension of the CNTS operations and the resulting elimination of revenues, CNTS recorded a net loss for 1999 and 2000.

DECEMBER 31,

2000 1999 1998 ------$000 $000 $000 Current, domestic taxes...... 299 1,743 15,712 Deferred foreign taxes...... (203) (225) 144 ======96 1,518 15,856 ======

At the present time no income, profit, capital or capital gain taxes are levied in Bermuda and, accordingly, no provision for such taxes has been recorded by the Company. In the event that such taxes are levied, the Company has received an undertaking from the Bermuda Government exempting it from all such taxes until March 28, 2016.

DEFERRED INCOME TAX ASSETS DECEMBER 31,

2000 1999 ------$000 $000 ------Tax loss carryforwards...... 175 175 ------

DEFERRED INCOME TAX LIABILITIES DECEMBER 31,

2000 1999 ------$000 $000 Other...... - 37 ======Net deferred tax asset...... 175 138 ======

Net operating losses incurred in 2000, 1999 and 1998 in Romania, Slovakia and Ukraine and net operating losses incurred in 1999 and 1998 in Slovenia are available for offset against taxable income in those countries in the future. Net operating losses experienced in these jurisdictions in certain years may not be fully available for offset against taxable income in the future in those countries.

A valuation allowance has been provided for net operating loss carryforwards in these jurisdictions, as it is more likely than not, for a variety of reasons, including the uncertainties in the tax regimes, that they may not be utilized.

8. INVESTMENTS PAYABLE

DECEMBER 31,

2000 1999 ------$000 $000 Short Term: CNTS...... 5,188 5,188 Payable to SBS (Kanal A Purchase)...... 1,256 - ======6,444 5,188 ======

57 CNTS

On August 11, 1997, the Company made the Second 1997 CNTS Purchase when it purchased Nova Consulting a.s. ("NC") from certain of the partners of CET, for a purchase price of $28,537,000, to be paid on an installment basis through February 15, 2000. Due to the ongoing dispute between CNTS and CET, CME withheld the last two payments, totalling $5,188,000, that were due on August 15, 1999 and February 15, 2000, awaiting the final ruling from the International Chamber of Commerce Court of Arbitration. See Note 17, "Subsequent Events".

Payable to SBS

In connection with the purchase of Kanal A from SBS the Company is obligated to reimburse SBS for the value of Kanal A's net assets and programming inventory at October 11, 2000, the date of purchase. See Note 16, "Kanal A Purchase".

9. LOAN AND OVERDRAFT OBLIGATIONS

Group loan obligations and overdraft facilities consist of the following:

DECEMBER 31, ------2000 1999 ------$000 $000 CME B.V. Ceska Sporitelna Loan...... (a) 8,862 12,874 Tele 59 loan...... (b) 196 348

PRO TV Line of credit...... (c) - 502 Long-term loan...... (d) 1,827 2,838 Overdraft Facility...... (e) 2,477 -

POP TV Long-term loan...... (f) 4,124 4,446 Capital lease, net of interest, and unsecured short-term loans...... 598 516 ------18,084 21,524 Less current maturities...... (10,006) (6,409) ======8,078 15,115 ======

CME B.V.

(a) On August 1, 1996, the Company entered into an agreement for the purchase of the 22% economic interest of Ceska Sporitelna Bank ("CS") and virtually all of CS's voting rights in CNTS for a purchase price of Kc 1 billion ($36,590,000). The Company has also entered into a loan agreement with CS to finance 85% of the purchase price. Quarterly repayments are required in the amount of Kc 42,500,000 during the period from February 2000 through May 2002, and Kc 37,580,000 in August 2002. The loan bears interest at 12.9% per annum. In November 2000 the Company approached CS to seek a restructuring of the loan. The Company and CS have agreed that the Company would receive a principal repayment holiday until November 20, 2001. At that time, CS will review the financial condition of the Company to assess whether another annual principal repayment holiday is required. This agreement is subject to final documentation and approval.

58 (b) The Company entered into a loan agreement on November 21, 1996 with Tele 59 to finance a loan to Tele 59 from SKB banka d.d. ("SKB"). The principal amount of the loan is DM 1,496,000 with principal repayments of DM 136,000 twice yearly. This loan matures in May 2004 and bears interest at 7.8% per annum.

PRO TV

(c) This facility matured in June 2000.

(d) The long-term loan, obtained from Tiriac Bank, has a maximum facility of $4,000,000. This facility matures in December 2002 and bears interest at a rate of 9.12% at December 31, 2000.

(e) The overdraft facility, obtained from Tiriac Bank, has a maximum value of $3,000,000. This overdraft facility matures in October 2001 and bears interest at a rate of 9.44% at December 31, 2000.

POP TV

(f) Multicurrency $5,000,000 loan agreement with Creditanstalt AG. This loan matures in May 2005 and has been drawn down in euros and bears interest at a rate of 3% over the LIBOR rate (7.00% at December 31, 2000) until the loan is equal to or less than $2,000,000 then the interest rate falls to 2% over the respective LIBOR rate. This credit agreement contains certain covenants with which the Company is not in compliance, but for which the Company has received a waiver.

At December 31, 2000, maturities of debt are as follows:

TOTAL

$000 ---- 2001...... 10,006 2002...... 5,085 2003...... 868 2004...... 2,125 ======18,084 ======

Loan notes payable

On August 20, 1997, the Company issued Senior Notes of $100,000,000 at 9.375% and DM 140,000,000 at 8.125%, due 2004 (collectively the "Senior Notes"). The Senior Notes are unsecured senior indebtedness of the Company and rank pari passu with all existing and future unsecured unsubordinated indebtedness of the Company and are effectively subordinated to all existing and future indebtedness of the Company's subsidiaries.

The Senior Notes are redeemable at the option of the Company, in whole or in part, at any time on or after August 15, 2001 at the redemption prices set forth below.

DOLLAR NOTE DM NOTE REDEMPTION REDEMPTION PRICE PRICE ------2001...... 104.68750% 104.06250% 2002...... 102.34375% 102.03125% 2003 and thereafter...... 100.00000% 100.00000%

59 Interest is payable semi-annually in arrears on each February 15 and August 15, commencing February 15, 1998. On October 20, 2000, the Company paid the August 15 installment after an agreement had been reached with a majority of noteholders and due to the payment delay penalty interest was incurred. Interest expense on the US dollar denominated Senior Notes and DM denominated Senior Notes for the year ending December 31, 2000 was $9,455,000 and DM 11,458,000 ($5,536,000), respectively. The Company made the semi-annual interest payment on the Senior Notes which was due on February 15, 2001.

The indentures pursuant to which the Senior Notes were issued contain certain restrictive covenants, which among other things, restrict the ability of the Company and its subsidiaries to: (i) incur additional indebtedness, (ii) pay dividends or make certain other distributions, (iii) make certain investments and other restricted payments, (iv) enter into certain transactions with affiliates, (v) create liens, (vi) sell assets and also create restrictions on the ability of certain of its subsidiaries to make certain payments to the Company. Management believes that, as of December 31, 2000, the Company was in compliance with such restrictive covenants.

10. STOCK OPTION PLAN

The Company adopted the 1995 Stock Option Plan in August 1995 and it was amended and restated in October 1999 ("Revised and Restated 95 Stock Option Plan"). Under the Revised and Restated 95 Stock Option Plan the Compensation Committee is authorized to grant options for up to 400,000 shares of the Company's Class A or Class B Common Stock. The maximum term of the options granted under the Stock Option Plan is ten years. Options granted may be either incentive stock options under the Internal Revenue Code of 1986, as amended (the "Code"), or non-qualified stock options. Under the 1995 Amended Stock Option Plan, non-affiliated directors are automatically granted each year options to purchase 1,250 shares of Class A Common Stock or Class B Common Stock.

Under the Revised and Restated 95 Stock Option Plan the option exercise price is either equal to or greater than the stock's market price on the date of grant. Options granted under the Revised and Restated 95 Stock Option Plan can have vesting periods of up to five years and expire, at the latest, after ten years.

On September 18, 1998, the Company adopted the Stock Appreciation Rights Plan. This plan allows the company to grant up to 125,000 Stock Appreciation Rights (SARs). The SARs are subject to the same vesting and other general conditions as options granted under the Revised and Restated 95 Stock Option Plan. When the SARs are exercised the employees will receive in cash the amount by which the CME stock price exceeds the exercise price at the time of exercise, if any, rather than purchase CME shares. No SARs were granted in the year ended December 31, 2000.

A summary of the status of the Company's two stock option plans at December 31, 2000, 1999 and 1998 and changes during the years 2000, 1999 and 1998 is presented in the table and narrative below. The following table does not include the SARs and no compensation costs were required to be recognized in the current year.

60 2000 1999 1998 ------WTD. WTD. WTD. AVG. AVG. AVG. EXERCISE OPTION EXERCISE OPTION EXERCISE OPTION SHARES PRICE $ PRICE$ SHARES PRICE $ PRICE SHARES PRICE $ PRICE ------Outstanding at start of year...... 309,454 148.66 1.60-268.00 322,692 164.32 1.60-268.00 288,619 162.48 1.60-268.00 Granted..... 173,250 11.88 11.88 61,250 79.05 6.688-104.00 72,500 162.24 91.52-196.48 Exercised... - - - (4,500) 1.60 1.60 (16,719) 92.64 1.60-174.00 Forfeited... (237,705) 125.67 6.69-268.00 (69,988) 169.26 1.60-268.00 (21,708) 188.80 117.00-268.00 ------Outstanding at end of year 244,999 74.24 1.60-268.00 309,454 148.66 1.60-268.00 322,692 164.32 1.60-268.00 ======

At December 31, 2000, 1999 and 1998, 99,516, 283,423 and 205,484 shares were exercisable, respectively.

The Company accounts for these plans under APB No. 25, under which no compensation cost was recognized for stock options granted to employees with an exercise price at or above the prevailing market price on the date of the grant. Had compensation cost for these plans been determined consistent with the fair value approach required by SFAS No. 123, the Company's net loss and net loss per common share would increase to the following pro forma amounts:

YEAR ENDED DECEMBER 31, ------2000 1999 1998 ------$000S $000S $000S

Net Loss from continuing operations As Reported (37,498) (83,076) (43,582) Pro Forma (40,150) (87,779) (51,001) Net Loss from discontinued operations As Reported - (6,794) (81,670) Pro Forma - (6,794) (81,670) Net Loss As Reported (37,498) (89,870) (125,252) Pro Forma (40,150) (94,573) (132,671)

Net Loss Per Common Share from ($) As Reported (11.35) (25.78) (14.45) Continuing operations - basic and diluted Pro Forma (12.15) (27.24) (16.91) Net Loss Per Common Share from ($) As Reported - (2.11) (27.08) Discontinued operations - basic and diluted Pro Forma - (2.11) (27.08) Total net Loss Per Common Share ($) As Reported (11.35) (27.89) (41.53) Basic and Diluted...... Pro Forma (12.15) (29.34) (43.99)

The fair value of each option grant is estimated on the date of the grant using the Black-Scholes option pricing model, with the following assumptions used.

Expected dividends yield are assumed to be 0% for each grant; expected lives range from 4 to 5 years; expected stock price volatility of 178.91%, 110% and 59.14% for 2000, 1999 and 1998, respectively.

AVERAGE DATE OF OPTION GRANT RISK FREE INTEREST RATE ------

From February 27, 1997 to March 8, 2000 5.80%

The effects of applying SFAS No. 123 in this pro forma disclosure may not be indicative of future amounts because SFAS No. 123 does not apply to stock options granted prior to January 1, 1995 and additional stock option grants are anticipated in future years.

61 11. COMMITMENTS AND CONTINGENCIES

Litigation

The Company is, from time to time, a party to litigation that arises in the normal course of its business operations. The Company is not presently a party to any such litigation which could reasonably be expected to have a material adverse effect on its business or operations.

Financial Commitments -- Existing Entities

The Company's existing operations will be self-supporting in terms of funding during 2001, with cash being available through local credit facilities and/or generated from operations.

Satellite Costs

In June 1995 the Company, through CME Programming Services Inc., obtained leasehold rights for a 12 year period to a 33 MHz transponder on the Eutelsat Hot Bird 3 satellite ("Hot Bird 3"), which launched in October 1997. The Company has paid a deposit of $350,000 against this lease. The annual charge for the lease is euro 3,443,000. Provided that the contract does not terminate before the expiration date (September 2009), the deposit is repayable to the Company by deduction from the final two invoices.

In October 1997, the Company, through CME Media Enterprises B.V., obtained leasehold rights for an approximate 12 year period to a 16.5 MHz transponder on the Eutelsat Hot Bird 5 satellite ("Hot Bird 5"), which launched in November 1998.The Company has paid a deposit of euro 475,000 ($446,000). The annual charge for the lease is euro 1,900,000. Provided that the contract does not terminate before the expiration date (October 2010), the deposit is repayable to the Company by deduction from the final three invoices.

Pledged Assets

Enterprise Intermedia, one of the consolidated entities of the Studio 1+1 Group, has pledged fixed assets in the amount of $1,100,000 as security for a bank loan given to Studio 1+1, a non-consolidated entity of the Studio 1+1 Group.

Licenses

The Company has no reason to believe that the licenses for the television license companies will not be renewed. However, no statutory or regulatory presumption exists for the current license holders and there can be no assurance that licenses will be renewed upon expiration of their initial term. The failure of any such license to be renewed could adversely affect the results of the Company's operations. However, to date, licenses have been renewed in the ordinary course of business.

Currency exchange rate fluctuation

The Company and its subsidiaries generate revenues and incur expenses in a variety of currencies. Fluctuations in the value of foreign currencies may cause United States dollar translated amounts to change in comparison with previous periods. Other than as described below under "Foreign Exchange Contracts", the Company has not hedged against fluctuations in foreign currency rates. Due to the number of currencies involved, the constantly changing currency exposures and the fact that all foreign currencies do not fluctuate in the same manner against the United States dollar, the Company cannot anticipate the effect of exchange rate fluctuations on its financial condition.

62 Foreign Exchange Contracts

In limited instances, the Company enters into forward foreign exchange contracts to hedge foreign currency transactions for periods consistent with its identified exposures. At December 31, 2000, there were no foreign exchange contracts outstanding.

Station Programming Rights Agreements

The Company had programming rights commitments for $4,555,000 in respect of future programming which includes contracts signed with license periods starting after December 31, 2000.

Lease Commitments

For the fiscal years ended December 31, 2000, 1999 and 1998, the Company paid aggregate rent on all facilities of $1,178,000, $1,972,000 and $1,937,000, respectively. Future minimum lease payments at December 31, 2000 for non-cancellable operating leases with remaining terms in excess of one year (net of amounts to be recharged to third parties) are payable as follows:

AT DECEMBER 31, 2000

$000S 2001...... 1,164 2002...... 962 2003...... 1,150 2004...... 1,133 2005...... 1,112 2006 and thereafter...... 5,160 ------10,681 ======

12. RELATED PARTY TRANSACTIONS

Related party transactions involve transactions between the Company and its stations, shareholders and partners and transactions between the stations and their shareholders and partners.

CONSOLIDATED BALANCE SHEET ITEMS

AS OF DECEMBER 31, ------2000 1999 ------Advances to Affiliates $000 $000

Amounts due from Unconsolidated Affiliates Markiza TV...... 3,000 6,321

Advances to Affiliates Innova/Studio 1 + 1...... - 8,150 POP TV...... 916 872 PRO TV...... 2,316 1,626 Media Vision...... 90 - Video Vision...... 1,480 - CNTS...... 352 - Adrian Sarbu...... - 2,561 Alexander Rodnyansky...... 1,000 900 Other...... (73) 77 ------Total 9,081 20,507 ======

63 Loans to Affiliates

Amounts due from Unconsolidated Affiliates

Markiza TV...... 2,341 -

Loans to Unconsolidated Affiliates Innova/Studio 1 + 1 ...... 6,077 - Adrian Sarbu...... 1,259 - Intermedia...... 1,302 - Alexander Rodnyansky...... 3,850 4,100 Markiza TV...... 777 777 Other...... - (14) ------Total 15,606 4,863 ======

Advance From Affiliates

Advances From Affiliates Marjan Jurenec...... 13 12 MMTV...... 244 325 Tele 59...... 53 10 Pro TV...... 966 548 Media Vision...... 775 - Video Vision...... 190 - Innova/Studio 1+1...... - 133 ------Total 2,241 1,028 ======

The Company from time to time enters into transactions with entities controlled wholly or in part by Ronald S. Lauder, the non-executive Chairman of the Company's Board of Directors. The Company's management believes that these transactions were on a basis which approximates an arm's-length value.

CONSOLIDATED STATEMENTS OF OPERATIONS ITEMS

YEAR ENDED DECEMBER 31,

2000 1999 1998 ------$000 $000 $000 Corporate Operating Costs and Development Expenses Shareholder controlled affiliates...... 246 386 364

13. SUMMARY FINANCIAL INFORMATION FOR MARKIZA TV

DECEMBER 31, DECEMBER 31, 2000 1999 ------MARKIZA TV MARKIZA TV ------$000S $000S ------Current assets...... 13,206 16,303 Non-current assets...... 10,567 15,864 Current liabilities...... (12,432) (16,354) Non-current liabilities...... (1,121) (835) ------Net assets...... 10,220 14,978 ======

64 FOR THE YEARS ENDED DECEMBER 31, DECEMBER 31, 2000 1999 MARKIZA TV MARKIZA TV $000S $000S ------Net revenues 33,155 32,217 Operating loss (1,273) (2,767) Net loss (3,154) (7,613)

The Company's share of the income/(losses) in Unconsolidated Affiliates (after inter-company eliminations) for 2000 was $(1,773,000) for Markiza TV and $1,259,000 for certain entities of the Studio 1+1 Group.

14. SEGMENT DATA

The Company manages its business segments primarily on a geographic basis. The Company's reportable segments are comprised of PRO TV (Romania), Markiza TV (Slovakia), POP TV and Kanal A (Slovenia), the Studio 1+1 Group (Ukraine) and CNTS (Czech Republic). Each operating segment provides products and services as further described below.

The Company evaluates the performance of its segments based on segment EBITDA (earnings before interest, taxes, depreciation and amortization). Costs for programming amortization are included in segment EBITDA. Costs excluded from segment EBITDA primarily consist of interest and foreign exchange gains and losses, corporate expenses and goodwill amortization and equity in losses of unconsolidated affiliates and other non-recurring charges for impairment of investments or discontinued operations. The assets and liabilities of the Company are managed centrally and are reported internally in the same manner as the consolidated financial statements, thus no additional information is provided. Summary information by segment as of and for the years ended December 31, 2000, 1999 and 1998 is as follows:

SEGMENT FINANCIAL INFORMATION

FOR THE YEARS ENDED DECEMBER 31, ------($000S) ------NET REVENUES EBITDA ------STATION 2000 1999 1998 2000 1999 1998 ------

PRO TV ...... 39,591 40,627 41,937 1,564 (2,987) (1,916) POP TV ...... 21,651 23,347 22,122 4,954 4,655 (709) Kanal A...... 2,517 - - 1,070 - - Studio 1+1...... (1) 9,795 11,976 - (1,369) (2,922) - CNTS...... (2) 3,257 53,363 108,826 (1,933) (13,038) 54,886 Other Operations...... 2 10 1,406 (29) (21) (514) ------Total Consolidated Operations 76,813 129,323 174,291 4,257 (14,313) 51,747

Studio 1+1 Group...... - - 23,598 - - (1,947) Markiza TV...... 33,155 32,217 37,793 4,368 2,739 2,583 ------Total Unconsolidated Operations 33,155 32,217 61,391 4,368 2,739 636 ------Total Operations...... 109,968 161,540 235,682 8,625 (11,574) 52,383 ======

65 RECONCILIATION TO CONSOLIDATED STATEMENTS OF OPERATIONS:

CONSOLIDATED OPERATIONS $4,257 $ (14,313) $ 51,747

Intercompany elimination - - 636 Station depreciation (24,654) (21,667) (16,178) Corporate expenses (13,087) (67,844) (35,828)

OPERATING (LOSS)/INCOME FROM CONTINUING OPERATIONS: $(33,484) $(103,824) $377

(1) Studio 1+1 Group was consolidated effective December 23, 1998. Amounts shown in the table above for Net Revenues for the year ended December 31, 2000 and 1999 differ by $7,369,000 and $2,525,000, respectively and amounts shown in the table above for EBITDA for the year ended December 31, 2000 and 1999 differ by $2,144,000 and $(5,521,000), respectively, from similar information shown in Selected Combined Financial Information in Part II, Item 7. These differences relate to the use of consolidated numbers in the table above and combined numbers (which includes Studio 1+1 entities which are accounted for under the equity method) in Item 7.

(2) CNTS ceased broadcast operations during 1999. See Part I, Item 1 "Status of Nova Dispute" for a further discussion on Nova TV and the on-going dispute between CNTS and CET.

15. SALE OF INVESTMENT IN ITI NOTE

On February 21, 2000, the Company and SBS entered into an option agreement with respect to the ITI Note (the "ITI Note Option Agreement"). The ITI Note was acquired by the Company in connection with the sale of its interest in the TVN television operations in Poland to International Trading and Investments Holding S.A. ("ITI") in December 1998. The ITI Note is in the principal amount of $40,000,000, bears interest at a rate of 5% per annum, matures on December 10, 2001 and was originally recorded by the Company at its present value of approximately $20,000,000. On June 29, 2000, SBS exercised its call option on the ITI Note for $37,250,000 plus accrued interest. This resulted in a gain of $17,186,000.

16. KANAL A PURCHASE

On October 11, 2000, the Company completed a transaction through which the Company acquired control over the economics and the programming of Kanal A, for $12,500,000 plus the value of the net current assets and net programming assets of Kanal A, which are subject to final determination. Kanal A is the second leading commercial television broadcaster in Slovenia. As a result of the transaction, 90% of the Kanal A shares are being held by Superplus Holding d.d. ("Superplus") which is owned by individuals who are holding the share of Superplus in trust for the Company until the Slovene media law is clarified or until the Company determines final ownership. This resulted in goodwill of $14,051,000 which is to be written off over nine and a half years, being the length of the primary license.

Supplemental pro forma information showing the results for the Company as if Kanal A had been consolidated as of the beginning of 2000 are as follows:

66 CME as reported Kanal A Acquisition CME including Year Ended January 1- Adjustments Kanal A for December 31, 2000 October 10, 2000 full Year 2000 ------$000's $000's $000's $000's ------NET REVENUE 76,813 5,399 - 82,212

INCOME BEFORE EXTRAORDINARY ITEMS (37,498) (6,929) (152) (44,579)

NET INCOME (37,498) (6,929) (152) (44,579)

LOSS PER SHARE (ACTUAL) (11.35) (2.10) (0.04) (13.49)

Kanal A's results for the year 1999 were not material.

17. SUBSEQUENT EVENTS

International Chamber of Commerce Court of Arbitration Award

On February 9, 2001, the ICC Arbitration Tribunal issued a final award, finding that Dr. Zelezny had breached the share purchase agreement through his actions in relation to AQS and that the share purchase agreement was a valid and enforceable contract. In light of those holdings, the Tribunal ordered Dr. Zelezny to immediately refund to the Company the $23,350,000 it had paid him pursuant to the share purchase agreement, plus interest (a total of approximately $27,100,000, accruing further interest at approximately $3,200 per day) and costs of $250,000. The Tribunal ordered the Company to return the Nova Consulting shares to Dr. Zelezny, but only after receipt of the money owed by Dr. Zelezny. The Tribunal also rejected Dr. Zelezny's claim for the balance of the purchase price. Dr. Zelezny has not yet complied with the award. The Company is taking all steps possible to enforce the award and will continue to do so until the award is satisfied. There can be no assurance that the Company will be able to collect all or any significant part of the award of $27,100,000 plus the accrued interest.

Czech Tax Issue

CNTS has been the subject of a VAT inspection by the Czech Republic tax authorities for the years 1997 and 1998. As a result of this inspection the Czech tax authorities had levied an assessment seeking VAT payments of Kc232,777,000 ($6,156,000). The Czech authorities asserted that CNTS was providing certain services to CET and that these services should have been subject to VAT. On February 28, 2001, CNTS received notification from the Czech Republic tax authorities that all tax investigations and assessments had been cancelled.

The Czech tax authorities had previously frozen CNTS' 1998 and 1999 income tax prepayments in the amount of Kc281,790,000 ($7,452,000). These income tax prepayments were returned to CNTS on February 20, 2001.

Video International Agreement

An agreement has been signed to transfer UAH's 50% interest in Prioritet to Video International ("VI"), a Russian based company. This transfer forms part of an overall agreement signed with VI on March 14, 2001, for VI to sell advertising for Studio 1+1 on an exclusive basis up until the end of the broadcasting license in 2006.

67 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by Item 10 is incorporated herein by reference to the section entitled "Election of Directors and Executive Officers" in the Company's Proxy Statement for the 2001 Annual General Meeting of Shareholders.

ITEM 11. EXECUTIVE COMPENSATION

The information required by Item 11 is incorporated herein by reference to the sections entitled "Executive Compensation," "Compensation Committee Report on Executive Compensation" and "Performance Graph" in the Company's Proxy Statement for the 2001 Annual General Meeting of Shareholders.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by Item 12 is incorporated herein by reference to the section entitled "Security Ownership of Certain Beneficial Owners and Management" in the Company's Proxy Statement for the 2001 Annual General Meeting of Shareholders.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by Item 13 is incorporated herein by reference to the section entitled "Certain Relationships and Related Transactions" in the Company's Proxy Statement for the 2001 Annual General Meeting of Shareholders.

68 PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)(1) The following Financial Statements of the Company are included in Part II, Item 8 of this Report:

Report of Independent Public Accountants

Consolidated Balance Sheets as of December 31, 2000 and 1999

Consolidated Statements of Operations for the years ended December 31, 2000, 1999 and 1998

Consolidated Statements of Shareholders' Equity (Deficit) for the years ended December 31, 2000, 1999 and 1998

Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998

Notes to Consolidated Financial Statements

(a)(2) Financial Statement Schedules (included at pages S-1 to S-3 of this Form 10-K (a)(3) The following exhibits are included in this report:

69 EXHIBIT INDEX

EXHIBIT NUMBER DESCRIPTION ------3.01* -- Memorandum of Association (incorporated by reference to Exhibit 3.01 to the Company's Registration Statement No. 33-80344 on Form S-1, filed June 17, 1994).

3.02 -- Bye-Laws of Central European Media Enterprises Ltd., as amended, dated as of May 25, 2000.

3.03* -- Memorandum of Increase of Share Capital (incorporated by reference to Exhibit 3.03 to Amendment No. 1 to the Company's Registration Statement No. 33-80344 on Form S-1, filed August 19, 1994).

3.04* -- Memorandum of Reduction of Share Capital (incorporated by reference to Exhibit 3.04 to Amendment No. 2 to the Company's Registration Statement No. 33-80344 on Form S-1, filed September 14, 1994).

3.05* -- Certificate of Deposit of Memorandum of Increase of Share Capital executed by Registrar of Companies on May 20, 1997 (incorporated by reference to Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1997).

4.01* -- Specimen Class A Common Stock Certificate (incorporated by reference to Exhibit 4.01 to Amendment No. 1 to the Company's Registration Statement No. 33-80344 on Form S-1, filed August 19, 1994).

4.02* -- Specimen Note for 9 3/8% Senior Notes Due 2004 (incorporated by reference to Exhibit 4.1 to the Company's Amendment No. 3 to Form S-3 filed on August 14, 1997)

4.03* -- Specimen Note for 8 1/8% Senior Notes Due 2004 (incorporated by reference to Exhibit 4.1 to the Company's Amendment No. 3 to Form S-3 filed on August 14, 1997)

4.04* -- Form of Indenture for 9 3/8% Senior Notes Due 2004 (incorporated by reference to Exhibit 4.2 to the Company's Amendment No. 3 to Form S-3 filed on August 14, 1997)

4.05* -- Form of Indenture for 8 1/8% Senior Notes Due 2004 (incorporated by reference to Exhibit 4.2 to the Company's Amendment No. 3 to Form S-3 filed on August 14, 1997)

10.01+*-- Central European Media Enterprises Ltd. 1995 Stock Option Plan, as amended and restated to September 3, 1998 (incorporated by reference to Exhibit 10.02 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1998)

10.02* -- Memorandum of Association and Investment Agreement by and between CME Czech Republic B.V. and CET 21 spol s.r.o dated May 4, 1993 and as amended (incorporated by reference to Exhibit 10.02 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1998)

70 10.03* -- Credit Agreement between Ceska Sporitelna, a.s. and Ceska Nezavisla Televizni Spolecnost, s.r.o. (incorporated by reference to Exhibit 10.16 to Amendment No. 1 to the Company's Registration Statement No. 33-80344 on Form S-1, filed August 19, 1994).

10.04* -- Partnership Agreement of Produkcija Plus d.o.o. Ljubljana, dated February 10, 1995 among CME Media Enterprises B.V., Boutique MMTV d.o.o. Ljubljana, and Tele 59 d.o.o. Maribor. (incorporated by reference to Exhibit 10.20 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994).

10.05* -- Letter Agreement, dated March 23, 1995, among, Kanal A, Boutique MMTV d.o.o. Ljubljana, Tele 59 d.o.o. Maribor, Euro 3 and Baring Communications Equity as advisor to Baring Communications Equity Limited, regarding Produkcija Plus d.o.o. (incorporated by reference to Exhibit 10.21 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994).

10.06*-- Credit Agreement, dated as of November 14, 1994, between Ceska Sportelma, a.s. and Ceska Nezavisla Televizni Spolecnost, s.r.o. (incorporated by reference to Exhibit 10.22 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994).

10.07*-- Contract for Space Segment Service dated June 9, 1995, between British Telecommunications plc ('BT') and CME Programming Services, Inc. for the provision of programming transmission services by BT and the payment thereon (incorporated by reference to Exhibit 10.25A to the Company's Report on Form 10-Q for the quarterly period ended June 30, 1995).

10.07A*-- Guarantee by Central European Media Enterprises Ltd. in respect of obligations due to British Telecommunications plc by CME Programming Services, Inc. dated June 9, 1995 (incorporated by reference to Exhibit 10.25B to the Company's Report on Form 10-Q for the quarterly period ended June 30, 1995).

10.08*-- Cooperation Agreement among CME Media Enterprises B.V., Ion Tiriac and Adrian Sarbu (incorporated by reference to Exhibit 10.27 to the Company's Registration Statement No.33- 96900 on Form S-1 filed September 13, 1995).

10.09*-- Preliminary Agreement, dated June 12, 1995, between CME Media Enterprises B.V. and Markiza-Slovakia s.r.o. (incorporated by reference to Exhibit 10.28 to the Company's Registration Statement No. 33-96900 on Form S-1, filed September 13, 1995).

10.09A*-- Memorandum of Association between CME Media Enterprises, B.V. and Markiza-Slovakia s.r.o. (incorporated by reference to Exhibit 10.28A to Amendment No. 1 to the Company's Registration Statement No. 33-96900 on Form S-1, filed October 18, 1995).

10.09B*-- Articles of Association of Slovenska Televizna Spolocnost, s.r.o. founded by CME Media Enterprises, B.V. and Markiza-Slovakia s.r.o. (incorporated by

71 reference to Exhibit 10.28B to Amendment No. 1 to the Company's Registration Statement No. 33-96900 on Form S-1, filed October 18, 1995).

10.10*-- Contract of Sale, dated July 7, 1995 between In Razvoj in Svetovanje d.o.o. Ljubljana and Produkcija Plus d.o.o. Ljubljana and Central European Media Enterprises Group (incorporated by reference to Exhibit 10.29 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995).

10.11*-- Loan Agreement, dated December 4, 1995, between CME Media Enterprises, B.V., and Inter Media S.R.L. (incorporated by reference to Exhibit 10.30 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995).

10.12*-- Transfer Agreement between Ceska Sporitelna and CME BV (incorporated by reference to Exhibit 10.03 to the Company's Report on Form 10-Q for the quarterly period ended June 30, 1996).

10.12A*-- Annex to Transfer Agreement between Ceska Sporitelna and CME BV (incorporated by reference to Exhibit 10.04 to the Company's Report on Form 10-Q for the quarterly period ended June 30, 1996).

10.13*-- Loan Agreement between Ceska Sporitelna and CME BV (incorporated by reference to Exhibit 10.05 to the Company's Report on Form 10-Q for the quarterly period ended June 30, 1996).

10.14*-- Agreement on a Future Agreement between Ceska Sporitelna and CME BV (incorporated by reference to Exhibit 10.06 to the Company's Report on Form 10-Q for the quarterly period ended June 30, 1996).

10.15*-- Loan Agreement between Vladimir Zelezny and CME dated August 1, 1996 (incorporated by reference to Exhibit 10.01 to the Company's Report on Form 10-Q for the quarterly period ended September 30, 1996).

10.15A*-- Amendment to the Loan Agreement of August 1, 1996 and agreements referred to as Security Documents between Vladimir Zelezny and CME, dated as of March 11, 1997 (incorporated by reference to Exhibit 10.38A to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996).

10.16*-- Ronald S. Lauder Warrant for the Purchase of Shares, dated October 2, 1996 (incorporated by reference to Exhibit 10.03 to the Company's Report on Form 10-Q for the quarterly period ended September 30, 1996).

10.17*-- Agreement between CME, Boris Fuchsmann, Alexander Rodniansky and Innova Film GmbH in English, dated October 25, 1996 (incorporated by reference to Exhibit 10.10 to the Company's Report on Form 10-Q for the quarterly period ended September 30, 1996).

10.18*-- Agreement between CME, Boris Fuchsmann, Alexander Rodniansky and Innova Film GmbH in German, dated October 25, 1996 (incorporated by reference to Exhibit 10.11 to the Company's Report on Form 10-Q for the quarterly period ended September 30, 1996).

72 10.19*-- Poland Street Lease Agreement, dated April 2, 1996 (incorporated by reference to Exhibit 10.18 to the Company's Report on Form 10-Q for the quarterly period ended September 30, 1996).

10.20*-- Share Purchase Agreement between Ceska Sporitelna a.s. and CME Media Enterprises B.V., dated December 12, 1996 (incorporated by reference to Exhibit 10.58 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996).

10.21*-- Agreement on Assignment of Claim between Ceska Sporitelna, a.s. and CME Media Enterprises B.V., dated December 12, 1996 (incorporated by reference to Exhibit 10.59 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996).

10.22*-- Assignment of Shares Agreement between Balaclava B.V., Adrian Sarbu (as shareholders of PRO TV Ltd.), CME Media Enterprises B.V., Grigoruta Roxana Dorina and Petrovici Liana, dated December 6, 1996 (incorporated by reference to Exhibit 10.60 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996).

10.23*-- Net Reimbursement Agreement by and among International Teleservices Limited, International Media Services, Limited and Limited Liability Company 'Prioritet', dated February 13, 1997 (incorporated by reference to Exhibit 10.64 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996).

10.24*-- Agreement by and between International Media Services Ltd and Innova Film GmbH, dated January 23, 1997 (incorporated by reference to Exhibit 10.65 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996).

10.25*-- Amended and Restated Charter of the Enterprise 'Inter-Media', dated January 23, 1997 (incorporated by reference to Exhibit 10.66 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996).

10.26*-- Amended and Restated Charter of the Broadcasting Company 'Studio 1+1', dated January 23, 1997 (incorporated by reference to Exhibit 10.67 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996).

10.27*-- Amended and Restated Foundation Agreement on the Establishment and Operation of the Broadcasting Company 'Studio 1+1,' dated January 23, 1997 (incorporated by reference to Exhibit 10.68 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996).

10.28*-- Protocol of the Participants' Assembly of the Broadcasting Company 'Studio 1+1,' dated January 23, 1997 (incorporated by reference to Exhibit 10.69 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996).

10.29*-- Marketing, Advertising and Sales Agreement by and between International Media Services Ltd and Innova Film GmbH, dated January 23, 1997

73 (incorporated by reference to Exhibit 10.70 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996).

10.29A*-- Amendment Agreement to Marketing, Advertising and Sales Agreement

between Innova Film GmbH and International Media Services Limited, dated May 7, 1997 (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1997).

10.30*-- Marketing and Sales Agreement by and between International Media Services Ltd. and Prioritet, dated January 23, 1997 (incorporated by reference to Exhibit 10.71 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996).

10.30A*-- Termination Agreement between International Media Services Ltd. and Prioritet, dated May 7, 1997 (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1997).

10.31*-- IMS Advertising Service Agreement between International Media Services Ltd. and Limited Liability Company --Prioritet--, dated May 7, 1997 (incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1997).

10.32*-- Advertising Consultancy Agreement between Intermedia and Limited Liability Company --Prioritet--, dated May 7, 1997 (incorporated by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1997).

10.33*-- Contract on Purchase of Real Estate between Central European Development Corporation Praha, spol s.r.o. and Ceska Nezavisla Televizni Spolecnost, spol. s.r.o., dated May 21, 1997 (incorporated by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1997).

10.34+*-- Employment Agreement between CME Development Corporation and Fred Klinkhammer, dated as of January 1, 1998 (incorporated by reference to Exhibit 10.72 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997).

10.34A+*--Amendment No. 1 to Employment Agreement between CME Development Corporation and Fred Klinkhammer, dated as of March 23, 1999 (incorporated by reference to Exhibit 10.02 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1998).

10.35+*-- Employment Agreement between Central European Media Enterprises Ltd. and Fred Klinkhammer, dated as of January 1, 1998 (incorporated by reference to Exhibit 10.72 to the Company's Annual Report on Form 10- K for the fiscal year ended December 31, 1997).

10.35A+*--Amendment No. 1 to Employment Agreement between Central European Media Enterprises Ltd. and Fred Klinkhammer, dated as of March 23, 1999 (incorporated by reference to Exhibit 10.02 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1998).

74 10.36*-- Sale and Purchase Agreement, dated December 10, 1998, between Central European Media Enterprise Ltd. and International Trading and Investments Holding S.A. (incorporated by reference to Exhibit 2.1 to Form 8-K filed on December 28, 1998)

10.37+*-- Central European Media Enterprises Ltd. Stock Appreciation Rights Plan, effective as of September 3, 1998 (incorporated by reference to Exhibit 10.02 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1998).

10.38+*-- Central European Media Enterprises Ltd. Director, Officer and Senior

Executive Co-Investment Plan, effective as of June 5, 1998 (incorporated by reference to Exhibit 10.02 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1998).

10.39*-- Contract on cooperation in ensuring service for television broadcasting between Ceska Nezavisla Televizni Spolecnost, spol. s.r.o. and CET 21, spol. s.r.o. dated May 21, 1997 and Supplement dated May 21, 1997 (incorporated by reference to Exhibit 10.02 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1998).

