Index

 
 
 
 
 
 
 
 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2019
o      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number: 0-24796

CMELOGOWITHOUTTEXTA13.JPG
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
(Exact name of registrant as specified in its charter)
BERMUDA
 
98-0438382
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
O'Hara House, 3 Bermudiana Road, Hamilton, Bermuda
 
HM 08
(Address of principal executive offices)
 
(Zip Code)
Registrant's telephone number, including area code: (441) 296-1431
Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Class A Common Stock, par value $0.08
CETV
NASDAQ Global Select Market
Indicate by check mark whether registrant: (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for each shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes T No £
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes T No £
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “accelerated filer”, “large accelerated filer” or “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer £
Accelerated filer T
Non-accelerated filer £
Smaller reporting company £
 
 
 
Emerging growth company £
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. £
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act) Yes £ No T

Index

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Class
Outstanding as of July 19, 2019
Class A Common Stock, par value $0.08
253,607,026
 
 
 
 

Index

CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
FORM 10-Q
For the quarterly period ended June 30, 2019

 
Page
Part I Financial Information
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Part II Other Information
 
 
 
 

Index

PART I.    FINANCIAL INFORMATION
Item 1.    Financial Statements
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
(US$ 000’s, except share data)
(Unaudited)
 
June 30, 2019

 
December 31, 2018

ASSETS
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
74,639

 
$
62,031

Accounts receivable, net (Note 6)
175,846

 
193,371

Program rights, net (Note 5)
77,606

 
77,624

Other current assets (Note 7)
32,872

 
41,067

Total current assets
360,963

 
374,093

Non-current assets
 

 
 

Property, plant and equipment, net (Note 8)
110,627

 
117,604

Program rights, net (Note 5)
164,587

 
171,871

Goodwill (Note 3)
676,730

 
676,333

Other intangible assets, net (Note 3)
132,483

 
136,052

Other non-current assets (Note 7)
23,136

 
12,408

Total non-current assets
1,107,563

 
1,114,268

Total assets
$
1,468,526

 
$
1,488,361

LIABILITIES AND EQUITY
 
 
 
Current liabilities
 
 
 
Accounts payable and accrued liabilities (Note 9)
$
130,671

 
$
120,468

Current portion of long-term debt and other financing arrangements (Note 4)
6,089

 
5,545

Other current liabilities (Note 10)
32,653

 
13,679

Total current liabilities
169,413

 
139,692

Non-current liabilities
 

 
 

Long-term debt and other financing arrangements (Note 4)
664,110

 
782,685

Other non-current liabilities (Note 10)
82,121

 
67,293

Total non-current liabilities
746,231

 
849,978

Commitments and contingencies (Note 20)


 


TEMPORARY EQUITY
 
 
 
200,000 shares of Series B Convertible Redeemable Preferred Stock of $0.08 each (December 31, 2018 - 200,000) (Note 13)
269,370

 
269,370

EQUITY
 

 
 
CME Ltd. shareholders’ equity (Note 14):
 

 
 
One share of Series A Convertible Preferred Stock of $0.08 each (December 31, 2018 – one)
—

 
—

253,559,298 shares of Class A Common Stock of $0.08 each (December 31, 2018 – 252,853,554)
20,285

 
20,228

Nil shares of Class B Common Stock of $0.08 each (December 31, 2018 – nil)
—

 
—

Additional paid-in capital
2,005,215

 
2,003,518

Accumulated deficit
(1,522,359
)
 
(1,578,076
)
Accumulated other comprehensive loss
(220,088
)
 
(216,650
)
Total CME Ltd. shareholders’ equity
283,053

 
229,020

Noncontrolling interests
459

 
301

Total equity
283,512

 
229,321

Total liabilities and equity
$
1,468,526

 
$
1,488,361

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

1
Index

CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME / LOSS
(US$ 000’s, except per share data)
(Unaudited)

 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
2019

 
2018

 
2019


2018

Net revenues
$
183,599

 
$
181,908

 
$
330,158

 
$
338,617

Operating expenses:
 
 
 
 
 
 
 
Content costs
70,356

 
79,967

 
140,716

 
158,427

Other operating costs
13,806

 
14,202

 
27,054

 
28,669

Depreciation of property, plant and equipment
8,154

 
8,561

 
16,380

 
16,948

Amortization of broadcast licenses and other intangibles
2,113

 
2,267

 
4,307

 
4,623

Cost of revenues
94,429

 
104,997

 
188,457

 
208,667

Selling, general and administrative expenses
28,708

 
26,894

 
53,602

 
55,352

Operating income
60,462

 
50,017

 
88,099

 
74,598

Interest expense (Note 15)
(7,735
)
 
(12,411
)
 
(15,977
)
 
(30,229
)
Other non-operating income / (expense), net (Note 16)
2,237

 
(6,926
)
 
(860
)
 
(2,718
)
Income before tax
54,964

 
30,680

 
71,262

 
41,651

Provision for income taxes
(10,886
)
 
(7,005
)
 
(15,433
)
 
(11,220
)
Income from continuing operations
44,078

 
23,675

 
55,829

 
30,431

Income from discontinued operations, net of tax
—

 
2,350

 
—

 
2,666

Net income
44,078

 
26,025

 
55,829

 
33,097

Net (income) / loss attributable to noncontrolling interests
(119
)
 
16

 
(112
)
 
194

Net income attributable to CME Ltd.
$
43,959

 
$
26,041

 
$
55,717

 
$
33,291

 
 
 
 
 
 
 
 
Net income
$
44,078

 
$
26,025

 
$
55,829

 
$
33,097

Other comprehensive income / (loss)
 
 
 
 
 
 
 
Currency translation adjustment
17,002

 
(34,629
)
 
1,159

 
(22,844
)
Unrealized loss on derivative instruments (Note 12)
(1,220
)
 
(3,119
)
 
(4,551
)
 
(2,928
)
Total other comprehensive income / (loss)
15,782

 
(37,748
)
 
(3,392
)
 
(25,772
)
Comprehensive income / (loss)
59,860

 
(11,723
)
 
52,437

 
7,325

Comprehensive income attributable to noncontrolling interests
(28
)
 
(416
)
 
(158
)
 
(30
)
Comprehensive income / (loss) attributable to CME Ltd.
$
59,832

 
$
(12,139
)
 
$
52,279

 
$
7,295

PER SHARE DATA (Note 18):
 
 
 
 
 
 
 
Net income per share:
 
 
 
 
 
 
 
Continuing operations — basic
$
0.12

 
$
0.06

 
$
0.15

 
$
0.08

Continuing operations — diluted
0.12

 
0.06

 
0.15

 
0.07

Discontinued operations — basic
—

 
0.01

 
—

 
0.01

Discontinued operations — diluted
—

 
0.00

 
—

 
0.01

Attributable to CME Ltd. — basic
0.12

 
0.07

 
0.15

 
0.09

Attributable to CME Ltd. — diluted
0.12

 
0.06

 
0.15

 
0.08

 
 
 
 
 
 
 
 
Weighted average common shares used in computing per share amounts (000’s):
 
 
 
 
 
 
 
Basic
264,570

 
235,148

 
264,385

 
196,807

Diluted
265,932

 
258,783

 
265,628

 
250,515

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

2
Index

CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
CONDENSED CONSOLIDATED STATEMENT OF EQUITY
(US$ 000’s, except share data)
(Unaudited)



 
CME Ltd.
 
 

 
 

 
Series A Convertible Preferred Stock
 
Class A
Common Stock
 
Class B
Common Stock
 

 

 

 
 

 
 

 
Number of shares
Par value
 
Number
of shares
Par value
 
Number of shares
Par value
Additional Paid-In Capital

Accumulated Deficit

Accumulated Other Comprehensive Loss

 
Noncontrolling Interest

 
Total Equity

BALANCE March 31, 2019
1

$
—

 
253,279,975

$
20,262

 
—

$
—

$
2,004,188

$
(1,566,318
)
$
(235,961
)
 
$
431

 
$
222,602

Stock-based compensation
—

—

 
—

—

 
—

—

1,124

—

—

 
—

 
1,124

Share issuance, stock-based compensation
—

—

 
279,323

23

 
—

—

(23
)
—

—

 
—

 
—

Withholding tax on net share settlement of stock-based compensation
—

—

 
—

—

 
—

—

(74
)
—

—

 
—

 
(74
)
Net income
—

—

 
—

—

 
—

—

—

43,959

—

 
119

 
44,078

Unrealized loss on derivative instruments
—

—

 
—

—

 
—

—

—

—

(1,220
)
 
—

 
(1,220
)
Currency translation adjustment
—

—

 
—

—

 
—

—

—

—

17,093

 
(91
)
 
17,002

BALANCE
June 30, 2019
1

$
—

 
253,559,298

$
20,285

 
—

$
—

$
2,005,215

$
(1,522,359
)
$
(220,088
)
 
$
459

 
$
283,512

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CME Ltd.
 
 

 
 

 
Series A Convertible Preferred Stock
 
Class A
Common Stock
 
Class B
Common Stock
 

 

 

 
 

 
 

 
Number of shares
Par value
 
Number
of shares
Par value
 
Number of shares
Par value
Additional Paid-In Capital

Accumulated Deficit

Accumulated Other Comprehensive Loss

 
Noncontrolling Interest

 
Total Equity

BALANCE
March 31, 2018
1

$
—

 
148,235,428

$
11,858

 
—

$
—

$
1,905,969

$
(1,728,518
)
$
(175,254
)
 
$
(368
)
 
$
13,687

Stock-based compensation
—

—

 
—

—

 
—

—

1,128

—

—

 
—

 
1,128

Exercise of warrants (Note 14)
—

—

 
103,371,465

8,270

 
—

—

95,101

—

—

 
—

 
103,371

Share issuance, stock-based compensation
—

—

 
514,114

42

 
—

—

(42
)
—

—

 
—

 
—

Withholding tax on net share settlement of stock-based compensation
—

—

 
—

—

 
—

—

(216
)
—

—

 
—

 
(216
)
Preferred dividend paid in kind
—

—

 
—

—

 
—

—

(2,330
)
—

—

 
—

 
(2,330
)
Net income / (loss)
—

—

 
—

—

 
—

—

—

26,041

—

 
(16
)
 
26,025

Unrealized loss on derivative instruments
—

—

 
—

—

 
—

—

—

—

(3,119
)
 
—

 
(3,119
)
Currency translation adjustment
—

—

 
—

—

 
—

—

—

—

(35,061
)
 
432

 
(34,629
)
BALANCE
June 30, 2018
1

$
—

 
252,121,007

$
20,170

 
—

$
—

$
1,999,610

$
(1,702,477
)
$
(213,434
)
 
$
48

 
$
103,917

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

3
Index

CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
CONDENSED CONSOLIDATED STATEMENT OF EQUITY
(US$ 000’s, except share data)
(Unaudited)


 
CME Ltd.
 
 

 
 

 
Series A Convertible Preferred Stock
 
Class A
Common Stock
 
Class B
Common Stock
 

 

 

 
 

 
 

 
Number of shares
Par value
 
Number
of shares
Par value
 
Number of shares
Par value
Additional Paid-In Capital

Accumulated Deficit

Accumulated Other Comprehensive Loss

 
Noncontrolling Interest

 
Total Equity

BALANCE December 31, 2018
1

$
—

 
252,853,554

$
20,228

 
—

$
—

$
2,003,518

$
(1,578,076
)
$
(216,650
)
 
$
301

 
$
229,321

Stock-based compensation
—

—

 
—

—

 
—

—

2,127

—

—

 
—

 
2,127

Share issuance, stock-based compensation
—

—

 
705,744

57

 
—

—

(57
)
—

—

 
—

 
—

Withholding tax on net share settlement of stock-based compensation
—

—

 
—

—

 
—

—

(373
)
—

—

 
—

 
(373
)
Net income
—

—

 
—

—

 
—

—

—

55,717

—

 
112

 
55,829

Unrealized loss on derivative instruments
—

—

 
—

—

 
—

—

—

—

(4,551
)
 
—

 
(4,551
)
Currency translation adjustment
—

—

 
—

—

 
—

—

—

—

1,113

 
46

 
1,159

BALANCE
June 30, 2019
1

$
—

 
253,559,298

$
20,285

 
—

$
—

$
2,005,215

$
(1,522,359
)
$
(220,088
)
 
$
459

 
$
283,512

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CME Ltd.
 