10.40*-- Employment Agreement between Central European Media Enterprises Ltd. and John Schwallie dated August 1, 1999 (incorporated by reference to Exhibit 10.02 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999)

10.41*-- Employment Agreement between CME Development Corporation and John Schwallie dated August 1, 1999 (incorporated by reference to Exhibit 10.02 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999)

10.42*-- Share Purchase Agreement between SBS Magyarorszagi Befektetesi Kft and CME Hungary B.V. dated February 21, 2000 (incorporated by reference to Exhibit 10.02 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999)

10.43*-- Quota Purchase Agreement between SBS Magyarorszagi Befektetesi Kft and CME Hungary B.V. dated February 21, 2000 (incorporated by reference to Exhibit 10.02 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999)

10.44* -- Option Agreement between SBS Broadcasting S.A. and Central European Media Enterprises Ltd. dated February 21, 2000 (incorporated by reference to Exhibit 10.02 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999)

10.45+-- Employment Agreement between Central European Media Enterprises Ltd. and Mark J. L. Wyllie dated July 26, 2000

75 10.46 -- Aldwych House Lease Agreement, dated September 29, 2000

10.47x-- Advertising Sales Agency Agreement between Studio 1+1 and Servland Continental S.A. dated March 14, 2001

21.01 -- List of subsidiaries.

23.01 -- Consent of Arthur Andersen

24.01 -- Power of Attorney, dated as of March 9, 2001, authorizing Fred T. Klinkhammer and Mark J. L. Wyllie as attorney for Ronald S. Lauder, Fred T. Klinkhammer, Jacob Z. Schuster, Marie-Monique Steckel, Nicolas G. Trollope, Alfred W. Langer and Mark J. L. Wyllie.

* -- Previously filed exhibits + -- Exhibit is a management contract or compensatory plan x -- Confidential Treatment has been requested with respect to certain information contained in this Exhibit

(b)-- Current Reports on Form 8-K: None

(c)-- Exhibits: See (a)(3) above for a listing of the exhibits included as part of this report.

(d)-- Report of Independent Public Accountants on Schedule II -- Schedule of Valuation Allowances. (See pages S-1 to S-3 of this Form 10-K)

76 SIGNATURES

PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.

Central European Media Enterprises Ltd.

By: /s/ Mark J. L. Wyllie ------Mark J. L. Wyllie Vice President - Finance

March 15, 2001

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.

Signature Title Date ------* ------Ronald S. Lauder Chairman of the Board of Directors March 15, 2001

/s/ Frederic T. Klinkhammer ------Frederic T. Klinkhammer President, Chief Executive Officer and March 15, 2001 Director (Principal Executive Officer)

/s/ Mark J. L. Wyllie ------Mark J. L. Wyllie Vice President - Finance March 15, 2001 (Principal Financial Officer and Principal Accounting Officer) * ------Nicolas G. Trollope Vice President, Secretary and Director March 15, 2001

* ------Jacob Z. Schuster Director March 15, 2001

* ------Marie-Monique Steckel Director March 15, 2001

* ------Alfred W. Langer Director March 15, 2001

* By: /s/ Mark J. L. Wyllie ------Mark J. L. Wyllie Attorney-in-fact

INDEX TO SCHEDULES

Report of Independent Public Accountants on Schedule:...... S-2 Schedule II: Schedule of Valuation Allowances...... S-3

S-1 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE

To: Central European Media Enterprises Ltd.:

We have audited, in accordance with auditing standards generally accepted in the United States, the financial statements of Central European Media Enterprises Ltd. included in this filing and have issued our report thereon dated March 15, 2001. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in the accompanying index is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in our audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole.

Arthur Andersen

Hamilton, Bermuda March 15, 2001

S-2 SCHEDULE II

SCHEDULE OF VALUATION ALLOWANCES $000S

BALANCE AT CHARGED TO CHARGED TO BALANCE AT JANUARY 1, COSTS AND OTHER DECEMBER 2000 EXPENSES ACCOUNTS DEDUCTIONS 31, 2000 ------Bad debt provision (1)...... 3,221 419 (47) (53) 3,540 Development costs...... 3,754 ------3,754

BALANCE AT CHARGED TO CHARGED TO BALANCE AT JANUARY 1, COSTS AND OTHER DECEMBER 1999 EXPENSES ACCOUNTS DEDUCTIONS 31, 1999 ------Bad debt provision...... 3,193 367 (33) (930) 2,597 Development costs...... 3,487 267 -- -- 3,754 Restructuring costs...... 510 -- -- (510) --

BALANCE AT CHARGED TO CHARGED TO BALANCE AT JANUARY 1, COSTS AND OTHER DECEMBER 1998 EXPENSES ACCOUNTS DEDUCTIONS 31, 1998 ------Bad debt provision...... 3,494 (194) (500) 393 3,193 Development costs...... 3,213 274 -- -- 3,487 Restructuring costs...... -- 2,552 -- (2,042) 510

(1) This includes $624 of bad debt provision that was recorded on Kanal A's books on the acquisition date of October 11, 2000.

S-3 BYE-LAWS

OF

CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.

(first adopted pursuant to a written resolution of the sole member passed on 12th July, 1994 and amended at annual general meetings of 2nd May, 1997, 14th December, 1999 and 25th May, 2000).

I N D E X SUBJECT BYE-LAW NO.

Interpretation 1-2 Share Capital 3 Alteration Of Capital 4-7 Share Rights 8-9A Variation Of Rights 10-11 Shares 12-15 Shares Certificates 16-21 Lien 22-24 Calls On Shares 25-33 Forfeiture Of Shares 34-42 Register Of Members 43-44 Record Dates 45 Transfer Of Shares 46-51 Transmission Of Shares 52-54 Untraceable Members 55 General Meetings 56-58 Notice Of General Meetings 59-60 Proceedings At General Meetings 61-65 Voting 66-77 Proxies 78-83 Corporations Acting By Representatives 84 Written Resolutions Of Members 85 Board Of Directors 86 Retirement Of Directors 87-88 Disqualification Of Directors 89 Executive Directors and Committee 90-91A Alternate Directors 92-95 Directors' Fees And Expenses 96-99 Directors' and Officers' Interests 100-103 General Powers Of The Directors 104-109 Borrowing Powers 110-113

Proceedings Of The Directors 114-123 Managers 124-126 Officers 127-131 Register of Directors and Officers 132 Minutes 133 Seal 134 Authentication Of Documents 135 Destruction Of Documents 136 Dividends And Other Payments 137-146 Reserves 147 Capitalisation 148-149 Subscription Rights Reserve 150 Accounting Records 151-153 Audit 154-159 Notices 160-162 Signatures 163 Winding Up 164-165 Indemnity 166 Alteration Of Bye-laws And Amendment To Memorandum of Association 167 Information 168

1. In these Bye-laws, unless the context otherwise requires, the words standing in the first column of the following table shall bear the meaning set opposite them respectively in the second column.

WORD MEANING

"Act" The Companies Act 1981 of Bermuda, as amended from time to time.

"Auditor" the auditor of the Company for the time being and may include any individual or partnership.

"Bye-laws" these Bye-laws in their present form or as supplemented or amended or substituted from time to time.

"Board" or the Board of Directors of the Company or "Directors" the Directors present at a meeting of Directors at which a quorum is present.

"capital" the share capital from time to time of the Company.

"clear days" in relation to the period of a notice that period excluding the day when the notice is given or deemed to be given and the day for which it is given or on which it is to take effect.

"clearing house" a clearing house recognised by the laws of the jurisdiction in which the shares of the Company are listed or quoted on a stock exchange in such jurisdiction.

"Company" Central European Media Enterprises Ltd.

"competent" a competent regulatory authority in the regulatory territory where the shares of the Company authority" are listed or quoted on a stock exchange in such territory.

"debenture" and include debenture stock and debenture "debenture holder" stockholder respectively.

"Designated Stock a stock exchange which is an appointed stock Exchange" exchange for the purposes of the Act in respect of which the shares of the Company are listed or quoted and where such appointed stock exchange deems such listing or quotation to be the primary listing or quotation of the shares of the Company.

"dollars" and "$" dollars, the legal currency of the United States of America.

"head office" such office of the Company as the Directors may from time to time determine to be the principal office of the Company.

-2- "Immediate Family" with respect to any individual, such individual's spouse, descendants (natural or adoptive), grandparents, parents, siblings of the whole or half blood.

"Member" a duly registered holder from time to time of the shares in the capital of the Company.

"month" a calendar month.

"Notice" written notice unless otherwise specifically stated and as further defined in these Bye-laws.

"Office" the registered office of the Company for the time being.

"paid up" paid up or credited as paid up.

"Register" the principal register and where applicable, any branch register of Members of the Company to be kept pursuant to the provisions of the Act.

"Registration in respect of any class of share capital such Office place as the Board may from time to time determine to keep a branch register of Members in respect of that class of share capital and where (except in cases where the Board otherwise directs) the transfers or other documents of title for such class of share capital are to be lodged for registration and are to be registered.

"Seal" common seal or any one or more duplicate seals of the Company (including a securities seal) for use in Bermuda or in any place outside Bermuda.

"Secretary" any person firm or corporation appointed by the Board to perform any of the duties of secretary of the Company and includes any assistant, deputy, temporary or acting secretary.

"Statutes" the Act and every other act of the Legislature of Bermuda for the time being in force applying to or affecting the Company, its memorandum of association and/or these Bye-laws.

"year" a calendar year.

2. In these Bye-laws, unless there be something within the subject or context inconsistent with such construction:

(a) words importing the singular include the plural and vice versa;

(b) words importing a gender include every gender;

(c) words importing persons include companies, associations and bodies of persons whether corporate or not;

-3- (d) the words:

(i) "may" shall be construed as permissive;

(ii) "shall" or "will" shall be construed as imperative;

(e) expressions referring to writing shall, unless the contrary intention appears, be construed as including printing, lithography, photography and other modes of representing words or figures in a visible form;

(f) references to any act, ordinance, statute or statutory provision shall be interpreted as relating to any statutory modification or re-enactment thereof for the time being in force;

(g) save as aforesaid words and expressions defined in the Statutes shall bear the same meanings in these Bye-laws if not inconsistent with the subject in the context;

(h) a resolution shall be a special resolution when it has been passed by a majority of not less than three-fourths of votes cast by such Members as, being entitled so to do, vote in person or, in the case of such Members as are corporations, by their respective duly authorised representative or, where proxies are allowed, by proxy at a general meeting of which not less than twenty-one (21) clear days' notice, specifying (without prejudice to the power contained in these Bye-laws to amend the same) the intention to propose the resolution as a special resolution, has been duly given. Provided that, except in the case of an annual general meeting, if it is so agreed by a majority in number of the Members having the right to attend and vote at any such meeting, being a majority together holding not less than ninety-five (95) per cent. in nominal value of the shares giving that right, a resolution may be proposed and passed as a special resolution at a meeting of which less than twenty-one (21) clear days' Notice has been given;

(i) a resolution shall be an ordinary resolution when it has been passed by a simple majority of votes cast by such Members as, being entitled so to do, vote in person or, in the case of any Member being a corporation, by its duly authorised representative or, where proxies are allowed, by proxy at a general meeting of which not less than fourteen (14) clear days' Notice has been duly given;

(j) a special resolution shall be effective for any purpose for which an ordinary resolution is expressed to be required under any provision of these Bye-laws or the Statutes.

SHARE CAPITAL

3. (1) The capital of the Company shall be divided into three classes of shares, namely:

(a) 100,000,000 Shares of Class A Common Stock, par value $0.08 per share ("Class A Shares");

(b) 15,000,000 Shares of Class B Common Stock, par value $0.08 per share ("Class B Shares"); and

-4- (c) 5,000,000 Shares of Preferred Stock, par value $0.08 per share ("Preferred Shares").

The Class A shares and the Class B Shares are together referred to as the "Common Shares".

(2) The holders of Class A Shares shall, subject to the provisions of these Bye-laws:

(a) be entitled to one vote per Class A Share;

(b) be entitled to such dividends as the directors may from time to time declare on Class A Shares pari passu with the holders of Class B Shares; and

(c) in the event of a winding-up or dissolution of the Company, whether voluntary or involuntary or for a reorganisation or otherwise or upon a distribution of capital, be entitled, after the satisfaction of the rights of the holders of Preferred Shares, to all the surplus assets of the Company pari passu with the holders of Class B Shares.

(3) The holders of Class B Shares shall, subject to the provisions of these Bye-laws:

(a) be entitled to ten votes per Class B Share;

(b) be entitled to such dividends as the directors may from time to time declare on Class B Shares, pari passu with the holders of Class A Shares; and

(c) in the event of a winding up or dissolution of the Company, whether voluntary or involuntary or for a re-organisation or otherwise or upon a distribution of capital, be entitled, after the satisfaction of the rights of the holders of Preferred Shares, to all the surplus assets of the Company pari passu with the holders of Class A Shares.

(4) The Class B Shares shall be convertible into Class A Shares on a one for one basis at the option of the holder thereof. All of the issued and outstanding Class B Shares shall automatically convert into Class A Shares on a one for one basis when the number of issued and outstanding Class B Shares is less that ten per cent (10%) of the issued and outstanding Common Shares.

(5) Class B Shares may only be transferred to the following (each a "Permitted Transferee"): (i) to other holders of Class B Shares who were holders of Class B shares prior to the consummation of the Company's public offering of Class A Shares, (ii) in the case where the holder of Class B Shares is an individual, to his or her Immediate Family by gift, devise or otherwise through laws of descent or distribution, to a trust established by holders of Class B Shares the beneficiaries of which are one or more of his or her Immediate Family, to a corporation or other entity the majority of beneficial owners of which are or will be owned by holders of Class B Shares, (iii) in the case where the holder of Class B Shares is a corporation, to its shareholders, (iv) in the case where the holder of Class B Shares is a partnership to its partners, and (v) to any person who would be a Permitted Transferee through a series of permitted transfers. Any other transfer of Class B Shares is void. However, nothing in this Bye-law prevents a holder of Class B Shares from converting his Class B

-5- Shares into Class A Shares as permitted by the Bye-laws and transferring such Class A Shares as permitted by law.

(6) The transfer of more than fifty percent (50%) of the equity interest in a corporation or partnership which is a holder of Class B Shares to other than a Permitted Transferee shall cause all of the Class B Shares held by such corporation or partnership to automatically convert into Class A Shares on a one for one basis. The Company shall be entitled to seek specific enforcement of the conversion in the event the holder of the Class B Shares fails to comply with the requirements to effect such conversion, and shall be entitled to recover from the holder the court costs, reasonable attorneys' fees and other cost and expenses incurred by the Company in connection with obtaining such specific enforcement.

(7) The Preferred Shares may be issued, subject to the Act, the Company's memorandum of association and these Bye-laws as from time to time amended, from time to time in one or more series of any number of shares, and with distinctive serial designations, all as shall hereafter be stated and expressed in the resolution or resolutions providing for the issuance of such Preferred Shares from time to time adopted by the Board of Directors pursuant to authority so to do which is hereby vested in the Board of Directors. Subject to the Act, the Company's memorandum of association and these Bye-laws, each series of Preferred Shares (a) may have such voting powers, (b) may be subject to redemption at such time or times, price or prices, or rate or rates, and with such adjustments, (c) may be entitled to receive dividends (which may be cumulative or noncumulative) at such rates, on such conditions, and at such times, and payable in preference to, or in such relation to, the dividends payable on any other class or classes or of any other series of stock, (d) may have such rights upon the dissolution of, or upon any distribution of the assets of, the Company, (e) may be made convertible into, or exchangeable for, shares of any other class or classes or any other series of the same or any other class or classes of shares of the Company, at such price or prices or at such rate or rates of exchange, and with such adjustments, (f) may be entitled to the benefit of a sinking fund with respect to the purchase or redemption of shares of such series, and (g) may have such other preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions of such preferences and/or rights, all as shall be stated in said resolution or resolutions providing for the issue of such Preferred Shares.

Subject to the Act, the Company's memorandum of association and these Bye-laws as from time to time amended, with respect to the closing of the Register or the fixing of a record date for the determination of Members entitled to vote and except as otherwise provided the Act, the Company's memorandum of association and these Bye-laws as from time to time amended or by the resolution or resolutions providing for the issue of any series of Preferred Shares, the holders of outstanding Common Shares shall exclusively have the right to vote for the election of directors and for all other purposes. Except as otherwise provided by the Act, the Company's memorandum of association and these Bye-laws as from time to time amended or by the resolution or resolutions providing for the issue of any series of Preferred Shares, the holders of Common Shares shall be entitled, to the exclusion of the holders of Preferred Shares of any and all series, to receive such dividends as from time to time may be declared by the Board of Directors. Except as otherwise provided by the Act, the Company's memorandum of association and these Bye-laws as from time to time amended or by the resolution or resolutions providing for the issue of any series of Preferred Shares, in the event of any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, after payment shall have been made to the holders of Preferred Shares of the full amount, if any, for which they shall be entitled pursuant to the resolution or resolutions providing for the issue of any series of Preferred Shares, the holders of Common Shares shall be entitled, to the exclusion of the holders of

-6- Preferred Shares of any and all series, to share, ratably according to the number of Common Shares held by them, in all remaining assets of the Company available for distribution to its Members.

(8) Subject to the Act, the Company's memorandum of association and, where applicable, the rules of any Designated Stock Exchange and/or any competent regulatory authority, any power of the Company to purchase or otherwise acquire its own shares shall be exercisable by the Board upon such terms and subject to such conditions as it thinks fit.

(9) Neither the Company nor any of its subsidiaries shall directly or indirectly give financial assistance to a person who is acquiring or proposing to acquire shares in the Company for the purpose of that acquisition whether before or at the same time as the acquisition takes place or afterwards PROVIDED that nothing in this Bye-law shall prohibit transactions permitted by the Statutes.

ALTERATION OF CAPITAL

4. The Company may from time to time by ordinary resolution passed by the holders of Common Shares in accordance with Section 45 of the Act:

(a) increase its capital by such sum, to be divided into shares of such amounts, as the resolution shall prescribe;

(b) consolidate and divide all or any of its capital into shares of larger amount than its existing shares;

(c) divide its shares into several classes and without prejudice to any special rights previously conferred on the holders of existing shares attach thereto respectively any preferential, deferred, qualified or special rights, privileges, conditions or such restrictions which in the absence of any such determination by the Company in general meeting, as the Directors may determine provided always that where the Company issues shares which do not carry voting rights, the words "non-voting" shall appear in the designation of such shares;

(d) sub-divide its shares, or any of them, into shares of smaller amount than is fixed by the memorandum of association (subject, nevertheless, to the Act), and may by such resolution determine that, as between the holders of the shares resulting from such sub-division, one or more of the shares may have any such preferred rights or be subject to any such restrictions as compared with the other or others as the Company has power to attach to unissued or new shares;

(e) change the currency denomination of its share capital; and

(f) cancel any shares which, at the date of the passing of the resolution, have not been taken, or agreed to be taken, by any person, and diminish the amount of its capital by the amount of the shares so cancelled.

5. The Board may settle as it considers expedient any difficulty which arises in relation to any consolidation and division under the last preceding Bye-law and in particular but without prejudice

-7- to the generality of the foregoing may issue certificates in respect of fractions of shares or arrange for the sale of the shares representing fractions and the distribution of the net proceeds of sale (after deduction of the expenses of such sale) in due proportion amongst the Members who would have been entitled to the fractions, and for this purpose the Board may authorise some person to transfer the shares representing fractions to their purchaser or resolve that such net proceeds be paid to the Company for the Company's benefit. Such purchaser will not be bound to see to the application of the purchase money nor will his title to the shares be affected by any irregularity or invalidity in the proceedings relating to the sale.

6. The Company may from time to time by special resolution passed by the holders of Class A Shares and passed by the holders of Class B Shares, subject to any confirmation or consent required by law, reduce its authorised or issued share capital or any share premium account or other undistributable reserve in any manner permitted by law.

7. Except so far as otherwise provided by the conditions of issue, or by these Bye-laws, any capital raised by the creation of new shares shall be treated as if it formed part of the original capital of the Company, and such shares shall be subject to the provisions contained in these Bye-laws with reference to the payment of calls and instalments, transfer and transmission, forfeiture, lien, cancellation, surrender, voting and otherwise.

SHARE RIGHTS

8. Subject to any special rights conferred on the holders of any shares or class of shares, any share in the Company (whether forming part of the present capital or not) may be issued with or have attached thereto such rights or restrictions whether in regard to dividend, voting, return of capital or otherwise as the Company may by ordinary resolution determine or, if there has not been any such determination or so far as the same shall not make specific provision, as the Board may determine.

9. Subject to Sections 42 and 43 of the Act, any preference shares may be issued or converted into shares that, at a determinable date or at the option of the Company or the holder if so authorised by its memorandum of association, are liable to be redeemed on such terms and in such manner as the Company before the issue or conversion may by ordinary resolution of the Members determine.

9A. (1) There shall be a class vote for the holders of Class A Shares and a class vote for the holders of Class B Shares to pass a resolution to approve a going private transaction, and unless such resolution is passed by a majority of the votes cast at the meeting of each class, the resolution shall not pass.

(2) For the purposes of this bye-law, a "going private transaction" is any Rule 13e-3 transaction as such term is defined in Rule 13e-3 promulgated under the Securities Exchange Act of 1934 of the United States of America, as amended, between the Company and (i) Ronald S. Lauder (the "Principal Shareholder"), (ii) any Affiliate of the Principal Shareholder or (iii) any group consisting of the Principal Shareholder or Affiliates of the Principal Shareholder. For the purposes of this bye-law "Affiliate of the Principal Shareholder" means (i) any individual or entity who or that, directly or indirectly, controls, is controlled by, or is under common control with, the Principal Shareholder, (ii) any corporation or organisation (other than the Company or a majority-owned subsidiary of the Company) of which the Principal Shareholder is an officer or partner or is, directly or indirectly, the beneficial owner of 10% or more of any class of voting securities, or in which the Principal Shareholder has a substantial beneficial interest, (iii) any trust or other estate in which the

-8- Principal Shareholder has a substantial beneficial interest or as to which such Principal Shareholder serves as trustee or in a similar fiduciary capacity or (iv) any relative or spouse of a Principal Shareholder, or any relative of such spouse, who has the same residence as such Principal Shareholder.

VARIATION OF RIGHTS

10. Subject to the Act and without prejudice to Bye-law 8, all or any of the special rights for the time being attached to the shares or any class of shares may, unless otherwise provided by the terms of issue of the shares of that class, from time to time (whether or not the Company is being wound up) be varied, modified or abrogated either with the consent in writing of the holders of not less than three-fourths of the issued shares of that class or with the sanction of a special resolution passed at a separate general meeting of the holders of the shares of that class. To every such separate general meeting all the provisions of these Bye-laws relating to general meetings of the Company shall, mutatis mutandis, apply, but so that:

(a) the necessary quorum (other than at an adjourned meeting) shall be two persons holding or representing by proxy not less than one-third in nominal value of the issued shares of that class and at any adjourned meeting of such holders, two holders present in person or by proxy (whatever the number of shares held by them) shall be a quorum;

(b) every holder of shares of the class shall be entitled on a poll to one vote for every such share held by him or in the case of Class B Shares, ten votes for every such share held by him; and

(c) any holder of shares of the class present in person or by proxy may demand a poll.

11. The special rights conferred upon the holders of any shares or class of shares shall not, unless otherwise expressly provided in the rights attaching to or the terms of issue of such shares, be deemed to be varied, modified or abrogated by the creation or issue of further shares ranking pari passu therewith.

SHARES

12. (1) Subject to the Act and these Bye-laws and without prejudice to any special rights or restrictions for the time being attached to any shares or any class of shares, the unissued shares of the Company (whether forming part of the original or any increased capital) shall be at the disposal of the Board, which may offer, allot, grant options over or otherwise dispose of them to such persons, at such times and for such consideration and upon such terms and conditions as the Board may in its absolute discretion determine but so that no shares shall be issued at a discount. Neither the Company nor the Board shall be obliged, when making or granting any allotment of, offer of, option over or disposal of shares, to make, or make available, any such offer, option or shares to Members or others with registered addresses in any particular territory or territories being a territory or territories where, in the absence of a registration statement or other special formalities, this would or might, in the opinion of the Board, be unlawful or impracticable. Members affected as a result of the foregoing sentence shall not be, or be deemed to be, a separate class of members for any purpose whatsoever.

-9- (2) The Board may issue warrants conferring the right upon the holders thereof to subscribe for any class of shares or securities in the capital of the Company on such terms as it may from time to time determine.

13. The Company may in connection with the issue of any shares exercise all powers of paying commission and brokerage conferred or permitted by the Act. Subject to the Act, the commission may be satisfied by the payment of cash or by the allotment of fully or partly paid shares or partly in one and partly in the other.

14. Except as required by law, no person shall be recognised by the Company as holding any share upon any trust and the Company shall not be bound by or required in any way to recognise (even when having notice thereof) any equitable, contingent, future or partial interest in any share or any fractional part of a share or (except only as otherwise provided by these Bye-laws or by law) any other rights in respect of any share except an absolute right to the entirety thereof in the registered holder.

15. Subject to the Act and these Bye-laws, the Board may at any time after the allotment of shares but before any person has been entered in the Register as the holder, recognise a renunciation thereof by the allottee in favour of some other person and may accord to any allottee of a share a right to effect such renunciation upon and subject to such terms and conditions as the Board considers fit to impose.

SHARE CERTIFICATES

16. Every share certificate shall be issued under the Seal or a facsimile thereof and shall specify the number and class and distinguishing numbers (if any) of the shares to which it relates, and the amount paid up thereon and may otherwise be in such form as the Directors may from time to time determine. No certificate shall be issued representing shares of more than one class. The Board may by resolution determine, either generally or in any particular case or cases, that any signatures on any such certificates (or certificates in respect of other securities) need not be autographic but may be affixed to such certificates by some mechanical means or may be printed thereon or that such certificates need not be signed by any person.

17. (1) In the case of a share held jointly by several persons, the Company shall not be bound to issue more than one certificate therefor and delivery of a certificate to one of several joint holders shall be sufficient delivery to all such holders.

(2) Where a share stands in the names of two or more persons, the person first named in the Register shall as regards service of notices and, subject to the provisions of these Bye-laws, all or any other matters connected with the Company, except the transfer of the shares, be deemed the sole holder thereof.

18. Every person whose name is entered, upon an allotment of shares, as a Member in the Register shall be entitled, without payment, to receive one certificate for all such shares of any one class or several certificates each for one or more of such shares of such class upon payment for every certificate after the first of such reasonable out-of-pocket expenses as the Board from time to time determines.

19. (1) Subject to paragraph (2) hereof, share certificates shall be issued in the case of an

-10 - issue of shares within twenty-one (21) days (or such longer period as the terms of the issue provide) after allotment or in the case of a transfer of fully or partly paid shares within twenty-one (21) days after lodgment of a transfer with the Company, not being a transfer which the Company is for the time being entitled to refuse to register and does not register.

(2) Notwithstanding anything in these Bye-laws, a person may by notice in writing to the Company elect that no certificate be issued in respect of shares registered or to be registered in his name and on receipt of such election the Company shall not be required to issue a certificate for such shares or may cancel an existing certificate without issuing another certificate in lieu thereof.

20. Upon every transfer of shares the certificate held by the transferor shall be given up to be cancelled, and shall forthwith be cancelled accordingly, and a new certificate shall be issued to the transferee in respect of the shares transferred to him. If any of the shares included in the certificate so given up shall be retained by the transferor a new certificate for the balance shall be issued to him.

21. If a share certificate shall be damaged or defaced or alleged to have been lost, stolen or destroyed a new certificate representing the same shares may be issued to the relevant member upon request and on payment of such fee as the Designated Stock Exchange may determine to be the maximum payable or such lesser sum as the Board may determine and, subject to compliance with such terms (if any) as to evidence and indemnity and to payment of the costs and reasonable out-of-pocket expenses of the Company in investigating such evidence and preparing such indemnity as the Board may think fit and, in case of damage or defacement, on delivery of the old certificate to the Company provided always that where share warrants have been issued, no new share warrant shall be issued to replace one that has been lost unless the Directors are satisfied beyond reasonable doubt that the original has been destroyed.

LIEN

22. The Company shall have a first and paramount lien on every share (not being a fully paid share) for all moneys (whether presently payable or not) called or payable at a fixed time in respect of that share. The Company shall also have a first and paramount lien on every share (not being a fully paid share) registered in the name of a Member (whether or not jointly with other Members) for all amounts of money presently payable by such Member or his estate to the Company whether the same shall have been incurred before or after notice to the Company of any equitable or other interest of any person other than such member, and whether the period for the payment or discharge of the same shall have actually arrived or not, and notwithstanding that the same are joint debts or liabilities of such Member or his estate and any other person, whether a Member of the Company or not. The Company's lien on a share shall extend to all dividends or other moneys payable thereon or in respect thereof. The Board may at any time, generally or in any particular case, waive any lien that has arisen or declare any share exempt in whole or in part, from the provisions of this Bye-law.

23. Subject to these Bye-laws, the Company may sell in such manner as the Board determines any share on which the Company has a lien, but no sale shall be made unless some sum in respect of which the lien exists is presently payable, or the liability or engagement in respect of which such lien exists is liable to be presently fulfilled or discharged nor until the expiration of fourteen clear days after a notice in writing, stating and demanding payment of the sum presently payable, or specifying the liability or engagement and demanding fulfilment or discharge thereof and giving notice of the intention to sell in default, has been served on the registered holder for the time being of the share or the person entitled thereto by reason of his death or bankruptcy.

-11 - 24. The net proceeds of the sale shall be received by the Company and applied in or towards payment or discharge of the debt or liability in respect of which the lien exists, so far as the same is presently payable, and any residue shall (subject to a like lien for debts or liabilities not presently payable as existed upon the share prior to the sale) be paid to the person entitled to the share at the time of the sale. To give effect to any such sale the Board may authorise some person to transfer the shares sold to the purchaser thereof. The purchaser shall be registered as the holder of the shares so transferred and he shall not be bound to see to the application of the purchase money, nor shall his title to the shares be affected by any irregularity or invalidity in the proceedings relating to the sale.

CALLS ON SHARES

25. Subject to these Bye-laws and to the terms of allotment, the Board may from time to time make calls upon the Members in respect of any moneys unpaid on their shares (whether on account of the nominal value of the shares or by way of premium), and each Member shall (subject to being given at least fourteen (14) clear days' Notice specifying the time and place of payment) pay to the Company as required by such notice the amount called on his shares. A call may be extended, postponed or revoked in whole or in part as the Board determines but no member shall be entitled to any such extension, postponement or revocation except as a matter of grace and favour.

26. A call shall be deemed to have been made at the time when the resolution of the Board authorising the call was passed and may be made payable either in one lump sum or by instalments. The Directors may make arrangements on the issue of shares for a difference between the shareholders in the amount of calls to be paid and in the times of payment.

27. A person upon whom a call is made shall remain liable for calls made upon him notwithstanding the subsequent transfer of the shares in respect of which the call was made. The joint holders of a share shall be jointly and severally liable to pay all calls and instalments due in respect thereof or other moneys due in respect thereof.

28. If a sum called in respect of a share is not paid before or on the day appointed for payment thereof, the person from whom the sum is due shall pay interest on the amount unpaid from the day appointed for payment thereof to the time of actual payment at such rate (not exceeding twenty per cent. (20%) per annum) as the Board may determine, but the Board may in its absolute discretion waive payment of such interest wholly or in part.

29. No Member shall be entitled to receive any dividend or bonus or to be present and vote (save as proxy for another Member) at any General Meeting either personally or by proxy, or be reckoned in a quorum, or exercise any other privilege as a Member until all calls or instalments due by him to the Company, whether alone or jointly with any other person, together with interest and expenses (if any) shall have been paid.

30. On the trial or hearing of any action or other proceedings for the recovery of any money due for any call, it shall be sufficient to prove that the name of the Member sued is entered in the Register as the holder, or one of the holders, of the shares in respect of which such debt accrued, that the resolution making the call is duly recorded in the minute book, and that notice of such call was duly given to the Member sued, in pursuance of these Bye-laws; and it shall not be necessary to prove the appointment of the Directors who made such call, nor any other matters whatsoever, but the proof of the matters aforesaid shall be conclusive evidence of the debt.

-12 - 31. Any amount payable in respect of a share upon allotment or at any fixed date, whether in respect of nominal value or premium or as an instalment of a call, shall be deemed to be a call duly made and payable on the date fixed for payment and if it is not paid the provisions of these Bye-laws shall apply as if that amount had become due and payable by virtue of a call duly made and notified.

32. On the issue of shares the Board may differentiate between the allottees or holders as to the amount of calls to be paid and the times of payment.

33. The Board may, if it thinks fit, receive from any Member willing to advance the same, and either in money or money's worth, all or any part of the moneys uncalled and unpaid or instalments payable upon any shares held by him and upon all or any of the moneys so advanced (until the same would, but for such advance, become presently payable) pay interest at such rate (if any) as the Board may decide. The Board may at any time repay the amount so advanced upon giving to such Member not less than one month's notice in writing of its intention in that behalf, unless before the expiration of such notice the amount so advanced shall have been called up on the shares in respect of which it was advanced. Such payment in advance shall not entitle the holder of such share or shares to participate in respect thereof in a dividend subsequently declared.

FORFEITURE OF SHARES

34. (1) If a call remains unpaid after it has become due and payable the Board may give to the person from whom it is due not less than fourteen (14) clear days' notice:

(a) requiring payment of the amount unpaid together with any interest which may have accrued and which may still accrue up to the date of actual payment; and

(b) stating that if the notice is not complied with the shares on which the call was made will be liable to be forfeited.

(2) If the requirements of any such notice are not complied with, any share in respect of which such notice has been given may at any time thereafter, before payment of all calls and interest due in respect thereof has been made, be forfeited by a resolution of the Board to that effect, and such forfeiture shall include all dividends and bonuses declared in respect of the forfeited share but not actually paid before the forfeiture.

35. When any share has been forfeited, notice of the forfeiture shall be served upon the person who was before forfeiture the holder of the share. No forfeiture shall be invalidated by any omission or neglect to give such notice.

36. The Board may accept the surrender of any share liable to be forfeited hereunder and, in such case, references in these Bye-laws to forfeiture will include surrender.

37. Until cancelled in accordance with the requirements of the Act, a forfeited share shall be the property of the Company and may be sold, re- allotted or otherwise disposed of to such person, upon such terms and in such manner as the Board determines, and at any time before a sale, re-allotment or disposition the forfeiture may be annulled by the Board on such terms as the Board determines.

38. A person whose shares have been forfeited shall cease to be a Member in respect of the forfeited shares but nevertheless shall remain liable to pay the Company all moneys which at the date of forfeiture were presently payable by him to the Company in respect of the shares, with (if the

-13 - Directors shall in their discretion so require) interest thereon from the date of forfeiture until payment at such rate (not exceeding twenty per cent. (20%) per annum) as the Board determines. The Board may enforce payment thereof if it thinks fit, and without any deduction or allowance for the value of the forfeited shares, at the date of forfeiture, but his liability shall cease if and when the Company shall have received payment in full of all such moneys in respect of the shares. For the purposes of this Bye-law any sum which, by the terms of issue of a share, is payable thereon at a fixed time which is subsequent to the date of forfeiture, whether on account of the nominal value of the share or by way of premium, shall notwithstanding that time has not yet arrived be deemed to be payable at the date of forfeiture, and the same shall become due and payable immediately upon the forfeiture, but interest thereon shall only be payable in respect of any period between the said fixed time and the date of actual payment.

39. A declaration by a Director or the Secretary that a share has been forfeited on a specified date shall be conclusive evidence of the facts therein stated as against all persons claiming to be entitled to the share, and such declaration shall (subject to the execution of an instrument of transfer by the Company if necessary) constitute a good title to the share, and the person to whom the share is disposed of shall be registered as the holder of the share and shall not be bound to see to the application of the consideration (if any), nor shall his title to the share be affected by any irregularity in or invalidity of the proceedings in reference to the forfeiture, sale or disposal of the share. When any share shall have been forfeited, notice of the declaration shall be given to the member in whose name it stood immediately prior to the forfeiture, and an entry of the forfeiture, with the date thereof, shall forthwith be made in the register, but no forfeiture shall be in any manner invalidated by any omission or neglect to give such notice or make any such entry.

40. Notwithstanding any such forfeiture as aforesaid the Board may at any time, before any shares so forfeited shall have been sold, re-allotted or otherwise disposed of, permit the shares forfeited to be bought back upon the terms of payment of all calls and interest due upon and expenses incurred in respect of the share, and upon such further terms (if any) as it thinks fit.

41. The forfeiture of a share shall not prejudice the right of the Company to any call already made or instalment payable thereon.

42. The provisions of these Bye-laws as to forfeiture shall apply in the case of non-payment of any sum which, by the terms of issue of a share, becomes payable at a fixed time, whether on account of the nominal value of the share or by way of premium, as if the same had been payable by virtue of a call duly made and notified.

REGISTER OF MEMBERS

43. (1) The Company shall keep in one or more books a Register of its Members and shall enter therein the following particulars, that is to say:

(a) the name and address of each Member, the number and class of shares held by him and the amount paid or agreed to be considered as paid on such shares;

(b) the date on which each person was entered in the Register; and

(c) the date on which any person ceased to be a Member.

-14 - (2) Subject to the Act, the Company may keep an overseas or local or other branch register of Members resident in any place, and the Board may make and vary such regulations as it determines in respect of the keeping of any such register and maintaining a Registration Office in connection therewith.

44. The Register and branch register of Members, as the case may be, shall be open to inspection between 10 a.m. and 12 noon on every business day by Members without charge or by any other person, upon a maximum payment of five Bermuda dollars, at the Office or such other place in Bermuda at which the Register is kept in accordance with the Act or, if appropriate, upon a maximum payment of ten dollars at the Registration Office. The Register including any overseas or local or other branch register of Members may, after notice has been given by advertisement in an appointed newspaper and where applicable, any other newspapers in accordance with the requirements of any Designated Stock Exchange to that effect, be closed at such times or for such periods not exceeding in the whole thirty (30) days in each year as the Board may determine and either generally or in respect of any class of shares.

RECORD DATES

45. Notwithstanding any other provision of these Bye-laws the Company or the Directors may fix any date as the record date for:

(a) determining the Members entitled to receive any dividend, distribution, allotment or issue and such record date may be on, or at any time not more than 30 days before or after, any date on which such dividend, distribution, allotment or issue is declared, paid or made;

(b) determining the Members entitled to receive notice of and to vote at any general meeting of the Company.

TRANSFER OF SHARES

46. Subject to these Bye-laws, any Member may transfer all or any of his shares by an instrument of transfer in the usual or common form or in any other form approved by the Board and may be under hand only.

47. The instrument of transfer shall be executed by or on behalf of the transferor and the transferee provided that the Board may dispense with the execution of the instrument of transfer by the transferee in any case which it thinks fit in its discretion to do so. The Board may also resolve, either generally or in any particular case, upon request by either the transferor or transferee, to accept mechanically executed transfers. The transferor shall be deemed to remain the holder of the share until the name of the transferee is entered in the Register in respect thereof. Nothing in these Bye -laws shall preclude the Board from recognising a renunciation of the allotment or provisional allotment of any share by the allottee in favour of some other person.

48. (1) The Board may, in its absolute discretion, and without giving any reason therefor, refuse to register a transfer of any share issued under any share scheme for employees upon which a restriction on transfer imposed thereby still subsists, and it may also refuse to register a transfer of any share to more than four (4) joint holders. Nothing in these Bye-laws shall impair the settlement of transactions entered into through the facilities of the National Association of Security Dealers

-15 - Automated Quotations System or other Designate Stock Exchange except as provided by such exchanges.

(2) No transfer shall be made to an infant or to a person of unsound mind or under other legal disability.

(3) The Board in so far as permitted by any applicable law may, in its absolute discretion, at any time and from time to time transfer any share upon the Register to any branch register or any share on any branch register to the Register or any other branch register. In the event of any such transfer, the shareholder requesting such transfer shall bear the cost of effecting the transfer unless the Board otherwise determines.

(4) Unless the Board otherwise agrees (which agreement may be on such terms and subject to such conditions as the Board in its absolute discretion may from time to time determine, and which agreement it shall, without giving any reason therefor, be entitled in its absolute discretion to give or withhold), no shares upon the Register shall be transferred to any branch register nor shall shares on any branch register be transferred to the Register or any other branch register and all transfers and other documents of title shall be lodged for registration, and registered, in the case of any shares on a branch register, at the relevant Registration Office, and, in the case of any shares on the Register, at the Office or such other place in Bermuda at which the Register is kept in accordance with the Act.

49. Without limiting the generality of the last preceding Bye-law, the Board may decline to recognise any instrument of transfer unless:-

(a) the instrument of transfer is in respect of only one class of share;

(b) the instrument of transfer is lodged at the Office or such other place in Bermuda at which the Register is kept in accordance with the Act or the Registration Office (as the case may be) accompanied by the relevant share certificate(s) and such other evidence as the Board may reasonably require to show the right of the transferor to make the transfer (and, if the instrument of transfer is executed by some other person on his behalf, the authority of that person so to do); and

(c) if applicable, the instrument of transfer is duly and properly stamped.

50. If the Board refuses to register a transfer of any share in accordance with Bye-law 48, it shall, within two (2) months after the date on which the transfer was lodged with the Company, send to each of the transferor and transferee notice of the refusal.

51. The registration of transfers of shares or of any class of shares may, after notice has been given by advertisement in an appointed newspaper and, where applicable, any other newspapers in accordance with the requirements of any Designated Stock Exchange to that effect be suspended at such times and for such periods (not exceeding thirty (30) days in any year) as the Board may determine.

TRANSMISSION OF SHARES

52. If a Member dies, the survivor or survivors where the deceased was a joint holder, and his

-16 - legal personal representatives where he was a sole or only surviving holder, will be the only persons recognised by the Company as having any title to his interest in the shares; but nothing in this Bye-law will release the estate of a deceased Member (whether sole or joint) from any liability in respect of any share which had been solely or jointly held by him.

53. Subject to Section 52 of the Act, any person becoming entitled to a share in consequence of the death or bankruptcy or winding-up of a Member may, upon such evidence as to his title being produced as may be required by the Board, elect either to become the holder of the share or to have some person nominated by him registered as the transferee thereof. If he elects to become the holder he shall notify the Company in writing either at the Registration Office or Office, as the case may be, to that effect. If he elects to have another person registered he shall execute a transfer of the share in favour of that person. The provisions of these Bye-laws relating to the transfer and registration of transfers of shares shall apply to such notice or transfer as aforesaid as if the death or bankruptcy of the Member had not occurred and the notice or transfer were a transfer signed by such Member.

54. A person becoming entitled to a share by reason of the death or bankruptcy or winding-up of a Member shall be entitled to the same dividends and other advantages to which he would be entitled if he were the registered holder of the share. However, the Board may, if it thinks fit, withhold the payment of any dividend payable or other advantages in respect of such share until such person shall become the registered holder of the share or shall have effectually transferred such share, but, subject to the requirements of Bye- law 75(2) being met, such a person may vote at meetings.

UNTRACEABLE MEMBERS

55. (1) Without prejudice to the rights of the Company under paragraph (2) of this Bye-law, the Company may cease sending cheque for dividend entitlements or dividend warrants by post if such cheque or warrants have been left uncashed on two consecutive occasions. However, the Company may exercise the power to cease sending cheque for dividend entitlements or dividend warrants after the first occasion on which such a cheque or warrant is returned undelivered.

(2) The Company shall have the power to sell, in such manner as the Board thinks fit, any shares of a Member who is untraceable, but no such sale shall be made unless:

(a) all cheque or warrants in respect of dividends of the shares in question, being not less than three in total number, for any sum payable in cash to the holder of such shares in respect of them sent during the relevant period in the manner authorised by the Bye-laws of the Company have remained uncashed;

(b) so far as it is aware at the end of the relevant period, the Company has not at any time during the relevant period received any indication of the existence of the Member who is the holder of such shares or of a person entitled to such shares by death, bankruptcy or operation of law; and

(c) the Company, if so required by the rules governing the listing of shares on the Designated Stock Exchange, has given notice to, and caused advertisement in newspapers in accordance with the requirements of, the Designated Stock Exchange to be made of its intention to sell such shares in the manner required by the Designated Stock Exchange, and a period of three (3) months or such shorter period as may be allowed by the Designated Stock Exchange has elapsed since the date of

-17 - such advertisement.

For the purpose of the foregoing, the "relevant period" means the period commencing twelve years before the date of publication of the advertisement referred to in paragraph (c) of this Bye-law and ending at the expiry of the period referred to in that paragraph.

(3) To give effect to any such sale the Board may authorise some person to transfer the said shares and an instrument of transfer signed or otherwise executed by or on behalf of such person shall be as effective as if it had been executed by the registered holder or the person entitled by transmission to such shares, and the purchaser shall not be bound to see to the application of the purchase money nor shall his title to the shares be affected by any irregularity or invalidity in the proceedings relating to the sale. The net proceeds of the sale will belong to the Company and upon receipt by the Company of such net proceeds it shall become indebted to the former Member for an amount equal to such net proceeds. No trust shall be created in respect of such debt and no interest shall be payable in respect of it and the Company shall not be required to account for any money earned from the net proceeds which may be employed in the business of the Company or as it thinks fit. Any sale under this Bye-law shall be valid and effective notwithstanding that the Member holding the shares sold is dead, bankrupt or otherwise under any legal disability or incapacity.

GENERAL MEETINGS

56. An annual general meeting of the Company shall be held in each year other than the year of incorporation at such time and place as may be determined by the Board.

57. Each general meeting, other than an annual general meeting, shall be called a special general meeting. General meetings may be held in any part of the world as may be determined by the Board.

58. (1) The Board may whenever it thinks fit call special general meetings, and Members holding at the date of deposit of the requisition not less than one-tenth of the paid up capital of the Company carrying the right of voting at general meetings of the Company shall at all times have the right, by written requisition to the Board or the Secretary of the Company, to require a special general meeting to be called by the Board for the transaction of any business specified in such requisition; and such meeting shall be held within two (2) months after the deposit of such requisition. If within twenty-one (21) days of such deposit the Board fails to proceed to convene such meeting the requisitionists themselves may do so in accordance with the provisions of Section 74(3) of the Act.

(2) Subject to paragraph (1) of this Bye-law, a Member may nominate candidates for the election of Directors as well as propose resolutions to be considered at an annual general meeting of the Company, provided that notice of intent to nominate a Director or raise business at such a meeting is received by the Company not less than 90 nor more than 120 days prior to the meeting. The notice shall contain with respect to nominating a director, the name, address and relationship to the Company of the person proposed to be nominated as a Director and the form of resolution, as well as a brief description as to why the passing of the resolution is beneficial to the Company, and with respect to raising business at a meeting the form of resolution recommended as well as a brief description as to why the passing of the resolution is beneficial to the Company.

NOTICE OF GENERAL MEETINGS

-18 - 59. (1) An annual general meeting and any special general meeting shall be called by not less than fourteen (14) clear days' Notice but a general meeting may be called by shorter notice if it is so agreed:

(a) in the case of a meeting called as an annual general meeting, by all the Members entitled to attend and vote thereat; and

(b) in the case of any other meeting, by a majority in number of the Members having the right to attend and vote at the meeting, being a majority together holding not less than ninety-five per cent. (95%) in nominal value of the issued shares giving that right.

(2) The period of notice shall be exclusive of the day on which it is served or deemed to be served and exclusive of the day on which the meeting is to be held, and the notice shall specify the time and place of the meeting and, in case of special business, the general nature of the business. The notice convening an annual general meeting shall specify the meeting as such. Notice of every general meeting shall be given to all Members other than to such Members as, under the provisions of these Bye-laws or the terms of issue of the shares they hold, are not entitled to receive such notices from the Company, to all persons entitled to a share in consequence of the death or bankruptcy or winding-up of a Member and to each of the Directors and the Auditors.

60. The accidental omission to give Notice of a meeting or (in cases where instruments of proxy are sent out with the Notice) to send such instrument of proxy to, or the non-receipt of such Notice or such instrument of proxy by, any person entitled to receive such Notice shall not invalidate any resolution passed or the proceedings at that meeting.

PROCEEDINGS AT GENERAL MEETINGS

61. (1) All business shall be deemed special that is transacted at a special general meeting, and also all business that is transacted at an annual general meeting, with the exception of sanctioning dividends, the reading, considering and adopting of the accounts and balance sheet and the reports of the Directors and Auditors and other documents required to be annexed to the balance sheet, the election of Directors and appointment of Auditors and other officers in the place of those retiring, the fixing of the remuneration of the Auditors, and the voting of remuneration or extra remuneration to the Directors.

(2) No business other than the appointment of a chairman of a meeting shall be transacted at any general meeting unless a quorum is present at the commencement of the business. Such number of Members holding a majority of the votes of the Company and present in person or by proxy or (in the case of a member being a corporation) by its duly authorised representative shall form a quorum for all purposes.

62. If within thirty (30) minutes (or such longer time not exceeding one hour as the chairman of the meeting may determine to wait) after the time appointed for the meeting a quorum is not present, the meeting, if convened on the requisition of Members, shall be dissolved. In any other case it shall stand adjourned to the same day in the next week at the same time and place or to such time and place as the Board may determine. If at such adjourned meeting a quorum is not present within half an hour from the time appointed for holding the meeting, the meeting shall be dissolved.

-19 - 63. The President of the Company or the Chairman shall preside as chairman at every general meeting. If at any meeting the President or the Chairman, as the case may be, is not present within fifteen (15) minutes after the time appointed for holding the meeting, or if neither of them is willing to act as chairman, the Directors present shall choose one of their number to act, or if one Director only is present he shall preside as chairman if willing to act. If no Director is present, or if each of the Directors present declines to take the chair, or if the Chairman chosen shall retire from the chair, the Members present in person or by proxy and entitled to vote shall elect one of their number to be chairman.

64. The Chairman may, with the consent of any meeting at which a quorum is present (and shall if so directed by the meeting), adjourn the meeting from time to time and from place to place as the meeting shall determine, but no business shall be transacted at any adjourned meeting other than business which might lawfully have been transacted at the meeting had the adjournment not taken place. When a meeting is adjourned for fourteen (14) days or more, at least seven (7) clear days' notice of the adjourned meeting shall be given specifying the time and place of the adjourned meeting but it shall not be necessary to specify in such notice the nature of the business to be transacted at the adjourned meeting and the general nature of the business to be transacted. Save as aforesaid, it shall be unnecessary to give notice of an adjournment. No business shall be transacted at any such adjourned meeting other than the business which might have been transacted at the meeting from which the adjournment took place.

65. If an amendment is proposed to any resolution under consideration but is in good faith ruled out of order by the chairman of the meeting, the proceedings on the substantive resolution shall not be invalidated by any error in such ruling. In the case of a resolution duly proposed as a special resolution, no amendment thereto (other than a mere clerical amendment to correct a patent error) may in any event be considered or voted upon.

VOTING

66. Subject to any special rights or restrictions as to voting for the time being attached to any shares by or in accordance with these Bye-laws, at any general meeting on a show of hands every Member present in person or by proxy or (being a corporation) is present by a representative duly authorised under Section 78 of the Act shall have one vote and on a poll every Member present in person or in the case of a Member being a corporation by its duly authorised representative or by proxy shall have such number of votes as are attached to every fully paid share of which he is the holder but so that no amount paid up or credited as paid up on a share in advance of calls or instalments is treated for the foregoing purposes as paid up on the share. A resolution put to the vote of a meeting shall be decided on a show of hands unless (before or on the declaration of the result of the show of hands or on the withdrawal of any other demand for a poll) a poll is demanded:

(a) by the chairman of such meeting; or

(b) by at least three Members present in person or in the case of a Member being a corporation by its duly authorised representative or by proxy for the time being entitled to vote at the meeting; or

(c) by a Member or Members present in person or in the case of a Member being a corporation by its duly authorised representative or by proxy and representing not

-20 - less than one-tenth of the total voting rights of all Members having the right to vote at the meeting; or

(d) by a Member or Members present in person or in the case of a Member being a corporation by its duly authorised representative or by proxy and holding shares in the Company conferring a right to vote at the meeting being shares on which an aggregate sum has been paid up equal to not less than one-tenth of the total sum paid up on all shares conferring that right.

A demand by a person as proxy for a Member or in the case of a Member being a corporation by its duly authorised representative shall be deemed to be the same as a demand by a Member.

67. Unless a poll is duly demanded and the demand is not withdrawn, a declaration by the chairman that a resolution has been carried, or carried unanimously, or by a particular majority, or not carried by a particular majority, or lost, and an entry to that effect made in the minute book of the Company, shall be conclusive evidence of the fact without proof of the number or proportion of the votes recorded for or against the resolution.

68. If a poll is duly demanded the result of the poll shall be deemed to be the resolution of the meeting at which the poll was demanded. There shall be no requirement for the chairman to disclose the voting figures on a poll.

69. A poll demanded on the election of a chairman, or on a question of adjournment, shall be taken forthwith. A poll demanded on any other question shall be taken in such manner (including the use of ballot or voting papers or tickets) and either forthwith or at such time (being not later than thirty (30) days after the date of the demand) and place as the Chairman directs. It shall not be necessary (unless the chairman otherwise directs) for notice to be given of a poll not taken immediately.

70. The demand for a poll shall not prevent the continuance of a meeting or the transaction of any business other than the question on which the poll has been demanded, and, with the consent of the chairman, it may be withdrawn at any time before the close of the meeting or the taking of the poll, whichever is the earlier.

71. On a poll votes may be given either personally or by proxy.

72. A person entitled to more than one vote on a poll need not use all his votes or cast all the votes he uses in the same way.

73. In the case of an equality of votes, whether on a show of hands or on a poll, the chairman of such meeting shall be entitled to a second or casting vote in addition to any other vote he may have.

74. Where there are joint holders of any share any one of such joint holder may vote, either in person or by proxy, in respect of such share as if he were solely entitled thereto, but if more than one of such joint holders be present at any meeting the vote of the senior who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes of the other joint holders, and for this purpose seniority shall be determined by the order in which the names stand in the Register in respect of the joint holding. Several executors or administrators of a deceased Member in whose name any share stands shall for the purposes of this Bye-law be deemed joint holders thereof.

-21 - 75. (1) A Member who is a patient for any purpose relating to mental health or in respect of whom an order has been made by any court having jurisdiction for the protection or management of the affairs of persons incapable of managing their own affairs may vote, whether on a show of hands or on a poll, by his receiver, committee, curator bonis or other person in the nature of a receiver, committee or curator bonis appointed by such court, and such receiver, committee, curator bonis or other person may vote on a poll by proxy, and may otherwise act and be treated as if he were the registered holder of such shares for the purposes of general meetings, provided that such evidence as the Board may require of the authority of the person claiming to vote shall have been deposited at the Office, head office or Registration Office, as appropriate, not less than forty-eight (48) hours before the time appointed for holding the meeting, or adjourned meeting or poll, as the case may be.

(2) Any person entitled under Bye-law 53 to be registered as the holder of any shares may vote at any general meeting in respect thereof in the same manner as if he were the registered holder of such shares, provided that forty-eight (48) hours at least before the time of the holding of the meeting or adjourned meeting, as the case may be, at which he proposes to vote, he shall satisfy the Board of his entitlement to such shares, or the Board shall have previously admitted his right to vote at such meeting in respect thereof.

76. No Member shall, unless the Board otherwise determines, be entitled to attend and vote and to be reckoned in a quorum at any General Meeting unless he is duly registered and all calls or other sums presently payable by him in respect of shares in the Company have been paid.

77. If:

(a) any objection shall be raised to the qualification of any voter; or

(b) any votes have been counted which ought not to have been counted or which might have been rejected; or

(c) any votes are not counted which ought to have been counted; the objection or error shall not vitiate the decision of the meeting or adjourned meeting on any resolution unless the same is raised or pointed out at the meeting or, as the case may be, the adjourned meeting at which the vote objected to is given or tendered or at which the error occurs. Any objection or error shall be referred to the Chairman of the meeting and shall only vitiate the decision of the meeting on any resolution if the Chairman decides that the same may have affected the decision of the meeting. The decision of the Chairman on such matters shall be final and conclusive.

PROXIES

78. Any Member entitled to attend and vote at a meeting of the Company shall be entitled to appoint another person as his proxy to attend and vote instead of him. A Member may appoint a proxy in respect of part only of his holding of shares in the Company. A proxy need not be a Member of the Company.

79. The instrument appointing a proxy shall be in writing under the hand of the appointor or of his attorney duly authorised in writing or, if the appointor is a corporation, either under its seal or under the hand of an officer, attorney or other person authorised to sign the same. In the case of an

-22 - instrument of proxy purporting to be signed on behalf of a corporation by an officer thereof it shall be assumed, unless the contrary appears, that such officer was duly authorised to sign such instrument of proxy on behalf of the corporation without further evidence of the fact.

80. The instrument appointing a proxy and (if required by the Board) the power of attorney or other authority (if any) under which it is signed, or a certified copy of such power or authority, shall be delivered to such place or one of such places (if any) as may be specified for that purpose in or by way of note to or in any document accompanying the notice convening the meeting (or, if no place is so specified at the Registration Office or the Office, as may be appropriate) not less than forty-eight (48) hours before the time appointed for holding the meeting or adjourned meeting at which the person named in the instrument proposes to vote or, in the case of a poll taken subsequently to the date of a meeting or adjourned meeting, not less than twenty-four (24) hours before the time appointed for the taking of the poll and in default the instrument of proxy shall not be treated as valid. No instrument appointing a proxy shall be valid after the expiration of twelve (12) months from the date named in it as the date of its execution, except at an adjourned meeting or on a poll demanded at a meeting or an adjourned meeting in cases where the meeting was originally held within twelve (12) months from such date. Delivery of an instrument appointing a proxy shall not preclude a Member from attending and voting in person at the meeting convened and in such event, the instrument appointing a proxy shall be deemed to be revoked.

81. Instruments of proxy shall be in any common form or in such other form as the Board may approve (provided that this shall not preclude the use of the two-way form) and the Board may, if it thinks fit, send out with the notice of any meeting forms of instrument of proxy for use at the meeting. The instrument of proxy shall be deemed to confer authority to demand or join in demanding a poll and to vote on any amendment of a resolution put to the meeting for which it is given as the proxy thinks fit. The instrument of proxy shall, unless the contrary is stated therein, be valid as well for any adjournment of the meeting as for the meeting to which it relates.

82. A vote given in accordance with the terms of an instrument of proxy shall be valid notwithstanding the previous death or insanity of the principal, or revocation of the instrument of proxy or of the authority under which it was executed, provided that no intimation in writing of such death, insanity or revocation shall have been received by the Company at the Office or the Registration Office (or such other place as may be specified for the delivery of instruments of proxy in the notice convening the meeting or other document sent therewith) two (2) hours at least before the commencement of the meeting or adjourned meeting, or the taking of the poll, at which the instrument of proxy is used.

83. Anything which under these Bye-laws a Member may do by proxy he may likewise do by his duly appointed attorney and the provisions of these Bye-laws relating to proxies and instruments appointing proxies shall apply mutatis mutandis in relation to any such attorney and the instrument under which such attorney is appointed.

CORPORATIONS ACTING BY REPRESENTATIVES

84. (1) Any corporation which is a Member of the Company may by resolution of its directors or other governing body authorise such person as it thinks fit to act as its representative at any meeting of the Company or any class of Members of the Company. The person so authorised shall be entitled to exercise the same powers on behalf of such corporation as the corporation could exercise if it were an individual Member of the Company and such corporation shall for the purposes

-23 - of these Bye-laws be deemed to be present in person at any such meeting if a person so authorised is present thereat. Any reference in these Bye-laws to a duly authorised representative of a Member being a corporation shall mean a representative authorised under the provisions of this Bye-law.

(2) If a clearing house is a Member, it may authorise such person or persons as it thinks fit to act as its representative or representatives at any meeting of the Company or at any meeting of any class of Members provided that, if more than one person is so authorised, the authorization shall specify the number and class of shares in respect of which each such person is so authorised. A person so authorised under the provisions of this Bye-law shall be entitled to exercise the same powers on behalf of the clearing house (or its nominee) which he represents as that clearing house (or its nominee) could exercise if it were an individual Member.

WRITTEN RESOLUTIONS OF MEMBERS

85. (1) Subject to the Act, a resolution in writing signed (in such manner as to indicate, expressly or impliedly, unconditional approval) by or on behalf of all persons for the time being entitled to receive notice of and to attend and vote at general meetings of the Company shall, for the purposes of these Bye-laws, be treated as a resolution duly passed at a general meeting of the Company and, where relevant, as a special resolution so passed. Any such resolution shall be deemed to have been passed at a meeting held on the date on which it was signed by the last Member to sign, and where the resolution states a date as being the date of his signature thereof by any Member the statement shall be prima facie evidence that it was signed by him on that date. Such a resolution may consist of several documents in the like form, each signed by one or more relevant Members.

(2) Notwithstanding any provisions contained in these Bye-laws, a resolution in writing shall not be passed for the purpose of removing a Director before the expiration of his term of office under Bye-law 86(4) or for the purposes set out in Bye-law 154(3) relating to the removal and appointment of the Auditor.

BOARD OF DIRECTORS

86. (1) Unless otherwise determined by the Board of Directors, the number of Directors shall not be less than three (3). At all times, at least two (2) Directors shall be independent directors. The Directors shall be elected or appointed by ordinary resolution in the first place at the statutory meeting of Members and thereafter at each annual general meeting of the Company subject to Bye-law 87 and shall hold office until the next appointment of Directors or until their successors are elected or appointed.

(2) The Directors shall have the power from time to time and at any time to appoint any person as a Director either to fill a casual vacancy on the Board or as an addition to the existing Board but so that the number of Directors so appointed shall not exceed any maximum number determined from time to time by the Board of Directors. Any Director so appointed by the Board shall hold office only until the next following annual general meeting of the Company and shall then be eligible for re-election at that meeting.

(3) Neither a Director nor an alternate Director shall be required to hold any shares of the Company by way of qualification and a Director or alternate Director (as the case may be) who is

-24 - not a Member shall be entitled to receive notice of and to attend and speak at any general meeting of the Company and of all classes of shares of the Company.

(4) Subject to any provision to the contrary in these Bye-laws the Members may, at any general meeting convened and held in accordance with these Bye-laws, by special resolution remove a Director at any time before the expiration of his period of office notwithstanding anything in these Bye-laws or in any agreement between the Company and such Director (but without prejudice to any claim for damages under any such agreement) provided that the notice of any such meeting convened for the purpose of removing a Director shall contain a statement of the intention so to do and be served on such Director fourteen (14) days before the meeting and at such meeting such Director shall be entitled to be heard on the motion for his removal.

(5) A vacancy on the Board created by the removal of a Director under the provisions of subparagraph (4) above may be filled by the election or appointment by the Members at the meeting at which such Director is removed to hold office until the next appointment of Directors or until their successors are elected or appointed or, in the absence of such election or appointment the Board of Directors may fill any vacancy in the number left unfilled.

(6) The Board of Directors may from time to time increase or reduce the number of Directors but so that the number of Directors shall never be less than two (2).

RETIREMENT OF DIRECTORS

87. (1) At each annual general meeting all of the Directors for the time being shall retire from office.

(2) A retiring Director shall be eligible for re-election.

88. No person other than a Director retiring at the meeting shall, unless recommended by the Directors for election, be eligible for election as a Director at any general meeting unless not less than seven (7) days before the date appointed for the meeting there shall have been lodged at the Office or at the head office notice in writing signed by a Member (other than the person to be proposed) duly qualified to attend and vote at the meeting for which such notice is given of his intention to propose such person for election and also notice in writing signed by the person to be proposed of his willingness to be elected.

DISQUALIFICATION OF DIRECTORS

89. The office of a Director shall be vacated if the Director:

(1) resigns his office by notice in writing delivered to the Company at the Office or tendered at a meeting of the Board whereupon the Board resolves to accept such resignation;

(2) becomes of unsound mind or dies;

-25 - (3) without special leave of absence from the Board, is absent from meetings of the Board for six consecutive months, and his alternate Director, if any, shall not during such period have attended in his stead and the Board resolves that his office be vacated; or

(4) becomes bankrupt or has a receiving order made against him or suspends payment or compounds with his creditors;

(5) is prohibited by law from being a Director; or

(6) ceases to be a Director by virtue of any provision of the Statutes or is removed from office pursuant to these Bye-laws.

EXECUTIVE DIRECTORS AND COMMITTEES

90. The Board may from time to time appoint any one or more of its body to be a Managing Director, Joint Managing Director or Deputy Managing Director or to hold any other employment or executive office with the Company for such period (subject to their continuance as Directors) and upon such terms as the Board may determine and the Board may revoke or terminate any of such appointments. Any such revocation or termination as aforesaid shall be without prejudice to any claim for damages that such Director may have against the Company or the Company may have against such Director. A Director appointed to an office under this Bye-law shall be subject to the same provisions as to removal as the other Directors of the Company, and he shall (subject to the provisions of any contract between him and the Company) ipso facto and immediately cease to hold such office if he shall cease to hold the office of Director for any cause.

91. Notwithstanding Bye-laws 96, 97, 98 and 99, an executive Director appointed to an office under Bye-law 90 hereof shall receive such remuneration (whether by way of salary, commission, participation in profits or otherwise or by all or any of those modes) and such other benefits (including pension and/or gratuity and/or other benefits on retirement) and allowances as the Board may from time to time determine, and either in addition to or in lieu of his remuneration as a Director.

91A. The Board may delegate any of its powers to a committee appointed by the Board and every such committee shall conform to such directions as the Board shall impose on them. The Board shall maintain an audit committee, a majority of the members of which shall be independent directors.

ALTERNATE DIRECTORS

92. Any Director may at any time by Notice delivered to the Office or head office or at a meeting of the Directors appoint any person to be his alternate Director. Any person so appointed shall have all the rights and powers of the Director or Directors for whom such person is appointed in the alternative provided that such person shall not be counted more than once in determining whether or not a quorum is present. An alternate Director may be removed at any time by the body which appointed him and, subject thereto, the office of alternate Director shall continue until the next annual election of Directors or, if earlier, the date on which the relevant Director ceases to be a Director. Any appointment or removal of an alternate Director shall be effected by Notice signed by the appointor and delivered to the Office or head office or tendered at a meeting of the Board. An

-26 - alternate Director may also be a Director in his own right and may act as alternate to more than one Director. An alternate Director shall, if his appointor so requests, be entitled to receive notices of meetings of the Board or of committees of the Board to the same extent as, but in lieu of, the Director appointing him and shall be entitled to such extent to attend and vote as a Director at any such meeting at which the Director appointing him is not personally present and generally at such meeting to exercise and discharge all the functions, powers and duties of his appointor as a Director and for the purposes of the proceedings at such meeting the provisions of these Bye-laws shall apply as if he were a Director save that as an alternate for more than one Director his voting rights shall be cumulative.

93. An alternate Director shall only be a Director for the purposes of the Act and shall only be subject to the provisions of the Act insofar as they relate to the duties and obligations of a Director when performing the functions of the Director for whom he is appointed in the alternative and shall alone be responsible to the Company for his acts and defaults and shall not be deemed to be the agent of or for the Director appointing him. An alternate Director shall be entitled to contract and be interested in and benefit from contracts or arrangements or transactions and to be repaid expenses and to be indemnified by the Company to the same extent mutatis mutandis as if he were a Director but he shall not be entitled to receive from the Company any fee in his capacity as an alternate Director except only such part, if any, of the remuneration otherwise payable to his appointor as such appointor may by notice in writing to the Company from time to time direct.

94. Every person acting as an alternate Director shall have one vote for each Director for whom he acts as alternate (in addition to his own vote if he is also a Director). If his appointor is for the time being absent from Hong Kong or otherwise not available or unable to act, the signature of an alternate Director to any resolution in writing of the Board or a committee of the Board of which his appointor is a member shall, unless the notice of his appointment provides to the contrary, be as effective as the signature of his appointor.

95. An alternate Director shall ipso facto cease to be an alternate Director if his appointor ceases for any reason to be a Director, however, such alternate Director or any other person may be re-appointed by the Directors to serve as an alternate Director PROVIDED always that, if at any meeting any Director retires but is re-elected at the same meeting, any appointment of such alternate Director pursuant to these Bye-laws which was in force immediately before his retirement shall remain in force as though he had not retired.

DIRECTORS' FEES AND EXPENSES

96. The remuneration of the Directors shall from time to time be determined by the Directors and reported to the Members on an annual basis. Such remuneration shall be deemed to accrue from day to day.

97. Each Director shall be entitled to be repaid or prepaid all travelling, hotel and incidental expenses reasonably incurred or expected to be incurred by him in attending meetings of the Board or committees of the Board or general meetings or separate meetings of any class of shares or of debentures of the Company or otherwise in connection with the discharge of his duties as a Director.

-27 - 98. Any Director who, by request, goes or resides abroad for any purpose of the Company or who performs services which in the opinion of the Board go beyond the ordinary duties of a Director may be paid such extra remuneration (whether by way of salary, commission, participation in profits or otherwise) as the Board may determine and such extra remuneration shall be in addition to or in substitution for any ordinary remuneration provided for by or pursuant to any other Bye-law.

99. The Board shall obtain the approval of the Company in general meeting before making any payment to any Director or past Director of the Company by way of compensation for loss of office, or as consideration for or in connection with his retirement from office (not being payment to which the Director is contractually entitled).

DIRECTORS' AND OFFICERS' INTERESTS

100. A Director may:

(a) hold any other office or place of profit with the Company (except that of Auditor) in conjunction with his office of Director for such period and, subject to the relevant provisions of the Act, upon such terms as the Board may determine. Any remuneration (whether by way of salary, commission, participation in profits or otherwise) paid to any Director in respect of any such other office or place of profit shall be in addition to any remuneration provided for by or pursuant to any other Bye-law;

(b) act by himself or his firm in a professional capacity for the Company (otherwise than as Auditor) and he or his firm may be remunerated for professional services as if he were not a Director;

(c) continue to be or become a director, managing director, joint managing Director, deputy managing director, executive director, manager or other officer or member of any other company promoted by the Company or in which the Company may be interested as a vendor, shareholder or otherwise and (unless otherwise agreed) no such Director shall be accountable for any remuneration, profits or other benefits received by him as a director, managing director, joint managing director, deputy managing director, executive director, manager or other officer or member of or from his interests in any such other company. Subject as otherwise provided by these Bye-laws the Directors may exercise or cause to be exercised the voting powers conferred by the shares in any other company held or owned by the Company, or exercisable by them as Directors of such other company in such manner in all respects as they think fit (including the exercise thereof in favour of any resolution appointing themselves or any of them directors, managing directors, joint managing directors, deputy managing directors, executive directors, managers or other officers of such company) or voting or providing for the payment of remuneration to the director, managing director, joint managing director, deputy managing director, executive director, manager or other officers of such other company and any Director may vote in favour of the exercise of such voting rights in manner aforesaid notwithstanding that he may be, or about to be, appointed a director, managing director, joint managing director, deputy managing director, executive director, manager or other officer of such a company, and that as such he

-28 - is or may become interested in the exercise of such voting rights in manner aforesaid.

101. Subject to the Act and to these Bye-laws, no Director or officer or proposed or intending Director or officer shall be disqualified by his office from contracting with the Company, either with regard to his tenure of any office or place of profit or as vendor, purchaser or in any other manner whatever, nor shall any such contract or any other contract or arrangement in which any Director or officer is in any way interested be liable to be avoided, nor shall any Director or officer so contracting or being so interested be liable to account to the Company or the Members for any remuneration, profit or other benefits realised by any such contract or arrangement by reason of such Director or officer holding that office or of the fiduciary relationship thereby established provided that such Director or officer shall disclose the nature of his interest in any contract or arrangement in which he is interested in accordance with Bye-law 102 herein.

102. A Director or officer who to his knowledge is in any way, whether directly or indirectly, interested in a contract or arrangement or proposed contract or arrangement with the Company shall declare the nature of his interest at the meeting of the Board at which the question of entering into the contract or arrangement is first considered, if he knows his interest then exists, or in any other case at the first meeting of the Board after he knows that he is or has become so interested. For the purposes of this Bye-law, a general notice to the Board by a Director to the effect that:

(a) he is a member or officer of a specified company or firm and is to be regarded as interested in any contract or arrangement which may after the date of the notice be made with that company or firm; or

(b) he is to be regarded as interested in any contract or arrangement which may after the date of the notice be made with a specified person who is connected with him; shall be deemed to be a sufficient declaration of interest under this Bye-law in relation to any such contract or arrangement, provided that no such notice shall be effective unless either it is given at a meeting of the Board or the Director or officer takes reasonable steps to secure that it is brought up and read at the next Board meeting after it is given.

103. (1) A Director shall not vote (nor be counted in the quorum) on any resolution of the Board in respect of any contract or arrangement or any other proposal in which he is to his knowledge materially interested, but this prohibition shall not apply to any of the following matters namely:

(i) any contract or arrangement for giving to such Director any security or indemnity in respect of money lent by him or obligations incurred or undertaken by him at the request of or for the benefit of the Company or any of its subsidiaries;

(ii) any contract or arrangement for the giving of any security or indemnity to a third party in respect of a debt or obligation of the Company or any of its subsidiaries for which the Director has himself assumed responsibility in whole or in part whether alone or jointly under a guarantee or indemnity or by the giving of security;

(iii) any contract or arrangement concerning an offer of shares or debentures or other securities of or by the Company or any other company which the Company may

-29 - promote or be interested in for subscription or purchase, where the Director is or is to be interested as a participant in the underwriting or sub- underwriting of the offer;

(iv) any contract or arrangement in which he is interested in the same manner as other holders of shares or debentures or other securities of the Company or any of its subsidiaries by virtue only of his interest in shares or debentures or other securities of the Company;

(v) any contract or arrangement concerning any other company in which he is interested only, whether directly or indirectly, as an officer or executive or a shareholder other than a company in which the Director together with any of his associates (as defined by the rules, where applicable, of the Designated Stock Exchange) is beneficially interested in five (5) per cent or more of the issued shares or of the voting rights of any class of shares of such company (or any third company through which his interest is derived); or

(vi) any proposal concerning the adoption, modification or operation of a share option scheme, a pension fund or retirement, death or disability benefits scheme or other arrangement which relates both to directors and employees of the Company or of any of its subsidiaries and does not provide in respect of any Director as such any privilege or advantage not accorded to the employees to which such scheme or fund relates.

(2) A company shall be deemed to be a company in which a Director owns five (5) per cent. or more if and so long as (but only if and so long as) he and his associates (as defined by the rules, where applicable, of the Designated Stock Exchange), (either directly or indirectly) are the holders of or beneficially interested in five (5) per cent. or more of any class of the equity share capital of such company or of the voting rights available to members of such company (or of any third company through which his interest is derived). For the purpose of this paragraph there shall be disregarded any shares held by a Director as bare or custodian trustee and in which he has no beneficial interest, any shares comprised in a trust in which the Director's interest is in reversion or remainder if and so long as some other person is entitled to receive the income thereof, and any shares comprised in an authorised unit trust scheme in which the Director is interested only as a unit holder.

(3) Where a company in which a Director together with his associates (as defined by the rules, where applicable, of the Designated Stock Exchange) holds five (5) per cent. or more is materially interested in a transaction, then that Director shall also be deemed materially interested in such transaction.

(4) If any question shall arise at any meeting of the Board as to the materiality of the interest of a Director (other than the chairman of the meeting) or as to the entitlement of any Director (other than such chairman) to vote and such question is not resolved by his voluntarily agreeing to abstain from voting, such question shall be referred to the chairman of the meeting and his ruling in relation to such other Director shall be final and conclusive except in a case where the nature or extent of the interest of the Director concerned as known to such Director has not been fairly disclosed to the Board. If any question as aforesaid shall arise in respect of the chairman of the meeting such question shall be decided by a resolution of the Board (for which purpose such chairman shall not vote thereon) and such resolution shall be final and conclusive except in a case

-30 - where the nature or extent of the interest of such chairman as known to such chairman has not been fairly disclosed to the Board.

GENERAL POWERS OF THE DIRECTORS

104. (1) The business of the Company shall be managed and conducted by the Board, which may pay all expenses incurred in forming and registering the Company and may exercise all powers of the Company (whether relating to the management of the business of the Company or otherwise) which are not by the Statutes or by these Bye-laws required to be exercised by the Company in general meeting, subject nevertheless to the provisions of the Statutes and of these Bye-laws and to such regulations being not inconsistent with such provisions, as may be prescribed by the Company in general meeting, but no regulations made by the Company in general meeting shall invalidate any prior act of the Board which would have been valid if such regulations had not been made. The general powers given by this Bye-law shall not be limited or restricted by any special authority or power given to the Board by any other Bye-law.