 

 
 

 
Series A Convertible Preferred Stock
 
Class A
Common Stock
 
Class B
Common Stock
 

 

 

 
 

 
 

 
Number of shares
Par value
 
Number
of shares
Par value
 
Number of shares
Par value
Additional Paid-In Capital

Accumulated Deficit

Accumulated Other Comprehensive Loss

 
Noncontrolling Interest

 
Total Equity

BALANCE
December 31, 2017
1

$
—

 
145,486,497

$
11,639

 
—

$
—

$
1,905,779

$
(1,735,768
)
$
(187,438
)
 
$
18

 
$
(5,770
)
Stock-based compensation
—

—

 
—

—

 
—

—

2,240

—

—

 
—

 
2,240

Exercise of warrants (Note 14)
—

—

 
105,652,401

8,452

 
—

—

97,200

—

—

 
—

 
105,652

Share issuance, stock-based compensation
—

—

 
982,109

79

 
—

—

(79
)
—

—

 
—

 
—

Withholding tax on net share settlement of stock-based compensation
—

—

 
—

—

 
—

—

(753
)
—

—

 
—

 
(753
)
Preferred dividend paid in kind
—

—

 
—

—

 
—

—

(4,777
)
—

—

 
—

 
(4,777
)
Net income / (loss)
—

—

 
—

—

 
—

—

—

33,291

—

 
(194
)
 
33,097

Unrealized loss on derivative instruments
—

—

 
—

—

 
—

—

—

—

(2,928
)
 
—

 
(2,928
)
Currency translation adjustment
—

—

 
—

—

 
—

—

—

—

(23,068
)
 
224

 
(22,844
)
BALANCE
June 30, 2018
1

$
—


252,121,007

$
20,170


—

$
—

$
1,999,610

$
(1,702,477
)
$
(213,434
)

$
48


$
103,917

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

4
Index

CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(US$ 000’s)
(Unaudited)

 
For the Six Months Ended June 30,
 
2019

 
2018

CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net income
$
55,829

 
$
33,097

Adjustments to reconcile net income to net cash generated from continuing operating activities:
 

 
 
Income from discontinued operations, net of tax
—

 
(2,666
)
Amortization of program rights
140,716

 
158,427

Depreciation and other amortization
22,414

 
24,285

Interest and related Guarantee Fees paid in kind
—

 
2,934

Loss on extinguishment of debt (Note 16)
235

 
288

Gain on disposal of fixed assets
(11
)
 
(83
)
Deferred income taxes
(46
)
 
(380
)
Stock-based compensation (Note 17)
2,127

 
2,240

Change in fair value of derivatives
36

 
1,166

Foreign currency exchange loss / (gain), net
(198
)
 
1,344

Changes in assets and liabilities:
 
 
 
Accounts receivable, net
16,551

 
8,463

Accounts payable and accrued liabilities
1,349

 
(5,942
)
Program rights
(120,040
)
 
(150,033
)
Other assets and liabilities
(918
)
 
(2,287
)
Accrued interest
(229
)
 
(1,895
)
Income taxes payable
4,153

 
(6,475
)
Deferred revenue
18,508

 
19,369

VAT and other taxes payable
(196
)
 
(2,181
)
Net cash generated from continuing operating activities
$
140,280

 
$
79,671

 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES:
 

 
 

Purchase of property, plant and equipment
$
(8,272
)
 
$
(10,181
)
Disposal of property, plant and equipment
6

 
17

Net cash used in continuing investing activities
$
(8,266
)
 
$
(10,164
)
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES:
 

 
 

Repayment of debt
$
(113,988
)
 
$
(193,557
)
Debt transaction costs
—

 
(1,518
)
Settlement of derivative instruments
(1,173
)
 
—

Payment of credit facilities and finance leases
(3,395
)
 
(2,043
)
Proceeds from exercise of warrants
—

 
105,652

Payments of withholding tax on net share settlement of share-based compensation
(373
)
 
(537
)
Net cash used in continuing financing activities
$
(118,929
)
 
$
(92,003
)
 
 
 
 
Net cash provided by discontinued operations - operating activities
—

 
8,622

Net cash used in discontinued operations - investing activities
—

 
217

 
 
 
 
Impact of exchange rate fluctuations on cash and cash equivalents
(477
)
 
(681
)
Net increase in cash and cash equivalents
$
12,608

 
$
(14,338
)
CASH AND CASH EQUIVALENTS, beginning of period
62,031

 
58,748

CASH AND CASH EQUIVALENTS, end of period
$
74,639

 
$
44,410

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
 
 
 
Cash paid for interest (including Guarantee Fees)
$
14,017

 
$
26,630

Cash paid for income taxes, net of refunds
11,348

 
18,203

 
 
 
 
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
 
 
 
Accretion on Series B Convertible Redeemable Preferred Stock
$
—

 
$
(4,777
)
The accompanying notes are an integral part of these condensed consolidated financial statements.

5
Index

CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)


1.    ORGANIZATION AND BUSINESS
Central European Media Enterprises Ltd., a Bermuda company limited by shares, is a media and entertainment company operating in Central and Eastern Europe. Our assets are held through a series of Dutch and Curaçao holding companies. We manage our business on a geographical basis, with five operating segments; Bulgaria, the Czech Republic, Romania, the Slovak Republic and Slovenia, which are also our reportable segments and our main operating countries. See Note 19, "Segment Data" for financial information by segment. Our previously held Croatian operations, which were sold on July 31, 2018, are classified as discontinued operations in our condensed consolidated statement of operations for the three and six months ended June 30, 2018.
We are the market-leading broadcasters in each of our five operating countries with a combined portfolio of 30 television channels. Each country develops and produces content for their television channels. We generate advertising revenues primarily through entering into agreements with advertisers, advertising agencies and sponsors to place advertising on the television channels that we operate. We generate additional revenues by collecting fees from cable, and direct-to-home and internet protocol television ("IPTV") operators for carriage of our channels as well as from advertising related to our digital initiatives. Unless otherwise indicated, we own 100% of our broadcast operating and license companies in each country.
Bulgaria
We operate one general entertainment channel, BTV, and five other channels, BTV CINEMA, BTV COMEDY, BTV ACTION, BTV LADY and RING. We own 94% of CME Bulgaria B.V., the subsidiary that owns our Bulgaria operations.
Czech Republic
We operate one general entertainment channel, TV NOVA, and seven other channels, NOVA 2, NOVA CINEMA, NOVA SPORT 1, NOVA SPORT 2, NOVA ACTION, NOVA GOLD and NOVA INTERNATIONAL, a general entertainment channel broadcasting in the Slovak Republic.
Romania
We operate one general entertainment channel, PRO TV, and six other channels, PRO 2, PRO X, PRO GOLD, PRO CINEMA, PRO TV INTERNATIONAL, as well as PRO TV CHISINAU, a general entertainment channel broadcasting in Moldova.
Slovak Republic
We operate one general entertainment channel, TV MARKIZA, and three other channels, DOMA, DAJTO, and MARKIZA INTERNATIONAL, a general entertainment channel broadcasting in the Czech Republic.
Slovenia
We operate two general entertainment channels, POP TV and KANAL A, and three other channels, KINO, BRIO and OTO.
2.    BASIS OF PRESENTATION
The terms the "Company", "we", "us", and “our” are used in this Form 10-Q to refer collectively to the parent company, Central European Media Enterprises Ltd. (“CME Ltd.”), and the subsidiaries through which our various businesses are conducted. Unless otherwise noted, all statistical and financial information presented in this report has been converted into U.S. dollars using period-end exchange rates. All references to "US$", "USD" or "dollars" are to U.S. dollars, all references to "BGN" are to the Bulgarian leva, all references to "CZK" are to the Czech koruna, all references to "RON" are to the New Romanian lei, and all references to "Euro" or "EUR" are to the European Union Euro. Where applicable, prior period presentation has been modified to conform to current year presentation.
Interim Financial Statements
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Quarterly Report on Form 10-Q and do not include all of the information and note disclosures required by generally accepted accounting principles in the United States of America (“US GAAP”). Amounts as of December 31, 2018 included in the unaudited condensed consolidated financial statements have been derived from audited consolidated financial statements as of that date. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2018 filed with the Securities and Exchange Commission on February 6, 2019 . Our significant accounting policies have not changed since December 31, 2018 , except as noted below.
In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring items and changes in US GAAP, necessary for their fair presentation in conformity with US GAAP for complete financial statements. The results of operations for interim periods are not necessarily indicative of the results to be expected for a full year.
Use of Estimates
The preparation of financial statements in conformity with US GAAP 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 periods. Actual results could differ from those estimates and assumptions.
Basis of Consolidation
The unaudited condensed consolidated financial statements include the accounts of CME Ltd. and our subsidiaries, after the elimination of intercompany accounts and transactions. Entities in which we hold less than a majority voting interest but over which we have the ability to exercise significant influence are accounted for using the equity method. Other investments are accounted for using the cost method.

6
Index

CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)

Seasonality
We experience seasonality, with advertising sales tending to be lowest during the third quarter of each calendar year due to the summer holiday period (typically July and August), and highest during the fourth quarter of each calendar year due to the winter holiday season.
Recent Accounting Pronouncements
Accounting Pronouncements Adopted
In February 2016, the Financial Accounting Standards Board ("the FASB") issued guidance to increase transparency and comparability among organizations by recognizing leasing assets and liabilities on the balance sheet and requiring additional disclosures about an entity's leasing arrangements. The guidance requires that a lessee recognize a liability to make lease payments and a right-of-use asset ("ROU"), with an available exception for leases with an initial term shorter than twelve months. Adoption of the guidance changes the accounting for our operating leases while the accounting for our finance leases (previously called capital leases) remains substantially unchanged.
We determine if an arrangement includes a lease at inception. An ROU represents our right to use an underlying asset for the lease term and the corresponding lease liability represents our obligation to make periodic payments arising from that lease. Operating lease ROUs and liabilities are recognized at their commencement date based on the present value of the lease payments over the lease term. As most of our leases do not provide an implicit rate, we use an incremental borrowing rate based on the information available at the commencement date of a lease in determining the present value of the lease payments. The operating lease ROU also includes any lease payments made prior to commencement and excludes any lease incentives received or to be received under the agreement. Our determination of the lease term may include options to extend or terminate the lease when it is reasonably certain that we will exercise such option.
Where lease agreements include both lease and non-lease components, we generally account for each separately. For certain equipment leases, such as vehicles, we account for the lease and non-lease components as a single lease component. We consider operating leases that are for a period less than 12 months, inclusive of options to extend that we are reasonably certain to exercise, as short-term. Short-term leases are not recognized on the balance sheet. Short-term lease cost is recognized on a straight-line basis over the lease term.
ROUs and related operating lease liabilities are included in other non-current assets, other current liabilities and other non-current liabilities, respectively on our condensed consolidated balance sheets. Operating lease costs are recognized on a straight-line basis over the lease term within content costs, other operating costs or sales, general and administrative expenses based on the use of the related ROU. ROUs and related finance lease liabilities are included in property and equipment, and long-term debt and other financing arrangements, respectively, on our condensed consolidated balance sheets. Depreciation of an asset held under a finance lease is recognized in depreciation of property, plant and equipment.
We adopted this guidance as of the transition date of January 1, 2019, using the modified retrospective approach and have elected the transition option which allows us to continue to apply the legacy guidance for comparative periods, including disclosure requirements, in the year of adoption. We have elected to use the package of practical expedients available to us, including the short-term lease exception, however we have not elected the use of hindsight and have not elected to combine lease and non-lease components for our main classes of assets.
On transition, we recorded US$ 11.9 million in operating lease liabilities and ROUs while our accounting for finance leases remains substantially unchanged.
Recent Accounting Pronouncements Issued
In June 2016, the FASB issued new guidance to provide financial statement users with more information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The amendments replace the incurred loss impairment methodology in the current guidance with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The guidance is effective for our fiscal year beginning January 1, 2020 with early adoption permitted for our fiscal year beginning January 1, 2019. We are still in the preliminary stages of our assessment and expect to adopt this guidance on January 1, 2020.
In March 2019, the FASB issued new guidance that aligns the accounting for production costs of an episodic television series with the accounting for production costs of films. The guidance further requires that an entity test a film or license agreement for program material for impairment at a film group level and under a fair value model when the film or license agreement is predominantly monetized with other films and/or license agreements. The guidance is effective for our fiscal year beginning January 1, 2020 with early adoption permitted. We are still in the preliminary stages of our assessment and expect to adopt this guidance on January 1, 2020.

7
Index

CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)

3.    GOODWILL AND INTANGIBLE ASSETS
Goodwill:
Goodwill by reporting unit as at June 30, 2019 and December 31, 2018 was as follows:
 
Bulgaria
 
Czech Republic
 
Romania
 
Slovak Republic
 
Slovenia
 
Total
Gross Balance, December 31, 2018
$
173,694

 
$
808,970

 
$
86,800

 
$
50,081

 
$
19,400

 
$
1,138,945

Accumulated impairment losses
(144,639
)
 
(287,545
)
 
(11,028
)
 
—

 
(19,400
)
 
(462,612
)
Balance, December 31, 2018
29,055

 
521,425

 
75,772

 
50,081

 
—

 
676,333

Foreign currency
(178
)
 
2,401

 
(1,521
)
 
(305
)
 
—

 
397

Balance, June 30, 2019
28,877

 
523,826

 
74,251

 
49,776

 
—

 
676,730

Accumulated impairment losses
(144,639
)
 
(287,545
)
 
(11,028
)
 
—

 
(19,400
)
 
(462,612
)
Gross Balance, June 30, 2019
$
173,516

 
$
811,371

 
$
85,279

 
$
49,776

 
$
19,400

 
$
1,139,342

Other intangible assets:
The net book values of our other intangible assets as at June 30, 2019 and December 31, 2018 were as follows:
 
June 30, 2019
 
December 31, 2018
 
Gross
 
Accumulated Amortization
 
Net
 
Gross
 
Accumulated Amortization
 
Net
Indefinite-lived:
 
 
 
 
 
 
 
 
 
 
 
Trademarks
$
86,770

 
$
—

 
$
86,770

 
$
87,356

 
$
—

 
$
87,356

Amortized:
 
 
 
 
 
 
 
 
 
 
 
Broadcast licenses
211,117

 
(167,310
)
 
43,807

 
210,447

 
(162,936
)
 
47,511

Trademarks
621

 
(621
)
 
—

 
631

 
(631
)
 
—

Customer relationships
55,639

 
(55,071
)
 
568

 
56,024

 
(55,158
)
 
866

Other
3,036

 
(1,698
)
 
1,338

 
1,868

 
(1,549
)
 
319

Total
$
357,183

 
$
(224,700
)
 
$
132,483

 
$
356,326

 
$
(220,274
)
 
$
136,052

Net broadcast licenses consist solely of our TV NOVA license in the Czech Republic, which is amortized on a straight-line basis through the expiration date of the license in 2025. Our customer relationships are deemed to have an economic useful life of, and are amortized on a straight-line basis, over five years to fifteen years . Other intangibles primarily consist of software licenses which are typically amortized on a straight-line basis over three years to five years.

8
Index

CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)

4.    LONG-TERM DEBT AND OTHER FINANCING ARRANGEMENTS
Summary
 
June 30, 2019

 
December 31, 2018

Long-term debt
$
654,672

 
$
772,339

Other credit facilities and finance leases
15,527

 
15,891

Total long-term debt and other financing arrangements
670,199

 
788,230

Less: current maturities
(6,089
)
 
(5,545
)
Total non-current long-term debt and other financing arrangements
$
664,110

 
$
782,685

Overview
Total long-term debt and credit facilities comprised the following at June 30, 2019 :
 
Principal Amount of Liability Component

 
Debt Issuance
Costs (1)

 
Net Carrying Amount

2021 Euro Loan
$
125,562

 
$
(231
)
 
$
125,331

2023 Euro Loan
533,494

 
(4,153
)
 
529,341

2023 Revolving Credit Facility
—

 
—

 
—

Total long-term debt and credit facilities
$
659,056

 
$
(4,384
)
 
$
654,672

(1)  
Debt issuance costs related to the 2021 Euro Loan, the 2023 Euro Loan and the 2023 Revolving Credit Facility (each as defined below) are being amortized on a straight-line basis, which approximates the effective interest method, over the life of the respective instruments. Debt issuance costs related to the 2023 Revolving Credit Facility are classified as non-current assets in our condensed consolidated balance sheet.
On January 31, 2019, and June 14, 2019, we paid EUR 60.0 million (approximately US$ 68.9 million at January 31, 2019 rates) and EUR 40.0 million (approximately US$ 45.1 million at June 14, 2019 rates), respectively, of the outstanding principal balance of the 2021 Euro Loan.
At June 30, 2019 , the maturity of our long-term debt and credit facilities was as follows:
2019
$
—

2020
—

2021
125,562

2022
—

2023
533,494

2024 and thereafter
—

Total long-term debt and credit facilities
659,056

Debt issuance costs
(4,384
)
Carrying amount of long-term debt and credit facilities
$
654,672

Long-term Debt
Our long-term debt comprised the following at June 30, 2019 and December 31, 2018 :
 
Carrying Amount
 
Fair Value
 
June 30, 2019

 
December 31, 2018

 
June 30, 2019

 
December 31, 2018

2021 Euro Loan
$
125,331

 
$
240,296

 
$
126,864

 
$
233,058

2023 Euro Loan
529,341

 
532,043

 
540,469

 
502,617

 
$
654,672

 
$
772,339

 
$
667,333

 
$
735,675

The fair values of the Euro Loans (as defined below) as at June 30, 2019 and December 31, 2018  were determined based on comparable bond yield curves with equivalent credit ratings. This measurement of estimated fair value uses Level 2 inputs as described in  Note 12, "Financial Instruments and Fair Value Measurements" . Certain derivative instruments, including contingent event of default and change of control put options, have been identified as being embedded in each of the Euro Loans. The embedded derivatives are considered clearly and closely related to their respective Euro Loan, and as such are not required to be accounted for separately.

9
Index

CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)

2021 Euro Loan
As at June 30, 2019 , the principal amount of our floating rate senior unsecured term credit facility (the "2021 Euro Loan") outstanding was EUR 110.3 million (approximately US$ 125.6 million ). The 2021 Euro Loan bears interest at three-month EURIBOR (fixed pursuant to customary hedging arrangements (see Note 12, "Financial Instruments and Fair Value Measurements" )) plus a margin of between 1.1% and 1.9% depending on the credit rating of Warner Media. As at June 30, 2019 , the all-in borrowing rate on amounts outstanding under the 2021 Euro Loan was 3.25% , the components of which are shown in the table below under the heading "Interest Rate Summary".
Interest on the 2021 Euro Loan is payable quarterly in arrears on each February 13, May 13, August 13 and November 13. The 2021 Euro Loan matures on November 1, 2021 and may currently be prepaid at our option, in whole or in part, without premium or penalty from cash generated from our operations. From April 26, 2020, the 2021 Euro Loan may be refinanced at our option. The 2021 Euro Loan is a senior unsecured obligation of CME Ltd. and is unconditionally guaranteed by CME Media Enterprises B.V. ("CME BV") and by Warner Media, LLC ("Warner Media") and certain of its subsidiaries.
2023 Euro Loan
As at June 30, 2019 , the principal amount of our floating rate senior unsecured term credit facility (the "2023 Euro Loan") outstanding was EUR 468.8 million (approximately US$ 533.5 million ). The 2023 Euro Loan bears interest at three-month EURIBOR (fixed pursuant to customary hedging arrangements (see Note 12, "Financial Instruments and Fair Value Measurements" )) plus a margin of between 1.1% and 1.9% depending on the credit rating of Warner Media. As at June 30, 2019 , the all-in borrowing rate on amounts outstanding under the 2023 Euro Loan was 3.75% , the components of which are shown in the table below under the heading "Interest Rate Summary".
Interest on the 2023 Euro Loan is payable quarterly in arrears on each January 7, April 7, July 7 and October 7. The 2023 Euro Loan matures on April 26, 2023 and may be prepaid at our option, in whole or in part, without premium or penalty from cash generated from our operations. From April 26, 2020, the 2023 Euro Loan may be refinanced at our option. The 2023 Euro Loan is a senior unsecured obligation of CME BV and is unconditionally guaranteed by CME Ltd. and by Warner Media and certain of its subsidiaries.
Reimbursement Agreement and Guarantee Fees
In connection with Warner Media’s guarantees of the 2021 Euro Loan and 2023 Euro Loan (collectively, the "Euro Loans"), we entered into a reimbursement agreement (as amended, the “Reimbursement Agreement") with Warner Media. The Reimbursement Agreement provides for the payment of guarantee fees (collectively, the "Guarantee Fees") to Warner Media as consideration for those guarantees, and the reimbursement to Warner Media of any amounts paid by them under any guarantee or through any loan purchase right exercised by it. The loan purchase right allows Warner Media to purchase any amount outstanding under the Euro Loans from the lenders following an event of default under the Euro Loans or the Reimbursement Agreement. The Reimbursement Agreement is jointly and severally guaranteed by both our 100% owned subsidiary Central European Media Enterprises N.V. ("CME NV") and CME BV and is secured by a pledge over 100% of the outstanding shares of each of CME NV and CME BV. The covenants and events of default under the Reimbursement Agreement are substantially the same as under the 2023 Revolving Credit Facility (described below).
We pay Guarantee Fees to Warner Media based on the amounts outstanding on the Euro Loans calculated on a per annum basis and on our consolidated net leverage (as defined in the Reimbursement Agreement) as shown in the tables below:
All-in Rate
Consolidated Net Leverage
2021 Euro Loan

 
2023 Euro Loan

≥
7.0x
 
 
 
6.00
%
 
6.50
%
<
7.0x
-
6.0x
 
5.00
%
 
5.50
%
<
6.0x
-
5.0x
 
4.25
%
 
4.75
%
<
5.0x
-
4.0x
 
3.75
%
 
4.25
%
<
4.0x
-
3.0x
 
3.25
%
 
3.75
%
<
3.0x
 
 
 
3.25
%
 
3.50
%
Our consolidated net leverage as at June 30, 2019 and December 31, 2018 was 2.6x and 3.5x , respectively. For the three and six months ended June 30, 2019 and 2018 , we recognized US$ 3.6 million and US$ 7.3 million ; and US$ 6.5 million and US$ 17.2 million , respectively, of Guarantee Fees as interest expense in our condensed consolidated statements of operations and comprehensive income / loss.
The Guarantee Fees relating to the 2021 Euro Loan are payable semi-annually in arrears on each May 1 and November 1. The Guarantee Fees relating to the 2023 Euro Loan are payable semi-annually in arrears on each June 1 and December 1.
The Guarantee Fees on the 2023 Euro Loan that were previously paid in kind are presented as a component of other non-current liabilities (see Note 10, "Other Liabilities" ) and bear interest per annum at the applicable Guarantee Fee rate (as set forth in the table below). Guarantee Fees are included in cash flows from operating activities in our condensed consolidated statements of cash flows.

10
Index

CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)

Interest Rate Summary
 
Base Rate

 
Rate Fixed Pursuant to Interest Rate Hedges

 
Guarantee Fee Rate

 
All-in Borrowing Rate

2021 Euro Loan
1.28
%
 
0.31
%
(1)  
1.66
%
 
3.25
%
2023 Euro Loan
1.28
%
 
0.28
%
(2)  
2.19
%
 
3.75
%
2023 Revolving Credit Facility (if drawn)
5.82
%
(3)  
—
%
 
—
%
 
5.82
%
(1)  
Effective until November 1, 2019. From November 1, 2019 through maturity on November 1, 2021, the rate fixed pursuant to interest rate hedges will increase to 0.47% , with a corresponding decrease in the Guarantee Fee rate, such that the all-in borrowing rate remains 3.25% if our net leverage ratio remains unchanged.
(2)  
Effective until February 19, 2021. From February 19, 2021 through maturity on April 26, 2023, the rate fixed pursuant to interest rate hedges will increase to 0.97% , with a corresponding decrease in the Guarantee Fee rate, such that the all-in borrowing rate remains 3.75% if our net leverage ratio remains unchanged.
(3)  
Based on the three-month LIBOR of 2.32% as at June 30, 2019 .
2023 Revolving Credit Facility
We had no balance outstanding under the US$  75.0 million revolving credit facility (the "2023 Revolving Credit Facility") as at June 30, 2019 .
The 2023 Revolving Credit Facility bears interest at a rate per annum based on, at our option, an alternate base rate ("ABR Loans" as defined in the 2023 Revolving Credit Facility Agreement) plus the spread applicable to ABR Loans based on our consolidated net leverage or an amount equal to the greater of (i) an adjusted LIBO rate and (ii) 1.0% , plus the spread applicable to the Eurodollar Loans (as defined in the 2023 Revolving Credit Facility Agreement) based on our consolidated net leverage ratio (as defined in the Reimbursement Agreement), with all amounts payable in cash. The maturity date of the 2023 Revolving Credit Facility is April 26, 2023. When drawn, the 2023 Revolving Credit Facility permits prepayment at our option in whole or in part without penalty.
As at June 30, 2019 , the following spreads were applicable:
Consolidated Net Leverage
Alternate Base Rate Loans

 
Eurodollar Loans

≥
7.0x
 
 
 
5.25
%
 
6.25
%
<
7.0x
-
6.0x
 
4.25
%
 
5.25
%
<
6.0x
-
5.0x
 
3.50
%
 
4.50
%
<
5.0x
-
4.0x
 
3.00
%
 
4.00
%
<
4.0x
-
3.0x
 
2.50
%
 
3.50
%
<
3.0x
 
 
 
2.25
%
 
3.25
%
The 2023 Revolving Credit Facility is jointly and severally guaranteed by CME NV and CME BV and is secured by a pledge over 100% of the outstanding shares of each of CME NV and CME BV. The 2023 Revolving Credit Facility agreement contains limitations on CME’s ability to incur indebtedness, incur guarantees, grant liens, pay dividends or make other distributions, enter into certain affiliate transactions, consolidate, merge or effect a corporate reconstruction, make certain investments acquisitions and loans, and conduct certain asset sales. The agreement also contains maintenance covenants in respect of interest cover and total leverage ratios, and has covenants in respect of incurring indebtedness, the provision of guarantees, making investments and disposals, granting security and certain events of defaults.

11
Index

CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)

Other Credit Facilities and Finance Lease Obligations
Other credit facilities and finance lease obligations comprised the following at June 30, 2019 and December 31, 2018 :
 
June 30, 2019

 
December 31, 2018

Credit facilities (1) – (4)
$
—

 
$
—

Finance leases (Note 11)
15,527

 
15,891

Total credit facilities and finance leases
15,527

 
15,891

Less: current maturities
(6,089
)
 
(5,545
)
Total non-current credit facilities and finance leases
$
9,438

 
$
10,346

(1)  
We have a cash pooling arrangement with Bank Mendes Gans (“BMG”), a subsidiary of ING Bank N.V. (“ING”), which enables us to receive credit throughout the group in respect of cash balances which our subsidiaries deposit with BMG. Cash deposited by our subsidiaries with BMG is pledged as security against the drawings of other subsidiaries up to the amount deposited.
As at June 30, 2019 , we had deposits of US$ 47.8 million in and no drawings on the BMG cash pool. Interest is earned on deposits at the relevant money market rate. As at December 31, 2018 , we had deposits of US$ 36.8 million in and no drawings on the BMG cash pool.
(2)
Under a factoring framework agreement with Factoring Česka spořitelna a.s., up to CZK 475.0 million (approximately US$ 21.2 million ) of receivables from certain customers in the Czech Republic may be factored on a recourse or non-recourse basis. The facility has a factoring fee of 0.19% of any factored receivable and bears interest at one-month PRIBOR plus 0.95% per annum for the period that receivables are factored and outstanding.
(3)  
Under a factoring framework agreement with Factoring KB, a.s., up to CZK 270.0 million (approximately US$ 12.1 million ) from certain customers in the Czech Republic may be factored on a non-recourse basis. The facility has a factoring fee of 0.11% of any factored receivable and bears interest at one-month PRIBOR plus 0.95% per annum for the period that receivables are factored and outstanding up to a maximum of 60 days from the due date.
(4)  
Under a factoring framework agreement with Global Funds IFN S.A., receivables from certain customers in Romania may be factored on a non-recourse basis. The facility has a factoring fee of 4.0% of any factored receivable and bears interest at 6.0% per annum from the date the receivables are factored to the due date of the factored receivable.
5.    PROGRAM RIGHTS
Program rights comprised the following at June 30, 2019 and December 31, 2018 :
 
June 30, 2019

 
December 31, 2018

Program rights:
 
 
 
Acquired program rights, net of amortization
$
147,704

 
$
153,761

Less: current portion of acquired program rights
(77,606
)
 
(77,624
)
Total non-current acquired program rights
70,098

 
76,137

Produced program rights – Feature Films:
 