(2) Without prejudice to the general powers conferred by these Bye-laws it is hereby expressly declared that the Board shall have the following powers:

(a) To give to any person the right or option of requiring at a future date that an allotment shall be made to him of any share at par or at such premium as may be agreed.

(b) To give to any Directors, officers or servants of the Company an interest in any particular business or transaction or participation in the profits thereof or in the general profits of the Company either in addition to or in substitution for a salary or other remuneration.

(c) To resolve that the Company be discontinued in Bermuda and continued in a named country or jurisdiction outside Bermuda subject to the provisions of the Act.

105. [Deleted]

106. The Board may by power of attorney appoint under the Seal any company, firm or person or any fluctuating body of persons, whether nominated directly or indirectly by the Board, to be the attorney or attorneys of the Company for such purposes and with such powers, authorities and discretions (not exceeding those vested in or exercisable by the Board under these Bye-laws) and for such period and subject to such conditions as it may think fit, and any such power of attorney may contain such provisions for the protection and convenience of persons dealing with any such attorney as the Board may think fit, and may also authorise any such attorney to sub-delegate all or any of the powers, authorities and discretions vested in him. Such attorney or attorneys may, if so authorised under the Seal of the Company, execute any deed or instrument under their personal seal with the same effect as the affixation of the Company's Seal.

107. Except as specified in Bye-law 130 or unless expressly authorized by the Board in accordance with these Bye-laws, no Director or Officer may (a) enter into any contract or deed or other agreement pursuant to which the Company is obliged to make payment over such term or such amount as the Board may from time to time determine, or (b) issue or agree to issue any share of the

-31 - Company. The Board may entrust to and confer upon any officer such powers, with such terms, conditions and restrictions, as the Board in its discretion deems appropriate.

108. All cheque, promissory notes, drafts, bills of exchange and other instruments, whether negotiable or transferable or not, and all receipts for moneys paid to the Company shall be signed, drawn, accepted, endorsed or otherwise executed, as the case may be, in such manner as the Board shall from time to time by resolution determine. The Company's banking accounts shall be kept with such banker or bankers as the Board shall from time to time determine.

109. (1) The Board may establish or concur or join with other companies (being subsidiary companies of the Company or companies with which it is associated in business) in establishing and making contributions out of the Company's moneys to any schemes or funds for providing pensions, sickness or compassionate allowances, life assurance or other benefits for employees (which expression as used in this and the following paragraph shall include any Director or ex-Director who may hold or have held any executive office or any office of profit under the Company or any of its subsidiary companies) and ex-employees of the Company and their dependents or any class or classes of such person.

(2) The Board may pay, enter into agreements to pay or make grants of revocable or irrevocable, and either subject or not subject to any terms or conditions, pensions or other benefits to employees and ex-employees and their dependents, or to any of such persons, including pensions or benefits additional to those, if any, to which such employees or ex-employees or their dependents are or may become entitled under any such scheme or fund as mentioned in the last preceding paragraph. Any such pension or benefit may, as the Board considers desirable, be granted to an employee either before and in anticipation of or upon or at any time after his actual retirement.

BORROWING POWERS

110. The Board may exercise all the powers of the Company to raise or borrow money and to mortgage or charge all or any part of the undertaking, property and assets (present and future) and uncalled capital of the Company and, subject to the Act, to issue debentures, bonds and other securities, whether outright or as collateral security for any debt, liability or obligation of the Company or of any third party.

111. Debentures, bonds and other securities may be made assignable free from any equities between the Company and the person to whom the same may be issued.

112. Any debentures, bonds or other securities may be issued at a discount (other than shares), premium or otherwise and with any special privileges as to redemption, surrender, drawings, allotment of shares, attending and voting at general meetings of the Company, appointment of Directors and otherwise.

113. (1) Where any uncalled capital of the Company is charged, all persons taking any subsequent charge thereon shall take the same subject to such prior charge, and shall not be entitled, by notice to the members or otherwise, to obtain priority over such prior charge.

(2) The Board shall cause a proper register to be kept, in accordance with the provisions of the Act, of all charges specifically affecting the property of the Company and of any series of

-32 - debentures issued by the Company and shall duly comply with the requirements of the Act in regard to the registration of charges and debentures therein specified and otherwise.

PROCEEDINGS OF THE DIRECTORS

114. The Board may meet for the despatch of business, adjourn and otherwise regulate its meetings as it considers appropriate. Questions arising at any meeting shall be determined by a majority of votes. A majority of the meetings of the Board of Directors of the Company that are held in any given fiscal year of the Company shall be held outside the United States.

115. A meeting of the Board may be convened by the Secretary on request of a Director or by any Director. The Secretary shall convene a meeting of the Board of which notice may be given in writing or by telephone or in such other manner as the Board may from time to time determine whenever he shall be required so to do by the President or Chairman, as the case may be, or any Director. Any Director may waive notice of any meeting either prospectively or retrospectively.

116. (1) The quorum necessary for the transaction of the business of the Board may be fixed by the Board and, unless so fixed at any other number, shall be two (2). An alternate Director shall be counted in a quorum in the case of the absence of a Director for whom he is the alternate provided that he shall not be counted more than once for the purpose of determining whether or not a quorum is present.

(2) Directors may participate in any meeting of the Board by means of a conference telephone or other communications equipment through which all persons participating in the meeting can communicate with each other simultaneously and instantaneously and, for the purpose of counting a quorum, such participation shall constitute presence at a Meeting as if those participating were present in person.

(3) Any Director who ceases to be a Director at a Board meeting may continue to be present and to act as a Director and be counted in the quorum until the termination of such Board meeting if no other Director objects and if otherwise a quorum of Directors would not be present.

117. The continuing Directors or a sole continuing Director may act notwithstanding any vacancy in the Board but, if and so long as the number of Directors is reduced below the minimum number fixed by or in accordance with these Bye-laws, the continuing Directors or Director, notwithstanding that the number of Directors is below the number fixed by or in accordance with these Bye-laws as the quorum or that there is only one continuing Director, may act for the purpose of filling vacancies in the Board or of summoning general meetings of the Company but not for any other purpose.

118. The Board may elect a chairman and one or more deputy chairman of its meetings and determine the period for which they are respectively to hold such office. If no chairman or deputy chairman is elected, or if at any meeting neither the chairman nor any deputy chairman is present within five (5) minutes after the time appointed for holding the same, the Directors present may choose one of their number to be chairman of the meeting.

119. A meeting of the Board at which a quorum is present shall be competent to exercise all the powers, authorities and discretions for the time being vested in or exercisable by the Board.

-33 - 120. (1) The Board may delegate any of its powers, authorities and discretions to committees, consisting of such Director, officer, Directors or officers as it thinks fit, and they may, from time to time, revoke such delegation or revoke the appointment of and discharge any such committees either wholly or in part, and either as to persons or purposes. Any committee so formed shall, in the exercise of the powers, authorities and discretions so delegated, conform to any regulations which may be imposed on it by the Board.

(2) All acts done by any such committee in conformity with such regulations, and in fulfilment of the purposes for which it was appointed, but not otherwise, shall have like force and effect as if done by the Board, and the Board shall have power, with the consent of the Company in general meeting, to remunerate the members of any such committee, and charge such remuneration to the current expenses of the Company.

121. The meetings and proceedings of any committee consisting of two or more members shall be governed by the provisions contained in these Bye-laws for regulating the meetings and proceedings of the Board so far as the same are applicable and are not superseded by any regulations imposed by the Board under the last preceding Bye-law.

122. A resolution in writing signed by all the Directors except such as are temporarily unable to act through ill-health or disability, and all the alternate Directors, if appropriate, whose appointors are temporarily unable to act as aforesaid shall (provided that such number is sufficient to constitute a quorum and further provided that a copy of such resolution has been given or the contents thereof communicated to all the Directors for the time being entitled to receive notices of Board meetings in the same manner as notices of meetings are required to be given by these Bye-laws) be as valid and effectual as if a resolution had been passed at a meeting of the Board duly convened and held. Such resolution may be contained in one document or in several documents in like form each signed by one or more of the Directors or alternate Directors and for this purpose a facsimile signature of a Director or an alternate Director shall be treated as valid.

123. All acts bona fide done by the Board or by any committee or by any person acting as a Director or members of a committee, shall, notwithstanding that it is afterwards discovered that there was some defect in the appointment of any member or the Board or such committee or person acting as aforesaid or that they or any of them were disqualified or had vacated office, be as valid as if every such person had been duly appointed and was qualified and had continued to be a Director or member of such committee.

MANAGERS

124. The Board may from time to time appoint a General Manager, a Manager or Managers of the Company and may fix his or their remuneration either by way of salary or commission or by conferring the right to participation in the profits of the Company or by a combination of two or more of these modes and pay the working expenses of any of the staff of the General Manager, Manager or Managers who may be employed by him or them upon the business of the Company.

-34 - 125. The appointment of such General Manager, Manager or Managers may be for such period as the Board may decide, and the Board may confer upon him or them all or any of the powers of the Board as they may think fit.

126. The Board may enter into such agreement or agreements with any such General Manager, Manager or Managers upon such terms and conditions in all respects as the Board may in their absolute discretion think fit, including a power for such General Manager, Manager or Managers to appoint an Assistant Manager or Managers or other employees whatsoever under them for the purpose of carrying on the business of the Company.

OFFICERS

127. (1) The officers of the Company shall consist of the president, vice-president, and Secretary and such additional officers (who may or may not be Directors) as the Board may from time to time determine, all of whom shall be deemed to be officers for the purposes of the Act and these Bye-laws as well as solely for the purposes of the Act, the chairman, deputy chairman and Directors.

(2) The Directors shall, as soon as may be after each appointment or election of Directors, elect amongst the Directors a president and a vice- president or a chairman and a deputy chairman; and if more than one (1) Director is proposed for either of these offices, the election to such office shall take place in such manner as the Directors may determine.

(3) The officers shall receive such remuneration as the Directors may from time to time determine.

(4) Where the Company does not have a quorum of Directors ordinarily resident in Bermuda, the Company shall in accordance with the Act appoint and maintain a resident representative ordinarily resident in Bermuda and the resident representative shall maintain an office in Bermuda and comply with the provisions of the Act.

The Company shall provide the resident representative with such documents and information as the resident representative may require in order to be able to comply with the provisions of the Act.

The resident representative shall be entitled to have notice of, attend and be heard at any Directors' meetings or general meeting of the Company.

128. (1) The Secretary and additional officers, if any, shall be appointed by the Board and shall hold office on such terms and for such period as the Board may determine. If thought fit, two (2) or more persons may be appointed as joint Secretaries. The Board may also appoint from time to time on such terms as it thinks fit one or more assistant or deputy Secretaries.

(2) The Secretary shall attend all meetings of the Members and shall keep correct minutes of such meetings and enter the same in the proper books provided for the purpose. He shall perform such other duties as are prescribed by the Act or these Bye-laws or as may be prescribed by the Board.

129. The President or the Chairman, as the case may be, shall act as chairman at all meetings of the Members and of the Directors at which he is present. In his absence a chairman shall be appointed or elected by those present at the meeting.

-35 - 130. The officers of the Company shall have such powers and perform such duties in the management, business and affairs of the Company as may be delegated to them by the Directors from time to time. In addition, the President of the Company shall have the power and is expressly authorized to enter into any contract, deed or other agreement that obliges the Company to make payments (or provide services or goods) in an amount (or having a fair value) not exceeding US$250,000 or, of such obligations is contemplated by and within the limits established by an Annual Budget and Operating Plan approved by the Board, obligates the Company to make payments (or provide services or goods) in an amount (or having a fair value) not exceeding US$1,000,000.

131. A provision of the Act or of these Bye-laws requiring or authorising a thing to be done by or to a Director and the Secretary shall not be satisfied by its being done by or to the same person acting both as Director and as or in place of the Secretary.

REGISTER OF DIRECTORS AND OFFICERS

132. (1) The Board shall cause to be kept in one or more books at its Office a Register of Directors and officers and shall enter therein the following particulars with respect to each Director and officer, that is to say:

(a) his or her first name and surname; and

(b) his or her address.

(2) The Board shall within a period of fourteen (14) days from the occurrence of -

(a) any change among its Directors and officers; or

(b) any change in the particulars contained in the Register of Directors and officers, cause to be entered on the Register of Directors and officers the particulars of such change and of the date on which it occurred.

(3) The Register of Directors and officers shall be open to inspection by members of the public without charge at the Office between 10:00 a.m. and 12:00 noon on every business day.

(4) In this Bye-law "officer" has the meaning ascribed to it in Section 92A(7) of the Act.

MINUTES

133. The Board shall cause Minutes to be duly entered in books provided for the purpose:

(a) of all elections and appointments of Directors and officers;

(b) of the names of the Directors present at each meeting of the Directors and of any committee of the Directors;

(c) of all resolutions and proceedings of each general meeting of the Members, meetings of the Board and meetings of committees of the Board.

SEAL

-36 - 134. (1) The Company shall have one or more Seals, as the Board may determine. For the purpose of sealing documents creating or evidencing securities issued by the Company, the Company may have a securities seal which is a facsimile of the Seal of the Company with the addition of the words "Securities Seal" on its face or in such other form as the Board may approve. The Board shall provide for the custody of each Seal and no Seal shall be used without the authority of the Board or of a committee of the Board authorised by the Board in that behalf. Subject as otherwise provided in these Bye-laws, any instrument to which a Seal is affixed shall be signed autographically by one Director and the Secretary or by two Directors or by such other person (including a Director) or persons as the Board may appoint, either generally or in any particular case, save that as regards any certificates for shares or debentures or other securities of the Company the Board may by resolution determine that such signatures or either of them shall be dispensed with or affixed by some method or system of mechanical signature. Every instrument executed in manner provided by this Bye-law shall be deemed to be sealed and executed with the authority of the Board previously given.

(2) Where the Company has a Seal for use abroad, the Board may by writing under the Seal appoint any agent or committee abroad to be the duly authorised agent of the Company for the purpose of affixing and using such Seal and the Board may impose restrictions on the use thereof as may be thought fit. Wherever in these Bye-laws reference is made to the Seal, the reference shall, when and so far as may be applicable, be deemed to include any such other Seal as aforesaid.

AUTHENTICATION OF DOCUMENTS

135. Any Director or the Secretary or any person appointed by the Board for the purpose may authenticate any documents affecting the constitution of the Company and any resolution passed by the Company or the Board or any committee, and any books, records, documents and accounts relating to the business of the Company, and to certify copies thereof or extracts therefrom as true copies or extracts, and if any books, records, documents or accounts are elsewhere than at the Office or the head office the local manager or other officer of the Company having the custody thereof shall be deemed to be a person so appointed by the Board. A document purporting to be a copy of a resolution, or an extract from the minutes of a meeting, of the Company or of the Board or any committee which is so certified shall be conclusive evidence in favour of all persons dealing with the Company upon the faith thereof that such resolution has been duly passed or, as the case may be, that such minutes or extract is a true and accurate record of proceedings at a duly constituted meeting.

DESTRUCTION OF DOCUMENTS

136. The Company shall be entitled to destroy the following documents at the following times:

(a) any share certificate which has been cancelled at any time after the expiry of one (1) year from the date of such cancellation;

(b) any dividend mandate or any variation or cancellation thereof or any notification of change of name or address at any time after the expiry of two (2) years from the date such mandate variation cancellation or notification was recorded by the Company;

(c) any instrument of transfer of shares which has been registered at any time after the expiry of seven (7) years from the date of registration;

(d) any allotment letters after the expiry of seven (7) years from the date of issue thereof; and

(e) copies of powers of attorney, grants of probate and letters of administration at any time after the expiry of seven (7) years after the account to which the relevant power of attorney, grant of probate or letters of administration related has been closed;

-37 - and it shall conclusively be presumed in favour of the Company that every entry in the Register purporting to be made on the basis of any such documents so destroyed was duly and properly made and every share certificate so destroyed was a valid certificate duly and properly cancelled and that every instrument of transfer so destroyed was a valid and effective instrument duly and properly registered and that every other document destroyed hereunder was a valid and effective document in accordance with the recorded particulars thereof in the books or records of the Company. Provided always that: (1) the foregoing provisions of this Bye-law shall apply only to the destruction of a document in good faith and without express notice to the Company that the preservation of such document was relevant to a claim; (2) nothing contained in this Bye-law shall be construed as imposing upon the Company any liability in respect of the destruction of any such document earlier than as aforesaid or in any case where the conditions of proviso (1) above are not fulfilled; and (3) references in this Bye-law to the destruction of any document include references to its disposal in any manner.

DIVIDENDS AND OTHER PAYMENTS

137. Subject to the Act, the Company in General Meeting may from time to time declare dividends in any currency to be paid to the Members but no dividend shall be declared in excess of the amount recommended by the Board. The Company in general meeting may also make a distribution to the Members out of any contributed surplus (as ascertained in accordance with the Act).

138. No dividend shall be paid or distribution made out of contributed surplus if to do so would render the Company unable to pay its liabilities as they become due or the realisable value of its assets would thereby become less than the aggregate of its liabilities and its issued share capital and share premium accounts.

139. Except in so far as the rights attaching to, or the terms of issue of, any share otherwise provide:

(a) all dividends shall be declared and paid according to the amounts paid up on the shares in respect of which the dividend is paid, but no amount paid up on a share in advance of calls shall be treated for the purposes of this Bye-law as paid up on the share; and

(b) all dividends shall be apportioned and paid pro rata according to the amounts paid up on the shares during any portion or portions of the period in respect of which the dividend is paid.

140. The Board may from time to time pay to the Members such interim dividends as appear to the Board to be justified by the profits of the Company and in particular (but without prejudice to the generality of the foregoing) if at any time the share capital of the Company is divided into different classes, the Board may pay such interim dividends in respect of those shares in the capital of the Company which confer on the holders thereof deferred or non-preferential rights as well as in respect of those shares which confer on the holders thereof preferential rights with regard to dividend and provided that the Board acts bona fide the Board shall not incur any responsibility to the holders of shares conferring any preference for any damage that they may suffer by reason of the payment of an interim dividend on any shares having deferred or non-preferential rights and may also pay any fixed dividend which is payable on any shares of the Company half-yearly or on any other dates, whenever such profits, in the opinion of the Board, justifies such payment.

141. The Board may deduct from any dividend or other moneys payable to a Member by the Company on or in respect of any shares all sums of money (if any) presently payable by him to the Company on account of calls or otherwise.

-38 - 142. No dividend or other moneys payable by the Company on or in respect of any share shall bear interest against the Company.

143. Any dividend, interest or other sum payable in cash to the holder of shares may be paid by cheque or warrant sent through the post addressed to the holder at his registered address or, in the case of joint holders, addressed to the holder whose name stands first in the Register in respect of the shares at his address as appearing in the Register or addressed to such person and at such address as the holder or joint holders may in writing direct. Every such cheque or warrant shall, unless the holder or joint holders otherwise direct, be made payable to the order of the holder or, in the case of joint holders, to the order of the holder whose name stands first on the Register in respect of such shares, and shall be sent at his or their risk and payment of the cheque or warrant by the bank on which it is drawn shall constitute a good discharge to the Company notwithstanding that it may subsequently appear that the same has been stolen or that any endorsement thereon has been forged. Any one of two or more joint holders may give effectual receipts for any dividends or other moneys payable or property distributable in respect of the shares held by such joint holders.

144. All dividends or bonuses unclaimed for one (1) year after having been declared may be invested or otherwise made use of by the Board for the benefit of the Company until claimed. Any dividend or bonuses unclaimed after a period of six (6) years from the date of declaration shall be forfeited and shall revert to the Company. The payment by the Board of any unclaimed dividend or other sums payable on or in respect of a share into a separate account shall not constitute the Company a trustee in respect thereof.

145. Whenever the Board or the Company in general meeting has resolved that a dividend be paid or declared, the Board may further resolve that such dividend be satisfied wholly or in part by the distribution of specific assets of any kind and in particular of paid up shares, debentures or warrants to subscribe securities of the Company or any other company, or in any one or more of such ways, and where any difficulty arises in regard to the distribution the Board may settle the same as it thinks expedient, and in particular may issue certificates in respect of fractions of shares, disregard fractional entitlements or round the same up or down, and may fix the value for distribution of such specific assets, or any part thereof, and may determine that cash payments shall be made to any members upon the footing of the value so fixed in order to adjust the rights of all parties, and may vest any such specific assets in trustees as may seem expedient to the Board and may appoint any person to sign any requisite instruments of transfer and other documents on behalf of the persons entitled to the dividend, and such appointment shall be effective and binding on the Members. The Board may resolve that no such assets shall be made available to Members with registered addresses in any particular territory or territories where, in the absence of a registration statement or other special formalities, such distribution of assets would or might, in the opinion of the Board, be unlawful or impracticable and in such event the only entitlement of the Members aforesaid shall be to receive cash payments as aforesaid. Members affected as a result of the foregoing sentence shall not be or be deemed to be a separate class of Members for any purpose whatsoever.

146. (1) Whenever the Board or the Company in general meeting has resolved that a dividend be paid or declared on any class of the share capital of the Company, the Board may further resolve either:

(a) that such dividend be satisfied wholly or in part in the form of an allotment of shares credited as fully paid up, provided that the shareholders entitled thereto will be entitled to elect to receive such dividend (or part thereof if the Board so determines) in cash in lieu of such allotment. In such case, the following provisions shall apply:

(i) the basis of any such allotment shall be determined by the Board;

-39 - (ii) the Board, after determining the basis of allotment, shall give not less than two (2) weeks' notice in writing to the holders of the relevant shares of the right of election accorded to them and shall send with such notice forms of election and specify the procedure to be followed and the place at which and the latest date and time by which duly completed forms of election must be lodged in order to be effective;

(iii) the right of election may be exercised in respect of the whole or part of that portion of the dividend in respect of which the right of election has been accorded; and

(iv) the dividend (or that part of the dividend to be satisfied by the allotment of shares as aforesaid) shall not be payable in cash on shares in respect whereof the cash election has not been duly exercised ("the non-elected shares") and in satisfaction thereof shares of the relevant class shall be allotted credited as fully paid up to the holders of the non-elected shares on the basis of allotment determined as aforesaid and for such purpose the Board shall capitalise and apply out of any part of the undivided profits of the Company (including profits carried and standing to the credit of any reserves or other special account other than the Subscription Rights Reserve) as the Board may determine, such sum as may be required to pay up in full the appropriate number of shares of the relevant class for allotment and distribution to and amongst the holders of the non-elected shares on such basis; or

(b) that the shareholders entitled to such dividend shall be entitled to elect to receive an allotment of shares credited as fully paid up in lieu of the whole or such part of the dividend as the Board may think fit. In such case, the following provisions shall apply:

(i) the basis of any such allotment shall be determined by the Board;

-40 - (ii) the Board, after determining the basis of allotment, shall give not less than two (2) weeks' notice in writing to the holders of the relevant shares of the right of election accorded to them and shall send with such notice forms of election and specify the procedure to be followed and the place at which and the latest date and time by which duly completed forms of election must be lodged in order to be effective;

(iii) the right of election may be exercised in respect of the whole or part of that portion of the dividend in respect of which the right of election has been accorded; and

(iv) the dividend (or that part of the dividend in respect of which a right of election has been accorded) shall not be payable in cash on shares in respect whereof the share election has been duly exercised ("the elected shares") and in lieu thereof shares of the relevant class shall be allotted credited as fully paid up to the holders of the elected shares on the basis of allotment determined as aforesaid and for such purpose the Board shall capitalise and apply out of any part of the undivided profits of the Company (including profits carried and standing to the credit of any reserves or other special account other than the Subscription Rights Reserve) as the Board may determine, such sum as may be required to pay up in full the appropriate number of shares of the relevant class for allotment and distribution to and amongst the holders of the elected shares on such basis.

(2) (a) The shares allotted pursuant to the provisions of paragraph (1) of this Bye-law shall rank pari passu in all respects with shares of the same class (if any) then in issue save only as regards participation in the relevant dividend or in any other distributions, bonuses or rights paid, made, declared or announced prior to or contemporaneously with the payment or declaration of the relevant dividend unless, contemporaneously with the announcement by the Board of their proposal to apply the provisions of sub-paragraph (a) or (b) of paragraph (2) of this Bye-law in relation to the relevant dividend or contemporaneously with their announcement of the distribution, bonus or rights in question, the Board shall specify that the shares to be allotted pursuant to the provisions of paragraph (1) of this Bye-law shall rank for participation in such distribution, bonus or rights.

-41 - (b) The Board may do all acts and things considered necessary or expedient to give effect to any capitalisation pursuant to the provisions of paragraph (1) of this Bye-law, with full power to the Board to make such provisions as it thinks fit in the case of shares becoming distributable in fractions (including provisions whereby, in whole or in part, fractional entitlements are aggregated and sold and the net proceeds distributed to those entitled, or are disregarded or rounded up or down or whereby the benefit of fractional entitlements accrues to the Company rather than to the members concerned). The Board may authorise any person to enter into on behalf of all Members interested, an agreement with the Company providing for such capitalisation and matters incidental thereto and any agreement made pursuant to such authority shall be effective and binding on all concerned.

(3) The Company may upon the recommendation of the Board by ordinary resolution resolve in respect of any one particular dividend of the Company that notwithstanding the provisions of paragraph (1) of this Bye-law a dividend may be satisfied wholly in the form of an allotment of shares credited as fully paid up without offering any right to shareholders to elect to receive such dividend in cash in lieu of such allotment.

(4) The Board may on any occasion determine that rights of election and the allotment of shares under paragraph (1) of this Bye-law shall not be made available or made to any shareholders with registered addresses in any territory where, in the absence of a registration statement or other special formalities, the circulation of an offer of such rights of election or the allotment of shares would or might, in the opinion of the Board, be unlawful or impracticable, and in such event the provisions aforesaid shall be read and construed subject to such determination. Members affected as a result of the foregoing sentence shall not be or be deemed to be a separate class of Members for any purpose whatsoever.

(5) Any resolution declaring a dividend on shares of any class, whether a resolution of the Company in general meeting or a resolution of the Board, may specify that the same shall be payable or distributable to the persons registered as the holders of such shares at the close of business on a particular date, notwithstanding that it may be a date prior to that on which the resolution is passed, and thereupon the dividend shall be payable or distributable to them in accordance with their respective holdings so registered, but without prejudice to the rights inter se in respect of such dividend of transferors and transferees of any such shares. The provisions of this Bye-law shall mutatis mutandis apply to bonuses, capitalisation issues, distributions of realised capital profits or offers or grants made by the Company to the Members.

RESERVES

147. Before recommending any dividend, the Board may set aside out of the profits of the Company such sums as it determines as reserves which shall, at the discretion of the Board, be applicable for any purpose to which the profits of the Company may be properly applied and pending such application may, also at such discretion, either be employed in the business of the Company or be invested in such investments as the Board may from time to time think fit and so that it shall not be necessary to keep any investments constituting the reserve or reserves separate or distinct from any other investments of the Company. The Board may also without placing the same to reserve carry forward any profits which it may think prudent not to distribute.

CAPITALISATION

-42 - 148. The Company may, upon the recommendation of the Board, at any time and from time to time pass an ordinary resolution to the effect that it is desirable to capitalise all or any part of any amount for the time being standing to the credit of any reserve or fund (including the profit and loss account) whether or not the same is available for distribution and accordingly that such amount be set free for distribution among the Members or any class of members who would be entitled thereto if it were distributed by way of dividend and in the same proportions, on the footing that the same is not paid in cash but is applied either in or towards paying up the amounts for the time being unpaid on any shares in the Company held by such Members respectively or in paying up in full unissued shares, debentures or other obligations of the Company, to be allotted and distributed credited as fully paid up among such members, or partly in one way and partly in the other, and the Board shall give effect to such resolution provided that, for the purposes of this Bye-law and subject to Section 40(2A) of the Act, a share premium account and any reserve or fund representing unrealised profits, may be applied only in paying up in full unissued shares of the Company to be allotted to such Members credited as fully paid. In carrying sums to reserve and in applying the same the Board shall comply with the provisions of the Act.

149. The Board may settle, as it considers appropriate, any difficulty arising in regard to any distribution under the last preceding Bye-law and in particular may issue certificates in respect of fractions of shares or authorise any person to sell and transfer any fractions or may resolve that the distribution should be as nearly as may be practicable in the correct proportion but not exactly so or may ignore fractions altogether, and may determine that cash payments shall be made to any Members in order to adjust the rights of all parties, as may seem expedient to the Board. The Board may appoint any person to sign on behalf of the persons entitled to participate in the distribution any contract necessary or desirable for giving effect thereto and such appointment shall be effective and binding upon the Members.

SUBSCRIPTION RIGHTS RESERVE

150. The following provisions shall have effect to the extent that they are not prohibited by and are in compliance with the Act:

(1) If, so long as any of the rights attached to any warrants issued by the Company to subscribe for shares of the Company shall remain exercisable, the Company does any act or engages in any transaction which, as a result of any adjustments to the subscription price in accordance with the provisions of the conditions of the warrants, would reduce the subscription price to below the par value of a share, then the following provisions shall apply:

(a) as from the date of such act or transaction the Company shall establish and thereafter (subject as provided in this Bye-law) maintain in accordance with the provisions of this Bye-law a reserve (the "Subscription Rights Reserve") the amount of which shall at no time be less than the sum which for the time being would be required to be capitalised and applied in paying up in full the nominal amount of the additional shares required to be issued and allotted credited as fully paid pursuant to sub- paragraph (c) below on the exercise in full of all the subscription rights outstanding and shall apply the Subscription Rights Reserve in paying up such additional shares in full as and when the same are allotted;

(b) the Subscription Rights Reserve shall not be used for any purpose other than that specified above unless all other reserves of the Company (other than share premium account) have been extinguished and will then only be used to make good losses of the Company if and so far as is required by law;

-43 - (c) upon the exercise of all or any of the subscription rights represented by any warrant, the relevant subscription rights shall be exercisable in respect of a nominal amount of shares equal to the amount in cash which the holder of such warrant is required to pay on exercise of the subscription rights represented thereby (or, as the case may be the relevant portion thereof in the event of a partial exercise of the subscription rights) and, in addition, there shall be allotted in respect of such subscription rights to the exercising warrant holder, credited as fully paid, such additional nominal amount of shares as is equal to the difference between:

(i) the said amount in cash which the holder of such warrant is required to pay on exercise of the subscription rights represented thereby (or, as the case may be, the relevant portion thereof in the event of a partial exercise of the subscription rights); and

(ii) the nominal amount of shares in respect of which such subscription rights would have been exercisable having regard to the provisions of the conditions of the warrants, had it been possible for such subscription rights to represent the right to subscribe for shares at less than par and immediately upon such exercise so much of the sum standing to the credit of the Subscription Rights Reserve as is required to pay up in full such additional nominal amount of shares shall be capitalised and applied in paying up in full such additional nominal amount of shares which shall forthwith be allotted credited as fully paid to the exercising warrant holders; and

(d) if, upon the exercise of the subscription rights represented by any warrant, the amount standing to the credit of the Subscription Rights Reserve is not sufficient to pay up in full such additional nominal amount of shares equal to such difference as aforesaid to which the exercising warrant holder is entitled, the Board shall apply any profits or reserves then or thereafter becoming available (including, to the extent permitted by law, share premium account) for such purpose until such additional nominal amount of shares is paid up and allotted as aforesaid and until then no dividend or other distribution shall be paid or made on the fully paid shares of the Company then in issue. Pending such payment and allotment, the exercising warrant holder shall be issued by the Company with a certificate evidencing his right to the allotment of such additional nominal amount of shares. The rights represented by any such certificate shall be in registered form and shall be transferable in whole or in part in units of one share in the like manner as the shares for the time being are transferable, and the Company shall make such arrangements in relation to the maintenance of a register therefor and other matters in relation thereto as the Board may think fit and adequate particulars thereof shall be made known to each relevant exercising warrant holder upon the issue of such certificate.

(2) Shares allotted pursuant to the provisions of this Bye-law shall rank pari passu in all respects with the other shares allotted on the relevant exercise of the subscription rights represented by the warrant concerned. Notwithstanding anything contained in paragraph (1) of this Bye-law, no fraction of any share shall be allotted on exercise of the subscription rights.

-44 - (3) The provision of this Bye-law as to the establishment and maintenance of the Subscription Rights Reserve shall not be altered or added to in any way which would vary or abrogate, or which would have the effect of varying or abrogating the provisions for the benefit of any warrant holder or class of warrant holders under this Bye-law without the sanction of a special resolution of such warrant holders or class of warrant holders.

(4) A certificate or report by the auditors for the time being of the Company as to whether or not the Subscription Rights Reserve is required to be established and maintained and if so the amount thereof so required to be established and maintained, as to the purposes for which the Subscription Rights Reserve has been used, as to the extent to which it has been used to make good losses of the Company, as to the additional nominal amount of shares required to be allotted to exercising warrant holders credited as fully paid, and as to any other matter concerning the Subscription Rights Reserve shall (in the absence of manifest error) be conclusive and binding upon the Company and all warrant holders and shareholders.

ACCOUNTING RECORDS

151. The Board shall cause true accounts to be kept of the sums of money received and expended by the Company, and the matters in respect of which such receipt and expenditure take place, and of the property, assets, credits and liabilities of the Company and of all other matters required by the Act or necessary to give a true and fair view of the Company's affairs and to explain its transactions.

152. The accounting records shall be kept at the Office or, subject to the Act, at such other place or places as the Board decides and shall always be open to inspection by the Directors of the Company. No Member (other than a Director of the Company) shall have any right of inspecting any accounting record or book or document of the Company except as conferred by law or authorised by the Board or the Company in general meeting.

153. Subject to Section 88 of the Act, a printed copy of the Directors' report, accompanied by the balance sheet and profit and loss account, including every document required by law to be annexed thereto, made up to the end of the applicable financial year and containing a summary of the assets and liabilities of the Company under convenient heads and a statement of income and expenditure, together with a copy of the Auditors' report, shall be sent to each person entitled thereto at least twenty-one (21) days before the date of the general meeting and laid before the Company in general meeting in accordance with the requirements of the Act provided that this Bye-law shall not require a copy of those documents to be sent to any person whose address the Company is not aware or to more than one of the joint holders of any shares or debentures.

AUDIT

154. (1) Subject to Section 88 of the Act, at the annual general meeting or at a subsequent special general meeting in each year, the Members shall appoint an auditor to audit the accounts of the Company and such auditor shall hold office until the Members appoint another auditor. Such auditor may be a Member but no Director or officer or employee of the Company shall, during his continuance in office, be eligible to act as an auditor of the Company.

(2) Subject to Section 89 of the Act, a person, other than a retiring Auditor, shall not be capable of being appointed Auditor at an annual general meeting unless notice in writing of an intention to nominate that person to the office of Auditor has been given not less than fourteen (14) days before the annual general meeting and furthermore, the Company shall send a copy of any such notice to the retiring Auditor.

-45 - (3) The Members may, at any general meeting convened and held in accordance with these Bye-laws, by special resolution remove the Auditor at any time before the expiration of his term of office and shall by ordinary resolution at that meeting appoint another Auditor in his stead for the remainder of his term.

155. Subject to Section 88 of the Act the accounts of the Company shall be audited at least once in every year.

156. The remuneration of the Auditor shall be fixed by the Company in general meeting or in such manner as the Members may determine.

157. If the office of auditor becomes vacant by the resignation or death of the Auditor, or by his becoming incapable of acting by reason of illness or other disability at a time when his services are required, the Directors shall as soon as practicable convene a special general meeting to fill the vacancy.

158. The Auditor shall at all reasonable times have access to all books kept by the Company and to all accounts and vouchers relating thereto; and he may call on the Directors or officers of the Company for any information in their possession relating to the books or affairs of the Company.

159. The statement of income and expenditure and the balance sheet provided for by these Bye-Laws shall be examined by the Auditor and compared by him with the books, accounts and vouchers relating thereto; and he shall make a written report thereon stating whether such statement and balance sheet are drawn up so as to present fairly the financial position of the Company and the results of its operations for the period under review and, in case information shall have been called for from Directors or officers of the Company, whether the same has been furnished and has been satisfactory. The financial statements of the Company shall be audited by the Auditor in accordance with generally accepted auditing standards. The Auditor shall make a written report thereon in accordance with generally accepted auditing standards and the report of the Auditor shall be submitted to the Members in general meeting. The generally accepted auditing standards referred to herein may be those of a country or jurisdiction other than Bermuda. If so, the financial statements and the report of the Auditor should disclose this fact and name such country or jurisdiction.

NOTICES

-46 - 160. Any Notice from the Company to a Member shall be given in writing or by cable, telex or facsimile transmission message and any such Notice and (where appropriate) any other document may be served or delivered by the Company on or to any Member either personally or by sending it through the post in a prepaid envelope addressed to such Member at his registered address as appearing in the Register or at any other address supplied by him to the Company for the purpose or, as the case may be, by transmitting it to any such address or transmitting it to any telex or facsimile transmission number supplied by him to the Company for the giving of Notice to him or which the person transmitting the notice reasonably and bona fide believes at the relevant time will result in the Notice being duly received by the Member or may also be served by advertisement in appointed newspapers (as defined in the Act) or in accordance with the requirements of the Designated Stock Exchange. In the case of joint holders of a share all notices shall be given to that one of the joint holders whose name stands first in the Register and notice so given shall be deemed a sufficient service on or delivery to all the joint holders.

161. Any Notice or other document:

(a) if served or delivered by post, shall be sent airmail where appropriate and shall be deemed to have been served or delivered on the day following that on which the envelope containing the same, properly prepaid and addressed, is put into the post; in proving such service or delivery it shall be sufficient to prove that the envelope or wrapper containing the notice or document was properly addressed and put into the post and a certificate in writing signed by the Secretary or other officer of the Company or other person appointed by the Board that the envelope or wrapper containing the notice or other document was so addressed and put into the post shall be conclusive evidence thereof; and

(b) if served or delivered in any other manner contemplated by these Bye-laws, shall be deemed to have been served or delivered at the time of personal service or delivery or, as the case may be, at the time of the relevant despatch or transmission; and in proving such service or delivery a certificate in writing signed by the Secretary or other officer of the Company or other person appointed by the Board as to the fact and time of such service, delivery, despatch or transmission shall be conclusive evidence thereof.

162. (1) Any Notice or other document delivered or sent by post to or left at the registered address of any Member in pursuance of these Bye- laws shall, notwithstanding that such Member is then dead or bankrupt or that any other event has occurred, and whether or not the Company has notice of the death or bankruptcy or other event, be deemed to have been duly served or delivered in respect of any share registered in the name of such Member as sole or joint holder unless his name shall, at the time of the service or delivery of the notice or document, have been removed from the Register as the holder of the share, and such service or delivery shall for all purposes be deemed a sufficient service or delivery of such Notice or document on all persons interested (whether jointly with or as claiming through or under him) in the share.