 
 

Released, net of amortization
589

 
653

Produced program rights – Television Programs:
 

 
 

Released, net of amortization
54,503

 
55,220

Completed and not released
12,921

 
8,347

In production
25,976

 
30,904

Development and pre-production
500

 
610

Total produced program rights
94,489

 
95,734

Total non-current acquired program rights and produced program rights
$
164,587

 
$
171,871

6.    ACCOUNTS RECEIVABLE
Accounts receivable comprised the following at June 30, 2019 and December 31, 2018 :
 
June 30, 2019

 
December 31, 2018

Third-party customers
$
185,711

 
$
203,068

Less: allowance for bad debts and credit notes
(9,865
)
 
(9,697
)
Total accounts receivable
$
175,846

 
$
193,371


12
Index

CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)

7.    OTHER ASSETS
Other current and non-current assets comprised the following at June 30, 2019 and December 31, 2018 :
 
June 30, 2019

 
December 31, 2018

  Current:
 
 
 
Prepaid acquired programming
$
21,445

 
$
29,918

Other prepaid expenses
9,752

 
9,119

VAT recoverable
1,413

 
1,702

Other
262

 
328

Total other current assets
$
32,872

 
$
41,067

 
 
 
 
 
June 30, 2019

 
December 31, 2018

Non-current:
 

 
 

Capitalized debt costs (Note 4)
$
8,486

 
$
9,660

Deferred tax
2,380

 
2,411

Operating lease - right-of-use asset (Note 11)
11,928

 
—

Other
342

 
337

Total other non-current assets
$
23,136

 
$
12,408

8.    PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment comprised the following at June 30, 2019 and December 31, 2018 :
 
June 30, 2019

 
December 31, 2018

Land and buildings
$
100,849

 
$
100,574

Machinery, fixtures and equipment
211,346

 
206,491

Other equipment
36,098

 
35,022

Software
68,305

 
68,239

Construction in progress
1,523

 
4,663

Total cost
418,121

 
414,989

Less: accumulated depreciation
(307,494
)
 
(297,385
)
Total net book value
$
110,627

 
$
117,604

 
 
 
 
Assets held under finance leases (included in the above)
 

 
 

Land and buildings
$
3,965

 
$
3,989

Machinery, fixtures and equipment
28,507

 
25,414

Total cost
32,472

 
29,403

Less: accumulated depreciation
(13,302
)
 
(10,705
)
Total net book value
$
19,170

 
$
18,698

The movement in the net book value of property, plant and equipment during the six months ended June 30, 2019 and 2018 was comprised of:
 
For the Six Months Ended June 30,
 
2019

 
2018

Opening balance
$
117,604

 
$
119,349

Additions (1)
10,200

 
13,233

Disposals
(2
)
 
(23
)
Depreciation
(16,380
)
 
(16,948
)
Foreign currency movements
(795
)
 
(3,994
)
Ending balance
$
110,627

 
$
111,617

(1)  
Includes assets acquired under finance leases of US$ 2.7 million and US$ 2.1 million for the six months ended June 30, 2019 and 2018 , respectively.

13
Index

CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)

9.    ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities comprised the following at June 30, 2019 and December 31, 2018 :
 
June 30, 2019

 
December 31, 2018

Accounts payable and accrued expenses
$
56,365

 
$
48,708

Related party accounts payable
128

 
292

Programming liabilities
16,663

 
16,072

Related party programming liabilities
11,667

 
12,171

Duties and other taxes payable
8,446

 
9,014

Accrued staff costs
15,238

 
17,425

Accrued interest payable
2,194

 
2,456

Related party accrued interest payable (including Guarantee Fees)
1,569

 
1,749

Income taxes payable
14,719

 
10,415

Other accrued liabilities
3,682

 
2,166

Total accounts payable and accrued liabilities
$
130,671

 
$
120,468

10.    OTHER LIABILITIES
Other current and non-current liabilities comprised the following at June 30, 2019   and December 31, 2018 :
 
June 30, 2019

 
December 31, 2018

Current:
 
 
 
Deferred revenue
$
28,278

 
$
9,906

Legal provisions
673

 
1,978

Operating lease liability (Note 11)
3,325

 
—

Other
377

 
1,795

Total other current liabilities
$
32,653

 
$
13,679

 
 
 
 
 
June 30, 2019

 
December 31, 2018

Non-current:
 

 
 

Deferred tax
$
22,397

 
$
22,545

Derivative instruments
13,678

 
9,817

Operating lease liability (Note 11)
8,553

 
—

Related party Guarantee Fee payable (Note 4)
33,465

 
33,465

Other
4,028

 
1,466

Total other non-current liabilities
$
82,121

 
$
67,293

During the three and six months ended June 30, 2019 and 2018 , we recognized revenue of US$ 2.8 million and US$ 5.6 million ; and US$ 1.6 million and US$ 4.1 million , which we had deferred as at December 31, 2018 and 2017, respectively.

14
Index

CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)

11.    LEASES
We enter into operating and finance leases for offices, production and related facilities, cars and certain equipment. Our leases have remaining lease terms up to ten years. Certain lease agreements include options to extend for up to three years and include options to terminate within one year.
The components of lease cost for the three and six months ended June 30, 2019 were as follows:
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
Operating lease cost:
 
 
 
Short-term operating lease cost
$
1,128

 
$
2,812

Long-term operating lease cost
1,149

 
2,299

Total operating lease cost
$
2,277

 
$
5,111

 
 
 
 
Finance lease cost:
 
 
 
Amortization of right-of-use asset
$
1,464

 
$
2,719

Interest on lease liabilities
88

 
196

Total finance lease cost
$
1,552

 
$
2,915

The classification of cash flows related to our leases for the six months ended June 30, 2019 was as follows:
 
For the Six Months Ended June 30,
Cash paid for amounts included in the measurement of lease liabilities:
 
Operating cash flows from operating leases
$
2,749

Operating cash flows from finance leases
186

Financing cash flows from finance leases
3,395

 
 
Right-of-use assets obtained in exchange for lease obligations:
 
Operating leases
$
2,607

Finance leases
2,746


15
Index

CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)

Our current and non-current assets and liabilities related to our leasing arrangements comprised the following at June 30, 2019 :
 
June 30, 2019

Operating Leases
 
Operating lease right-of-use-assets, gross
$
13,875

Accumulated amortization
(1,947
)
Operating lease right-of-use-assets, net
$
11,928

 
 
Other current liabilities
$
3,325

Other non-current liabilities
8,553

Total operating lease liabilities
$
11,878

 
 
Finance Leases
 
Property, plant and equipment, gross
$
32,472

Accumulated depreciation
(13,302
)
Property, plant and equipment, net
$
19,170

 
 
Current portion of long-term debt and other financing arrangements
$
6,089

Long-term debt and other financing arrangements
9,438

Total finance lease liabilities
$
15,527

 
 
Weighted Average Remaining Lease Term
Years

Operating leases
5.3

Finance leases
2.7

 
 
Weighted Average Discount Rate
Discount Rate

Operating leases
4.77
%
Finance leases
2.08
%
Our lease liabilities had the following maturities at June 30, 2019 :
 
Operating Leases

 
Finance Leases

2019
$
2,794

 
$
3,260

2020
2,568

 
6,111

2021
2,431

 
4,609

2022
1,629

 
1,846

2023
1,377

 
154

2024 and thereafter
2,771

 
—

Total undiscounted payments
13,570

 
15,980

Less: amount representing interest
(1,692
)
 
(453
)
Present value of net minimum lease payments
$
11,878

 
$
15,527

12.    FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
ASC 820, "Fair Value Measurements and Disclosure", establishes a hierarchy that prioritizes the inputs to those valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are:
Basis of Fair Value Measurement
Level 1
Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted instruments.
Level 2
Quoted prices in markets that are not considered to be active or financial instruments for which all significant inputs are observable, either directly or indirectly.
Level 3
Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.
A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

16
Index

CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)

We evaluate the position of each financial instrument measured at fair value in the hierarchy individually based on the valuation methodology we apply. The carrying amount of financial instruments, including cash and cash equivalents, accounts receivable, and accounts payable and accrued liabilities, approximate their fair value due to the short-term nature of these items. The fair value of our long-term debt is included in Note 4, "Long-term Debt and Other Financing Arrangements" .
Hedging Activities
Cash Flow Hedges of Interest Rate Risk
We are party to interest rate swap agreements to mitigate our exposure to interest rate fluctuations on the outstanding principal amount of the Euro Loans. These interest rate swaps provide us with variable-rate cash receipts in exchange for fixed-rate payments over the lives of the agreements, with no exchange of the underlying notional amount. These instruments are carried at fair value on our condensed consolidated balance sheets as other current and other non-current liabilities based on their maturity.
We value the interest rate swap agreements using a valuation model which calculates the fair value on the basis of the net present value of the estimated future cash flows. The most significant input used in the valuation model is the expected EURIBOR-based yield curve. These instruments were allocated to Level 2 of the fair value hierarchy because the critical inputs to this model, including current interest rates, relevant yield curves and the known contractual terms of the instruments, were readily observable.
As at June 30, 2019 each instrument is fully designated as a cash flow hedge. All changes in the fair value of these instruments are recorded in accumulated other comprehensive income / loss and subsequently reclassified to interest expense when the hedged item affects earnings.
Information relating to financial instruments is as follows:
Trade Date
 
Number of Contracts

 
Aggregate Notional Amount

 
Maturity Date
 
Objective
 
Fair Value as at June 30, 2019

November 10, 2015
 
3

 
EUR
110,335

 
November 1, 2019
 
Interest rate hedge underlying 2021 Euro Loan
 
$
(136
)
April 26, 2018
 
3

 
EUR
110,335

 
November 1, 2021
 
Interest rate hedge underlying 2021 Euro Loan, forward starting on November 1, 2019
 
$
(1,147
)
April 5, 2016
 
5

 
EUR
468,800

 
February 19, 2021
 
Interest rate hedge underlying 2023 Euro Loan
 
$
(2,402
)
April 26, 2018
 
4

 
EUR
468,800

 
April 26, 2023
 
Interest rate hedge underlying 2023 Euro Loan, forward starting on February 19, 2021
 
$
(10,128
)
Fair Value of Derivatives
The change in fair value of derivatives not recognized within accumulated other comprehensive income / loss comprised the following for the three and six months ended June 30, 2019 and 2018 :
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
2019

 
2018

 
2019

 
2018

Loss on interest rate swaps
—

 
(1,101
)
 
(36
)
 
(1,329
)
Change in fair value of derivatives
$
—

 
$
(1,101
)
 
$
(36
)
 
$
(1,329
)
13.    CONVERTIBLE REDEEMABLE PREFERRED SHARES
200,000 shares of our Series B Convertible Redeemable Preferred Stock, par value US$ 0.08 per share (the “Series B Preferred Shares”) were issued and outstanding as at June 30, 2019 and December 31, 2018 . The Series B Preferred Shares are held by Time Warner Media Holdings B.V. ("TW Investor"), a wholly owned subsidiary of AT&T. As at June 30, 2019 and December 31, 2018 , the accreted value of the Series B Preferred Shares was US$ 269.4 million . The Series B Preferred Shares have a stated value of US$ 1,000 per share and no longer accrete subsequent to June 24, 2018. As of June 30, 2019 , the 200,000 shares of Series B preferred stock were convertible into approximately 111.1 million shares of Class A common stock.
Each Series B Preferred Share may, at the holder's option, be converted into the number of shares of our Class A common stock determined by dividing (i) the accreted stated value plus accrued but unpaid dividends, if any, in each case as of the conversion date, by (ii) the conversion price, which was approximately US$ 2.42 at June 30, 2019 , but is subject to adjustment from time to time pursuant to customary weighted-average anti-dilution provisions with respect to our issuances of equity or equity-linked securities at a price below the then-applicable conversion price (excluding any securities issued under our benefit plans at or above fair market value). We have the right to redeem the Series B Preferred Shares in whole or in part upon 30 days ' written notice. The redemption price of each outstanding Series B Preferred Share is equal to its accreted stated value plus accrued but unpaid dividends, if any, in each case as of the redemption date specified in the redemption notice. After receipt of a redemption notice, each holder of Series B Preferred Shares will have the right to convert, prior to the date of redemption, all or part of such Series B Preferred Shares to be redeemed by us into shares of our Class A common stock in accordance with the terms of conversion described above.