(2) A notice may be given by the Company to the person entitled to a share in consequence of the death, mental disorder or bankruptcy of a Member by sending it through the post in a prepaid letter, envelope or wrapper addressed to him by name, or by the title of representative of the deceased, or trustee of the bankrupt, or by any like description, at the address, if any, supplied for the purpose by the person claiming to be so entitled, or (until such an address has been so supplied) by giving the notice in any manner in which the same might have been given if the death, mental disorder or bankruptcy had not occurred.

(3) Any person who by operation of law, transfer or other means whatsoever shall become entitled to any share shall be bound by every notice in respect of such share which prior to his name and address being entered on the Register shall have been duly given to the person from whom he derives his title to such share.

-47 - SIGNATURES

163. For the purposes of these Bye-laws, a cable or telex or facsimile transmission message purporting to come from a holder of shares or, as the case may be, a Director or alternate Director, or, in the case of a corporation which is a holder of shares from a director or the secretary thereof or a duly appointed attorney or duly authorised representative thereof for it and on its behalf, shall in the absence of express evidence to the contrary available to the person relying thereon at the relevant time be deemed to be a document or instrument in writing signed by such holder or Director or alternate Director in the terms in which it is received.

WINDING UP

164. (1) The Board shall have power in the name and on behalf of the Company to present a petition to the court for the Company to be wound up.

(2) A resolution that the Company be wound up by the court or be wound up voluntarily shall be a special resolution.

165. If the Company shall be wound up (whether the liquidation is voluntary or by the court) the liquidator may, with the authority of a special resolution and any other sanction required by the Act, divide among the Members in specie or kind the whole or any part of the assets of the Company and whether or not the assets shall consist of properties of one kind or shall consist of properties to be divided as aforesaid of different kinds, and may for such purpose set such value as he deems fair upon any one or more class or classes of property and may determine how such division shall be carried out as between the Members or different classes of Members. The liquidator may, with the like authority, vest any part of the assets in trustees upon such trusts for the benefit of the Members as the liquidator with the like authority shall think fit, and the liquidation of the Company may be closed and the Company dissolved, but so that no contributory shall be compelled to accept any shares or other property in respect of which there is a liability.

INDEMNITY

-48 - 166. (1) The Directors, Secretary and other officers and each person who is or was or had agreed to become a Director or officer of the Company, and each such person who is or was serving or who had agreed to serve at the request of the Board of Directors or an officer of the Company as an employee or agent of the Company or as a Director, officer, employee or agent of another company, corporation, partnership, joint venture, trust or other enterprise and every Auditor for the time being of the Company and the liquidator or trustees (if any) for the time being acting in relation to any of the affairs of the Company and everyone of them, and every one of their heirs, executors, administrators and estates, shall be indemnified and secured harmless out of the assets and profits of the Company from and against all actions, costs, charges, losses, damages and expenses which they or any of them, their or any of their heirs, executors, administrators or estates, shall or may incur or sustain by or by reason of any act done, concurred in or omitted in or about the execution of their the duty, or supposed duty, in their respective offices or trusts; and none of them shall be answerable for the acts, receipts, neglects or defaults of the other or others of them or for joining in any receipts for the sake of conformity, or for any bankers or other persons with whom any moneys or effects belonging to the Company shall or may be lodged or deposited for safe custody, or for insufficiency or deficiency of any security upon which any moneys of or belonging to the Company shall be placed out on or invested, or for any other loss, misfortune or damage which may happen in the execution of their respective offices or trusts, or in relation thereto; PROVIDED THAT this indemnity shall not extend to any matter in respect of any fraud or dishonesty which may attach to any of said persons. Subject to the provisions of the Act and without limiting the generality or the effect of the foregoing, the Company may enter into one or more agreements with any person which provide for indemnification greater or different than that provided in this Bye-law 166(1). Any repeal or modification of this Bye-law 166(1) shall not adversely affect any right or protection existing hereunder immediately prior to such repeal or modification.

ALTERATION OF BYE-LAWS & AMENDMENT TO MEMORANDUM OF ASSOCIATION

167. No Bye-Law shall be rescinded, altered or amended and no new Bye-Law shall be made until the same has been approved by a resolution of the Directors and confirmed by an ordinary resolution of the holders of Common Shares.

INFORMATION

168. No Member shall be entitled to require discovery of or any information respecting any detail of the Company's trading or any matter which is or may be in the nature of a trade secret or secret process which may relate to the conduct of the business of the Company and which in the opinion of the Directors it will be inexpedient in the interests of the members of the Company to communicate to the public.

***** *** * EMPLOYMENT AGREEMENT

AGREEMENT made as of the 21st day of July, 2000, by and between CME Development Corporation, a Delaware corporation (the "Corporation"), and Mark Wyllie ("Wyllie" together with the Corporation, the "Parties").

WITNESSETH:

WHEREAS, the Corporation wishes to employ Wyllie, and Wyllie wishes to be employed by the Corporation, on the terms and conditions set forth below;

NOW, THEREFORE, in consideration of the foregoing and the terms and conditions contained herein, the parties hereto agree as follows:

1. Position and Responsibilities.

1.1. Subject to Section 2.4 hereof, the Corporation hereby employs Wyllie to serve as Finance Director of the Corporation. Subject to the direction and authorization of the Vice-President and Chief Financial Officer of the Corporation or in his or her absence or in case such position is vacant the direction or authorization of the Chief Operating Officer or such other executive as determined by the President and the Chief Executive Officer, Wyllie shall perform such functions and undertake such responsibilities as are customarily associated with such a position. Wyllie shall hold such directorships and executive officerships in the Corporation and any subsidiary to which, from time to time, he may be elected or appointed during the term of this Agreement.

1.2. Wyllie shall devote his full time and best efforts to the business and affairs of the Corporation and to the promotion of its interests.

2. Term.

2.1. The term of this Agreement shall commence on 12th September, 2000, and shall be for an indefinite period of time.

2.2. Notwithstanding the provisions of Section 2.1 hereof, the Corporation shall have the right, on written notice to Wyllie, to terminate this Agreement for Cause (as defined herein), such termination to be effective seven days after the date on which written notice is given or as of such later date otherwise specified in the notice.

2.3. For purposes of this Agreement, the term "Cause" shall mean fraud or dishonesty or acts of gross negligence in the course of providing his services herein which are injurious to the Corporation; wilful misrepresentation to shareholders or directors which is injurious to the Corporation; a wilful failure without reasonable justification to comply with a reasonable written order of the President and Chief Executive or the Board of Directors of Central European Media Enterprises Ltd. (the "Board of Directors"), which shall not be cured within 20 days after written notice; a

1 wilful and material breach of this Agreement, which shall not be cured within 20 days after written notice; or the commission of a felony.

2.4. For purposes of this Agreement, the term "Good Reason" shall mean any of the following: (a) a re-assignment of Wyllie to a position outside of the UK; or (b) failure by the Corporation to comply with any of the material terms of this Agreement, which shall not have been cured within 20 days after written notice thereof. For a period of 30 days after the occurrence of a Good Reason event, Wyllie shall have the right to terminate this Agreement for Good Reason.

2.5. If this (i) Agreement shall be terminated (a) by the Corporation other than pursuant to Sections 2.2, 4.1 or 4.2 hereof or (b) by Wyllie for Good Reason (as defined herein) then the Corporation shall continue to pay to Wyllie his salary for 6 (six) months following the date of termination, but Wyllie shall not be entitled to receive any other compensation, bonuses, benefits or other payments relating to such 6 (six) month period.

2.6. Upon termination of this Agreement for any reason, the Corporation will immediately pay Wyllie all amounts due and owing, including but not limited to bonuses, accrued vacation, expense reimbursements and earned salary.

2.7. Upon expiration or termination of this Agreement, including any extension thereof, for any reason, all directorships or executive officerships in the Corporation or any of its affiliates to which Wyllie was elected or appointed shall also immediately terminate.

2.8. In the event that Wyllie wishes to terminate this Agreement for other than Good Reason, Wyllie agrees to give the corporation three months notice. Nevertheless, at the option of the Corporation, Wyllie shall be required to perform his duties during this notice period.

3. Salary.

3.1. The Corporation shall pay to Wyllie for the services to be rendered by Wyllie hereunder a base salary at the rate of GBP 100,000 per annum. The salary shall be payable in equal monthly instalments of GBP 8,333.33.

3.2. From 2001 onwards, the Corporation shall provide Wyllie with the opportunity to earn an annual performance pay. The amount of any such annual performance pay shall be determined by the CEO of the Corporation and will be assessed on the basis of achievement of yearly personal deliverables, the performance of the Company on a combined EBITDA Basis and subject to the Compensation Committee's approval in its sole discretion. The target performance pay shall be 30% of the yearly compensation. The personal deliverables shall be established annually together with the CEO as part of the budget process. The amount of the performance payment shall based upon combined station and corporate EBITDA in relation to Budget. If the Budget is achieved, Wyllie shall be eligible for 100% of the target performance pay. If EBITDA is 150% of Budget, Wyllie will be eligible for a payment equal to 200% of target. Amounts of performance pay between 100% and 200% based upon EBITDA are calculated according to a non-linear sliding scale. Bonus payment shall be made in two

2 instalments. The first instalment shall be made in the first pay period following the Board's approval of the audited financial statements and the second instalment shall be made in the July pay period. In order to be eligible for these instalments Wyllie must be a full time employee of the Corporation at the time the payment is due. In the event of any dispute in the calculation of the performance pay entitlement the decision of the compensation committee shall be final. For the year 2000 Wyllie shall be eligible for a pro-rata portion of such performance pay equal to 25% of the amount otherwise payable by calculation if Wyllie had been the employee of the Corporation for the entire year.

3.3. Wyllie shall be entitled to participate in, and receive benefits from, any insurance, medical, disability, bonus, incentive compensation, or other employee benefit plan, if any are adopted, of the Corporation or any subsidiary which may be in effect at any time during this Agreement, provided that in any event Wyllie shall, at the Corporation's expense, be entitled to private medical insurance for himself, his partner and dependent children, disability insurance and permanent health insurance at the maximum permissible levels from time to time, and life insurance in an amount commensurate with the life insurance offered to the other senior executives of the Corporation. These benefits will not be reduced from the present level without his prior written consent. The health insurance provided to Wyllie shall be BUPA Health coverage or any equivalent to that provided by his previous employer.

3.4. The Corporation agrees to reimburse Wyllie for all reasonable and necessary business expenses incurred by him on behalf of the Corporation in the course of his duties hereunder upon the presentation by Wyllie of appropriate receipts therefore.

3.5. Wyllie shall be entitled to four weeks paid vacation per year or such other greater number of days provided for similar executives of the Company.

3.6. In the event of completion of a successful reorganisation of the Corporation, the Corporation shall grant to Wyllie an option at least equal to any options granted to any other director level employee at the first opportunity following the completion of the reorganisation. Subject to the Corporation's then applicable Stock Option Plan, the anticipated initial grant will be equal to 0.5% of the total issued and outstanding shares at the time although no specific quantity of options can be committed to at this time. In addition, the Corporation may at its sole discretion extend the Stock Option Plan in the future. The timing and amount of any subsequent option awards shall be at the discretion of the Compensation Committee and the Board of Directors of the Corporation. Options will be incentive stock options to the extent permitted by Section 422(d) of the US Internal Revenue Code 1986, as amended.

4. Death; Incapacity.

4.1. If, during the Term, because of illness or other incapacity, Wyllie shall fail for a period of 180 consecutive days, or for shorter periods aggregating more than 180 days during any twelve month period, to render the services contemplated hereunder, then the Corporation, at its option, may terminate this Agreement by notice from the Corporation to Wyllie, effective on the giving of such notice.

3 4.2. In the event of the death of Wyllie during the Term, this Agreement shall terminate on the date of such death.

4.3. Upon termination of this Agreement, the Corporation shall pay to Wyllie or his legal representatives any amounts owed to him including but not limited to expense reimbursement, accrued vacation and earned bonuses, and Wyllie shall pay to the Corporation any amounts owed to the Corporation, to the date of termination.

5. Other Activities During Agreement.

5.1. During the Term and for a period of two years thereafter, and except as contemplated herein, neither Wyllie nor any entity in which he may be interested as a partner, trustee, director, officer, employee, shareholder, option holder, lender of money or guarantor (each, a "Wyllie Affiliate") shall be engaged directly or indirectly in the business of licensing of television or radio stations and provision of programming engaged in by the Corporation, or any subsidiary, in any country in Europe where the Corporation, or any subsidiary, conducts such business at any time during the Term (a "Competitive Activity"); provided, however, that the foregoing shall not be deemed to prevent Wyllie from investing in not more than 5% of the outstanding securities of a public company. If, for a period of two years after the Term, Wyllie or a Wyllie Affiliate proposes to engage in what may be a Competitive Activity, Wyllie shall so notify the Corporation in writing which shall fully set forth and describe in detail the nature of the activity which may be a Competitive Activity, the names of the companies or other entities with or for whom such activity is proposed to be undertaken, and whether it is proposed to be engaged in by Wyllie or by a Wyllie Affiliate (the "Section 5 Notice"). If, within 30 days after notice to the Corporation pursuant to a Section 5 Notice, the Corporation shall fail to notify Wyllie that it deems the proposed activity to be a Competitive Activity, then Wyllie shall be free to engage in the activities described in the Section 5 Notice without violation of this Section 5.1. It is understood and agreed that any opportunity directly or indirectly related to any business engaged in by the Corporation, or any subsidiary, in any country in Europe where the Corporation, or any subsidiary, conducts such business at any time during the Term shall be deemed a corporate opportunity of the Corporation and Wyllie shall promptly make such opportunity available exclusively to the Corporation.

5.2. Wyllie shall not at any time during this Agreement or after the termination hereof directly or indirectly divulge, furnish, use, publish or make accessible to any person or entity other than Central European Media Enterprises Ltd. Or any subsidiary thereof. Any Confidential Information (as hereinafter defined) other than in connection with the performance of his duties hereunder. It is the specific intent of the Corporation and Wyllie that each and all of the provisions set forth hereinabove shall be valid and enforceable as specifically set forth hereinabove; and that Wyllie acknowledges that the Corporation's remedies at law are likely to be inadequate, and Wyllie consents to the application of the equitable remedies of specific performance to enforce the Corporation's rights hereunder. Further, should any person seek to legally compel Wyllie (by oral questions, interrogatories, requests for information or documents, subpoena, civil investigative demands or otherwise) to disclose any Confidential Information, Wyllie shall provide the Corporation with prompt notice followed up in writing so that the Corporation may seek a protective order or other appropriate remedy, failing which Wyllie shall be entitled to make such disclosure as is legally required. In

4 any event Wyllie shall use his best efforts with the advice of counsel to furnish only that portion of the Confidential Information which is legally required and, with the cooperation of the Corporation, will exercise his best efforts to obtain reliable assurance that confidential treatment will be accorded information so disclosed. In the event of a breach or a threatened breach by Wyllie of the provisions of this Section 5.2, the Corporation may, in addition to any other remedies it may have, obtain injunctive relief in any court of appropriate jurisdiction to enforce this Section 5.2. The provisions of this Section 5.3 shall survive the expiration or termination, for any reason, of this Agreement and shall be separately enforceable. Any records of Confidential Information prepared by Wyllie or which come into Wyllie's possession during the Term are and remain the property of the Corporation and upon termination of this Agreement all such records and copies thereof shall be either left with or returned to the Corporation.

5.3 The term "Confidential Information" shall mean information disclosed to Wyllie or known, learned, created or observed by him as a consequence of or through this Agreement, not generally known in the relevant trade or industry, about the Corporation's business activities, services and processes, including but not limited to information concerning advertising, sales promotion, publicity, sales data, research, programming and plans for programming, finances, accounting, methods, processes, business plans (including prospective or pending license applications or investments in license holders or applicants), client or supplier lists and records, potential client or supplier lists, and client or supplier billing.

6. Indemnification.

6.1 The Corporation will indemnify Wyllie and pay on his behalf all Expenses (as defined below) incurred by Wyllie in any Proceeding (as defined below), whether the Proceeding which gave rise to the right of indemnification pursuant to this Agreement occurred prior to or after the date of this Agreement provided that Wyllie shall promptly notify the Corporation of such Proceedings and the Corporation shall be entitled to participate in such Proceedings and, to the extent that it wishes, jointly with Wyllie, assume the defence thereof with counsel of its choice. This indemnification shall not apply if it is determined by a court of competent jurisdiction in a Proceeding that any losses, claims, damages or liabilities arose primarily out of the gross negligence, wilful misconduct or bad faith of Wyllie.

6.2 The term "Proceeding" shall include any threatened, pending or completed action, suit or proceeding, or any inquiry or investigation, whether brought in the name of the Corporation or otherwise and whether of a civil, criminal, administrative or investigative nature, including, but not limited to, actions, suits or proceedings brought under or predicated upon any securities laws, in which Wyllie may be or may have been involved as a party or otherwise, and any threatened, pending or completed action, suit or proceeding or any inquiry or investigation that Wyllie in good faith believes might lead to the institution of any such action, suit or proceeding or any such inquiry or investigation, by reason of the fact that Wyllie is or was a director, officer, employee, agent or fiduciary of the Corporation, by reason of any action taken by Wyllie or of any inaction on his part while acting as such director, officer, employee, agent or fiduciary or by reason of the fact that he is or was serving at the request of the Corporation as a director, officer, employee, trustee, fiduciary or agent of another corporation,

5 partnership, joint venture, employee benefit plan, trust or other enterprise, whether or not he is serving in such capacity at the time any liability or expense is incurred for which indemnification or reimbursement can be provided under this Agreement.

6.3. The term "Expenses" shall include, without limitation thereto, expenses (including, without limitation, attorney's fees and expenses) of investigations, judicial or administrative proceedings or appeals, damages, judgments, fines, penalties or amounts paid in settlement by or on behalf of Wyllie and any Expenses of establishing a right to indemnification under this Agreement.

6.4. The Expenses incurred by Wyllie in any Proceeding shall be paid by the Corporation as incurred and in advance of the final disposition of the Proceeding at the written request of Wyllie. Wyllie hereby agrees and undertakes to repay such amounts if it shall ultimately be decided in a Proceeding that he is not entitled to be indemnified by the Corporation pursuant to this Agreement or otherwise.

6.5. The indemnification and advancement of Expenses provided by this Agreement shall not be deemed exclusive of any other rights to which Wyllie may be entitled under the Corporation's Articles of Incorporation or Bye-Laws, any agreement, any vote of stockholders or disinterested directors, the laws under which the Corporation was formed, or otherwise, and may be exercised in any order Wyllie elects and prior to, concurrently with or following the exercise of any other such rights to which Wyllie may be entitled, including pursuant to directors and officers insurance maintained by the Corporation, both as to action in official capacity and as to action in another capacity while holding such office, and the exercise of such rights shall not be deemed a waiver of any of the provisions of this Agreement. To the extent that a change in law (whether by statute or judicial decision) permits greater indemnification by agreement than would be afforded currently under the Corporation's Articles of Incorporation, Bye-Laws and this Agreement, it is the intent of the parties hereto that Wyllie shall enjoy by this Agreement the greater benefit so afforded by such change. The provisions of this Section 6 shall survive the expiration or termination, for any reason, of this Agreement and shall be separately enforceable.

7. Assignment. The Corporation shall require any successor or assign to all or substantially all the assets of the Corporation, prior to consummation of any transaction therewith, to expressly assume and agree to perform in writing this Agreement in the same manner and to the same extent that the Corporation would be required to perform it if no such succession or assignment had taken place. This Agreement shall inure to the benefit of and be binding upon the Corporation and its successors and assigns. Wyllie shall not transfer, assign, convey, pledge or encumber this Agreement, or his rights, title or interest herein without the prior consent of the Corporation.

8. No Third Party Beneficiaries. This Agreement does not create, and shall not be construed as creating, any rights enforceable by any person not a party to this Agreement, except as provided in Sections 2.6, 2.7, 4.3, 6 and 7 hereof.

9. Headings. The headings of the section hereof are inserted for convenience only and shall not be deemed to constitute a part hereof or to affect the meaning thereof.

6 10. Interpretation. In case any one or more of the provisions contained in this Agreement shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions of this Agreement, and this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. If, moreover, any one or more of the provisions contained in this Agreement shall for any reason be held to be excessively broad as to duration, geographical scope, activity or subject, it shall be construed by limiting and reducing it, so as to be enforceable to the extent compatible with the applicable law as it shall then appear.

11. Notices. All notices under this Agreement shall be in writing and shall be deemed to have been given at the time when mailed by registered or certified mail or when delivered by hand or recognized overnight courier service, addressed to the address below stated of the party to which notice is given, or to such changed address as such party may have fixed by notice:

To the Corporation:

52 Poland Street London W1F 7NH England Attn: President and Chief Executive Officer with a copy to:

Legal Department 52 Poland Street London W1F 7NH United Kingdom

To Wyllie

12 Woodlands Terrace Charlton London SE7 8DD United Kingdom provided, however, that any notice of change of address shall be effective only upon receipt.

12. Waivers. If any party should waive any breach of any provision of this Agreement, it shall not thereby be deemed to have waived any preceding or succeeding breach of the same or any other provision of this Agreement.

13. Complete Agreement; Amendments. The foregoing is the entire agreement of the parties with respect to the subject matter hereof and may not be amended, supplemented, cancelled or discharged except by written instrument executed by the parties hereto.

7 14. Survival. Sections 2.4 - 2.8, 3.3, 3.6, 4.3, 5.1 - 5.3 and 16 shall survive the termination hereof, whether such termination shall be by expiration of this Agreement or any early termination pursuant to Section 2 hereof.

15. Governing Law. This Agreement is to be governed by and construed in accordance with the laws of New York, without giving effect to principles of conflicts of law. The Parties hereby consent to the jurisdiction of the courts of the State of New York with respect to any claim arising under or based upon this Agreement.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.

CME DEVELOPMENT CORPORATION

By: /s/ Fred T Klinkhammer

Title: President and C.E.O.

/s/ MARK WYLLIE Dated July 26, 2000

8 DATED SEPTEMBER 29, 2000 2000

ALDWYCH HOUSE BV and NEN BELEGGINGEN BV

and

CME DEVELOPMENT CORPORATION

LEASE

of

Part Eighth Floor, Aldwych House, 71/81/91 Aldwych, London WC2

Nabarro Nathanson Lacon House Theobald's Road London WC1X 8RW Tel: 020 7524 6000 LEASE

DATE SEPTEMBER 29, 2000

PARTIES

(1) ALDWYCH HOUSE BV a company registered in the Netherlands with no. 14044777 and NEN BELEGGINGEN BV a company registered in the Netherlands with no. 27065573 (hereinafter called "THE LANDLORD" which expression shall where the context so admits include the person for the time being entitled to the reversion immediately expectant on the determination of the term hereby created);

(2) CME DEVELOPMENT CORPORATION a company incorporated in and organised under the laws of the State of Delaware, USA and whose registered office is at 32 Lockerman Square, Suite L-100, Denver, Delaware 19901, USA (hereinafter called the "TENANT" which expression shall where the context so admits include the Tenant's successors in title and assigns of the Tenant).

IT IS AGREED AS FOLLOWS:

(A) The Landlord hereby demises unto the Tenant all that suite of offices situate on part of the eighth floor of and being part of the Landlord's building known as Aldwych House, 71/81/91 Aldwych, London WC2 (hereinafter called "THE BUILDING") which said suite of offices is shown for identification only edged with the colour red on the plan annexed hereto together with the fixtures and fittings in the nature of Landlord's fixtures or fittings now or at any time during the term hereby granted in and upon the said suite of offices or any part thereof and serving the same whether exclusively or not together with all carpets and floor coverings in the said suite of offices provided by the Landlord which carpets and floor coverings (and the carpets and floor coverings renewing those so provided) are included wherever reference is hereinafter made to such fixtures and fittings (which said suite of offices fixtures and fittings are hereinafter called "THE DEMISED PREMISES") together with the rights specified in the First SCHEDULE hereto but except and reserved unto the Landlord and its successors in title and assigns and the tenants and occupiers of other parts of the Building and all other persons entitled thereto the easements and rights specified in the Second SCHEDULE hereto to hold the same unto the Tenant for the term of 15 years commencing on the date hereof (hereinafter called "THE COMMENCEMENT DATE") but determinable as hereinafter provided yielding and paying therefor first.

(i) RENT

During the period from the date hereof and ending on January 24 two thousand and one the rent of a peppercorn (if demanded).

(ii) As from January 25 two thousand and one the annual rent of one hundred and seventy five thousand pounds ((GBP)175,000) and any increase therein as agreed or determined pursuant to the provisions of CLAUSE 2 hereof which (inter alia) provides that the amount of such yearly rent payable from and after a relevant date of review as therein mentioned shall be set out in a memorandum separate from this Lease the aforesaid yearly rents to be paid in each case without deduction by equal quarterly payments in advance on the usual quarter days in every year (hereinafter referred to as "PAYMENT DAYS") ("THE RENT FIRSTLY RESERVED").

(iii) SERVICE CHARGE

Secondly by way of further rent commencing on the date hereof and during the remainder of the said term a service charge calculated and to be paid in manner specified in the Third SCHEDULE hereto ("THE RENT SECONDLY RESERVED").

(iv) INSURANCE

Thirdly by way of further rent a fair proportion conclusively to be determined (save in the case of manifest error) by the Landlord's surveyor (meaning a Chartered Surveyor appointed by the Landlord for the purposes of this Lease) of the cost to the Landlord in complying with the covenant contained in CLAUSE 3.3 hereof such further rent to be paid within seven days after demand therefor by the Landlord ("THE RENT THIRDLY RESERVED").

(v) OTHER SUMS

Fourthly all other monies payable hereunder by the Tenant to the Landlord and any value added tax to be paid on demand the rents Firstly Secondly and Thirdly and Fourthly reserved hereunder and any other sums reserved as rent being together referred to as "THE RENTS".

2. TENANT'S COVENANTS

The Tenant hereby covenants with the Landlord as follows:

2.1 PAYMENT OF RENT

To pay the Rents hereinbefore reserved at the times and in manner aforesaid without deduction.

2.2 PAYMENT OF OUTGOINGS

2.2.1 To defray or (in the absence of direct assessment on the demised premises) to pay to the Landlord on demand (save in so far as the same is paid by way of the service charge) a fair proportion (to be determined by the Landlord's surveyor acting reasonably whose decision shall save in the case of manifest error be binding upon the Tenant) all existing and future rates taxes duties assessments charges and impositions levies and outgoings whatsoever whether parliamentary local or otherwise now or hereafter payable by law in respect of the demised premises or any part thereof by the owner Landlord Tenant or occupier thereof other than any tax or levy payable by the Landlord by reason of a dealing by the Landlord with or the ownership of its reversionary interest in the demised premises or its receipt of the rents hereinbefore reserved.

2.2.2 To pay any value added tax (or similar tax) which may from time to time be charged on the rent firstly reserved or on any other monies payable by the Tenant under this Lease 2.3 REPAIRS ETC.

2.3.1 Throughout the said term (damage by fire and such other risks against which the Landlord has insured excepted save in so far as the insurance monies or any part thereof shall be irrecoverable in consequence of any act or default of the Tenant or any person deriving title under the Tenant or any of the servants or agents or licensees of the Tenant or of any such person) well and substantially to repair and keep in good and substantial repair and condition:

(a) all non-load-bearing walls within the demised premises (and the plaster and finishes thereof);

(b) the plaster and finishes on the internal faces of the boundary walls and on the structure enclosing the demised premises;

(c) the plaster and finishes on all structural parts of the Building within the demised premises;

(d) all floors in the demised premises (including all floor boxes raised floors and the supports thereof) and all floor finishes down to but excluding structural slabs;

(e) all ceilings of the demised premises (up to but excluding structural slabs);

(f) the glass in all the doors and in all windows of the demised premises;

(g) all sash cords (if any) of the demised premises;

(h) all doors of the demised premises;

(i) all fixtures and fittings of the nature of the Landlord's fixtures or fittings and all sanitary and water apparatus and all conducting media exclusively serving the demised premises; and

(j) all other parts of the interior of the demised premises other than:

(i) all structural parts of the Building within the demised premises (save for the plaster finishes thereof aforesaid);

(ii) the window frames;

(iii) the heating cooling and ventilating apparatus and the sprinkler system (if any) forming part of the demised premises; and

(iv) any conducting media serving other parts of the Building.

2.3.2 To renew and replace from time to time as necessary all fixtures and fittings of the nature of Landlord's fixtures and fittings forming part of the demised premises (other than heating and air-conditioning apparatus) which may be beyond repair.

2.3.3 Not to carry out repairs to any:

(a) heating or air-conditioning apparatus;

(b) sprinkler system;

(c) fire hoses;

(d) emergency lighting system;

(e) intruder alarm system;

(f) fire alarm system; or (g) other fire prevention and detection system or any equipment belonging thereto within the demised premises.

2.3.4 As often as may be necessary and in any event in the last six months of the tenancy hereby created (howsoever determined) to replace the carpets included in this demise with new carpets of the same quality such new carpets to be of a colour and quality first approved in writing by the Landlord (such approval not to be unreasonably withheld).

2.4 REDECORATION

2.4.1 In every fifth year of the said term (the time in each case being computed from the commencement date) and in any event in the last three months of the term (howsoever determined) in a proper and workmanlike manner with good quality materials and to the reasonable satisfaction of the Landlord to prepare and paint or otherwise appropriately treat all such parts of the interior of the demised premises (including the interior of the window frames) as have been previously or are usually so dealt with and re-paper re-cover or re-line the parts usually papered covered or lined with good quality suitable paper vinyl covering or fabric or other covering provided always that the painting and redecorating in the last three months of the term shall be carried out in colours tints and patterns first approved in writing by the Landlord (such approval not to be unreasonably withheld).

2.4.2 Regularly to clean the washroom areas (if any) on the eighth floor of the Building in respect of which the Tenant has exclusive rights of use and to maintain them at all times in a clean and tidy condition in each case to the Landlord's reasonable satisfaction.

2.4.3 Not to paint or permit to be painted:

(a) any of the woodwork of the demised premises which is at the date hereof varnished or polished;

(b) (except with an emulsion paint or with such other suitable type of paint as shall be first approved in writing by the Landlord's surveyor whose approval shall not be unreasonably withheld in the case of a type of paint which is not oil based) the ceiling tiles or other covering comprising part of any false or suspended ceiling in the demised premises; or

(c) any other part of the demised premises which requires treatment other than painting.

2.4.4 Not to paint or permit to be painted or otherwise treated the sprinkler heads (if any) within the demised premises.

2.4.5 To renew and replace any sprinkler head painted over by the Tenant or its undertenant or otherwise treated and to renew any other part of the demised premises painted in breach of the foregoing covenants save that in the case of woodwork the Tenant may remove the paint therefrom and varnish or polish the same.

2.5 WORKS REQUIRED BY STATUTE LOCAL AND OTHER AUTHORITIES

To observe and perform in relation to the demised premises all requirements of and to do and execute or cause to be done and executed all such works and things as under or by virtue of any Act of Parliament local Acts building regulations or bye-laws already or hereafter to be passed and rules and regulations thereunder as now are or shall or may be directed or required to be done or executed upon or in respect of the demised premises or any part thereof or in respect of the use thereof whether by the owner Landlord Tenant or occupier thereof and at all times during the term hereby granted to indemnify and keep indemnified the Landlord against all claims demands expenses and liability in respect thereof.

2.6 PLANNING

2.6.1 At all times during the term hereby created to comply with the provisions and requirements of the Town and Country Planning Act 1990, the Planning (Listed Buildings and Conservation Areas) Act 1990, the Planning (Hazardous Substances) Act 1990, the Planning (Consequential Provisions) Act 1990, the Planning and Compensation Act 1991 and any subsequent legislation of a similar nature and any orders plans regulations permissions consents and directions made under or in pursuance thereof (hereinafter collectively referred to as "THE PLANNING ACTS") (in so far as the same directly relate to the demised premises or to the Tenant's occupation of the demised premises) and to indemnify (as well after the expiration of the said term by effluxion of time or otherwise as during its continuance save in respect of any such matters arising after the said expiration of the said term) and to keep the Landlord indemnified against all liability whatsoever including costs and expenses in respect of any breach of this covenant and as soon as practicable to produce to the Landlord on receipt by the Tenant of notice thereof any notice order or proposal therefor made given or issued under or by virtue of the Planning Acts affecting or relating to the demised premises and at the request of the Landlord to make or join with the Landlord in making every such objection or representation against the same as the Landlord shall reasonably require.

2.6.2 Not without the previous consent in writing of the Landlord (such consent not to be unreasonably withheld) to:

(a) apply for, nor to permit any person deriving title under the Tenant to apply for, any planning permission relating to the demised premises or to any part thereof or to the use thereof or any part thereof and in the event of the Landlord reasonably attaching any conditions to such consent as aforesaid not to apply or permit any application for any such planning permission save in accordance with the said conditions;

(b) implement or permit to be implemented any planning permission save where the planning permission relates to any matter where either no further consent of the Landlord is required hereunder or such consent has been given; or

(c) enter into any agreements with the local or other authority whether pursuant to the Planning Acts or otherwise.

2.6.3 Within 14 days after the grant or completion thereof to supply to the Landlord a copy of any such planning permission and the application therefor and any such agreement and any correspondence or drawings incidental or relating thereto.

2.7 ALTERATIONS AND ADDITIONS

2.7.1 Not to injure cut maim alter or make additions to or permit to be injured cut maimed or altered or additions made to any of the timbers walls or partitions or any other part of the demised premises or the Building save in connection with any of the express rights granted to the Tenant (but then only in accordance with the provisions of such express rights).

2.7.2 Not without the consent of the Landlord (such consent not to be unreasonably withheld) to alter or permit to be altered the heating cooling or ventilating apparatus or the sprinkler system (if any) forming part of the demised premises.

2.7.3 Not to make or permit to be made any internal non structural alteration in or addition to the demised premises or the architectural decorations or in the layout or arrangement thereof or to the Building without the previous written consent of the Landlord (such consent not to be unreasonably withheld).

2.7.4 Where it is reasonable having regard to the extent and nature of any alterations or additions proposed to provide security to the Landlord's satisfaction for the carrying out and completion of any works of alteration or addition to the demised premises for which the Landlord's consent is required.

2.7.5 Without prejudice to any of the foregoing provisions of this sub-CLAUSE 1.7 at the request of the Landlord forthwith:

(a) to make good any such timber wall partition or other part injured cut or maimed; and

(b) to demolish and remove any alteration or addition made in breach of this sub-clause and in each case to restore the demised premises to their previous condition to the proper satisfaction of the Landlord.

2.7.6 To notify the Landlord in writing as soon as possible of:

(a) completion of any alteration or addition to the demised premises and/or after the installation of any fixtures and fittings which may be installed by the Tenant or any undertenant and which may become landlord's fixtures and fittings; and

(b) the cost of such alterations or additions and/or reinstatement value of such fixtures and fittings.

2.7.7 At the expiration or sooner determination of the tenancy hereby created the Tenant will if and in so far as reasonably required by the Landlord at the Tenant's own cost reinstate and make good to the reasonable satisfaction of the Landlord the demised premises and restore the same to the plan and design as if no alteration or addition other than floor boxes and carpeting had been made by the Tenant or its undertenants licensees or occupiers during the Term and to pay the proper and reasonable expenses incurred by the Landlord (including surveyors' fees) of and incidental to the superintendence of such reinstatement and making good.

2.8 ELECTRICAL SYSTEM

Not to overload or permit to be overloaded any part of the electrical system in or serving the demised premises and not except in accordance with any current codes of practice to make any alteration or addition to such system. 2.9 AVOIDANCE OF INSURANCE

2.9.1 Not to do or allow to be done anything whereby any insurance for the time being effected on the demised premises or any part thereof (or the Building or any part thereof or any adjoining or neighbouring property for the time being of the Landlord) may be rendered void or voidable or be in any way affected, nor do or allow to be done anything whereby any additional premium may become payable for the insurance of the demised premises the Building or any part thereof or any such adjoining or neighbouring property and to comply with all recommendations of the insurers as to fire precautions relating to the demised premises.

2.9.2 To indemnify the Landlord in respect of all damages costs charges expenses and other expenditure suffered or incurred by the Landlord by reason of any act neglect default or omission of the Tenant its undertenants and their respective agents servants employees contractors invitees and others for whom it is responsible which renders wholly or partially irrecoverable any money under any policy of insurance effected in respect of the demised premises or the Building.

2.9.3 In the event of the demised premises or any part thereof (or the access thereto) being destroyed or damaged to give notice in writing thereof to the Landlord as soon as is practicable following the happening of the event.

2.10 HEAVY ITEMS OF MACHINERY

2.10.1 Not to take to or permit to be taken to or remain upon the demised premises any safe or any machinery (other than normal office machinery not giving rise to a breach of sub-CLAUSE 1.10.2 below) or any heavy goods or appliances without the previous written consent of the Landlord and to ensure that the same are placed only in such position as shall be approved by the Landlord in writing (such consent and approval not to be unreasonably withheld).

2.10.2 Not to do or bring or permit to be done or brought in or upon the demised premises or the Building anything which may throw on the demised premises or the Building or any part thereof any weight or strain in excess of that which the same is designed to bear.

2.11 AERIALS AND SIMILAR APPARATUS AND INTERFERENCE

2.11.1 Not without the consent in writing of the Landlord (such consent not to be unreasonably withheld or delayed) to affix or permit to be affixed to the outside of the demised premises or any part thereof any wireless radio or television aerial or similar apparatus and not to make any claim against the Landlord in respect of interference to reception of wireless radio or television transmissions or to the operation of any appliance in or upon the demised premises suffered or alleged to be suffered by reason of the use of electrical or other apparatus in or upon the Building or on any adjoining or neighbouring property of the Landlord other than by interference with the electrical supply to the demised premises.

2.11.2 Not to cause or permit or suffer to be caused interference to others by any radio or electromagnetic signal emitted by the use of apparatus operated or installed in or upon the demised premises. 2.12 PROHIBITION OF GAMING APPARATUS

Not to install or permit to be installed any amusement or gaming apparatus or device in or upon the demised premises or any part thereof.

2.13 OFFICE USE ONLY

2.13.1 Not at any time to allow or permit or suffer the demised premises or any part thereof to be used for sleeping purposes.

2.13.2 Not to hold or permit or suffer to be held any sale by auction or any exhibition or show or spectacle of any kind upon the demised premises or any part thereof.

2.13.3 Not to use or permit or suffer to be used the demised premises or any part thereof for any illegal or immoral purpose or for any dangerous noxious noisy or offensive purpose whatsoever.

2.13.4 Not to use or permit of suffer to be used the demised premises or any part thereof for any purpose except that of high class offices with ancillary facilities.

2.14 ADVERTISEMENTS

Not (save as permitted by this Lease) without the previous written consent of the Landlord to set up or exhibit upon any part of the demised premises any placard poster signboard notice or advertisement which shall be visible from outside the demised premises.

2.15 REGULATIONS

To observe and cause to be observed at all times:

2.15.1 reasonable regulations imposed by the Landlord in respect of the lifts and escalators in the Building and for the general running orderliness and management of the Building and the services thereof and the curtilage thereof as already or from time to time hereafter notified in writing by the Landlord to the Tenant; and

2.15.2 the regulations set out in the Fourth SCHEDULE hereto or as they shall be reasonably altered or added to from time to time by notice in writing by the Landlord to the Tenant and this sub-clause shall be without prejudice to the generality of any other provision contained in this Lease which shall touch and concern the same subjects.

2.16 WAITING ACCOMMODATION TO BE IN THE DEMISED PREMISES AND AS TO DOORS

To ensure that all requisite waiting accommodation for callers and clients is provided within the demised premises and that the doors leading from the common landings or corridors into the demised premises and all doors designated as fire check doors are not left open.

2.17 NUISANCE OR DAMAGE

2.17.1 Not to play or permit to be played in the demised premises any musical instrument gramophone radio radiogram television set tape recorder or similar apparatus so as to be audible outside the demised premises. 2.17.2 Not to do or permit or suffer to be done anything in or upon the demised premises or any part thereof or in or upon any other part of the Building or in or upon any other area which the Tenant is by virtue of this Lease authorised to use (whether in common with others or not) which may be or become a nuisance to or cause damage to the Landlord or the tenants or occupiers of any other part of the Building or of other property in the neighbourhood or to the public local or any other authority.

2.18 LIGHT AND AIR AND OTHER EASEMENTS

2.18.1 Not to block up darken or obscure or permit to be blocked up darkened or obscured any doorway passage window light opening or grating belonging to the demised premises nor to do or suffer to be done anything which may interfere with the access of light or air to any portion of the Building and to give to the Landlord immediate notice of any encroachment or attempted encroachment made in or upon the demised premises or any part thereof and any act matter or thing whereby or by reason whereof any damage injury or disturbance may be done or occasioned thereto or to any part thereof.

2.18.2 Not to give any third party any acknowledgement that the Tenant enjoys the access of light through any of the windows or openings in the demised premises or any other right or easement by or with the consent of such third party nor to pay to such third party any sum of money nor to enter into any agreement with such third party for the purpose of inducing or binding such third party to abstain from obstructing the access of light to any of such windows or openings or from exercising any other right or easement and in the event of any of the owners or occupiers of adjacent or neighbouring land or buildings or the occupiers of other parts of the Building doing or threatening to do anything which obstructs the access of light through any of the windows or openings in the demised premises or the exercise of any other right or easement to notify the same forthwith to the Landlord and to permit the Landlord if necessary to bring all such actions as it may think fit against any such persons in respect of the obstruction of the access of light to any of the windows or openings in the demised premises or the obstruction of the exercise of any other right or easement.

2.19 NOTICE OF NECESSARY REPAIRS AND OTHER MATTERS

To permit the Landlord and its agents with all necessary workmen materials and appliances at all reasonable times following a reasonable period of prior written notice (or at any time in case of emergency) to enter upon and examine the state of repair and condition of the demised premises and the user thereof and to take any photographs measurements plans and sections thereof and thereupon the Landlord may require the Tenant by notice in writing to carry out or do any repairs or redecorations or any other acts deeds or things necessary to be done and for which the Tenant is liable under these presents and if the Tenant shall not within two months or (in case of emergency) immediately after service of such notice commence and thereafter proceed diligently with compliance therewith then to permit the Landlord to enter upon the demised premises to do all or any of the things referred to in such notice and the proper cost thereof (which expression shall include but not be limited to all legal costs and surveyors' fees and other expenditure whatsoever attendant thereon) shall be paid by the Tenant within 30 days of a written demand and if not so paid the cost

aforesaid and interest thereon as hereinafter provided shall be a debt due to the Landlord from the Tenant and shall forthwith be recoverable by action.

2.20 ACCESS OF LANDLORD

To permit the Landlord and its agents and other persons authorised by them with all necessary workmen materials and appliances at all reasonable times following a reasonable period of written notice (or at any time in case of emergency) to enter upon the demised premises for all or any of the following purposes namely:

2.20.1 taking inventories of landlord's fixtures and fittings therein;

2.20.2 effecting decorations repairs tests or works to adjoining or neighbouring property or tests to the demised premises or any matters acts or things which may be requisite under the provisions of this Lease or to comply with any Act of Parliament statutory instrument order building regulation or other regulation or local bye-law or otherwise and which cannot be carried out or is impractical to carry out at reasonable cost other than by entry on the demised premises, such works to be carried out as expeditiously as is reasonably practicable causing as little disturbance to the Tenant as is reasonably practicable and doing as little damage as may be to the demised premises and all damage thereby occasioned to the demised premises being made good or procured to be made good by the Landlord;

2.20.3 inspecting cleansing maintaining testing repairing altering laying fixing constructing renewing re-laying and connecting up to any conducting media used or to be used for or in connection with any adjoining or neighbouring property or for inspecting cleansing maintaining repairing altering renewing or removing anything being the property of the Landlord in or upon but not being part of the demised premises including (without prejudice to the generality of the foregoing) the plant room on the fourth floor of the Building and the plant therein contained and the sanitary and other installations within the washroom areas on the fourth floor of the Building in respect of which the Tenant is granted exclusive rights of use such works to be carried out as expeditiously as reasonably practicable causing as little disturbance to the Tenant as is reasonably practicable and doing as little damage as may be to the demised premises and all damage thereby occasioned by the Landlord to the demised premises and to the Tenant's possessions and fittings being made good by the Landlord but without payment of compensation for any annoyance nuisance loss noise vibration or inconvenience caused as a result of the proper exercise of the Landlord's right of entry in accordance with the provisions of this clause;

2.20.4 carrying out the works and providing the services amenities and facilities referred to in the Third SCHEDULE hereto such works to be carried out as expeditiously as reasonably practicable causing as little disturbance to the Tenant as is reasonably practicable and doing as little damage as may be to the demised premises and all damage thereby occasioned by the Landlord to the demised premises and to the Tenant's possessions and fittings being made good by the Landlord but without payment of compensation for any annoyance nuisance loss noise vibration or inconvenience caused as a result of the proper exercise of the Landlord's right of entry in accordance with the provisions of this clause; 2.20.5 carrying out any such works as are referred to in CLAUSE 5.2 hereof such works to be carried out as expeditiously as reasonably practicable causing as little disturbance to the Tenant as is reasonably practicable and doing as little damage as may be to the demised premises and all damage thereby occasioned by the Landlord to the demised premises and to the Tenant's possessions and fittings being made good by the Landlord but without payment of compensation for any annoyance nuisance loss noise vibration or inconvenience caused as a result of the proper exercise of the Landlord's right of entry in accordance with the provisions of this clause;

2.20.6 enabling prospective purchasers mortgagees or tenants of the Building or any part thereof and their agents to view the demised premises;

2.20.7 for any proper purpose connected with management of the Building; and

2.20.8 for all or any such purposes to erect scaffolding and/or other like apparatus and/or ladders and/or cradles and other like appliances or apparatus upon the demised premises or any part thereof or outside the demised premises provided that no such erections shall be made within the demised premises except where reasonably necessary provided that in the case of such works the landlord shall consult with the Tenant and if it would be reasonably possible to carry out such works in a manner preferred by the Tenant but which would involve the Landlord in extra costs or losses the Landlord shall at the Tenant's request use its reasonable endeavours to comply with the Tenant's requirements in which event the Tenant shall on demand pay to the Landlord the amount or amounts as certified from time to time by the Landlord's surveyor, architect or accountant (as the case may be) of the extra costs incurred or losses sustained by it as a result of such compliance.

2.21 ALIENATION

2.21.1 In this CLAUSE 1.21 the following expressions have the following meanings:

(a) "AUTHORISED GUARANTEE AGREEMENT"

has the meaning defined in and for the purposes of section 16 of the Landlord and Tenant (Covenants) Act 1995 which shall be made by separate deed;

(b) "PERMITTED OCCUPIER"

means a company which is a member of the same group of companies of which the Tenant is a member and meets the criteria set out in section 42(1) of the Landlord and Tenant Act 1954.

2.21.2 Not to hold on trust for another or assign charge or underlet part with or share possession or occupation of the whole of the demised premises or any part or agree so to do or permit any person to occupy the same save (subject to this clause) by way of an assignment charge or underlease of the whole.

2.21.3 Not to assign charge or underlet the whole of the demised premises except as provided in this clause and then only with the prior written consent of the Landlord (such consent not to be unreasonably withheld or delayed and subject in the case of an assignment to sub-CLAUSEs 1.21.4 and 1.21.5 and 1.21.6 and in the case of an underletting to sub-CLAUSEs 1.21.7-1.21.10 (inclusive)). 2.21.4 ASSIGNMENT

For the purpose of section 19(1A) of the Landlord and Tenant Act 1927 it is agreed that the Landlord shall not be regarded as unreasonably withholding consent to any proposed assignment of the whole of the demised premises if it is withheld on the ground (and it is the case) that any one or more of the circumstances mentioned below exist (whether or not such withholding is solely on such ground or on that ground together with other grounds):

(a) in the Landlord's reasonable opinion the proposed assignee is not or will not be able to pay the Rents reserved by this Lease as and when they fall due and/or to observe and perform the obligations of the Tenant under this Lease and any Supplemental Document;

(b) there are arrears of the Rents reserved hereunder at the date of the application for the assignment to the proposed assignee and/or the proposed date for completion of the licence giving the Landlord's consent;

(c) the proposed assignee is a member of the same group of companies of which the Tenant is a member as defined in section 42(1) of the Landlord and Tenant Act 1954.

2.21.5 On any assignment:

(a) the Tenant and any Surety of the Tenant shall enter into an Authorised Guarantee Agreement which will be in such reasonable and proper form as the Landlord may reasonably require and be prepared by or on behalf of the Landlord and at the reasonable cost of the Tenant;

(b) if the Landlord reasonably so requires the Tenant will obtain one or more acceptable guarantors for the proposed assignee who will covenant with the Landlord in the terms (mutatis mutandis) set out in the Fifth SCHEDULE;

(c) if the Landlord reasonably so requires (taking account of the requirement for any guarantor) the proposed assignee will prior to the assignment enter into such reasonable rent deposit arrangement and/or provide such additional security for performance by the proposed assignee of its obligations under this Lease as the Landlord may reasonably require; and

(d) any guarantor of the Tenant's obligations shall enter into a guarantee (which shall be in such reasonable form as the Landlord may reasonably require) that the Tenant will comply with the Authorised Guarantee Agreement referred to in (a) above and indemnify the Landlord against any breach by the Tenant of the Authorised Guarantee Agreement.

2.21.6 Sub-CLAUSEs 1.21.4 and 1.21.5 shall operate without prejudice to the right of the Landlord to refuse such consent on any other reasonable ground or grounds where such refusal would be reasonable or to impose further reasonable conditions upon the grant of consent where such imposition would be reasonable. 2.21.7 UNDERLETTING

(a) Not to underlet the whole of the demised premises at a fine or a premium or at a rent less than the open market rent of the demised premises in each case at the time of such underlease.

(b) Not to grant an underlease of the whole of the demised premises until the Landlord has given its approval of an order of a court of competent jurisdiction made under section 38(4) of the Landlord and Tenant Act 1954 authorising an agreement excluding sections 24 to 28 (inclusive) from the tenancy to be created by the underlease. The Tenant shall supply the Landlord with a copy of the order (with the form of underlease) certified by solicitors as a true copy of the original for this purpose.

2.21.8 Upon the Landlord consenting to an underletting of the whole of the demised premises to procure that the underlease contains:

(a) an unqualified covenant on the part of the undertenant with the Tenant that the undertenant will not assign or charge (or agree so to do) any part or parts of the premises (as distinct from the whole) demised by such underlease and will not underlet or (save by way of an assignment of the whole) part with or agree so to do or share possession of or permit any person to occupy the whole or any part of the premises demised by such underlease;

(b) a covenant on the part of the undertenant with the Tenant that the undertenant will not assign or charge (or agree so to do) the whole of the premises demised by such underlease without the previous consent in writing of the Landlord such consent not to be unreasonably withheld or delayed;

(c) a covenant by the undertenant (which the Tenant undertakes to enforce) to prohibit the undertenant from doing or suffering any act or thing upon or in relation to the premises demised by the underlease which will contravene any of the Tenant's obligations in this Lease;

(d) provision for review of the rent (in an upwards direction only) reserved by the underlease corresponding both as to terms and dates with the provisions set out in CLAUSE 2; and

(e) a condition for re-entry on breach of any covenant on the part of the undertenant or any other ground in respect of the undertenant specified in CLAUSE 5.3.

2.21.9 To procure in any underletting of the whole of the demised premises that the rent under such underletting is reviewed in accordance with the terms of such review but not to agree the rent payable under such underlease with the undertenant without the prior written consent of the Landlord (such consent not to be unreasonably withheld or delayed) and to procure that if the rent under any underlease is to be determined by an independent person not to determine whether such person is to act as an expert or as an arbitrator without the Landlord's prior written consent and to procure that the Landlord's representations as to the rent payable thereunder are made to such independent person to the reasonable satisfaction of the Landlord.

2.21.10 Not to vary the terms of any underlease permitted under this clause (or agree so to do) without the Landlord's prior written consent (such consent not to be unreasonably

withheld or delayed) and not to commute or waive any rents payable by any such underlease.

2.21.11 Notwithstanding anything contained in this clause the Tenant may share occupation of the demised premises with a Permitted Occupier provided that:

(a) no tenancy is created by such occupation;

(b) the rights of the Permitted Occupier immediately determine on it ceasing to fall within the definition of a Permitted Occupier; and

(c) the Tenant will give notice to the Landlord within 14 days of the commencement and termination of each sharing of occupation of the demised premises.

2.21.12 From time to time during the Term to furnish to the Landlord on demand full particulars of all derivative interests of or in the demised premises however remote or inferior.

2.22 REGISTRATION

Within one month after any assignment of this Lease or the grant of any underlease or sub-underlease (whether mediate or immediate) or the assignment of any such underlease or sub-underlease or after any disposition or devolution of the demised premises or any part thereof or after any Order of Court or private or local Act of Parliament affecting the demised premises or any part thereof to give notice thereof in writing to the Landlord or the solicitors for the time being of the Landlord and to produce to the Landlord or its said Solicitors the relevant deed or instrument and on giving such notice to pay a reasonable fee being not less than Thirty Five Pounds ((GBP)35) plus value added tax for the registration thereof.

2.23 NOTICES UNDER SECTION 146 OF THE LAW OF PROPERTY ACT 1925

To pay on demand all proper costs and expenses (including solicitors' costs and surveyors' fees) incurred by the Landlord in reference to any breach giving rise to right of re-entry under the provisions in that behalf hereinafter contained whether or not forfeiture is waived or avoided and whether or not by relief granted by the Court and also to pay on demand the like costs and expenses of any requisite notice relating to the repair or redecoration of the demised premises in connection with the delivery up thereof at the expiration or sooner determination of the said term.

2.24 NOTICE OF RE-LETTING

Whether or not any notices have been served under the Landlord and Tenant Act 1954 to permit the Landlord at any time after a date six months before the expiration of the said term to affix and retain without interference upon any part of the exterior of the demised premises other than at any entrance to the demised premises a notice for re-letting the same and to permit persons accompanied by the Landlord or the agent of the Landlord at reasonable times of the day during business hours and following not less than 24 hours' prior written notice to view the demised premises. 2.25 TO INFORM LANDLORD OF NOTICES RECEIVED

Forthwith on receipt of notice to give full particulars in writing to the Landlord of any permission notice order or proposal for a notice or order made given or issued by any government department local or public authority under or by virtue of any statutory powers affecting or likely to affect the demised premises or any part thereof and if so required by the Landlord to produce a copy of such permission notice order or proposal for a notice or order to the Landlord and also where the notice concerns any matter for which the Tenant is responsible under the terms of this Lease without delay to take all necessary steps to comply with any such notice or order in so far as such notice or order concerns the demised premises.

2.26 TO DISCLOSE INFORMATION

If the Tenant shall make any application to the Landlord for any consent or approval of the Landlord required under the terms of this Lease the Tenant shall also disclose such information as the Landlord shall properly require in relation to or incidental to or whatsoever or howsoever concerning or appertaining to such application.

2.27 TO PAY COSTS

To pay the proper and reasonable legal charges and surveyors' fees and other professional fees incurred by or of the Landlord and the stamp duty on the licences and duplicates resulting from all applications by the Tenant for any consent or approval of the Landlord required by this Lease (whether in accordance with the express rights granted to the Tenant or otherwise) including reasonable and proper legal charges surveyors' fees and other professional fees and expenses actually incurred in cases where consent or approval is refused where the Landlord is entitled to refuse the same or the application is withdrawn.

2.28 TO PAY VALUE ADDED TAX

To pay in addition to any monies due from the Tenant under the terms and provisions of this Lease at the respective times when such monies are due such value added tax as shall be chargeable in respect of any such monies subject to the Landlord having supplied to the Tenant a value added tax invoice.

2.29 COSTS OF BAILIFFS ETC.

To pay to the Landlord on demand all proper costs charges and expenses including bailiffs' costs solicitors' costs surveyors' fees and other professional costs and fees properly incurred by the Landlord for or in connection with the levy of a distress for the rents payable hereunder or any part thereof or as a result of the bailiffs being paid the said rents or any part thereof whether or not any distress in the event be levied or otherwise for or in connection with the recovery of arrears of the said rents or other monies payable by the Tenant hereunder.

2.30 INTEREST ON OVERDUE PAYMENTS

If and so often as any rent (whether formally demanded or not) or any other money due from the Tenant under the provisions of this Lease shall be unpaid seven days (7) following the

due date on demand from the Landlord to pay interest on such unpaid rent and other unpaid monies from the due date until payment (whether before or after judgment) at the rate of four per cent per annum above the base rate of HSBC Bank plc (or such other London clearing bank as the Landlord may from time to time nominate) in force at the due date or such rate as shall at the due date be equivalent thereto.

2.31 RESPONSIBILITY FOR DAMAGE

To be responsible for and to indemnify the Landlord against all damage occasioned to the demised premises or any adjacent or neighbouring property including the Building or the services thereof or to any person or chattel (whether or not upon the demised premises) caused by any act default or negligence of the Tenant or the servants agents licensees or invitees of the Tenant.

2.32 YIELDING UP

To yield up the demised premises (but not with trade and other tenant's fixtures) with vacant possession at the end or sooner determination of the tenancy hereby created in good and substantial repair and condition in accordance with the covenants hereinbefore contained.

3. RENT REVIEW

Provided always and it is hereby agreed:

3.1 After the expiration of each period of five years of the tenancy hereby created (the time in each case being computed from and including the commencement date and the day following the date of expiration of each such period being hereinafter referred to as the "RELEVANT DATE OF REVIEW") the first yearly rent shall be (subject as hereinafter provided) such sum (hereinafter called "THE SAID SUM") as shall be agreed between the Landlord and the Tenant (or decided by the competent person as hereinafter provided) as representing the open market annual rent at which the demised premises could be let at the relevant date of review on a lease:

3.1.1 for a term of ten (10) years commencing on the relevant date of review;

3.1.2 as between a willing landlord and a willing tenant;

3.1.3 with vacant possession;

3.1.4 without the payment of any fine or premium;

3.1.5 upon the suppositions (whether or not fact) that:

(a) the Landlord and the Tenant have respectively complied with their obligations herein imposed on them (but without prejudice to any rights or remedies of the Landlord in regard thereto);

(b) the demised premises are available for immediate beneficial occupation and use;

(c) no work has been carried out thereon by the Tenant or any undertenant whether before or after the commencement date (other than pursuant to an obligation to the Landlord contained in this Lease save where such obligation arises as a result of

any works to the demised premises carried out by the Tenant) which has diminished the rental value of the demised premises; and

(d) if the Building or any part thereof or any amenity thereto belonging or any access thereto shall have been damaged or destroyed the same had before the relevant date of review been fully reinstated;

(e) that the willing tenant has had the benefit of any rent free or concessionary rent period which would be granted for the purposes of fitting out at the relevant date of review in the open market on a letting of the demised premises on the terms of this hypothetical letting so that the said sum shall represent the rent which would be reserved as payable at the expiry of such a period; and

(f) the demised premises are fitted out with floor boxes and carpeting to the specification and quality commensurate with those in the remainder of the lettable areas of the Building;

3.1.6 on the terms and conditions of this Lease (other than as to the amount of rent but including provisions for review) and upon the assumption that the demised premises may be used for the purposes permitted by this Lease of this Lease including the provisions of this CLAUSE there being disregarded:

(a) any goodwill attributable to the demised premises by reason of any trade or business carried on therein by the Tenant or any permitted undertenant;

(b) any effect on rent of any improvements or alterations to the demised premises carried out not more than fifteen (15) years before the relevant date of review by the Tenant or any undertenant with the consent of the Landlord (where required) other than any such effected at the expense of the Landlord or in pursuance of any obligation to the Landlord whether under the provisions of this Lease or any other deed or document;

(c) any effect on rent of the fact that the Tenant or its predecessors in title have been in occupation of the demised premises or any other premises within the Building or near thereto;

(d) any effect on rent of any rent free period or rental concession that may have been granted at the commencement of the term for fitting out the demised premises;

(e) any effect on rent of any temporary works operations or other activities on any adjoining or neighbouring property (including the Building); and

(f) the taxable status of any party to this Lease for the purpose of value added tax or any other tax of a similar nature.

3.2 If the Landlord and the Tenant have not agreed on the amount of the said sum by a date six months before the relevant date of review then and in any such case the question may at any time after such date be referred by either of them to the decision of some competent person (hereinafter called "THE COMPETENT PERSON") who shall act as an arbitrator in accordance with the Arbitration Act 1996 to be agreed upon by the Landlord and by the Tenant or (in the event of failure so to agree) to be a Chartered Surveyor with substantial experience of lettings of office premises in the area in which the demised premises are situate (or as near thereto as is reasonably possible) and whose status shall be that of a partner in or a director of a commercial practice which in the normal course of its business handles the letting of office premises in Central London such Chartered Surveyor (in the event of disagreement between the parties as to who he or she shall be) to be nominated on the application of the Landlord or the Tenant by the President for the time being of the Royal Institution of Chartered Surveyors provided that if the competent person shall die or for another reason shall be unable to act before he shall give his decision then the Landlord and the Tenant shall agree upon another competent person or (in the event of failure so to agree) the President of the Royal Institution of Chartered Surveyors shall be asked by either the Landlord or the Tenant to nominate another Chartered Surveyor with the aforesaid experience and status to act as the competent person and such procedure may be adopted as often as may be necessary.

3.3 DEFINITIONS

3.3.1 In this sub-CLAUSE the following expressions have the following meanings:

"THE DUE DATE"

means the date when the amount of the first yearly rent payable hereunder with effect from the relevant date of review has been agreed or otherwise decided as evidenced by an exchange of memoranda pursuant to sub-CLAUSE 2.6;

"THE INTERIM PERIOD"

means the period commencing on the relevant date of review and ending on the day preceding the payment day which immediately follows the due date;

"THE OLD RATE"

means the yearly amount of such rent reserved as payable hereunder immediately before the relevant date of review;

"THE NEW RATE"

means the yearly amount of such rent reserved as payable hereunder with effect from and including the relevant date of review;

"THE BALANCE"

means the amount (if any) by which such rent calculated at the new rate and apportioned in respect of the interim period exceeds the amount of such rent calculated at the old rate and apportioned in respect of the interim period;

"THE PRESCRIBED RATE"

means the base rate of HSBC Bank plc (or such other London clearing bank as the Landlord may from time to time nominate) in force at the due date.

3.3.2 If the new rate has not been agreed or otherwise decided by the relevant date of review:

(a) the first yearly rent shall continue to be payable at the old rate; and

(b) on the due date the Tenant shall pay to the Landlord the Balance and interest at the prescribed rate computed from and including each quarter day respectively on so

much of the Balance as would have become payable on such quarter day and ending on the due date.

3.4 If the said sum shall be decided by the competent person and the Tenant shall fail to pay promptly its due proportion of the costs of such decision the Landlord shall be at liberty to discharge such proportion and in such event the Tenant shall within 30 days of a demand therefor pay to the Landlord that proportion.

3.5 Provided always that in no event shall the first yearly rent reserved as payable by the Tenant to the Landlord from and including the relevant date of review be less than the first yearly rent reserved as payable by the Tenant to the Landlord immediately before such relevant date of review.

3.6 When the amount of the first yearly rent payable from and including the relevant date of review has been agreed or determined as aforesaid a memorandum as to that amount shall within 30 days thereof be signed on behalf of the Landlord and of the Tenant and exchanged between them.

3.7 Where any statutory public local or other competent authority or court of competent jurisdiction shall impose any restrictions which operate to impose any limitation in relation to the review of the rent firstly reserved or the collection of any increase in the rent firstly reserved at the relevant date of review the Landlord may (whether or not the rent firstly reserved has been agreed or determined with effect from that review date) give to the Tenant at any time but not later than three months after such review date notice postponing that review date until such later date (being not later than the next following date of review) as shall be six months after the date when such restriction or limitation shall be lifted or shall have come to an end and in that event the rent firstly reserved as payable immediately prior to the relevant date of review that is postponed shall (notwithstanding any review that may have taken place as at that review date) continue to be the rent payable until increased upon review at the postponed or (as the case may be) a subsequent review date.

3.8 Time shall not be of the essence in respect of this CLAUSE 2.

4. LANDLORD'S COVENANTS

The Landlord hereby covenants with the Tenant as follows:

4.1 REPAIR

To keep the structure of the Building and in particular the foundations walls floors slabs (or joists as the case may be) and roofs thereof and all structural parts of the Building and the entrance hall landings passages stairs lifts (if any) escalators (if any) lavatories toilet facilities conveniences and all plant and machinery and conducting media intended for the common use and service of the occupiers of the Building and the exterior of the demised premises (except the glass in the exterior windows of the demised premises and of other parts of the Building demised to any other tenant of the Landlord) and the parts of the demised premises referred to in sub-CLAUSE 1.3.3 in good and substantial repair and condition. 4.2 SERVICES

Unless prevented by force majeure or other circumstances beyond the reasonable control of the Landlord to use all reasonable endeavours:

4.2.1 to keep the entrance hall landings passages stairs lifts (if any) escalators (if any) lavatories and toilet facilities of the Building (save those hereby demised or demised to any other tenant of the Landlord) clean;

4.2.2 to keep the same properly lit (when necessary) between the following hours (hereinafter called "THE AUTHORISED HOURS") namely 8.00 a.m. and 7.00 p.m. on Mondays to Fridays inclusive and 8.00 a.m. and 1.00 p.m. on Saturdays (public holidays excepted);

4.2.3 at all times during the authorised hours to supply hot water to the wash basins in the lavatories of the Building;

4.2.4 at all times during the authorised hours to supply heating and cooling to the demised premises by means of the air conditioning apparatus therein served by the Landlord's heating and chilling plant in the Building;

4.2.5 to provide the services referred to in PARAGRAPHs 2, 3.2, 3.5, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 17 (except the last 12 words thereof), 19 and 20 of PART II of the Third SCHEDULE; and

4.2.6 at the written request of the Tenant and on reasonable (to the Landlord) prior written notice to supply any of the services referred to in CLAUSEs 3.2, 3.3 and 3.4 outside the authorised hours subject to the Tenant bearing the cost to the Landlord of supplying the services requested outside the authorised hours.

4.3 INSURANCE

To keep the Building insured (subject to such exclusions and limitations as are imposed by the insurers) against loss or damage by fire lightning explosion storm tempest flood earthquake impact riot civil commotion malicious damage and aircraft and any other risk required by the Landlord in some insurance office of repute in a sum which in the opinion of the Landlord's surveyor represents the full reinstatement value thereof AND three (3) years' loss of Rents from the Buildings together with architects' surveyors' engineers' legal and other consultants' fees making such allowance as such surveyor thinks fit for:

4.3.1 inflation during the period of insurance and the re-planning and reinstatement period; and

4.3.2 the cost of complying with any statutory or public authority requirements which might apply on reinstatement;

provided always that the Landlord shall not be obliged to insure any fixtures or fittings which may be installed by the Tenant or any person deriving title under the Tenant and which may become landlord's fixtures and fittings until the Tenant has notified the Landlord in writing of the reinstatement value thereof (but so that the Landlord may from time to time at its discretion increase the amount of the insurance in respect of such fixtures and fittings) and provided further that the Tenant shall once in every 12 months on reasonable request be entitled to be provided with a copy or sufficient extracts from such policy affecting the demised premises as will enable the Tenant to know the full extent of the premises fixtures and fittings covered thereby the risks insured against and any exceptions conditions exclusions or limitations to which such policy is subject.

4.4 REINSTATEMENT

Following damage or destruction of the Building or any part thereof or the Common Parts (defined in PART I of the Third SCHEDULE) over which the Tenant has rights of way or which the Tenant is hereby authorised to use by a peril against which the same are insured pursuant to the provisions of the preceding sub-CLAUSE 3.3 and subject to the provisions of CLAUSE 1.9.2 if the Landlord obtains all necessary planning permissions and other consents (which the Landlord shall use all reasonable endeavours to obtain) to rebuild and reinstate in accordance with the then existing bye-laws regulations and requirements by any competent authority then the Landlord shall with all due speed and diligence (provided always that the Landlord shall not be liable to make up any deficiency in the insurance monies in accordance with the covenant on its part herein arising from or attributable to any failure by the Tenant to comply with any of the obligations on its part (which has not been reimbursed by the Tenant) and provided further that as regards any fixtures and fittings which have been installed by the Tenant or by any person deriving title under the Tenant and which have become landlord's fixtures and fittings the Landlord shall only be liable to reinstate or repair the same after the reinstatement value thereof has been notified by the Tenant to the Landlord and such fixtures and fittings have been insured by the Landlord as mentioned in the preceding sub-CLAUSE 3.3 of this clause.

4.5 QUIET ENJOYMENT

That the Tenant paying the said rents hereby reserved and performing and observing the covenants on the Tenant's part herein contained shall quietly hold and enjoy the demised premises during the term without interruption by the Landlord or any person rightfully claiming under the Landlord.

4.6 COMPLIANCE WITH REQUIREMENTS

That wherever any right of entry is exercised by the Landlord or any other person in accordance with the rights reserved to the landlord in the Second SCHEDULE the Landlord will (subject to receiving reasonable prior written notice) ensure that the person exercising such rights will at the Tenant's cost comply (in so far as reasonably practicable) with the Tenant's reasonable requirements regarding the security of the demised premises and anything on the demised premises.

4.7 To comply with the provisions of CLAUSE 1.20 of this Lease.

5. SURETY COVENANT

The Surety hereby covenants with the Landlord in the terms of the Fifth SCHEDULE.

6. Provided always and it is hereby agreed by and between the parties hereto as follows: 6.1 LANDLORD'S DISCLAIMER

Notwithstanding anything herein contained and unless due to the negligence or default of the Landlord or its servants and save to the extent that the Landlord may be liable under the provisions of the Defective Premises Act 1972 or may be covered by any policy of insurance effected by the Landlord the Landlord shall not be responsible to the Tenant or the Tenant's licensees servants agents or other persons in the demised premises or calling upon the Tenant or the demised premises for any accident or happening or damage to or loss of any chattel or property sustained in the Building or on any property over which the Tenant exercises rights nor for any loss or inconvenience occasioned by:

6.1.1 the closing for repairs or other purposes of the lifts or the Common Parts (as in PART I of the Third SCHEDULE hereto defined) or any part thereof;

6.1.2 any defects or failure in the said lifts or in the sprinkler system (if any) or in the hot and cold water supply or in the heating cooling or ventilating apparatus (if any) or in the lighting or in the conducting media (whether of or in the demised premises or otherwise); or

6.1.3 suitable fuel or power not being obtainable through any appropriate source of supply (owing to strikes lock-outs or other causes) provided always that the Landlord shall:

(i) carry out any necessary repairs and maintenance as expeditiously as reasonably practicable; and

(ii) ensure that at all times during the authorised hours the Tenant has reasonably acceptable use of all of the Common parts and Services to be supplied to the Tenant in accordance with the Landlord's covenants,

provided always that the Landlord shall not have any liability to the Tenant as a result of this provision if any of the Services or the Common Parts shall not be available due to force majeure events or to circumstances beyond the reasonable control of the Landlord.

6.2 ALTERATIONS BY LANDLORD

The Landlord shall be entitled from time to time to make such alterations additions or substitutions in or to the Building or to any part thereof or any plant or apparatus in the Building or the conducting media or the Common Parts (as in PART I of the Third SCHEDULE hereto defined) as it shall think fit provided that plant or apparatus or conducting media or Common Parts (aforesaid) shall remain available for use by the Tenant during the authorised hours and in respect of any new plant apparatus conducting media and Common Parts provided for such use in substitution for those previously available the same shall be substantially no less suitable for the enjoyment of the demised premises and further provided that the Landlord shall in carrying out such works cause as little inconvenience to the Tenant as is reasonably practicable and make good any damage caused to the demised premises.

6.3 RE-ENTRY

If the rents hereby reserved or any part thereof shall at any time be unpaid for 21 days after becoming payable (whether formally demanded or not) or if any of the covenants on the part of the Tenant herein contained shall not be performed or observed or if the Tenant (being an individual or being individuals any one of them) shall become bankrupt or if the Tenant (being a company) shall enter into liquidation whether compulsory or voluntary (save for the purpose of amalgamation or reconstruction of a solvent company) or if an Administrator an Administrative Receiver a Receiver or a Receiver and Manager shall be appointed of its undertaking or if the Tenant for the time being shall enter into an agreement or make any arrangement with creditors for liquidation of the debts of the Tenant by composition or otherwise or suffer any distress or process of execution to be levied on the goods of the Tenant then and in any such case it shall be lawful for the Landlord at any time thereafter to re-enter upon the demised premises or any part thereof in the name of the whole and thereupon this demise shall absolutely determine but without prejudice to the right of action of the Landlord in respect of any antecedent breach of any of the covenants on the part of the Tenant herein contained.

6.4 LANDLORD'S SERVANTS OR WORKMEN

The servants or workmen of the Landlord shall be under no obligation attend or to provide for other use his or their services to the Tenant for the Tenant's private convenience or to accept delivery of any letters telegrams telephone calls messages or parcels addressed to the Tenant and any such furnishing of attendance or other use of services or the acceptance of such letters telegrams telephone calls messages or parcels is to be considered as rendered and accepted by any employee of the Landlord as the servant of the Tenant and the Landlord shall not be liable for and no claim shall be made against it for any loss or damage arising out of or in consequence of such furnishing of attendance or other use of services or acceptance of any such letters telegrams telephone calls messages or parcels as aforesaid.

6.5 CESSER OF RENT

If the demised premises or any part thereof or the access thereto shall at any time during the said term be rendered unfit for occupation or use as the result of a peril against which the demised premises is insured pursuant to the covenant on the part of the Landlord hereinbefore contained the rent firstly and secondly reserved and for the time being reserved as payable hereunder or a fair proportion thereof according to the nature and extent of the damage sustained shall be suspended until the demised premises shall again be rendered fit for occupation or use or until the expiration of the period for which loss of rent insurance (if any) is payable whichever shall first occur provided that there shall be no cesser of rent to the extent that any insurance policy effected by the Landlord shall have been rendered void or voidable in whole or in part by the act or default of the Tenant or any person deriving title under the Tenant or any of the servants or agents of the Tenant or of any such person provided further that if the Building shall be so damaged as to necessitate demolition or reconstruction and if at the expiration of two years and nine months after the date of such damage or destruction the Landlord has not commenced such rebuilding or reconstruction the Landlord or the Tenant shall be entitled on giving to the other not less than three months' previous notice in writing to determine the term hereby granted and at the expiration of such notice this Lease and everything herein contained shall cease and be void (save in respect of any liability for antecedent breach or breaches although further provided that the Tenant shall have no liability for dilapidations in such circumstances) and the Tenant shall not be entitled to any compensation except that (if any) payable under the provisions of the Landlord and Tenant Act 1954 provided also that any dispute as to the proportion (if any) of rent which should be suspended or as to the period of such suspension which may arise under this sub-clause shall be referred to the decision of some competent person (acting as an arbitrator) to be agreed upon by the Landlord and by the Tenant or (in the event of failure so to agree) to be nominated on the application of the Landlord or the Tenant by the President for the time being of the Royal Institution of Chartered Surveyors.

6.6 LANDLORD FREE TO DEAL WITH ADJOINING AND NEIGHBOURING PROPERTY

The Tenant shall not be entitled to any right of light or air which will interfere with the free use of any land or buildings adjoining or neighbouring the demised premises for building or other purposes.

6.7 TENANT UNABLE TO ENFORCE SIMILAR COVENANTS IN ADJOINING PROPERTY ETC.

6.7.1 Nothing herein contained shall confer on the Tenant any right to the benefit of or to enforce any covenant or agreement contained in any lease or other instrument relating to any other property belonging to the Landlord.

6.7.2 Each of the Tenant's covenants herein contained shall remain in full force both at law and in equity notwithstanding that the Landlord shall have waived or released temporarily or permanently revocably or irrevocably or otherwise howsoever a similar covenant or similar covenants affecting adjoining or neighbouring premises of the Landlord.

6.8 LANDLORD CAN CHARGE FOR WORK DONE BY IT

If and so often as the Tenant shall be obliged under the terms hereof to reimburse the Landlord any costs charges and expenses (all such costs charges and expenses shall be reasonable and proper) incurred by it including solicitors' costs and surveyors' fees and other professional costs and fees then in respect of any work done by the Landlord or by any person connected with it or by any person employed by it and who is qualified to carry out such work the Landlord shall be deemed to have incurred or suffered in respect thereof a reasonable fee cost or expense not exceeding that which might properly have been charged or incurred for the same work by an independent person to deal with that work in the ordinary course of his business.