17
Index

CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)

Holders of the Series B Preferred Shares have no voting rights on any matter presented to holders of any class of our capital stock, with the exception that they may vote with holders of shares of our Class A common stock (i) with respect to a change of control event or (ii) as provided by our Bye-laws or applicable Bermuda law. Holders of Series B Preferred Shares will participate in any dividends declared or paid on our Class A common stock on an as-converted basis. The Series B Preferred Shares will rank pari passu with our Series A Convertible Preferred Stock and senior to all other equity securities of the Company in respect of payment of dividends and distribution of assets upon liquidation. The Series B Preferred Shares have such other rights, powers and preferences as are set forth in the Certificate of Designation for the Series B Preferred Shares.
The Series B Preferred Shares are not considered a liability and the embedded conversion feature does not require bifurcation. The Series B Preferred Shares are classified outside of permanent equity at redemption value.
14.    EQUITY
Preferred Stock
5,000,000 shares of Preferred Stock were authorized as at June 30, 2019 and December 31, 2018 .
One share of Series A Convertible Preferred Stock (the "Series A Preferred Share") was issued and outstanding as at June 30, 2019 and December 31, 2018 . The Series A Preferred Share is convertible into 11,211,449 shares of Class A common stock on the date that is 61 days after the date on which the ownership of our outstanding shares of Class A common stock by a group that includes TW Investor and its affiliates would not be greater than 49.9% . The Series A Preferred Share is entitled to one vote per each share of Class A common stock into which it is convertible and has such other rights, powers and preferences, including potential adjustments to the number of shares of Class A common stock to be issued upon conversion, as are set forth in the Certificate of Designation for the Series A Preferred Share.
200,000 shares of Series B Preferred Shares were issued and outstanding as at June 30, 2019 and December 31, 2018 (see Note 13, "Convertible Redeemable Preferred Shares" ). As of June 30, 2019 , the 200,000 Series B Preferred Shares were convertible into approximately 111.1 million shares of Class A common stock.
Class A and Class B Common Stock
440,000,000 shares of Class A common stock and 15,000,000 shares of Class B common stock were authorized as at June 30, 2019 and December 31, 2018 . The rights of the holders of Class A common stock and Class B common stock are identical except for voting rights. The shares of Class A common stock are entitled to one vote per share and the shares of Class B common stock are entitled to ten votes per share. Shares of Class B common stock are convertible into shares of Class A common stock on a one -for- one basis for no additional consideration and automatically convert into shares of Class A common stock on a one-for-one basis when the number of shares of Class B common stock is less than 10% of the total number of shares of common stock outstanding. Holders of each class of shares are entitled to receive dividends and upon liquidation or dissolution are entitled to receive all assets available for distribution to holders of our common stock. Under our bye-laws, the holders of each class have no pre-emptive or other subscription rights and there are no redemption or sinking fund provisions with respect to such shares.
There were 253.6 million and 252.9 million shares of Class A common stock outstanding at June 30, 2019 and December 31, 2018 , respectively, and no shares of Class B common stock outstanding at June 30, 2019 or December 31, 2018 .
As at June 30, 2019 , TW Investor owns 64.0% of the outstanding shares of Class A common stock. In connection with the exercise of warrants by Warner Media and TW Investor in April 2018, each of them issued standing proxies to the independent directors of the Company, pursuant to which they granted the right to vote the approximately 100.9 million shares of Class A common stock received on the exercise of those warrants (the “Warrant Shares”) on all matters other than a transaction resulting in a change in control. In accordance with these proxies, the Warrant Shares will be voted in proportion to votes cast at a general meeting of the Company, excluding such Warrant Shares. Warner Media and TW Investor have undertaken to maintain this proxy arrangement in effect until April 2020 and may at their option extend it for an additional year from that date. As a result of the standing proxies, after giving effect to its ownership of the Series A Preferred Share, TW Investor has a 44.3% voting interest in the Company.

18
Index

CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)

Accumulated Other Comprehensive Loss
The movement in accumulated other comprehensive loss during the three and six months ended June 30, 2019 and 2018 comprised the following:
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
2019

 
2018

 
2019

 
2018

BALANCE, beginning of period
$
(235,961
)
 
$
(175,254
)
 
$
(216,650
)
 
$
(187,438
)
 
 
 
 
 
 
 
 
Currency translation adjustment, net
 
 
 
 
 
 
 
Balance, beginning of period
$
(223,648
)
 
$
(172,263
)
 
$
(207,668
)
 
$
(184,256
)
Foreign exchange gain / (loss) on intercompany loans (1)
2,868

 
(5,055
)
 
2,256

 
(3,524
)
Foreign exchange gain / (loss) on the Series B Preferred Shares
3,455

 
(14,828
)
 
(1,651
)
 
(7,677
)
Currency translation adjustment
10,770

 
(15,178
)
 
508

 
(11,867
)
Balance, end of period
$
(206,555
)
 
$
(207,324
)
 
$
(206,555
)
 
$
(207,324
)
 
 
 
 
 
 
 
 
Unrealized loss on derivative instruments designated as hedging instruments
 
 
 
 
 
 
 
Balance, beginning of period
$
(12,313
)
 
$
(2,991
)
 
$
(8,982
)
 
$
(3,182
)
Change in the fair value of hedging instruments
(1,700
)
 
(4,864
)
 
(5,402
)
 
(5,595
)
Amounts reclassified from accumulated other comprehensive loss:
 
 
 
 
 
 
 
Changes in fair value of hedging instruments reclassified to interest expense
480

 
610

 
851

 
1,231

Changes in fair value of hedging instruments reclassified to other non-operating income / expense, net
—

 
1,135

 
—

 
1,436

Balance, end of period
$
(13,533
)
 
$
(6,110
)
 
$
(13,533
)
 
$
(6,110
)
 
 
 
 
 
 
 
 
BALANCE, end of period
$
(220,088
)
 
$
(213,434
)
 
$
(220,088
)
 
$
(213,434
)
(1)  
Represents foreign exchange gains on intercompany loans that are of a long-term investment nature which are reported in the same manner as translation adjustments.
15.    INTEREST EXPENSE
Interest expense comprised the following for the three and six months ended June 30, 2019 and 2018 :
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
2019

 
2018

 
2019

 
2018

Interest on long-term debt and other financing arrangements
$
6,882

 
$
11,306

 
$
14,250

 
$
27,515

Amortization of capitalized debt issuance costs
853

 
1,105

 
1,727

 
2,714

Total interest expense
$
7,735

 
$
12,411

 
$
15,977

 
$
30,229

We paid cash interest (including Guarantee Fees) of US$ 14.0 million and US$ 26.6 million during the six months ended June 30, 2019 and 2018 , respectively.
16.    OTHER NON-OPERATING INCOME / EXPENSE, NET
Other non-operating income / expense, net comprised the following for the three and six months ended June 30, 2019 and 2018 :
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
2019

 
2018

 
2019

 
2018

Interest income
$
115

 
$
263

 
$
267

 
$
407

Foreign currency exchange gain / (loss), net
2,155

 
(6,234
)
 
(922
)
 
(1,844
)
Change in fair value of derivatives (Note 12)
—

 
(1,101
)
 
(36
)
 
(1,329
)
Loss on extinguishment of debt
(84
)
 
(179
)
 
(235
)
 
(288
)
Other income, net
51

 
325

 
66

 
336

Total other non-operating income / (expense), net
$
2,237

 
$
(6,926
)
 
$
(860
)
 
$
(2,718
)

19
Index

CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)

17.    STOCK-BASED COMPENSATION
Subsequent to the amendment approved at our Annual General Meeting on May 20, 2019, our 2015 Stock Incentive Plan (the "2015 Plan"), has 16,000,000 shares of Class A common stock authorized for grants of stock options, restricted stock units ("RSU"), restricted stock and stock appreciation rights to employees and non-employee directors. Under the 2015 Plan, awards are made to employees and directors at the discretion of the Compensation Committee.
For the three and six months ended June 30, 2019 and 2018 , we recognized charges for stock-based compensation of US$ 1.1 million and US$ 2.1 million ; and US$ 1.1 million and US$ 2.2 million respectively, presented as a component of selling, general and administrative expenses in our condensed consolidated statements of operations and comprehensive income / loss.
Stock Options
Grants of options allow the holders to purchase shares of Class A common stock at an exercise price, which is generally the market price prevailing at the date of the grant, with vesting between one and four years after the awards are granted. There was no option activity during the six months ended June 30, 2019 . The summary of stock options outstanding as at June 30, 2019 and December 31, 2018 is presented below:
 
Shares

 
Weighted Average Exercise Price per Share

 
Weighted Average Remaining Contractual Term (years)
 
Aggregate Intrinsic Value

Outstanding at December 31, 2018
2,011,392

 
$
2.32

 
6.58
 
$
916

Outstanding at June 30, 2019
2,011,392

 
2.32

 
6.08
 
4,094

Vested and expected to vest
2,011,392

 
2.32

 
6.08
 
4,094

Exercisable at June 30, 2019
1,908,544

 
$
2.32

 
6.05
 
$
3,898

When options are vested, holders may exercise them at any time up to the maximum contractual life of the instrument which is specified in the option agreement. At June 30, 2019 , the maximum life of options that were issued under the 2015 Plan was ten years . Upon providing the appropriate written notification, holders pay the exercise price and receive shares. Shares delivered in respect of stock option exercises are newly issued shares.
The aggregate intrinsic value (the difference between the stock price on the last day of trading of the second quarter of 2019 and the exercise prices multiplied by the number of in-the-money options) represents the total intrinsic value that would have been received by the option holders had they exercised all in-the-money options as at June 30, 2019 . This amount changes based on the fair value of our Class A common stock. As at June 30, 2019 , there was US$ 0.1 million of unrecognized compensation expense related to stock options which is expected to be recognized over a weighted-average period of 0.69 years with all options vesting in March 2020.
Restricted Stock Units with Time-Based Vesting
Each RSU represents a right to receive one share of Class A common stock of the Company for each RSU that vests in accordance with a time-based vesting schedule, generally between one to four years from the date of grant. Holders of RSU awards are not entitled to receive cash dividend equivalents prior to the vesting of awards and are not entitled to vote shares underlying awards.
The following table summarizes information about unvested RSUs as at June 30, 2019 and December 31, 2018 :
 
Number of
Shares / Units

 
Weighted Average
Grant Date
Fair Value

Unvested at December 31, 2018
1,996,355

 
$
3.68

Granted
1,191,586

 
3.57

Vested
(855,260
)
 
3.49

Unvested at June 30, 2019
2,332,681

 
$
3.69

The intrinsic value of unvested RSUs was US$ 10.2 million as at June 30, 2019 . Total unrecognized compensation cost related to unvested RSUs as at June 30, 2019 was US$ 7.6 million and is expected to be recognized over a weighted-average period of 2.66 years.
Restricted Stock Units with Performance Conditions
Each RSU with performance conditions (“PRSU”) represents a right to receive one share of Class A common stock of the Company for each PRSU that vests in accordance with a performance-based vesting schedule. The performance-based vesting schedule sets forth specified objectives for unlevered free cash flow and OIBDA over defined periods and by defined dates. Holders of PRSU awards are not entitled to receive cash dividend equivalents prior to the vesting of awards and are not entitled to vote shares underlying awards.
On December 4, 2018, the 2018 PRSU Award was granted with unlevered free cash flow and OIBDA targets corresponding to two, three and four-year performance periods ending December 31, 2020, 2021 and 2022, respectively. The maximum achievement under the 2018 PRSU Award is 200% of the shares allotted to the corresponding target. Due to the uncertainty of achieving any of the prescribed targets within the 2018 PRSU Award, we have not recognized any related compensation cost to date.

20
Index

CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)

The following table summarizes information about unvested PRSUs as at June 30, 2019 and December 31, 2018 :
 
Number of
Shares / Units

 
Weighted-Average
Grant Date Fair Value

Unvested at December 31, 2018
501,572

 
$
3.19

Granted
—

 
—

Vested
—

 
—

Unvested at June 30, 2019
501,572

 
$
3.19

The intrinsic value of unvested PRSUs was US$ 2.2 million as at June 30, 2019 .
18.    EARNINGS PER SHARE
We determined that the Series B Preferred Shares are a participating security, and accordingly, our basic and diluted net income / loss per share is calculated using the two-class method. Under the two-class method, basic net income / loss per common share is computed by dividing the net income available to common shareholders after deducting contractual amounts of accretion on our Series B Preferred Shares and the income allocated to these shares by the weighted-average number of common shares outstanding during the period. Diluted net income / loss per share is computed by dividing the adjusted net income by the weighted-average number of dilutive shares outstanding during the period after adjusting for the impact of those dilutive shares on the allocation of income to the Series B Preferred Shares.
The components of basic and diluted earnings per share are as follows:
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
2019

 
2018

 
2019

 
2018

Income from continuing operations
$
44,078

 
$
23,675

 
$
55,829

 
$
30,431

Net (income) / loss attributable to noncontrolling interests
(119
)
 
16

 
(112
)
 
194

Less: preferred share accretion paid in kind (Note 13)
—

 
(2,330
)
 
—

 
(4,777
)
Less: income allocated to Series B Preferred Shares
(13,003
)
 
(6,837
)
 
(16,490
)
 
(9,277
)
Income from continuing operations available to common shareholders, net of noncontrolling interest
30,956

 
14,524

 
39,227

 
16,571

Income from discontinued operations, net of tax
—

 
2,350

 
—

 
2,666

Less income allocated to Series B Preferred Shares
—

 
(752
)
 
—

 
(957
)
Net income attributable to CME Ltd. available to common shareholders — basic
30,956

 
16,122

 
39,227

 
18,280

 
 
 
 
 
 
 
 
Effect of dilutive securities
 
 
 
 
 
 
 
Dilutive effect of employee stock options, RSUs and Series B Preferred Shares
47

 
485

 
54

 
1,524

Net income attributable to CME Ltd. available to common shareholders — diluted
$
31,003

 
$
16,607

 
$
39,281

 
$
19,804

 
 
 
 
 
 
 
 
Weighted average outstanding shares of common stock — basic (1)
264,570

 
235,148

 
264,385

 
196,807

Dilutive effect of employee stock options, RSUs and common stock warrants
1,362

 
23,635

 
1,243

 
53,708

Weighted average outstanding shares of common stock — diluted
265,932

 
258,783

 
265,628

 
250,515

 
 
 
 
 
 
 
 
Net income per share:
 
 
 
 
 
 
 
Continuing operations — basic
$
0.12

 
$
0.06

 
$
0.15

 
$
0.08

Continuing operations — diluted
0.12

 
0.06

 
0.15

 
0.07

Discontinued operations — basic
—

 
0.01

 
—

 
0.01

Discontinued operations — diluted
—

 
0.00

 
—

 
0.01

Attributable to CME Ltd. — basic
0.12

 
0.07

 
0.15

 
0.09

Attributable to CME Ltd. — diluted
0.12

 
0.06

 
0.15

 
0.08

(1)  
For the purpose of computing basic earnings per share, the 11,211,449 shares of Class A common stock underlying the Series A Preferred Share are included in the weighted average outstanding shares of common stock - basic, because the rights of the Series A Preferred Share are considered substantially similar to that of our Class A common stock.