6.9 SERVICE OF NOTICES

Section 196 of the Law of Property Act 1925 applies to any notice served pursuant to this Lease save that any notices to be served upon the Landlord shall be served (until further notice) c/o Reit Asset Management Limited, 5 Wigmore Street, London W1H 0DL and copied on the day of service to its solicitors Nabarro Nathanson, Lacon House, Theobalds Road, London WC1X 8RW (Ref JPM) and any notices to be served upon the Tenant shall be deemed to have been sufficiently served if served upon the demised premises. 6.10 STATUTORY MODIFICATIONS

Any reference to any statute or any section thereof includes any amendment modification consolidation or re-enactment thereof and any statutory instrument or regulation made thereunder for the time being in force.

6.11 PROPER LAW AND JURISDICTION

6.11.1 The proper law of this Lease is English Law and except as set forth in sub-CLAUSE 5.11.2 below jurisdiction shall be exclusively limited to the courts of England and Wales with any action brought in such courts to be brought in the Royal Courts of Justice London or if appropriate a county court. The Landlord and the Tenant hereby agree declare and irrevocably consent that such courts are in all respects convenient as a forum for the exercise of jurisdiction in respect of this Lease and the Landlord and the Tenant each irrevocably submits to the jurisdiction of such courts.

6.11.2 Without prejudice to the provisions of sub-CLAUSE 5.11.1 above the Landlord shall have (and nothing herein shall limit) the right to institute or pursue any action or proceedings to enforce and/or obtain registration recognition and/or execution of any judgment in the same or any other jurisdiction in the world (whether within or without the jurisdiction in which such judgment is obtained).

7. Wherever there are two or more persons included in the expression "Tenant" then any covenants by the Tenant shall be deemed to be made by each such person severally and by all such persons jointly and by every two or more of such persons jointly.

8. The expression "conducting media" shall where the context so requires mean all or any sewers drains conduits gutters channels watercourses pipes cables wires ducts and mains and apparatus associated therewith and all equipment and fittings ancillary thereto.

9. The sub-headings herein are inserted for convenience of reference only and shall not in any way affect the construction meaning or effect of anything herein contained or govern the rights and liabilities of the parties hereto.

10. References to any statute herein contained shall be deemed to refer to any statutory modification or re-enactment thereof for the time being in force.

11. TENANT'S OPTION TO DETERMINE

11.1 In this clause "TERMINATION DATE" means[ at the end of the tenth year] 2000.

11.2 Subject to the pre-conditions in CLAUSE 10.3 being satisfied on the Termination Date, the Tenant may determine the term on the Termination Date by giving the Landlord not less than six (6) months' written notice. The term will then determine on the Termination Date, but without prejudice to any rights of either party against the other for any antecedent breach of its obligations under this Lease.

11.3 The only pre-condition is that:

11.3.1 vacant possession of the whole of the demised premises is given to the Landlord; and

11.3.2 all Rent and other ascertainable sums due under this Lease up to the Termination Date have been paid in full.

11.4 The Landlord may waive any of the pre-conditions set out in CLAUSE 10.3 at any time before the Termination Date by written notice to the Tenant .

11.5 Time will be of the essence for the purposes of this clause.

12. CERTIFICATE

It is certified that there is no agreement for lease to which this deed gives effect.

13. CONTRACTS (RIGHTS OF THIRD PARTIES) ACT 1999

14. Unless expressly stated nothing in this lease will create any rights in favour of any person pursuant to the Contracts (Rights Of Third Parties) Act 1999.

This Deed remains undelivered until the date hereof.

IN WITNESS whereof the Landlord and Tenant have caused their Common Seals to be hereunto affixed the day and year first above written.

FIRST SCHEDULE

Rights granted to the Tenant

15. The right for the Tenant and persons authorised by the Tenant (in common with others having a like right):

15.1 of passage and running of water soil gas electricity and of all other services or supplies as are now or shall hereafter during the term hereby granted be used by the demised premises through the conducting media passing through or under the adjoining or neighbouring property of the Landlord;

15.2 to use the entrance hall landings passages and stairs of the Building and the service roads and footpaths (if any) within the curtilage of the Building intended for the common use of the occupiers of the Building for the purpose of ingress and egress to and from the demised premises 24 hours a day seven days a week other than public holidays or where closure or interruption is permitted under this Lease or occurs due to force majeure events;

15.3 to use the lifts 24 hours a day seven days a week other than public holidays or where closure or interruption is permitted under this Lease or occurs due to force majeure events (save when the same have been taken out of service in accordance with the provisions of this Lease);

15.4 to install card or other access systems on all doors leading into the demised premises with the readers/controllers installed in the lift lobby areas near to such doors;

15.5 with the prior written consent of the Landlord to adapt extend and alter the air conditioning plant and conducting media within the demised premises and within the plant rooms which exclusively serve the demised premises;

15.6 to install and thereafter display the corporate names and logos of:

15.6.1 the Tenant of the demised premises within the main entrance on the ground floor of the Building on the sign board provided or to be provided by the Landlord; and

15.6.2 the Tenant of the demised premises within the lift lobby areas of the eighth floor of the Building adjacent to the entrance doors to the demised premises,

15.7 support and shelter from the remaining rents of the Building;

SECOND SCHEDULE

Exceptions and reservations to the Landlord and others

16. The right of free and uninterrupted passage and running of water soil gas electricity and of all other services or supplies as are now or hereafter to be used from and to adjoining or neighbouring property through such of the conducting media serving such adjoining or neighbouring property now or which may not later than whichever shall be the earlier of:

16.1 the expiration of the term hereby granted; and

16.2 the expiration of a period of eighty years from the date hereof (which is the perpetuity period applicable to this Lease) hereafter be in or upon the demised premises;

17. the rights and liberties of entry upon the demised premises mentioned in the covenants by the Tenant herein contained;

18. such rights of access to and entry upon the demised premises (including the right to erect and maintain scaffolding and other builders' equipment) as are referred to in CLAUSE 1.20 of this Lease;

19. the right at any time and from time to time to open or authorise the opening of windows in any adjoining or neighbouring premises overlooking the demised premises;

20. the right to affix lettering and signs to any part of the exterior of the Building other than the windows of the demised premises provided that the access of light to the windows of the demised premises be not thereby substantially reduced;

21. the right to let any adjoining or neighbouring property for any office purpose;

22. the full right of support shelter and protection and all other easements and rights now or hereafter belonging to or enjoyed by adjacent or neighbouring property or the Building; and

23. the right to close temporarily for repairs or any other purposes the lifts in the Building the service roads and footpaths (if any) and any other areas within the curtilage of the Building any other part of the Building (whether or not forming part of the demised premises) which the Tenant is by virtue of this Lease authorised to use (whether in common with others or not) but subject to the provisions of CLAUSEs 3.1 and 3.2 of this Lease.

THIRD SCHEDULE

PART I

The service charge

24. In these presents the following expressions shall have the meanings assigned to them hereunder:

"THE CERTIFICATE"

shall mean the Certificate specified in PARAGRAPH 3 of PART I of THIS SCHEDULE;

"THE COMMON PARTS" shall mean the entrance hall landings passages stairs lifts escalators lavatories and toilet facilities of the Building (save those hereby demised or demised to any other tenant of the Landlord) all other parts of the Building (including the car parks (if any) within the Building) intended for the common use and service of occupiers of the Building all the car parks (if any) not within the Building but within the curtilage thereof the service roads footpaths and access ways and all other open areas within the curtilage of the Building and all parts of the Building and all other buildings within the curtilage of the Building exclusively used by the Landlord in connection with the running maintenance repair and management of the Building;

"THE FINAL PERIOD" shall mean the period commencing on the first day of the last Service Charge Period hereunder and ending on the last day of the tenancy hereby granted;

"THE INITIAL PERIOD" shall mean the period commencing on the date hereof and ending on the last day of the Service Charge Period in which such date falls;

"SERVICE CHARGE PERIOD"

shall mean the Initial Period and the Final Period (as hereinafter defined) and shall also mean:

(i) each period of one year commencing on 1 January in every year; or

(ii) such other period during the tenancy hereby created (not exceeding one year) as the Landlord may from time to time determined by notice in writing given to the Tenant;

"THE TENANT'S PROPORTION" shall mean a fair proportion (to be conclusively determined by the Landlord's surveyor (save in case of manifest error)) of the Total Cost of Services (as hereunder defined) and in determining the Tenant's proportion the Landlord's Surveyor shall have regard to:

(iii) whether the Tenant receives any benefit from any particular service; and (iv) subject to:

(a) any adjustment required under (i); and

(b) where it is appropriate in the Landlord's Surveyor's opinion so to do, the proportion which the net lettable internal area of the demised premises bears to the aggregate net lettable internal area of the Building;

"THE TOTAL COST OF SERVICES"

shall mean the aggregate of:

(a) the total cost to the Landlord in the Service Charge Period to which the Certificate relates of complying with the covenants contained in CLAUSEs 3.1 and 3.2 hereof and (without prejudice to the generality of the foregoing) repairing and maintaining the Building (and such of the Common Parts as fall outside the Building) including costs attributable to the inspection and testing of the Building and the Common Parts or any part or parts thereof but excluding any costs attributable to:

(v) repairs and maintenance for which the Tenant is responsible under the covenants on the part of the Tenant hereinbefore contained; and

(vi) the repair and maintenance of any other suite or suites of offices in the Building let to any other tenant of the Landlord or occupied by the Landlord (other than for the sole purpose of the provision of services) and being repairs and maintenance for which the tenant or occupier is or would be responsible assuming the like responsibility for repair and maintenance on the part of such tenant as the Tenant has hereunder;

(b) the total cost to the Landlord in the Service Charge Period to which the Certificate relates of providing services amenities and facilities for the whole of the Building and the Common Parts as the Landlord shall be entitled or obliged to supply in accordance with the provisions of this Lease;

(c) in particular (but without prejudice to the generality of the foregoing) the total cost to the Landlord in the Service Charge Period to which the Certificate relates of the carrying out of all the works providing the services amenities and facilities and making the payments details whereof are specified in PART II of THIS schedule to the extent that the same are carried out provided or made;

(d) the reasonable and proper fees and expenses of any managing agents employed by the Landlord for the management of the Building (save for collection of the rents firstly reserved) and such of the Common Parts (if any) as do not form part of the Building or (where the Landlord or its employees are directly engaged in the management of the Building) a reasonable and proper amount for management expenses in the Service Charge Period to which the Certificate relates;

(e) the reasonable fees of the Chartered Accountant hereinafter mentioned, PROVIDED ALWAYS that there shall be excluded from the service charge costs any expenses costs outgoings or other expenditure relating to:

(i) the provision of any of the services and costs relating to a period prior to the Tenant's occupation;

(ii) the making good of damage caused by any of the risks insured against by the Landlord;

25. The service charge for the period to which the Certificate relates shall be such a sum as shall be equal to the Tenant's proportion of the Total Cost of Services certified in the Certificate for that same period provided always that the service charge for the Initial Period or for the Final Period shall be that proportion of the Tenant's proportion of the Total Cost of Services certified on the Certificate for the relevant Service Charge Period as the number of days in the Initial Period or in the Final Period as the case may be bears to the number of days in the relevant Service Charge Period.

26. The Total Cost of Services in each Service Charge Period shall as soon as practicable after the end of each Service Charge Period be certified by a Certificate signed by an independent Chartered Accountant to be appointed by the Landlord:

26.1 the Certificate shall show sub-totals for the individual heads of expenditure comprised in the Total Cost of Services and shall incorporate a statement of the amount of the service charge payable by the Tenant for the Service Charge Period to which the Certificate relates;

26.2 the particulars certified and contained in the Certificate shall as to matters of fact be final and binding on the Tenant save in the case of manifest error and subject to the provisions of PARAGRAPH 7 of PART 1 of THIS SCHEDULE.

27. On each usual quarter day in each calendar year the Tenant shall make a payment in advance and on account of the service charge. During the Initial Period the payments to be made on account by the Tenant shall be based on an estimated service charge at the rate of Twenty five thousand six hundred and thirty four pounds and thirty four pence ((GBP)25,634.34) for the first Service Charge Period hereunder and the first payment (apportioned in respect of the period commencing on the date hereof until the next following usual quarter day shall be paid on the execution hereof and each successive payment during the Initial Period shall be equal to one quarter of the annual rate of the said estimated service charge.

28. In respect of each Service Charge Period subsequent to the Initial Period the Landlord's Surveyor shall prepare or cause to be prepared an estimate of the amount (hereinafter called "THE ESTIMATED SERVICE COST") of the Total Cost of Services for each such Service Charge Period having regard

to all relevant circumstances and in particular to:

28.1.1 past levels of expenditure on routine or continuing services;

28.1.2 the scope of any works to the Building and the Common Parts which are then expected to be undertaken during the relevant Service Charge Period;

28.1.3 the likely effect of inflation on cost levels; and

28.1.4 the amount which the Landlord's surveyor considers or is advised to be appropriate to allow in respect of contingencies. 28.2 Before payment on account of the service charge shall fall due in respect of any Service Charge Period subsequent to the Initial Period the Tenant shall be supplied with a statement showing the Estimated Service Cost for that Service Charge Period with sub-totals for each individual head of expenditure.

28.3 Neither the Estimated Service Cost nor anything contained in any statement showing an Estimated Service Cost shall in any way limit the Landlord's right to recover from the Tenant the Tenant's proportion of the Total Cost of Services when the relevant Certificate is issued or operate to limit the Landlord's discretion in so far as provided in this Lease as to the works which are to be carried out or the services amenities and facilities to be provided in the relevant Service Charge Period.

28.4 Subsequent to the Initial Period the payment to be made by the Tenant on each usual quarter day in advance and on account of the service charge (for the relevant Service Charge Period) shall be demanded by the Landlord and shall be one quarter of the Tenant's proportion of the Estimated Service Cost as shown on the statement thereof for the relevant Service Charge Period.

29. If the amount of the service charge for a Service Charge Period shall exceed the aggregate of the sums paid on account in respect of that same Service Charge Period then within thirty days of the issue to the Tenant of:

29.1 the Certificate for the same Period; and

29.2 a demand for payment in that behalf, the Tenant shall pay to the Landlord the amount of that excess.

29.3 If the amount of the service charge for a Service Charge Period shall be less than the aggregate of the sums paid on account in respect of that same Service Charge Period then on the issue to the Tenant of the Certificate for that same Service Charge Period there shall be credited by the Landlord to the Tenant (or in the case of the Final Period paid by the Landlord to the Tenant) a sum equal to the difference between the amount of that service charge and the aggregate of the said sums paid on account.

30.1 If reasonably practicable the Landlord shall supply to the Tenant within seven working days of a written request any information reasonably required by the Tenant regarding any item of expense.

30.2 If the Tenant wishes to dispute the contents of any Certificate or of any statement of Estimated Service Cost the Tenant shall within whichever is the later of 28 days of service of the relevant Certificate or statement of Estimated Service Cost and 14 days after the supply of any information pursuant to a written request (time being of the essence for this purpose) give notice in writing to the Landlord stating the basis of the Tenant's objection thereto.

30.3 If within one month of the date of any such notice the Landlord and the Tenant have not reached agreement as to the sum due to the Landlord the matter shall upon the application of either of them be determined by a Chartered Surveyor of at least 10 years' standing (such Surveyor being hereinafter called "THE ARBITRATOR") who shall act as an arbitrator in accordance with the Arbitration Act 1996 and shall be appointed by agreement between the Landlord and the Tenant or failing such agreement on the application of either the Landlord or the Tenant by the President of The Royal Institution of Chartered Surveyors and the fees of the Arbitrator shall be borne as directed by him.

30.4 Pending settlement of any dispute as aforesaid the Tenant shall not be entitled to withhold any payment demanded as aforesaid and any notice given by the Tenant to the Landlord shall be invalid unless the sum so demanded and any other moneys due to the Landlord have been paid when such notice is given.

30.5 The Tenant shall not be entitled unless the amount charged is manifestly excessive to object to any item of cost incurred by the Landlord in respect of the service charge on the ground that the same may have been provided or performed at a lower cost.

30.6 If following the determination by the Arbitrator the amount due to the Landlord shall be less than that demanded there shall be allowed to the Tenant on the payment day next following the date 14 days after the date of publication of the Arbitrator's decision an amount equal to any overpayment made by the Tenant and in the case of the Final Period the overpayment shall be paid by the Landlord to the Tenant.

PART II

31. Cleaning the Common Parts.

32. Cleaning the exterior of the windows and skylights and other glassed areas of the Common Parts and the repair running maintenance testing inspection and renewal and operation of window cleaning cradles runways and associated apparatus.

33.

33.1 Heating cooling ventilating and air conditioning the Building and providing hot and cold water to the basins and lavatories in the Building and lighting the Common Parts including the inspection testing monitoring repair cleansing maintenance operation and renewal of all boilers plant tanks radiators cooling and ventilating and air conditioning apparatus (if any) and all equipment and fittings ancillary thereto and all ancillary conducting media.

33.2 Making surveys for and preparation of drawings of plumbing installations save those in existence at the date hereof and the installation provision repair maintenance operation renewal and inspection of all equipment in connection with the metering of water used in the Building.

33.3 Procuring the supply of water and sewerage services to the Building including without prejudice to the generality of sub-CLAUSE 3.2 hereof connection charges meter rents standing charges and charges for consumption.

33.4 Providing (where appropriate) toilet requisites and hygiene services in the lavatories of the Building

33.5 Maintenance landscaping and cultivation of any landscaped or garden or other similar areas within the Building or any other areas allocated for such purposes from time to time. 33.6 The regular inspection and treatment against infectious bacteria of any bodies of water within the Building.

34. Provision inspection testing repair maintenance and renewal of fire extinguishing equipment in the Common Parts of the Building or within the curtilage thereof.

35. Provision inspection testing repair maintenance cleansing operation and renewal of:

35.1 a fire alarm system and fire prevention and detection equipment;

35.2 any other safety apparatus and equipment;

35.3 a security alarm system and security apparatus and devices and all other security arrangements; and

35.4 escape and emergency lighting within the Building or within the curtilage thereof.

36. The running of and the inspection repair maintenance operation and renewal of the lifts and

automatic doors (if any) in the Building.

37. Provision repair maintenance and renewal of rubbish bins refuse compactors shredders or other disposal machinery and equipment and cost of refuse disposal.

38. Provision repair cleansing maintenance and renewal of carpets floor coverings furniture furnishings decor and landlord's fixtures and fittings in the Common Parts.

39. Provision inspection repair cleansing maintenance and renewal of water softening plant and provision of the services of a water analyst and pest controller.

40. Painting and decorating as necessary the Common Parts and the exterior of the Building as necessary and washing down cleaning and otherwise treating the exterior stonework brickwork and curtain walling and the exterior tiles faiences glazed bricks and other washable surfaces.

41. Repair and renewal of all window frames and skylights of the Building or within the curtilage thereof and painting or otherwise treating the external parts of such window frames and skylights.

42. Repair maintenance and renewal of all boundary walls fences and gates.

43. Inspection cleansing maintenance testing repair alteration laying down construction renewal and removal of conducting media (not referred to in paragraph 3.1 hereof) and all telephone telex and other information transmission or receiving equipment and all gas electric and sanitary apparatus in or upon or serving the Building (other than:

43.1.1 those in and upon the said suite of offices hereby demised and for the repair or renewal of which the Tenant is responsible under the covenants on the part of the Tenant hereinbefore contained;

43.1.2 those in and upon any other suite or suites of offices in the Building let to any other tenant of the Landlord or available for letting or occupied by the Landlord (other than for the purpose of the provision of services) and for the repair or renewal of which such tenant or occupier is or would be responsible assuming the like responsibility for repair and renewal on the part of such tenant or intended tenant as the Tenant has hereunder), and such of the Common Parts as do not form part of the Building and making good all damage (including the making good of all decorations) arising out of such inspection cleansing maintenance testing repair alteration laying down construction renewal or removal.

44. The services of a signwriter or sign maker for the purpose of displaying in such manner as the Landlord shall consider appropriate the names of the tenants of the Building on the entrance hall notice board.

45. Provision of telephones for the use of the Landlord's staff in the Building who are solely engaged in the provision of these services.

46. Payment for all telephone calls made by the staff of the Building and their fares and out-of-pocket expenses solely incurred in furtherance of their duties hereunder.

47. Compliance with any Act of Parliament statutory instrument order building regulation or other regulation or local bye-law relating to means of escape in case of fire or other hazard or to the Building or to the Common Parts or making representations against any such matters in accordance with statutory regulations.

48. Employing staff whether directly or indirectly exclusively for the management of the Building and the Common Parts and the provision of the services herein referred to and all incidental expenditure in relation to such employment including but without limiting the generality thereof:

48.1.1 the provision of luncheon vouchers or other meal subsidy;

48.1.2 the payment of the statutory and such other insurance health pension welfare and other payments contributions and premiums that the Landlord may at its absolute discretion deem desirable; and

48.1.3 the provision cleaning repair and renewal of all necessary uniforms and protective clothing.

49. Payment of uniform business rates and water charges for the Common Parts.

50. Payment of premiums for insurance as required by the Landlord to cover engineering insurance for lifts escalators boilers and electrical and/or mechanical equipment installed in the Building. 51. Payment of surveyors' fees reasonably incurred to ascertain the reinstatement values for the purposes of the insurances referred to in the preceding paragraph.

52. Borrowing any necessary sums for or in connection with carrying out the works and providing the services amenities facilities and making the payments specified in this schedule including all proper interest commission banking charges or other charges incurred in respect of such borrowing but after allowing as a credit any interest earned on any credit balance on any account into which the Tenant's payments in respect of the Service Cost are paid.

53. Provision of any other service amenity or facility and the making of any other payment which may in the reasonable discretion of the Landlord be required for the efficient running and/or good estate management of the Building the comfort of the tenants thereof and the good estate management and/or efficient running of the Common Parts.

FOURTH SCHEDULE

Regulations of the Building

54.

54.1 The requirements of the Fire Precautions Act 1971 and the Health and Safety at Work Act 1974 and all rules and regulations thereunder shall be strictly complied with.

54.2 In particular tenants shall:

54.2.1 cause sufficient fire officers to be appointed;

54.2.2 save in so far as it is the Landlord's responsibility, regularly test inspect and maintain fire detection prevention and fighting equipment within and exclusively serving the demised premises and keep and produce to the relevant authorities and to the Landlord and whomsoever the Landlord may reasonably direct records in writing of such test inspections and maintenance;

54.2.3 at all times maintain clear access through escape routes; and

54.2.4 fully participate in fire evacuation drills organised in respect of the Building or parts thereof.

55.

55.1 No work shall be carried out to in or upon any part of the Building when such work involves the use installation or removal of or the repair alteration or other work whatsoever to materials dangerous or injurious to health without the Landlord first being notified of what is proposed.

55.2 In the event of the existence of materials aforesaid being discovered in the course of carrying out such works aforesaid the Landlord shall immediately be notified and all work thereto shall immediately cease until the Landlord's surveyor has inspected the same.

55.3 Works involving the use installation removal repair alteration or whatsoever of or to materials aforesaid or the continuation of works where materials aforesaid have been discovered shall only be carried out or continued (as the case may be) strictly in accordance with the requirements of the Landlord and in accordance with the best codes of modern practice regard being had to the use of the Building by others as well as the tenants or occupiers of the demised premises.

55.4 The Landlord shall have sole discretion in considering whether work may be carried out or continued or in deciding what additional safeguards it requires to be taken in addition to those which may be imposed under statute building or other rules regulations or bye-laws.

56. No tea leaves or other matters or things likely to cause an obstruction are to be placed or thrown in or down the water pipes or W.C. lavatory basins or urinals.

57. All necessary steps shall be taken to prevent the overflow or waste of hot or cold water. 58. There shall be no interference with the heating cooling or ventilating appliances and installations

apart from the normal switching on or off of the appliances in the demised premises for the comfort of the occupants thereof.

59. Apart from any self-operating lifts installed in the Building no person other than the person employed by the Landlord for such purpose shall operate lifts.

60. Overloading or permitting of overloading of any of the lifts or escalators in the Building is strictly prohibited.

61. No goods or merchandise shall (without the consent in writing of the Landlord) be brought into the passenger lifts unless the service lift is unavailable for use by the Tenant in which case the Tenant shall make good any damage caused to the passenger lifts or the Tenant shall reimburse to the Landlord the cost of such making good.

62. No goods or merchandise shall be brought into the Building by means of the main entrances to the Building except between the hours of 8.00 a.m. and 9.00 a.m. or 6.00 p.m and 7.00 p.m. on Mondays to Fridays inclusive or between the hours of 8.00 a.m. and 9.00 a.m. or 12 noon and 1.00 p.m. on Saturdays unless the service lift and access shall be unavailable for use by the Tenant and no goods or merchandise shall be brought into the Building in such manner as will damage the Building or any part thereof.

63. Tenants or occupiers shall ensure that no rubbish or litter is left by them on the Common Parts.

64. Tenants or occupiers shall not place or permit or suffer to be placed or remain in or upon the Common Parts any obstruction whatsoever.

FIFTH SCHEDULE

Form of Surety covenant

The Surety COVENANTS with the Landlord as a primary obligations and on a full and unqualified indemnity basis as follows:

1. The Tenant will pay the Rents payable under this Lease on the date on which Rents become due and payable and will comply with all the obligations and conditions contained in this Lease relating to any other matter.

2. In default of compliance the Surety will pay the Rents or (as appropriate) comply with the obligation or condition in respect of which the Tenant has defaulted and the Surety will make good to the Landlord on demand all costs damage expense and liabilities resulting from any such default.

3. As and when called upon to do so by either the Landlord or the Tenant the Surety will enter into any Supplemental Document for the purpose of consenting to the Tenant entering into such Supplemental Document and confirming that all covenants by the Surety will remain in full force and effect in respect of the Lease as varied or amended by such Supplemental Document.

4. The Surety's liability shall remain in full force and effect and shall not be released notwithstanding any of the following it being acknowledged that the items in the list below are each separate and independent and not to be interpreted in the light of any other item:

4.1 any time or indulgence granted by the Landlord to the Tenant or to any other person liable or by the Landlord dealing with exchanging varying or failing to perfect or enforce any of its rights and remedies against the Tenant or any other person liable;

4.2 any variation of or addition to or reduction from the terms of this Lease or any Supplemental Document;

4.3 any non-acceptance of Rents or any of them in circumstances where the Landlord has reason to suspect a breach of covenant by the Tenant;

4.4 the occurrence of any of the contingencies specified in CLAUSE 5.3 of this Lease;

4.5 a surrender of part of the demised premises except that the Surety will have no liability in relation to the surrendered part in respect of any period following the date of surrender;

4.6 any document which has the effect of operating as a deemed surrender and re-grant;

4.7 this Lease being forfeited;

4.8 any incapacity or change in the name style or constitution of the Tenant;

4.9 any change in the constitution of the Landlord or its absorption in or amalgamation with or the acquisition of all or part of its undertaking or assets by any other person or any reconstruction or reorganisation of any kind; and 4.10 any other act or thing by virtue of which (but for this provision) the Surety would have been released.

5. This guarantee covenant:

5.1 secures the ultimate balance from time to time owing to the Landlord by the Tenant and is a continuing security notwithstanding any settlement of account or other matter;

5.2 is in addition to any present or future indemnity or guarantee or other document containing some obligation to pay discharge or be responsible for any indebtedness or liability of the Tenant (a "COLLATERAL INSTRUMENT") or right or remedy held by or available to the Landlord; and

5.3 will not be in any way prejudiced or affected by the existence of any Collateral Instrument rights or remedies or by the Collateral Instrument becoming wholly or in part void voidable or unenforceable on any ground or by the Landlord compounding with any other person liable.

6. The Landlord will not be obliged to make any claim or demand on the Tenant or to resort to any Collateral Instrument or other means of payment held by or available to the Landlord before enforcing the Surety's covenants and no action taken or omitted by the Landlord in connection with any Collateral Instrument or other means of payment will discharge reduce prejudice or affect the liability of the Surety nor will the Landlord be obliged to apply any money or other property received or recovered in consequence of any enforcement or realisation of any Collateral Instrument or other means of payment in reduction of the liabilities which are guaranteed by the Surety.

7. The Surety warrants that it has not taken or received and undertakes that until all the liabilities which are guaranteed by the Surety have been paid or discharged in full it will not take or receive the benefit of any security from the Tenant or any other person in respect of its obligations under this guarantee.

8. Until all the liabilities guaranteed by the Surety have been paid discharged or satisfied in full (and notwithstanding payment of a dividend in any liquidation or bankruptcy or under any compromise or arrangement) the Surety agrees that without the prior written consent of the Landlord it will not:

8.1 exercise its rights of subrogation reimbursement and indemnity against the Tenant;

8.2 demand or accept repayment in whole or in part of any indebtedness due to the Surety from the Tenant or from any other person liable, or demand or accept any Collateral Instrument in respect of the same or dispose of the same;

8.3 take any step to enforce any right against the Tenant or any other person liable in respect of any liabilities guaranteed by the Surety; or

8.4 claim any set-off or counterclaim against the Tenant or any other person liable or claim or prove in competition with the Landlord in the bankruptcy or liquidation of the Tenant or any other person liable or have the benefit of or share in any payment from or composition with the Tenant or any other person liable or any other Collateral Instrument held by the Landlord for any liabilities guaranteed by the Surety or for the obligations or liabilities of any other person liable but so that if so directed by the Landlord, it will prove for the whole or any part of its claim in the liquidation or bankruptcy of the Tenant on terms that the benefit of such proof and of all money received by it in respect of such proof shall be held on trust for the Landlord and applied in or towards discharge of the liabilities guaranteed by the Surety in such manner as the Landlord shall deem appropriate

Provided Always that the provisions of PARAGRAPHs 7 or 8 shall not apply where the Surety is a bank or other financial institution.

9. If contrary to PARAGRAPHS 7 or 8.2 the Surety takes or receives the benefit of any security or receives or recovers any money or other property such security money or other property will be held on trust for the Landlord and will be delivered to the Landlord on demand.

10. The Surety agrees to reimburse the Landlord on demand for all reasonable legal and other costs charges and expenses on a full and unqualified indemnity basis which may be properly incurred by the Landlord in relation to the enforcement of the Surety's covenants.

11. All payments to be made by the Surety will be made in full without any set-off (legal or equitable) condition or counterclaim and subject as provided below free and clear of any deductions or withholdings. If at any time any applicable law regulation or regulatory requirement or any governmental authority monetary agency or central bank requires the Surety to make any deduction or withholding in respect of taxes levies duties imposts or any charges from any payment due from the Surety the sum due from the Surety in respect of such payment shall be increased to the extent necessary to ensure that after making such deduction or withholding the Landlord receives on the due date for such payment and retains (free from any liability in respect of such deduction or withholding) a net sum equal to the sum which it would have received had no such deduction or withholding been required to be made. The Surety shall indemnify the Landlord against any losses or costs incurred by reason of any failure of the Surety to make any such deduction or withholding or by reason of any increased payment not being made on the due date for such payment. The Surety shall promptly deliver to the Landlord any receipts certificates or other proof evidencing the amount (if any) paid or payable in respect of any deduction or withholding as aforesaid.

12. Each of the provisions of this guarantee covenant is distinct and severable from the others and if at any time one or more of such provisions is or becomes illegal invalid or unenforceable the validity legality and enforceability of the remaining provisions will not in any way be affected or impaired.

13. The Surety agrees to pay Interest as referred to in CLAUSE 1.30 on each amount demanded of it under this schedule from the date of demand until repayment (as well after as before judgment).

14. If a liquidator or trustee in bankruptcy surrenders or disclaims this Lease or if this Lease becomes forfeited the Surety will at the request of the Landlord made within the three months following that surrender or disclaimer or forfeiture (as the case may be) take from the Landlord a lease of the demised premises for a term equal to the residue of the Term which would have remained had there been no surrender or disclaimer or forfeiture at the same rents and subject to the same obligations and conditions as are contained in this Lease. That lease is to take effect from the date of such surrender or disclaimer or forfeiture (as the case may be) and in such case the Surety will pay the reasonable costs of that new lease and execute and deliver a counterpart of it to the Landlord.

15. If the Landlord does not require the Surety to take a new lease of the demised premises under the preceding PARAGRAPH 14 the Surety will nevertheless on demand pay to the Landlord a sum equal to the Rents which would have been payable under this Lease but for the surrender or disclaimer or forfeiture (as the case may be) in respect of the period from the date of that surrender or disclaimer or forfeiture (as the case may be) until the expiration of three months from it or until the demised premises become re-let by the Landlord or until the expiry of the Term (whichever occurs first) together with all arrears of Rents outstanding under this Lease. EXECUTED and DELIVERED as a DEED ) /s/ James Maddon (as attorney) on behalf of Aldwych House BV by two ) partners of Nabarro Nathanson pursuant ) /s/ Nicholas Vergette (as attorney) to a power of attorney: )

EXECUTED and DELIVERED as a DEED for ) /s/ James Maddon (as attorney) NEN BELEGGINGEB BV by two partner of ) Nabarro Nathanson pursuant to a ) /s/ Nicholas Vergette (as attorney) power of attorney: )

Confidential information omitted where indicated by "[*]" and filed separately with the commission pursuant to a request for confidential treatment under rule 24b-2 of the Securities Exchange Act of 1934 STUDIO 1+1 UKRAINE ADVERTISING HOLDINGS BV INNOVA FILM GMBH INTERNATIONAL MEDIA SERVICES LTD. INTER-MEDIA

AND

SERVLAND CONTINENTAL S.A. TREND ADVERTISING AGENCY LIMITED VIDEO INTERNATIONAL - KIEV LIMITED PRIORITET LIMITED

ADVERTISING SALES AGENCY AGREEMENT

DATED MARCH 14, 2001

Confidential Treatment has been requested with respect to certain information contained in this Exhibit TABLE OF CONTENTS

Page

1. Interpretation 2 2. Appointment of Agent 3 3. The Agent's Duties 4 4. Technical Support and Reporting 7 5. Sale of the Advertising 8 6. Sales Budget and Pricing 9 7. Broadcasting Schedule and Advertising Schedule 10 8. Intellectual Property 11 9. Rights and Duties of Studio 1+1 Group 11 10. Option over the Agent's Productions 12 11. Financial Provisions 12 12. Information Rights 13 13. Confidentiality 13 14. Force Majeure 14 15. Duration and Termination 14 16. Consequences of Termination 16 17. Nature of Agreement 17 18. Arbitration and Proper Law 18 19. Contract (Rights of Third Parties) Act 1999 18 20. Notices and Service 18 ADVERTISING SALES AGREEMENT dated MARCH 14, 2001 between:

1 BROADCASTING COMPANY STUDIO 1+1, a limited liability company organised and existing under the laws of Ukraine, whose principal place of business is at 7/11 Khreshchatik, 7th Floor, 01001 Kiev, Ukraine;

UKRAINE ADVERTISING HOLDINGS BV, a corporation organised and existing under the laws of The Netherlands, whose principal place of business is at Leidsekade 98,1017 PP, Amsterdam, The Netherlands;

INNOVA FILM GMBH, a corporation organised and existing under the laws of Germany, whose principal place of business is at Friedrich Strasse 31-33, 40210, Dusseldorf, Germany;

INTERNATIONAL MEDIA SERVICES LTD., a corporation organised and existing under the laws of Bermuda, whose principal place of business is at Clarendon House, 2 Church Street, PO Box HM 1022, Bermuda; and

INTER-MEDIA , a corporation organised and existing under the laws of Ukraine, whose principal place of business is at 3 Dehtyarivska Street, Kyiv, Ukraine,

(collectively "Studio 1+1 Group").

AND

2 SERVLAND CONTINENTAL S.A., a corporation organised and existing under the laws of Belize, whose principal place of business is at 35A Regent Street, PO Box 1777, Belize City, Belize;

TREND ADVERTISING AGENCY LIMITED a corporation organised and existing under the laws of Russia, whose principal place of business is at 25 Akademika Pavlova Street, Moscow, 121359;

VIDEO INTERNATIONAL - KIEV LIMITED, a corporation organised and existing under the laws of Ukraine, whose principal place of business is at, 10 Andreya Ivanova Street, Kiev, 01010, Ukraine;

PRIORITET LIMITED, a corporation organised and existing under the laws of Ukraine whose principal place of business is at 2 Mezhevaya Street, Kiev, Ukraine.

(collectively the "Agent").

RECITALS:

(A) Studio 1+1 Group holds a licence for television broadcasting in the Ukraine, which licence includes the right to sell advertising, sponsorship and other media related services inserted in the broadcast ("Advertising"). Studio 1+1 Group is willing to enter into an exclusive advertising sales agreement with the Agent for the Advertising.

(B) The Agent has extensive marketing and sales experience and desires to act as the exclusive sales agent for Studio 1+1 Group in respect of the Advertising.

-1- (C) Studio 1+1 Group has agreed to sell and the Agent agreed to buy the 50% stake in Prioritet Limited ("Prioritet") held by Studio 1+1 Group.

(D) The Agent has agreed to give Studio 1+1 Group the first option to purchase the Ukrainian broadcasting rights of any unencumbered production or co-production of the Agent or its Affiliates.

1. INTERPRETATION

1.1. In this Agreement, unless the context otherwise requires:

"ADVERTISING" has the meaning given that term in Recital (A) of this Agreement;

"AFFILIATES" means with respect to any person, any other person, directly or indirectly controlling, or controlled by, or under direct or indirect common control with, such person (where "control" shall exist if a person has direct or indirect ownership of 50% or more of the voting securities or other ownership interest of another entity);

"AGENT" has the meaning given in the first paragraph of this Agreement;

"CPP" OR "COST PER POINT" means the average cost required to achieve one GRP per 30 seconds;

"FORCE MAJEURE" means, in relation to either party, any of the following: act of God, war, economic collapse, nation-wide industrial action or material adverse change to the regulatory environment in the Ukraine directly affecting the performance of its obligations by any party to this Agreement or any other matter or thing outside the control of either party;

"GRP" OR "GROSS RATING POINT" means the viewers of a broadcast totalling one percent of adults, being of such age group as defined by the official television audience research undertaken in the Territory as amended from time to time;

"INTELLECTUAL PROPERTY" means any patent, copyright, registered design, trade mark or other industrial or intellectual property right;

-2- "RATE CARD" means the price list for Advertising slots agreed between Studio 1+1 Group and the Agent;

"RESTRICTED INFORMATION" means any information which is disclosed to either party (Receiving Party) by the other (Disclosing Party) pursuant to or in connection with this Agreement (whether orally or in writing, and whether or not such information is expressly stated to be confidential or marked as such);

"SALES BUDGET" means the forecast sales budget in US dollars for a calendar year to be agreed between Studio 1+1 Group and the Agent;

"SERVICES" has the meaning given that term in Clause 3.1 of this Agreement;

"STUDIO 1+1 GROUP" has the meaning given in the first paragraph of this Agreement;

"TERRITORY" means Ukraine.