21
Index

CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)

Weighted-average equity awards and convertible shares are excluded from the calculation of diluted earnings per share if their effect would be anti-dilutive. The following instruments were anti-dilutive for the periods presented but may be dilutive in future periods:
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
2019

 
2018

 
2019

 
2018

RSUs
1,233

 
1,013

 
1,233

 
1,013

Total
1,233

 
1,013

 
1,233

 
1,013

19.    SEGMENT DATA
We manage our business on a geographical basis, with five operating segments: Bulgaria, the Czech Republic, Romania, the Slovak Republic and Slovenia, which are also our reportable segments and our main operating countries. These segments reflect how CME Ltd.’s operating performance is evaluated by our chief operating decision makers, who we have identified as our co-Chief Executive Officers; how operations are managed by segment managers; and the structure of our internal financial reporting.
Our segments generate revenues primarily from the sale of advertising and sponsorship on our channels and digital properties. This is supplemented by revenues from cable and satellite television service providers that carry our channels on their platforms and from revenues through the sale of distribution rights to third parties. We do not rely on any single major customer or group of major customers. Intersegment revenues and profits have been eliminated in consolidation.
We evaluate our consolidated results and the performance of our segments based on net revenues and OIBDA (as defined below). We believe OIBDA is useful to investors because it provides a meaningful representation of our performance as it excludes certain items that either do not impact our cash flows or the operating results of our operations. OIBDA is also used as a component in determining management bonuses.
OIBDA includes amortization and impairment of program rights and is calculated as operating income / loss before depreciation, amortization of intangible assets, impairments of assets and certain unusual or infrequent items that are not considered by our chief operating decision makers when evaluating our performance.
Below are tables showing our net revenues, OIBDA, total assets, capital expenditures and long-lived assets for our continuing operations by segment for the three and six months ended June 30, 2019 and 2018 for condensed consolidated statements of operations and comprehensive income / loss data and condensed consolidated statements of cash flow data; and as at June 30, 2019 and December 31, 2018 for condensed consolidated balance sheet data.
Net revenues:
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
2019

 
2018

 
2019

 
2018

Bulgaria
$
22,607

 
$
23,427

 
$
41,900

 
$
42,860

Czech Republic
64,379

 
61,028

 
114,695

 
112,562

Romania
48,362

 
49,594

 
87,172

 
95,555

Slovak Republic
27,313

 
26,770

 
48,645

 
49,723

Slovenia
22,276

 
22,367

 
40,126

 
39,897

Intersegment revenues (1)
(1,338
)
 
(1,278
)
 
(2,380
)
 
(1,980
)
Total net revenues
$
183,599

 
$
181,908

 
$
330,158

 
$
338,617

(1)  
Reflects revenues earned from the sale of content to other country segments in CME Ltd. All other revenues are third party revenues.

22
Index

CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)

OIBDA:
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
2019

 
2018

 
2019

 
2018

Bulgaria
$
7,888

 
$
5,622

 
$
14,009

 
$
8,603

Czech Republic
32,293

 
28,251

 
47,240

 
43,621

Romania
25,243

 
24,196

 
42,776

 
43,089

Slovak Republic
8,555

 
3,906

 
10,284

 
5,009

Slovenia
6,213

 
5,199

 
11,144

 
9,852

Elimination
(24
)
 
17

 
24

 
33

Total operating segments
80,168

 
67,191

 
125,477

 
110,207

Corporate
(6,826
)
 
(6,346
)
 
(14,078
)
 
(14,038
)
Total OIBDA
73,342

 
60,845

 
111,399

 
96,169

Depreciation of property, plant and equipment
(8,154
)
 
(8,561
)
 
(16,380
)
 
(16,948
)
Amortization of broadcast licenses and other intangibles
(2,113
)
 
(2,267
)
 
(4,307
)
 
(4,623
)
Other items (1)
(2,613
)
 
—

 
(2,613
)
 
—

Operating income
60,462

 
50,017

 
88,099

 
74,598

Interest expense (Note 15)
(7,735
)
 
(12,411
)
 
(15,977
)
 
(30,229
)
Other non-operating income / (expense), net (Note 16)
2,237

 
(6,926
)
 
(860
)
 
(2,718
)
Income before tax
$
54,964

 
$
30,680

 
$
71,262

 
$
41,651

(1)  
Reflects costs relating to our strategic review, primarily financial and professional fees.
Total assets: (1)
June 30, 2019

 
December 31, 2018

Bulgaria
$
138,097

 
$
142,165

Czech Republic
765,425

 
771,286

Romania
282,354

 
297,937

Slovak Republic
145,998

 
146,252

Slovenia
84,508

 
89,440

Total operating segments
1,416,382

 
1,447,080

Corporate
52,144

 
41,281

Total assets
$
1,468,526

 
$
1,488,361

(1)  
Segment assets exclude any intercompany balances.
Capital expenditures:
For the Six Months Ended June 30,
 
2019


2018

Bulgaria
$
1,635

 
$
1,349

Czech Republic
3,072

 
3,539

Romania
1,033

 
1,528

Slovak Republic
442

 
1,080

Slovenia
1,912

 
2,347

Total operating segments
8,094

 
9,843

Corporate
178

 
338

Total capital expenditures
$
8,272

 
$
10,181


23
Index

CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)

Long-lived assets: (1)
June 30, 2019

 
December 31, 2018

Bulgaria
$
11,522

 
$
10,627

Czech Republic
37,565

 
39,314

Romania
29,730

 
33,368

Slovak Republic
15,640

 
16,376

Slovenia
14,614

 
15,955

Total operating segments
109,071

 
115,640

Corporate
1,556

 
1,964

Total long-lived assets
$
110,627

 
$
117,604

(1)  
Reflects property, plant and equipment, net.
Revenues from contracts with customers comprised the following for the three and six months ended June 30, 2019 and 2018 :
Consolidated revenue by type:
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
2019

 
2018

 
2019

 
2018

Television advertising
$
147,184

 
$
146,662

 
$
258,231

 
$
269,968

Carriage fees and subscriptions
29,239

 
28,312

 
58,789

 
56,876

Other
7,176

 
6,934

 
13,138

 
11,773

Total net revenues
$
183,599

 
$
181,908

 
$
330,158

 
$
338,617

Management reviews the performance of our operations based on the above revenue types as well as on a geographic basis as described above. Management does not review other disaggregations of revenues from contracts with customers.

24
Index

CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)

20.    COMMITMENTS AND CONTINGENCIES
Commitments
Programming Rights Agreements and Other Commitments
At June 30, 2019 , we had total commitments of US$ 69.3 million ( December 31, 2018 : US$ 62.8 million ) in respect of future programming, including contracts signed with license periods starting after the balance sheet date. In addition, we have digital transmission obligations and other commitments as follows:
 
Programming purchase obligations

 
Other commitments

2019
$
15,393

 
$
8,139

2020
25,978

 
8,494

2021
15,756

 
2,821

2022
10,579

 
2,842

2023
843

 
3,137

2024 and thereafter
752

 
—

Total
$
69,301

 
$
25,433

Contingencies
Litigation
We are from time to time party to legal proceedings, arbitrations and regulatory proceedings arising in the normal course of our business operations, including the proceeding described below. We evaluate, on a quarterly basis, developments in such matters and provide accruals for such matters, as appropriate. In making such decisions, we consider the degree of probability of an unfavorable outcome and our ability to make a reasonable estimate of the amount of a loss. An unfavorable outcome in any such proceedings, if material, could have an adverse effect on our business or condensed consolidated financial statements.
In the fourth quarter of 2016, our Slovak subsidiary MARKIZA-SLOVAKIA, spol. s.r.o. ("Markiza") was notified of claims that were filed in June 2016 in a court of first instance in Bratislava, the Slovak Republic to collect amounts allegedly owing under four promissory notes that have a collective face value of approximately EUR 69.0 million. These four promissory notes were purportedly issued in June 2000 by Pavol Rusko in his personal capacity and were purportedly guaranteed by Markiza under the signature of Mr. Rusko, who was an executive director of Markiza at that time as well as one of its shareholders. Two of the notes purport to be issued in favor of Marian Kocner, a controversial Slovak businessman, and the other two to a long-time associate of Mr. Kocner. All four notes were supposedly assigned several times, for no apparent consideration, to companies owned by or associated with Mr. Kocner and ultimately to Sprava a inkaso zmeniek, s.r.o., a company owned by Mr. Kocner that initiated the claims for payment in these proceedings.
Two of the notes, each of which purportedly has a face value of approximately EUR 8.3 million , allegedly matured in 2015; and the other two , each of which purportedly has a face value of approximately EUR 26.2 million , allegedly matured in 2016. The four notes accrue interest from their purported maturity dates. Although Mr. Rusko has asserted in testimony in the civil proceedings that he signed the notes in June 2000, we do not believe that the notes were signed in June 2000 or that any of the notes are authentic.
Despite a random case assignment system in the Slovak Republic, claims in respect of three of the notes were initially assigned to the same judge. One of those claims, concerning one of the promissory notes having a face value of approximately EUR 8.3 million (the "First PN Case"), was subsequently reassigned. Proceedings on the claim in respect of the fourth promissory note (in the amount of approximately EUR 26.2 million ) (the “Fourth PN Case”) were terminated in January 2017 by the presiding judge because the plaintiff failed to pay court fees and were terminated a second time by a different presiding judge in September 2017 after the plaintiff refiled but failed to pay court fees a second time.
During the first quarter of 2018, the court of first instance began to schedule hearings in respect of the First PN Case as well in respect of the claims relating to the second promissory note having a face value of approximately EUR 8.3 million (the "Second PN Case") and one of the promissory notes having a face value of approximately EUR 26.2 million (the "Third PN Case").
On April 26, 2018, the judge in the First PN Case ruled in favor of the plaintiff. Markiza appealed that decision.
On May 14, 2018, Markiza filed a criminal complaint with the Special Prosecutor's Office of the Slovak Republic (the "Special Prosecutor’s Office") alleging that Mr. Kocner and Mr. Rusko committed the offenses of (1) counterfeiting, falsification, and illegal production of money and securities and (2) obstruction or perversion of justice. The Special Prosecutor’s Office opened criminal proceedings in the matter at that time.
On June 20, 2018, the Special Prosecutor’s Office issued a decision to formally charge Mr. Kocner and Mr. Rusko with counterfeiting, falsification, and illegal production of money and securities and with obstruction or perversion of justice. Following this decision, Mr. Kocner has been taken into pre-trial custody by the Slovak authorities, where he remains. Subsequently, the Special Prosecutor’s Office has charged Mr. Kocner’s long-time associate, who received two of the alleged promissory notes as the original beneficial owner and purported to endorse those notes to a company controlled by Mr. Kocner, with counterfeiting, falsification, and illegal production of money and securities.
On October 12, 2018, the court of first instance terminated proceedings in respect of the Second PN Case because the plaintiff failed to pursue the claim, which the plaintiff appealed.
On December 14, 2018, the appellate court suspended proceedings in respect of the First PN Case until a final and enforceable decision has been rendered in the criminal proceedings.
On December 21, 2018, the appellate court reversed the decision of the court of first instance to terminate the Second PN Case and directed the case be tried on the merits.

25
Index

CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
(Unaudited)

On March 19, 2019, following the conclusion of the pre-trial investigation, the Special Prosecutor’s Office formally indicted Mr. Kocner and Mr. Rusko with counterfeiting, falsification, and illegal production of money and securities and with obstruction or perversion of justice and filed the indictment with the Special Criminal Court of the Slovak Republic.
On May 14, 2019, the court of first instance decided to suspend proceedings in respect of the Second PN Case until a final and enforceable decision has been rendered in the criminal proceedings.
There have been no hearings held in respect of the Third PN Case since the initiation of the criminal proceedings. On May 14, 2019, the court of first instance decided to suspend proceedings in respect of the Third PN Case until a final and enforceable decision has been rendered in the criminal proceedings.
The plaintiff re-filed its claim with respect to the Fourth PN Case, which purportedly has a face value of approximately EUR 26.2 million , on May 13, 2019 and subsequently paid the requisite court fees. On June 6, 2019, the court of first instance decided to suspend proceedings in respect of the Fourth PN Case until a final and enforceable decision has been rendered in the criminal proceedings.
Accordingly, civil proceedings in respect of all four promissory notes have now been suspended until a final and enforceable decision is rendered in the criminal proceedings. The Special Criminal Court overseeing the criminal proceedings has scheduled initial hearings for the end of July 2019.
In the event any of the civil proceedings are not dismissed as a result of the successful conclusion of the criminal proceedings, Markiza will continue to vigorously defend the claims.
Based on the facts and circumstances of these cases, we have not accrued any amounts in respect of these claims.
21.    RELATED PARTY TRANSACTIONS
We consider our related parties to be our officers, directors and shareholders who have direct control and/or influence over the Company as well as other parties that can significantly influence management. We have identified transactions with individuals or entities associated with AT&T, which is represented on our Board of Directors and holds a 44.3% voting interest in CME Ltd. (see Note 14, "Equity" ) as at June 30, 2019 , as material related party transactions.
AT&T
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
2019

 
2018

 
2019

 
2018

Cost of revenues
$
4,659

 
$
5,486

 
$
9,635

 
$
11,488

Interest expense
4,615

 
7,735

 
9,369

 
20,251

 
June 30, 2019

 
December 31, 2018

Programming liabilities
$
11,667

 
$
12,171

Other accounts payable and accrued liabilities
128

 
292

Accrued interest payable (1)
1,569

 
1,749

Other non-current liabilities  (2)
33,465

 
33,465

(1)  
Amount represents accrued Guarantee Fees for which we have not yet paid. See Note 4, "Long-term Debt and Other Financing Arrangements" .
(2)  
Amount represents Guarantee Fees for which we had previously made an election to pay in kind.


26
Index

Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations
The following defined terms are used in this Quarterly Report on Form 10-Q:
•
" 2019 Euro Loan " refers to our floating rate senior unsecured term credit facility guaranteed by Warner Media, dated as of November 14, 2014, as amended on March 9, 2015, February 19, 2016, June 22, 2017 and February 5, 2018 which was repaid in full on July 31, 2018;
•
" 2021 Euro Loan " refers to our floating rate senior unsecured term credit facility due November 1, 2021, guaranteed by Warner Media, dated as of September 30, 2015, as amended on February 19, 2016, June 22, 2017 and April 25, 2018;
•
" 2023 Euro Loan " refers to our floating rate senior unsecured term credit facility due April 26, 2023, entered into by CME BV (as defined below), guaranteed by Warner Media and CME Ltd., dated as of February 19, 2016, as amended on June 22, 2017 and April 25, 2018;
•
" Euro Loans " refers collectively to the 2021 Euro Loan and 2023 Euro Loan;
•
" 2023 Revolving Credit Facility " refers to our revolving credit facility due April 26, 2023, dated as of May 2, 2014, as amended and restated as of February 19, 2016, and as further amended and restated on April 25, 2018;
•
" Guarantee Fees " refers to amounts accrued and payable to Warner Media as consideration for Warner Media's guarantees of the Euro Loans;
•
" Reimbursement Agreement " refers to our reimbursement agreement with Warner Media which provides that we will reimburse Warner Media for any amounts paid by them under any guarantee or through any loan purchase right exercised by Warner Media, dated as of November 14, 2014, as amended and restated on February 19, 2016, and as further amended and restated on April 25, 2018;
•
" CME BV " refers to CME Media Enterprises B.V., our 100% owned subsidiary;
•
" CME NV " refers to Central European Media Enterprises N.V., our 100% owned subsidiary;
•
" AT&T " refers to AT&T, Inc.
•
" Warner Media " refers to Warner Media, LLC. (formerly Time Warner, Inc.), a wholly owned subsidiary of AT&T; and
•
" TW Investor " refers to Time Warner Media Holdings B.V., a wholly owned subsidiary of Warner Media.
The exchange rates used in this report are as at June 30, 2019 , unless otherwise indicated.
Please note that we may announce information using SEC filings, press releases, public conference calls, webcasts and posts to the "Investors" section of our website, www.cme.net . We intend to continue to use these channels to communicate important information about CME Ltd. and our operations. We encourage investors, the media, our customers and others interested in the Company to review the information we post at www.cme.net .
I.     Forward-looking Statements
This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 22E of the Securities Exchange Act of 1934 (the "Exchange Act"), including those relating to our capital needs, business strategy, expectations and intentions. Statements that use the terms "believe", "anticipate", "trend", "expect", "plan", "estimate", "forecast", "should", "intend" and similar expressions of a future or forward-looking nature identify forward-looking statements for purposes of the U.S. federal securities laws or otherwise. In particular, information appearing under the sections entitled "Business," "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" includes forward looking-statements. For these statements and all other forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.
Forward-looking statements are inherently subject to risks and uncertainties, many of which cannot be predicted with accuracy or are otherwise beyond our control and some of which might not even be anticipated. Forward-looking statements reflect our current views with respect to future events and because our business is subject to such risks and uncertainties, actual results, our strategic plan, our financial position, results of operations and cash flows could differ materially from those described in or contemplated by the forward-looking statements contained in this report.
Important factors that contribute to such risks include, but are not limited to, those factors set forth under "Risk Factors” as well as the following: the effect of changes in global and regional economic conditions; the impact of ending the quantitative easing program implemented by the European Central Bank; the economic, political and monetary impacts of Brexit in our markets; the outcome of our strategic review and its impact on our business; the impact of changes in local tax legislation; levels of television advertising spending and the rate of development of the advertising markets in the countries in which we operate; our ability to refinance our existing indebtedness; the extent to which our debt service obligations and covenants may restrict our business; our exposure to additional tax liabilities as well as liabilities resulting from regulatory or legal proceedings initiated against us; our success in continuing our initiatives to diversify and enhance our revenue streams; our ability to make cost-effective investments in our television businesses, including investments in programming; our ability to develop and acquire necessary programming and attract audiences; and changes in the political and regulatory environments where we operate and in the application of relevant laws and regulations.
The foregoing review of important factors should not be construed as exhaustive and should be read in conjunction with other cautionary statements that are included in this report. All forward-looking statements speak only as of the date of this report. We undertake no obligation to publicly update or review any forward-looking statements, whether as a result of new information, future developments or otherwise, except as required by law.


27
Index

II.    Overview
Central European Media Enterprises Ltd. ("CME Ltd.") is a media and entertainment company operating mainly in five countries in Central and Eastern Europe. We manage our business on a geographical basis, with five operating segments: Bulgaria, the Czech Republic, Romania, the Slovak Republic and Slovenia, which are also our reportable segments. These operating segments reflect how CME Ltd.’s operating performance is evaluated by our chief operating decision makers, who we have identified as our co-Chief Executive Officers, how our operations are managed by segment managers, and the structure of our internal financial reporting.
Non-GAAP Financial Measures
In this report we refer to several non-GAAP financial measures, including OIBDA, OIBDA margin, free cash flow and unlevered free cash flow. We believe that each of these metrics is useful to investors for the reasons outlined below. Non-GAAP financial measures may not be comparable to similar measures reported by other companies. Non-GAAP financial measures should be evaluated in conjunction with, and are not a substitute for, US GAAP financial measures.
We evaluate our consolidated results and the performance of our segments based on net revenues and OIBDA. We believe OIBDA is useful to investors because it provides a meaningful representation of our performance, as it excludes certain items that do not impact either our cash flows or the operating results of our operations. OIBDA and unlevered free cash flow are also used as components in determining management bonuses.
OIBDA includes amortization and impairment of program rights and is calculated as operating income / loss before depreciation, amortization of intangible assets and impairments of assets and certain unusual or infrequent items that are not considered by our co-Chief Executive Officers when evaluating our performance. Our key performance measure of the efficiency of our consolidated operations and our segments is OIBDA margin. We define OIBDA margin as the ratio of OIBDA to net revenues.
Following a repricing of our Guarantee Fees in March 2017 and April 2018, we pay interest and related Guarantee Fees on our outstanding indebtedness in cash. In addition to this obligation to pay Guarantee Fees in cash, we expect to use cash generated by the business to pay certain Guarantee Fees that were previously paid in kind. These cash payments are all reflected in free cash flow; accordingly, we believe unlevered free cash flow, defined as free cash flow before cash payments for interest and Guarantee Fees, best illustrates the cash generated by our operations when comparing periods. We define free cash flow as net cash generated from continuing operating activities less purchases of property, plant and equipment, net of disposals of property, plant and equipment and excluding the cash impact of certain unusual or infrequent items that are not included in costs charged in arriving at OIBDA because they are not considered by our co-Chief Executive Officers when evaluating performance.
For additional information regarding our business segments, including a reconciliation of OIBDA to US GAAP financial measures, see Item 1, Note 19, "Segment Data" . For a reconciliation of free cash flow and unlevered free cash flow to US GAAP financial measures, see "Free Cash Flow and Unlevered Free Cash Flow" below.
While our reporting currency is the dollar, our consolidated revenues and costs are divided across a range of European currencies and CME Ltd.’s functional currency is the Euro. Given the significant movement of the currencies in the markets in which we operate against the dollar, we believe that it is useful to provide percentage movements based on actual percentage movements (“% Act”), which includes the effect of foreign exchange, as well as like-for-like percentage movements (“% Lfl”). The like-for-like percentage movement references reflect the impact of applying the current period average exchange rates to the prior period revenues and costs. Since the difference between like-for-like and actual percentage movements is solely the impact of movements in foreign exchange rates, our discussion in the following analysis is focused on constant currency percentage movements in order to highlight those factors influencing operational performance. The incremental impact of foreign exchange rates is presented in the tables preceding such analysis. Unless otherwise stated, all percentage increases or decreases in the following analysis refer to year-on-year percentage changes between the three and six months ended June 30, 2019 and 2018 .
Executive Summary
The following table provides a summary of our consolidated results of our continuing operations for the three and six months ended June 30, 2019 and 2018:
 
For the Three Months Ended June 30, (US$ 000's)
 
For the Six Months Ended June 30, (US$ 000's)
 
 
 
 
 
Movement
 
 
 
 
 
Movement
 
2019

 
2018

 
% Act

 
% Lfl

 
2019

 
2018

 
% Act

 
% Lfl

Net revenues
$
183,599

 
$
181,908

 
0.9
%
 
7.9
%
 
$
330,158

 
$
338,617

 
(2.5
)%
 
5.0
%
Operating income
60,462

 
50,017

 
20.9
%
 
29.0
%
 
88,099

 
74,598

 
18.1
 %
 
27.1
%
Operating margin
32.9
%
 
27.5
%
 
5.4 p.p.

 
5.4 p.p.

 
26.7
%
 
22.0
%
 
4.7 p.p.

 
4.7 p.p.

OIBDA
$
73,342

 
$
60,845

 
20.5
%
 
28.6
%
 
$
111,399

 
$
96,169

 
15.8
 %
 
24.6
%
OIBDA margin
39.9
%
 
33.4
%
 
6.5 p.p.

 
6.4 p.p.

 
33.7
%
 
28.4
%
 
5.3 p.p.

 
5.3 p.p.

Our consolidated net revenues increased at actual rates in the second quarter, but decreased at actual rates in the six months ended June 30, 2019, compared to the corresponding periods in 2018. Excluding the effect of foreign exchange, net revenues increased at constant rates in both the three and six months ended June 30, 2019 compared to the corresponding periods in 2018 , due to increases in television advertising revenues and carriage fees and subscription revenues. Television advertising spending overall in the markets of the countries in which we operate increased an estimated 2% at constant rates in the first half of 2019 compared to 2018. Our television advertising revenues decreased 4% at actual rates, but increased 3% at constant rates during the same period, as all of our businesses have seen growth in average prices. Carriage fees and subscription revenues increased 3% at actual rates and 11% at constant rates in both the second quarter and first half of 2019 as the subscriber base continued to grow and average prices increased.
Costs charged in arriving at OIBDA in the second quarter decreased 9% at actual rates and 3% at constant rates compared to the corresponding period in 2018. Content costs decreased 6% at constant rates, due to the utilization of more cost-effective programming in Bulgaria, Romania and the Slovak Republic, which was partially offset by an increase in other costs in the Czech Republic and Romania. In the first half of 2019, costs charged in arriving at OIBDA decreased 10% at actual rates and 3% at constant rates compared to the corresponding period in 2018, due primarily to a 4% decrease in content costs.

28
Index

The spring season concluded in all countries during the second quarter. The main channel in each country increased its market-leading audience share in prime time this year, and we increased the gap between us and our closest commercial competitor in prime time audience share in four countries. Our focus remains on efficient spending for programming for the most popular television schedules in each country. The resulting reach for advertisers provides the resources necessary to continue investing in high quality local content.
Since we continue to focus on controlling costs, our OIBDA margin in the three and six months ended June 30, 2019 increased compared to the same period in 2018. This dynamic also drove an increase in operating income, with a similar improvement in operating margin.
Improving Capital Structure
On January 31, 2019, we used cash generated by the business and paid EUR 60.0 million (approximately US$ 68.9 million at January 31, 2019 rates) of the outstanding principal balance of the 2021 Euro Loan. On June 14, 2019 we used additional cash generated by the business and paid an additional EUR 40.0 million (approximately US$ 45.1 million at June 14, 2019 rates) of the 2021 Euro Loan. Following these repayments, there is EUR 110.3 million outstanding on our nearest debt maturity in November 2021.
The lower balance of gross debt, together with improved financial results in the first half of 2019, reduced our net leverage ratio to 2.6x at the end of the quarter, down from 3.5x at the start of the year.
Review of Strategic Alternatives
On March 25, 2019, we announced that our Board of Directors had commenced a process to explore and evaluate potential strategic alternatives focused on maximizing shareholder value. These alternatives may include, among other things, the sale of part or all of the Company, a merger with another strategic partner, a recapitalization, or continuing to execute on our long-term business plan (see Part II, Item 1A, Risk Factors).
Free Cash Flow and Unlevered Free Cash Flow
 
For the Six Months Ended June 30, (US$ 000's)
 
2019

 
2018

 
Movement

Net cash generated from continuing operating activities
$
140,280

 
$
79,671

 
76.1
 %
Capital expenditures, net
(8,266
)
 
(10,164
)
 
(18.7
)%
Free cash flow
132,014

 
69,507

 
89.9
 %
Cash paid for interest (including Guarantee Fees)
14,017

 
26,630

 
(47.4
)%
Unlevered free cash flow
$
146,031

 
$
96,137

 
51.9
 %

(US$ 000's)
June 30, 2019

 
December 31, 2018

 
Movement

Cash and cash equivalents
$
74,639

 
$
62,031

 
20.3
%
Unlevered free cash flow increased during the six months ended June 30, 2019 compared to the same period in 2018, mainly reflecting higher collections of cash from receivables generated as a result of improved operating performance, lower cash payments for programming, and the timing of cash paid for income taxes. Net cash generated from continuing operating activities also benefited from lower cash paid for interest. The decrease in capital expenditures reflects more use of finance leasing to acquire assets.