1.2. Any reference in this Agreement to `writing' or cognate expressions includes a reference to telex, cable, facsimile transmission or comparable means of communication.

1.3. Any reference in this Agreement to any provision of a statute shall be construed as a reference to that provision as amended, re-enacted or extended at the relevant time.

1.4. The headings in this Agreement are for convenience only and shall not affect its interpretation.

1.5. All words importing the singular include the plural, all words importing any gender include every gender, all words importing persons include bodies corporate and unincorporated; and (in each case) vice versa.

2. APPOINTMENT OF AGENT

2.1. Subject to the terms and conditions of this Agreement, Studio 1+1 Group hereby appoints the Agent as its exclusive sales agent in the Territory for the promotion of, and solicitation of customers for the Advertising, and the Agent hereby agrees to act exclusively for Studio 1+1 Group in that capacity.

2.2. The appointment will commence on 1 January 2001 for an initial term of six years until 31 December 2006. In the event that Studio 1+1 Group both obtains a renewal of the licence referred to in Recital (A) and if it decides that it wishes to continue to sell the Advertising through an agent which is not a member of the Studio 1+1 Group then the Agent shall be given the opportunity to match the terms put forward by any other parties who have been asked to tender for the right to sell the Advertising. If the Agent can match those terms then it shall be reappointed by Studio 1+1 Group as the exclusive

-3- sales agent for the Advertising in the Territory. The renewed term of appointment of the Agent will expire on expiry of the renewed licence to Studio 1+1 Group.

2.3. Subject to the provisions of Clause 15 below if Studio 1+1 Group terminates this Agreement prior to the 31 December 2006 Studio 1+1 Group shall pay or allow to the Agent, to compensate the Agent for any loss or damage sustained by the Agent resulting from the termination, liquidated damages of an amount equal to the total commission paid to the Agent under this Agreement in respect of sales made in the 12 months preceding notification of termination.

2.4. Subject to the provisions of Clause 15 below if the Agent terminates this Agreement prior to the 31 December 2006 the Agent shall pay or allow to Studio 1+1 Group, to compensate Studio 1+1 Group for any loss or damage sustained by Studio 1+1 Group resulting from the termination, liquidated damages of an amount equal to six weeks revenue from the Advertising calculated on the basis of the total amount of the revenue for the twelve months preceding the notification of termination divided by eight.

2.5. The Agent and Studio 1+1 Group agree that all agreements between Studio 1+1 Group and Prioritet and any obligations relating thereto expire on 31 December, 2000 but Prioritet shall be entitled to sell and market the Advertising in accordance with the terms of this Agreement for the benefit of the Agent with effect from 1 January 2001.

2.6. The Agent agrees to purchase all of Studio 1+1 Group's interest in Prioritet with effect from 1 January 2001 in consideration for the waiver and release by the Agent of all claims of the Agent or Prioritet against Studio 1+1 Group and all obligations, whether monetary or not, owing by Studio 1+1 Group to the Agent or Prioritet and the assumption by the Agent of all assets and liabilities of Prioritet, including without limitation, its employees. Both parties will use all reasonable endeavours to complete the formal transfer of Studio 1+1 Group's interest in Prioritet on or before 30 June 2001.

2.7. Pending completion of formal transfers of Studio 1+1 Group's interest in Prioritet, Studio 1+1 Group hereby agrees that it holds such interest on trust for the Agent. Studio 1+1 Group further agrees to follow the instruction of the Agent in all matters relating to Prioritet and to cause Prioritet to carry on its business in the ordinary course and not to permit it to undertake any activities or incur any obligations outside the ordinary course of its business without the written consent of the Agent.

3. THE AGENT'S DUTIES

3.1. The Agent shall use all reasonable endeavours to promote and market the Advertising and to seek potential customers for the Advertising and to perform such other obligations as contemplated herein (collectively the "Services"), but the Agent shall not be entitled to conclude any contracts for the sale of the Advertising on behalf of or as agent of Studio 1+1 Group, or to bind and/or represent Studio 1+1 Group in any way which are not in accordance with:

-4- 3.1.1. the Studio 1+1 Group standard terms and conditions referred to in Clause 5.4; and

3.1.2. the current Rate Card; and

3.1.3. the agreed trading parameters as set out in Clause 6.2.

3.2. The Agent shall conduct sales of the Advertising with all due care and diligence and shall use all reasonable endeavours to cultivate and maintain good relations with customers and potential customers in accordance with sound commercial principles.

3.3. Subject as provided in this Agreement and to any reasonable directions which Studio 1+1 Group may from time to time properly give, the Agent shall be entitled to perform the Services in such manner as it may think fit, provided that the Agent shall at all times act in order to maximise the sales revenue of Studio 1+1 Group over the whole calendar year, the rates obtained at peak times and the total share of the third party's advertising budget subject to and consistent with the terms of the Rate Card as amended from time to time and to the trading parameters set out in Clause 6.2.

3.4. The Agent shall procure that its representatives:

3.4.1. make themselves available in the Territory, at all reasonable times and upon reasonable notice, to Studio 1+1 Group for the purposes of consultation and advice relating to this Agreement and the Advertising;

3.4.2. at the expense of the Agent attend meetings in the Territory, at all reasonable times and upon reasonable notice, with representatives of Studio 1+1 Group and such customers or prospective customers as may be necessary for the performance of its duties under this Agreement;

3.4.3. make such calls upon customers or potential customers for the purpose of promoting the Advertising as the Agent may think fit; and

3.4.4. attend such trade exhibitions and other sales outlets, at all reasonable times and upon reasonable notice from Studio 1+1 Group, or as the Agent may think commercially suitable or as otherwise agreed with Studio 1+1 Group for the purpose of promoting the Advertising.

3.5. The Agent shall promptly notify Studio 1+1 Group of all orders for Advertising in the Territory which it receives from customers. The Agent shall notify Studio 1+1 Group of the proposed arrangements, including the proposed rates and terms.

3.6. The Agent shall make all reasonable efforts to enhance communications and promote negotiations between Studio 1+1 Group and any third party in respect of the Advertising. Studio 1+1 Group shall have the right to participate in all negotiations and meetings with agencies and customers in respect of the Advertising.

3.7. The Agent shall in relation to the Advertising:

3.7.1. describe itself as `exclusive Sales Agent' for Studio 1+1 Group;

-5- 3.7.2. not hold itself out, or permit any person to hold it out, as being authorised to bind Studio 1+1 Group other than as permitted under this Agreement; and

3.7.3. not do any act which might reasonably create the impression that it is so authorised.

3.8. The Agent shall be responsible for obtaining all licences, permits and approvals which are necessary for the sale of the Advertising in the Territory and for the performance of its duties hereunder but Studio 1+1 Group shall support and assist the Agent in this respect.

3.9. Each party shall notify the other promptly on becoming aware of any changes in the laws and regulations in the Territory relating to the Advertising and shall forthwith notify the other party if it becomes aware that it or any of the Advertising are or may be in breach of any of those laws or regulations.

3.10. The Agent shall promptly inform Studio 1+1 Group of:

3.10.1. any complaint (other than in respect of de minimis matters) or after-sales enquiry concerning the Advertising which is received by the Agent;

3.10.2. any matters which, in the reasonable opinion of the Agent, is likely to be relevant in relation to the sale, use or development of the Advertising; and

3.10.3. any agreement relating in full or in part to the Territory with respect to non-television advertising, public relations or production which the Agent enters into with any customer who, to the knowledge of the Agent, is an existing customer of Studio 1+1 Group. Subject to the extent permitted by the provisions of such an agreement the Agent shall give details of the nature and value of the agreement and its relationship to any existing agreement of Studio 1+1 Group. This Clause 3.10.3 may be waived by Studio 1+1 Group in writing in its sole discretion with respect to any individual customer.

3.11. The Agent shall not:

3.11.1. use any advertising, promotional or selling materials when performing the Services except those supplied or approved by Studio 1+1 Group;

3.11.2. engage in any conduct which in the reasonable opinion of Studio 1+1 Group is prejudicial to Studio 1+1 Group's business or the marketing of the Advertising generally; or

3.11.3. represent any other television stations or broadcasters in the Territory either directly or indirectly in the sale, promotion or marketing of any services which compete with the Advertising without the prior written consent of Studio 1+1 Group such consent not to be unreasonably withheld. If such consent is given, Studio 1+1 Group may withdraw such consent on reasonable grounds and upon giving six months' prior notice to the Agent (provided that such withdrawal shall not take effect until the expiration of the calendar year following such notice).

-6- 4. TECHNICAL SUPPORT AND REPORTING

4.1. The Agent shall provide data entries of sales of the Advertising and shall report such sales to Studio 1+1 Group. The Agent shall produce agreements for signature and invoices for authorisation by Studio 1+1 Group in respect of sales of the Advertising.

4.2. The Agent shall provide computer-based analysis software to enable daily tracking and data retrieval by Studio 1+1 Group of the Advertising sold and to whom it has been sold and the applicable rates and terms.

4.3. The Agent shall provide technical support and assistance to Studio 1+1 Group for the development of interfaces between the Agent's sales and administration system and Studio 1+1 Group's current and future traffic and MIS systems.

4.4. The Agent shall maintain offsite daily back-ups of all data on its server and a reserve capability for data entries of sales of the Advertising and reporting of such sales to Studio 1+1 Group. The Agent shall procure that in the event of a technical failure or disaster (for example a fire at the Agent's office) the Agent is in a position to resume this part of its service within 24 hours or as soon as possible thereafter. Failure to provide this service for a period longer than one week will be treated as a breach of this Agreement and shall entitle Studio 1+1 Group to terminate with immediate effect this Agreement upon giving notice in writing to the Agent. The Agent undertakes to indemnify Studio 1+1 Group in respect of any loss of revenue suffered as a result of the Agent's failure to observe the terms of this Clause 4.4. The terms of this Clause 4.4 shall be subject to the terms of Clause 14 (Force Majeure).

4.5. Representatives of Studio 1+1 Group and the Agent shall meet at least once per month to determine the content and timing of regular reports which the Agent shall provide to Studio 1+1 Group under this Agreement.

4.6. Studio 1+1 Group shall:

4.6.1. act at all times in its relations with the Agent dutifully and in good faith;

4.6.2. supply the Agent with advertising, promotional and selling materials at the expense of Studio 1+1 Group, and give the Agent such technical, market and other support as the Agent may reasonably require for the purpose of efficiently discharging the Agent's duties under this Agreement.

4.7. Studio 1+1 Group shall indemnify the Agent against all liabilities and costs which the Agent may suffer or incur as a result of any claims brought by third parties in connection with this Agreement, provided that this Indemnity shall not extend to any liabilities or costs suffered or incurred as a result of the negligence, default or fraud of the Agent or the breach by the Agent of any terms of this Agreement.

4.8. The Agent shall indemnify Studio 1+1 Group against all liabilities and costs which Studio 1+1 Group may suffer or incur as a result of any claims brought by third parties in connection with this Agreement, provided that this Indemnity shall not extend to any

-7- liabilities or costs suffered or incurred as a result of the negligence, default or fraud of Studio 1+1 Group or the breach by Studio 1+1 Group of any terms of this Agreement.

5. SALE OF THE ADVERTISING

5.1. Studio 1+1 Group may at its absolute discretion refuse to deal with any customer put forward by the Agent if that customer wants to purchase Advertising of a political or religious nature or having political or religious content.

5.2. In the event that Studio 1+1 Group does not wish to sell Advertising to a particular customer or customers for any other reason it shall give notice in writing to the Agent to this effect together with substantial justification for such refusal. Following such notice, the Agent agrees not to negotiate with such named customer or customers for the sale of Advertising in the Territory without the prior written consent of Studio 1+1 Group, such consent not to be unreasonable withheld.

5.3. Subject to the terms of clauses 5.1 and 5.2 above Studio 1+1 Group will accept all other contracts for the sale of the Advertising provided they comply with:

5.3.1. the Studio 1+1 Group standard terms and conditions;

5.3.2. the existing Rate Card; and

5.3.3. the agreed trading parameters as set out in Clause 6.2.

5.4. All agreements and contracts for the provision of Advertising to a third party will be made directly between Studio 1+1 Group and that third party and acknowledge the role of the Agent.

5.5. All sales of the Advertising shall be made on the basis set out in Clause 5.2 above, and:

5.5.1. Studio 1+1 Group shall provide to the Agent copies of its terms and conditions as varied from time to time and give the Agent at least one month's prior written notice of any changes thereto;

5.5.2. the Agent shall bring to the notice of all customers and prospective customers for the Advertising Studio 1+1 Group's terms and conditions; and

5.5.3. the Agent shall not make or give any promises, warranties, guarantees or representations concerning the Advertising other than those contained in those terms and conditions except as agreed between Studio 1+1 Group and the Agent.

5.6. Any transaction or proposed transaction by either party with a third party in relation to the Advertising shall be for cash consideration only. Transactions for non-cash consideration (such as, for example, barter or a back-to-back cash offsetting) shall only be made with the prior written agreement of the other party, and such agreement shall provide how the consideration shall be dealt with in the calculation of any commission payable to the Agent.

-8- 5.7. Unless otherwise agreed in writing, the Agent shall not be entitled to receive payments on Studio 1+1 Group's behalf in respect of sales of the Advertising.

5.8. VAT and all other applicable taxes shall be applied in accordance with applicable legislation.

5.9. All monies received from third parties in respect of the Advertising shall be paid directly into a specifically designated "Sales Receipts" account of Studio 1+1 Group. The Agent shall be entitled to receive copies of the monthly bank statements of such account within five working days after each month end.

5.10. Studio 1+1 Group shall promptly notify the Agent of any payments received from third parties for the Advertising and enter such payments into any computer-based system used for this purpose.

6. SALES BUDGET AND PRICING

6.1. The parties shall agree the Sales Budget for a particular calendar year on or before 30 November of the preceding year. If such agreement is not reached, the Sales Budget shall be the actual level of sales in US Dollars in the previous year plus a [*] increase. The Sales Budget shall not include any amounts for political or religious Advertising revenues.

6.2. The CPP and the Rate Card shall be agreed between the parties before reaching agreement on the Sales Budget. The Agent may not propose a discount greater than [*] from the Rate Card price without the prior written consent of Studio 1+1 Group.

6.3. When agreeing the Sales Budget, Studio 1+1 Group and the Agent shall take account of:

6.3.1. all significant refusals during the preceding twelve months by Studio 1+1 Group to enter into contracts for the Advertising with any third parties in terms of Clause 5.3;

6.3.2. any significant alterations during the preceding twelve months to the broadcasting schedule or the advertising schedule in terms of Clauses 7.3 and 7.4; and

6.3.3. all significant Advertising during the preceding twelve months provided at special rates or free of charge in terms of Clause 9.1.

6.4. At the request of the Agent the parties shall review the then current Sales Budget taking into account all commercial variations including, but not limited to, the provisions of clause 6.3 above but references to "preceding twelve months" shall be construed as references to "preceding three months". The Agent shall be entitled to request such a review at the end of every quarter commencing on 31 March 2001. The consent of both the Agent and Studio 1+1 Group is required before any amendment can be made to the

[*] Confidential portions omitted where indicated and filed separately with the Commission.

-9- Sales Budget and both parties agreed that such consent will not be unreasonably withheld. The Sales Budget as consented to, reviewed, and amended shall then become the current Sales Budget for the purposes of this Agreement.

7. BROADCASTING SCHEDULE AND ADVERTISING SCHEDULE

7.1. Studio 1+1 Group shall provide the Agent at the end of each month with a broadcasting schedule for the following two months. Studio 1+1 Group shall have absolute discretion to amend the broadcasting schedule from time to time. Studio 1+1 Group shall use its reasonable endeavours not unreasonably to alter such broadcasting schedules for any calendar month after the 20th day of the preceding month, and shall notify the Agent promptly if any such alteration occurs.

7.2. Studio 1+1 Group shall provide to the Agent by 1 January of any year an annual schedule of available advertising time in accordance with the maximum allowable under Ukrainian law. Any reduction to the scheduled advertising time shall be agreed between the parties, acting in accordance with normal commercial practice.

7.3. Studio 1+1 Group shall have absolute discretion to alter the advertising schedule from time to time, provided that it shall use all reasonable endeavours to broadcast advertising in accordance with the advertising schedule and any agreements made with third parties relating to the scheduling of specific advertising.

7.4. The Agent acknowledges and agrees that it may be necessary to alter the broadcasting schedule or the advertising schedule as a consequence of programming constraints such as live broadcasts, special news bulletins or special events or other special circumstances. Any alteration of the advertising schedule shall not make either party liable to the other for losses of any kind.

7.5. The Agent shall be responsible for, and Studio 1+1 Group agrees to assist the Agent in, agreeing any compensation for advertising schedule alterations with the relevant third parties subject to ultimate approval by Studio 1+1 Group, such approval not to be unreasonably withheld.

7.6. Studio 1+1 Group shall have absolute discretion over the scheduling and placement of all advertising spots and may refuse to broadcast any advertising material which may contravene applicable laws, regulations or advertising standards. Studio 1+1 Group shall provide to the Agent written confirmation and reasons for declining or cancelling any advertising.

7.7. Studio 1+1 Group shall provide on a daily basis the Agent with airtime logs (in software format if required) showing the actual programs and advertising broadcast with the time broadcast.

-10 - 8. INTELLECTUAL PROPERTY

8.1. Nothing in this Agreement shall give either party any rights in respect of any trade names or trade marks owned or licensed by the other in relation to the Advertising or of the goodwill associated therewith, and the parties hereby acknowledge that, except as expressly provided in this Agreement, they shall not acquire any rights in respect thereof and that all such rights and goodwill are, and shall remain, vested in that other party.

8.2. Neither party shall use any trade marks or trade names so resembling the trade marks or trade names of the other as to be likely to cause confusion or deception except that the Agent may use the trade marks and trade names of Studio 1+1 Group when performing the Services under this Agreement.

8.3. Without prejudice to the right of either party or any third party to challenge the validity of any Intellectual Property, neither party shall (i) do or authorise any third party to do any act which would or might invalidate or be inconsistent with the Intellectual Property of either party or (ii) omit or authorise any third party to omit to do any act which, by its omission, would have that effect or character.

8.4. Studio 1+1 Group acknowledges that the Agent retains all licences and Intellectual Property rights in respect of all software provided or used by the Agent in performing the Services under this Agreement. Studio 1+1 Group acknowledges and agrees that it shall not acquire by implication or otherwise any right or licence in or title to any software used or provided by the Agent unless agreed in writing between the parties.

9. RIGHTS AND DUTIES OF STUDIO 1+1 GROUP

9.1. In respect of any Advertising time which has not been sold for cash, Studio 1+1 Group shall be entitled:

9.1.1. to provide the Advertising at special rates to the promoters of certain sporting, entertainment and public relations events associated with Studio 1+1 Group without becoming liable to the Agent in any way for commission or otherwise, provided however, that Studio 1+1 Group shall not provide such Advertising to third parties who are customers of Studio 1+1 Group at such time without the consent of the Agent; and

9.1.2. to provide Advertising free of charge, and without liability for the payment of any commission to the Agent, relating to the promotion of Studio 1+1 Group or its Affiliates.

9.2. Studio 1+1 Group shall at its own expense promptly supply the Agent with such advertising, promotional and selling materials (including airtime) as the Agent may from time to time reasonably require for the purpose of complying with its obligations under this Agreement.

-11 - 10. OPTION OVER THE AGENT'S PRODUCTIONS

10.1. The Agent shall give notice to Studio 1+1 Group of any Ukrainian broadcasting rights the Agent or any of its Affiliates intends to grant in any of its unencumbered productions or co-productions and the terms and price payable for such broadcasting rights.

10.2. Studio 1+1 Group shall have the first right to purchase the rights to any such production or co-production at the same terms and price as the Agent would otherwise offer such rights to third parties.

10.3. If, within 30 days from the receipt by Studio 1+1 Group of any notice in accordance with Clause 10.1, Studio 1+1 Group does not purchase the relevant broadcasting rights, the Agent may offer those rights to a third party on terms no more favourable than those offered to Studio 1+1 Group. In the event that the Agent is unable to sell the rights at the price offered to Studio 1+1 Group it shall re-offer the rights at a reduced price to Studio 1+1 Group which must indicate within 2 business days whether it wishes to buy the rights at that reduced price. If Studio 1+1 Group refuses to buy the rights on the second occasion the Agent shall be free to dispose of the rights on whatever terms it deems fit. In the event that the Agent sells the rights to a third party, subject to any obligations of confidentiality relating to such sale the Agent shall if requested disclose those terms to Studio 1+1 Group.

11. FINANCIAL PROVISIONS

11.1. Studio 1+1 Group shall pay to the Agent or as it may direct [*] by 30 June, 2001 as an introductory bonus.

11.2. In consideration of the obligations undertaken by the Agent hereunder, Studio 1+1 Group shall pay the Agent commission equal to [*] of the revenue received which shall be payable to the Agent within five (5) business days of receipt of any payment into the specified "Sales Receipts" account. Where VAT is applicable to the revenue received by Studio 1+1 Group, the Agent shall provide Studio 1+1 Group with invoice documentation showing the corresponding VAT included in its commission, suitable for offset accounting in the books of Studio 1+1 Group. Commission shall be paid in the same currency as the revenue received by Studio 1+1 Group unless otherwise requested by the Agent.

11.3. In the event that the Agent requests that commission is paid to it outside the Territory then commission of [*] shall be calculated on the net amount of the revenue - ie after deduction of VAT or other sales tax. If payment of commission is made in the Territory then commission shall be calculated on the gross amount of the revenue - ie including VAT or other sales tax.

11.4. In the event that Studio 1+1 Group fails to pay any amount due in US Dollars, under this Clause 11 within 10 working days of the amount becoming due to the Agent, Studio 1+1 Group shall pay the Agent interest (payable in the currency of the amount due) at the rate of [*] above the overnight US-Dollar LIBOR rate in effect as of the date such

[*] Confidential portions omitted where indicated and filed separately with the Commission.

-12 - payment became overdue on the total outstanding sum. If the overdue amount is payable in any other currency including, but not limited to, Ukrainian Hryvnia, interest shall be payable at the rate of [*] per annum or, in the event of a financial crisis in the country to which that currency is the legal tender such crisis causing a dramatic increase in the commercial rate of interest applicable to borrowings in that country, a percentage interest rate in line with the then commercial rate of interest applicable to such borrowing.

11.5. The provisions of this Clause 11 shall survive termination of this Agreement.

12. INFORMATION RIGHTS

12.1. The Agent shall procure that complete records are maintained in relation to monies and charges made by the Agent.

12.2. Studio 1+1 Group shall retain complete records of all information relevant to this Agreement, including copies of signed contracts concerning the Advertising.

12.3. Either party may request an audit, at its own cost, of the accounting records, systems and documentation of the other party relevant to this Agreement to ensure that the terms of this Agreement are complied with.

12.4. The provisions of this clause 12 shall survive termination of this Agreement until all payments of commission have been made to the Agent.

13. CONFIDENTIALITY

13.1. Except as provided by Clauses 13.2 and 13.3, both parties shall at all times during the continuance of this Agreement and after its termination:

13.1.1. use their best endeavours to keep all Restricted Information confidential and accordingly not to disclose any Restricted Information to any other person; and

13.1.2. not use any Restricted Information for any purpose other than the performance of their obligations under this Agreement.

13.2. Any Restricted Information may be disclosed by the Receiving Party to:

13.2.1. any customers or prospective customers;

13.2.2. any governmental or other authority or regulatory body; or

13.2.3. any employees of the Agent or of any of the aforementioned persons,

[*] Confidential portions omitted where indicated and filed separately with the Commission.

-13 - to such extent only as is necessary for the purposes contemplated by this Agreement, or as is required by law and subject in each case to the Receiving Party using its best endeavours to ensure that the person in question keeps the same confidential and does not use the same except for the purposes for which the disclosure is made.

13.3. Any Restricted Information may be used by the Receiving Party for any purpose, or disclosed by the Receiving Party to any other person, to the extent only that:

13.3.1. it is at the date hereof, or hereafter becomes, public knowledge through no fault of the Receiving Party (provided that in doing so the Receiving Party shall not disclose any Restricted Information which is not public knowledge); or

13.3.2. it can be shown by the Receiving Party, to the reasonable satisfaction of the Disclosing Party, to have been known to the Receiving Party prior to its being disclosed by the Disclosing Party; or

13.3.3. it is required by any provision of law.

14. FORCE MAJEURE

14.1. If either party is affected by Force Majeure it shall forthwith notify the other party of the nature and extent thereof.

14.2. Neither party shall be deemed to be in breach of this Agreement, or otherwise be liable to the other, by reason of any delay in performance, or non-performance, of any of its obligations hereunder to the extent that such delay or non-performance is due to any Force Majeure of which it has notified the other party; and the time for performance of that obligation shall be extended accordingly.

14.3. If the Force Majeure in question prevails for a continuous period in excess of six months, the parties shall enter into bona fide discussions with a view to alleviating its effects, or to agreeing upon such alternative arrangements as may be fair and reasonable.

15. DURATION AND TERMINATION

15.1. Subject as provided in this Clause 15.1 and Clauses 15.2 and 15.3, this Agreement shall continue as set out in Clause 2.2.

15.2. Studio 1+1 Group shall be entitled to terminate this Agreement on giving not less than six months notice if:

15.2.1. Studio 1+1 Group's advertising revenue falls more than [*] below the Sales Budget in any calendar year provided that:

[*] Confidential portions omitted where indicated and filed separately with the Commission.

-14 - (i) Studio 1+1 Group's average national prime time ratings (as measured by AGB or any other equivalent officially recognised research company) are not more than [*] below the agreed targets for that year;

(ii) the increase in the Consumer Price Index, as officially published by the Government of Ukraine, is below [*] in the Ukraine for that year;

(iii) Ukraine has a positive real gross domestic product growth in that year;

(iv) the Government of Ukraine has not, during such calendar year, made a significant default under its non-Hryvnia denominated public external indebtedness represented by bonds or other similar securities for a period of more than three months; or

(v) the fall in advertising revenue is not attributable to any of the matters referred to in sub-clauses 6.3.1 to 6.3.3 during the calendar year in question.

(vi) the total amount of television advertising expenditure on all channels in the Territory in the calendar year is not less than that of the previous calendar year.

15.2.2. in the reasonable opinion of Studio 1+1 Group, there has been a material change in the laws and regulations relating to the Advertising which prevents the Agent from performing the Services substantially in accordance with the terms of this Agreement; or

15.2.3. the Agent fails to comply with the terms of Clause 4.4.

15.3. If notice under clause 15.2 is given by Studio 1+1 Group in the period from 1 January to 30 June in any year termination will be deemed to take effect on 31 December of that year.

15.4. If notice under clause 15.2 is given by Studio 1+1 Group in the period from 1 July to 31 December in any year termination will been deemed to take effect after six months following the date of such notice.

15.5. The Agent shall be entitled to terminate this Agreement on giving not less than 6months' notice to expire on 31 December in any year if Studio 1+1 Group's share of audience is [*] or less for three consecutive months.

15.6. Either party shall be entitled to terminate this Agreement without prior notice if:

15.6.1. there is a change in control of the other party (where control means the power to direct the management and/or policy of a party whether through the exercise of voting rights, by contract, board control or otherwise) where the new controller is in competition or conflict with either party in the Territory;

[*] Confidential portions omitted where indicated and filed separately with the Commission.

-15 - 15.6.2. that other party commits a material breach of any of the provisions of this Agreement, which breach, if remediable, is not remedied within thirty (30) days of the earlier of (i) notice of such breach being given to the party in breach, and (ii) knowledge by the party in breach of the occurrence of such breach;

15.6.3. an encumbrancer takes possession or a receiver is appointed over any of the property or assets of that other party;

15.6.4. that other party makes any voluntary arrangement with its creditors or becomes subject to an administration order;

15.6.5. that other party goes into liquidation (except for the purposes of amalgamation or reconstruction and in such manner that the company resulting therefrom effectively agrees to be bound by or assume the obligations imposed on that other party under this Agreement);

15.6.6. anything analogous to any of the foregoing under the law of any jurisdiction occurs in relation to either the Agent or Studio 1+1 Group in the Territory; or

15.6.7. that other party ceases, or threatens to cease, to carry on business.

15.7. Any waiver by either party of a breach of any provision of this Agreement shall not be considered as a waiver of any subsequent breach of the same or any other provision thereof.

15.8. The rights to terminate this Agreement given by this Clause shall be without prejudice to any other right or remedy of either party in respect of the breach concerned (if any) or any other breach.

16. CONSEQUENCES OF TERMINATION

16.1. Upon the termination of this Agreement for any reason:

16.1.1. the Agent shall dispose of all advertising, promotional or sales material relating to the Advertising in the possession of the Agent, as directed by Studio 1+1 Group;

16.1.2. the Agent shall have no claim against Studio 1+1 Group for compensation for loss of agency rights, loss of goodwill or any similar loss (except unpaid commission);

16.1.3. the Agent shall cease to promote, market, advertise or solicit customers for the Advertising;

16.1.4. the provisions of Clause 11 shall continue in force in accordance with its terms and for the avoidance of doubt the Agent shall be entitled to receive all commission due on sales of the Advertising made before the termination of this

-16 - Agreement such payments to continue to be made in accordance with Clause 11.2 (ie within 5 business days of receipt of payment by Studio 1+1 Group);

16.1.5. Clause 13 shall continue in force in accordance with its terms; and

16.1.6. subject as otherwise provided herein and to any rights or obligations which have accrued prior to termination, neither party shall have any further obligation to the other under this Agreement.

17. NATURE OF AGREEMENT

17.1. Neither party may assign this Agreement or the rights and obligations hereunder without the prior written consent of the other party, such consent not to be unreasonably withheld or delayed; provided, however, that no such assignment shall relieve the assigning party of any liability hereunder.

17.2. The Agent shall not without the prior written consent of Studio 1+1 Group employ sub-agents; if with such consent it does so, every act or omission of the sub-agent shall for the purposes of this Agreement be deemed to be the act or omission of the Agent.

17.3. Nothing in this Agreement shall create, or be deemed to create, a partnership or the relationship of employer and employee between the parties.

17.4. Nothing in this Agreement shall be construed as representing a sub-lease to the Agent by Studio 1+1 Group of any of Studio 1+1 Group's broadcasting rights in the Territory.

17.5. This Agreement contains the entire agreement between the parties with respect to the subject matter hereof, supersedes all previous agreements and understandings between the parties with respect thereto, and may not be modified except by an instrument in writing signed by the duly authorised representatives of the parties.

17.6. To the extent there is any inconsistency between this Agreement and agreements relating to advertising sales between any member of the Studio 1+1 Group and/or its Affiliates, this Agreement shall take precedence.

17.7. Each party acknowledges that, in entering into this Agreement, it does not do so on the basis of, and does not rely on, any representation, warranty or other provision except as expressly provided herein, and all conditions, warranties or other terms implied by statute or common law are hereby excluded to the fullest extent permitted by law.

17.8. If any provision of this Agreement is held by any court or other competent authority to be void or unenforceable in whole or part, this Agreement shall continue to be valid as to the other provisions thereof and the remainder of the affected provision.

17.9. In case of any conflict between the English language version of this Agreement and a version in another language, the English language version shall prevail.

17.10. In respect of any consents to be given by either party pursuant to the terms of this Agreement, if the party whose consent is required does not expressly approve or

-17 - withhold its consent within 3 working days following such a request by the other party, consent shall automatically be deemed to have been given. Consent given by Studio 1+1 shall bind Studio 1+1 Group and consent given by Prioritet shall bind the Agent. Studio 1+1 or Prioritet may give notice in writing to the other to nominate another party who is already a party to this Agreement to give any consents required by this Agreement in place of Studio 1+1 or Prioritet.

17.11. In the event that any of the rights or obligations of Studio 1+1 Group or the Agent and which relate to the subject matter of this Agreement are transferred or assigned to a third party during the term of this Agreement, then either Studio 1+1 Group or the Agent (as the case may be) shall procure that the third party shall enter into a deed of adherence agreeing to be bound by the terms of this Agreement as if it had been an original signing party to this Agreement.

18. ARBITRATION AND PROPER LAW

18.1. Any dispute arising out of or in connection with this Agreement shall be referred to arbitration in London, England in accordance with rules of the International Chamber of Commerce.

18.2. This Agreement shall be governed by and construed in all respects in accordance with the laws of England.

19. CONTRACT (RIGHTS OF THIRD PARTIES) ACT 1999

The parties to the Agreement expressly agreed that a person who is not a party to this Agreement shall not have the right to enforce any term or terms of this Agreement pursuant to the Contract (Rights of Third Parties) Act 1999.

20. NOTICES AND SERVICE

20.1. Any notice or other information required or authorised by this Agreement to be given by either party to the other may be given by hand or sent (by first class pre-paid post, facsimile transmission, electronic mail or comparable means of communication) to the other party at the address referred to in Clause 20.4. Notice given to Studio 1+1 Group shall be deemed notice to Studio 1+1 Group and notice given to Prioritet shall be deemed notice to the Agent provided that copies of such notices are at the same time given or sent to the parties referred to in Clause 20.4.

20.2. Any notice or other information given by post pursuant to Clause 20.1 which is not returned to the sender as undelivered shall be deemed to have been given on the fifth (5th) day after the envelope containing the same was so posted; and proof that the envelope containing any such notice or information was properly addressed, pre-paid, registered and posted, and that it has not been so returned to the sender, shall be sufficient evidence that such notice or information has been duly given.

-18 - 20.3. Any notice or other information sent by facsimile transmission or comparable means of communication shall be deemed to have been duly sent on the date of transmission, provided that a confirming copy thereof is sent by pre-paid airmail post to the other party at the address referred to in Clause 20.4 within 24 hours after transmission.

20.4. The Agent hereby designates, appoints and empowers Speechly Bircham of 6 St. Andrew Street, London EC4A 3LX, England as its authorised agent to receive service of process. Studio 1+1 Group hereby designates, appoints and empowers Central European Media Enterprises Ltd., 8th Floor, Aldwych House, 71-91 Aldwych, London WC2B 4HN, England as its authorised agent to receive service of process. Service of any legal proceedings concerning or arising out of this Agreement shall be effected by causing the same to be delivered to that party's agent for service of process, to its principal place of business, to its registered office, or to such other address as may from time to time be notified in writing by the party concerned.

IN WITNESS WHEREOF, the parties hereto have caused their duly authorised officers or signatories to execute and deliver this Agreement on the date first above written.

BROADCASTING COMPANY "STUDIO 1+1"

By : Name : /s/ Alexander Rodnyansky

Title : General Director

UKRAINE ADVERTISING HOLDINGS BV

By : Name : /s/ Fred T. Klinkhammer

Title : Managing Director

INNOVA FILM GMBH

By : Name : /s/ Boris Fuchsmann

Title : General Director

INTERNATIONAL MEDIA SERVICES

By : Name : /s/ Boris Fuchsmann

Title : General Director

-19 - INTER MEDIA

By : Name : /s/ Laurence Fry

Title : Finance Director

SERVLAND CONTINENTAL S.A.

By: Name: /s/ Dr. Christian Lamprecht Title: Sole Director

TREND ADVERTISING AGENCY LIMITED

By: Name: /s/ Igor Matyushenko Title: General Manager

VIDEO INTERNATIONAL - KIEV LIMITED

By: Name: /s/ Yuri Kogutyak Title: General Manager

PRIORITET LIMITED

By: Name: /s/ Igor Purishev Title: General Manager

-20 - EXHIBIT 21.01 ------SUBSIDIARIES AS AT MARCH 15, 2001 ------COMPANY NAME JURISDICTION OF ORGANIZATION ------

Media Pro International S.A. Romania Media Vision S.R.L. Romania Video Vision International S.R.L. Romania Pro TV S.R.L. Romania

International Media Services Ltd. Bermuda Innova Film GmbH . Germany Enterprise "Intermedia" Ukraine Broadcasting Company "Studio 1+1" Ukraine Ukraine Advertising Holding B.V. Netherlands

Ceska Nezavisla Televizni Spolecnost, spol. s.r.o. Czech Republic Soural a.s. Czech Republic CET 21 spol. s.r.o. Czech Republic

Slovenska Televizna Spolocnost, spol. s.r.o. Slovakia

MKTV Rt (Irisz TV) Hungary GammaSat Media Investment Holding Kft Hungary Magyarhang Kft Hungary

MM TV 1, d.o.o. Slovenia Tele 59, d.o.o. Slovenia Meglic Telecom, d.o.o. Slovenia Produkcija Plus, d.o.o. Slovenia Idea d.o.o. Slovenia Robin d.o.o. Slovenia Euro 3 d.o.o. Slovenia POP TV d.o.o. Slovenia Kanal A d.d. Slovenia Superplus Holding d.d. Slovenia

CME Media Enterprises B.V. Netherlands CME Czech Republic B.V. Netherlands CME Czech Republic II B.V. Netherlands European Media Group Ltd. Bulgaria CME Germany B.V. Netherlands CME Hungary B.V. Netherlands CME Poland B.V. Netherlands CME Romania B.V. Netherlands CME Slovakia B.V. Netherlands CME Slovenia B.V. Netherlands CME Ukraine B.V. Netherlands

CME Media Enterprises UK CME Ukraine Holding GmbH Austria CME Development Corporation USA CME Programming Services Inc. USA CME Programming Services B.V. Netherlands Central European Media Enterprises N.V. Netherlands Antilles

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the incorporation of our reports included in this Form 10-K, into the Company's previously filed Registration Statements File Nos. 333-1560 and 333-60295.

ARTHUR ANDERSEN

Hamilton, Bermuda March 15, 2001 POWER OF ATTORNEY

Each person whose signature appears below, constitutes and appoints Frederic T. Klinkhammer and Mark J. L. Wyllie, and each of them, with full power to act without the other, such person's true and lawful attorney-in-fact, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K for the fiscal year 2000 of Central European Media Enterprises Ltd., a Bermuda corporation, and any and all amendments to such Annual Report on Form 10-K and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact, and each of them, full power and authority to do and perform each and every act and thing necessary or desirable to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, thereby ratifying and confirming all that said attorneys-in-fact, or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

March 9, 2001

/s/ Ronald S. Lauder /s/ Fred T. Klinkhammer ------.. ------Ronald S. Lauder Fred T. Klinkhammer

/s/ Jacob Z. Schuster /s/ Marie-Monique Steckel ------Jacob Z. Schuster Marie-Monique Steckel

/s/ Nicolas G. Trollope /s/ Mark J. L. Wyllie ------Nicolas G. Trollope Mark J. L. Wyllie

/s/ Alfred W. Langer ------Alfred W. Langer

End of Filing

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