29
Index

Market Information
The following table sets out our estimates of the year-on-year changes in real GDP, real private consumption and the television advertising market, net of discounts, in our countries for the six months ended June 30, 2019 :
 
For the Six Months Ended June 30, 2019
Country
Real GDP Growth

 
Real Private Consumption Growth

 
Net TV Ad Market Growth

Bulgaria
3.8
%
 
3.6
%
 
0.4
 %
Czech Republic
2.6
%
 
2.7
%
 
5.8
 %
Romania*
4.3
%
 
6.3
%
 
(2.3
)%
Slovak Republic
3.5
%
 
2.1
%
 
5.6
 %
Slovenia
3.4
%
 
2.9
%
 
(0.7
)%
Total CME Ltd. Markets
3.4
%
 
3.8
%
 
2.4
 %
*    Romanian market excludes Moldova.
Sources: Real GDP Growth and Real Private Consumption Growth, CME Ltd. estimates based on market consensus; TV Ad Market Growth, CME Ltd. estimates at constant exchange rates.
After adjusting for inflation, in the first six months of 2019 we estimate that GDP grew in each of the countries in which we operate at a rate that exceeded the average growth rate for Western Europe, a trend that has been ongoing for more than four years. These growth rates are slightly lower than the same period in 2018, as exports have weakened slightly in certain countries, which is reported to be connected to a slowdown in the German economy, and uncertainty around the impact of tariffs on global trade as well as the final terms under which the UK will exit the EU. However, domestic private consumption remains robust, supported by historically low unemployment and higher average wages, and analysts forecast this level of overall growth will be sustained for the duration of 2019.
We estimate that the TV advertising markets in the countries in which we operate increased overall by 2% on average at constant rates in the six months ended June 30, 2019 compared to the same period in 2018 . In Bulgaria, the market was broadly flat, as a slight increase in gross ratings points ("GRPs") sold was mostly offset by lower average market prices. In both the Czech and Slovak Republics average market prices increased significantly, which was partially offset by selling fewer GRPs. Growth in the Slovak Republic also reflected government spending on informational campaigns. The market decline in Romania reflected lower spending by advertisers directly impacted by new incremental taxes imposed in the first quarter of 2019 on certain sectors of the economy, including telecommunications and banking; however, the decline from selling fewer GRPs overall in the first half of the year was mostly offset by higher average market prices. In Slovenia, fewer GRPs were sold due to lower spending by larger multinationals, which was mostly offset by higher average market prices, reflecting more spending from smaller advertisers.
We expect the overall trend of higher spending on television advertising to continue for the remainder of 2019, supported by a forecast of strong growth in real private consumption for the year. In Romania, there may be an ongoing impact on the level of demand from advertisers in the sectors affected by the new taxes implemented in the first quarter; however, spending by clients in certain of those sectors began to recover in the second quarter and we anticipate that trend will continue in the second half of 2019. Based on the overall level of spending commitments for 2019, we believe the market contraction in the first half of the year will be more than offset by spending from clients in the affected sectors as well as additional spending from other clients.



30
Index

Segment Performance
Our total Net Revenues and OIBDA by segment were as follows:
 
NET REVENUES
 
For the Three Months Ended June 30, (US$ 000's)
 
For the Six Months Ended June 30, (US$ 000's)
 
 
 
 
 
Movement
 
 
 
 
 
Movement
 
2019

 
2018

 
% Act

 
% Lfl

 
2019


2018

 
% Act

 
% Lfl

Bulgaria
$
22,607

 
$
23,427

 
(3.5
)%
 
2.5
%
 
$
41,900

 
$
42,860

 
(2.2
)%
 
4.5
 %
Czech Republic
64,379

 
61,028

 
5.5
 %
 
12.1
%
 
114,695

 
112,562

 
1.9
 %
 
9.5
 %
Romania
48,362

 
49,594

 
(2.5
)%
 
5.8
%
 
87,172

 
95,555

 
(8.8
)%
 
(0.6
)%
Slovak Republic
27,313

 
26,770

 
2.0
 %
 
8.5
%
 
48,645

 
49,723

 
(2.2
)%
 
4.6
 %
Slovenia
22,276

 
22,367

 
(0.4
)%
 
5.9
%
 
40,126

 
39,897

 
0.6
 %
 
7.5
 %
Intersegment revenues
(1,338
)
 
(1,278
)
 
NM (1)

 
NM (1)

 
(2,380
)
 
(1,980
)
 
NM (1)

 
NM (1)

Total net revenues
$
183,599

 
$
181,908

 
0.9
 %
 
7.9
%
 
$
330,158

 
$
338,617

 
(2.5
)%
 
5.0
 %
(1)  
Number is not meaningful.
 
OIBDA
 
For the Three Months Ended June 30, (US$ 000's)
 
For the Six Months Ended June 30, (US$ 000's)
 
 
 
 
 
Movement
 
 
 
 
 
Movement
 
2019

 
2018

 
% Act

 
% Lfl

 
2019

 
2018

 
% Act

 
% Lfl

Bulgaria
$
7,888

 
$
5,622

 
40.3
 %
 
47.2
 %
 
$
14,009

 
$
8,603

 
62.8
 %
 
72.4
 %
Czech Republic
32,293

 
28,251

 
14.3
 %
 
21.0
 %
 
47,240

 
43,621

 
8.3
 %
 
15.9
 %
Romania
25,243

 
24,196

 
4.3
 %
 
13.0
 %
 
42,776

 
43,089

 
(0.7
)%
 
8.1
 %
Slovak Republic
8,555

 
3,906

 
119.0
 %
 
131.0
 %
 
10,284

 
5,009

 
105.3
 %
 
118.3
 %
Slovenia
6,213

 
5,199

 
19.5
 %
 
27.0
 %
 
11,144

 
9,852

 
13.1
 %
 
21.0
 %
Eliminations
(24
)
 
17

 
NM (1)

 
NM (1)

 
24

 
33

 
NM (1)

 
NM (1)

Total operating segments
80,168

 
67,191

 
19.3
 %
 
27.3
 %
 
125,477

 
110,207

 
13.9
 %
 
22.5
 %
Corporate
(6,826
)
 
(6,346
)
 
(7.6
)%
 
(14.7
)%
 
(14,078
)
 
(14,038
)
 
(0.3
)%
 
(7.9
)%
Consolidated OIBDA
$
73,342

 
$
60,845

 
20.5
 %
 
28.6
 %
 
$
111,399

 
$
96,169

 
15.8
 %
 
24.6
 %
(1)  
Number is not meaningful.

31
Index

Bulgaria
 
For the Three Months Ended June 30, (US$ 000's)
 
For the Six Months Ended June 30, (US$ 000's)
 
 
 
 
 
Movement
 
 
 
 
 
Movement
 
2019

 
2018

 
% Act

 
% Lfl

 
2019

 
2018

 
% Act

 
% Lfl

Television advertising
$
15,951

 
$
16,848

 
(5.3
)%
 
0.6
 %
 
$
28,541

 
$
29,980

 
(4.8
)%
 
1.7
 %
Carriage fees and subscriptions
5,283

 
5,201

 
1.6
 %
 
7.9
 %
 
10,604

 
10,508

 
0.9
 %
 
7.9
 %
Other
1,373

 
1,378

 
(0.4
)%
 
5.8
 %
 
2,755

 
2,372

 
16.1
 %
 
23.9
 %
Net revenues
22,607

 
23,427

 
(3.5
)%
 
2.5
 %
 
41,900

 
42,860

 
(2.2
)%
 
4.5
 %
Costs charged in arriving at OIBDA
14,719

 
17,805

 
(17.3
)%
 
(11.8
)%
 
27,891

 
34,257

 
(18.6
)%
 
(12.8
)%
OIBDA
$
7,888

 
$
5,622

 
40.3
 %
 
47.2
 %
 
$
14,009

 
$
8,603

 
62.8
 %
 
72.4
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
OIBDA margin
34.9
%
 
24.0
%
 
10.9 p.p.

 
10.6 p.p.

 
33.4
%
 
20.1
%
 
13.3 p.p.

 
13.1 p.p.

We estimate the television advertising market in Bulgaria was broadly flat at constant rates in the six months ended June 30, 2019 compared to the same period in 2018.
Our television advertising revenues increased on a constant currency basis in the second quarter and first half of 2019 due to higher average prices, reflecting list price increases in the sales policy for 2019, which was partially offset by selling fewer GRPs. Carriage fees and subscription revenues increased in the quarter- and year-to-date periods due to price inflation in existing contracts.
On a constant currency basis, costs charged in arriving at OIBDA decreased in the second quarter and first half of 2019 primarily due to lower content costs. We replaced our locally produced telenovela broadcast in 2018 with a more cost-effective foreign fiction title acquired from the region. Content costs also declined from a planned reduction in the volume of sports rights, as we broadcast fewer UEFA Champions League matches, and no longer broadcast matches from the Italian Serie A League. There was also a benefit from lower bad debt charges in the second quarter.

Czech Republic
 
For the Three Months Ended June 30, (US$ 000's)
 
For the Six Months Ended June 30, (US$ 000's)
 
 
 
 
 
Movement
 
 
 
 
 
Movement
 
2019

 
2018

 
% Act

 
% Lfl

 
2019

 
2018

 
% Act

 
% Lfl

Television advertising
$
56,586

 
$
53,996

 
4.8
 %
 
11.4
%
 
$
99,750

 
$
99,390

 
0.4
 %
 
7.9
%
Carriage fees and subscriptions
4,333

 
3,923

 
10.5
 %
 
17.4
%
 
8,601

 
7,843

 
9.7
 %
 
17.9
%
Other
3,460

 
3,109

 
11.3
 %
 
17.9
%
 
6,344

 
5,329

 
19.0
 %
 
27.7
%
Net revenues
64,379

 
61,028

 
5.5
 %
 
12.1
%
 
114,695

 
112,562

 
1.9
 %
 
9.5
%
Costs charged in arriving at OIBDA
32,086

 
32,777

 
(2.1
)%
 
4.4
%
 
67,455

 
68,941

 
(2.2
)%
 
5.5
%
OIBDA
$
32,293

 
$
28,251

 
14.3
 %
 
21.0
%
 
$
47,240

 
$
43,621

 
8.3
 %
 
15.9
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
OIBDA margin
50.2
%
 
46.3
%
 
3.9 p.p.

 
3.7 p.p.

 
41.2
%
 
38.8
%
 
2.4 p.p.

 
2.3 p.p.

The television advertising market in the Czech Republic increased an estimated 6% at constant rates in the six months ended June 30, 2019 compared to the same period in 2018.
Our television advertising revenues increased on a constant currency basis in the second quarter due to significantly higher average prices, reflecting list price increases in the sales policy for 2019 and strong demand in the period related to the later timing of Easter compared to 2018. In the first half of 2019, the significant increase in average prices was partially offset by selling fewer GRPs. Carriage fees and subscription revenues increased on a constant currency basis due to an increase in the number of subscribers as well as price inflation in existing contracts.
Costs charged in arriving at OIBDA increased at constant rates in the second quarter due to higher content costs, as we broadcast new releases of foreign programming compared to the schedule in 2018, as well as higher staff costs including additional personnel to support our digital initiatives. In addition to that, costs increased in the first half of 2019 due to marketing activities to celebrate the 25th anniversary of TV Nova broadcasting in the Czech Republic.

32
Index

Romania
 
For the Three Months Ended June 30, (US$ 000's)
 
For the Six Months Ended June 30, (US$ 000's)
 
 
 
 
 
Movement
 
 
 
 
 
Movement
 
2019

 
2018

 
% Act

 
% Lfl

 
2019

 
2018

 
% Act

 
% Lfl

Television advertising
$
36,553

 
$
36,797

 
(0.7
)%
 
7.8
 %
 
$
63,103

 
$
70,227

 
(10.1
)%
 
(2.0
)%
Carriage fees and subscriptions
10,906

 
11,557

 
(5.6
)%
 
2.4
 %
 
22,183

 
23,384

 
(5.1
)%
 
3.3
 %
Other
903

 
1,240

 
(27.2
)%
 
(21.5
)%
 
1,886

 
1,944

 
(3.0
)%
 
5.1
 %
Net revenues
48,362

 
49,594

 
(2.5
)%
 
5.8
 %
 
87,172

 
95,555

 
(8.8
)%
 
(0.6
)%
Costs charged in arriving at OIBDA
23,119

 
25,398

 
(9.0
)%
 
(1.0
)%
 
44,396

 
52,466

 
(15.4
)%
 
(7.7
)%
OIBDA
$
25,243

 
$
24,196

 
4.3
 %
 
13.0
 %
 
$
42,776

 
$
43,089

 
(0.7
)%
 
8.1
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
OIBDA margin
52.2
%
 
48.8
%
 
3.4 p.p.

 
3.3 p.p.

 
49.1
%
 
45.1
%
 
4.0 p.p.

 
4.0 p.p.

The television advertising market in Romania declined an estimated 2% at constant rates in the six months ended June 30, 2019 compared to the same period in 2018.
Our television advertising revenues increased at constant rates in the second quarter, as prices increased significantly. The higher spending in the period related to the later timing of Easter in 2019 more than offset reduced spending by advertisers directly impacted by new incremental taxes imposed in the first quarter of 2019 on certain sectors of the economy, including telecommunications and banking. Spending from clients in the affected sectors was significantly lower in the first three months of 2019 compared to the same period of 2018 which resulted in a decline in television advertising revenues overall in the first half of the year. There may be an ongoing impact on the level of demand from advertisers in the sectors affected by the new taxes implemented in the first quarter, however spending by clients in certain of those sectors began to recover in the second quarter and we anticipate that trend will continue in the second half of 2019. Based on the overall level of spending commitments for 2019, we believe the decline in television advertising revenues in the first half of the year will be more than offset by spending from clients in the affected sectors, as well as additional spending from other clients. Carriage fees and subscription revenues increased on a constant currency basis in the quarter- and year-to-date periods primarily due to an increase in the average number of subscribers.
On a constant currency basis, costs charged in arriving at OIBDA decreased during the second quarter and first half of 2019 due to a decrease in content costs. We utilized more cost-effective foreign content and fewer sport rights, as we no longer broadcast UEFA Champions League matches, and this was partially offset by additional episodes of certain local titles when compared to the schedule in 2018. The decrease in content costs during the second quarter was mostly offset by the reversal of a legal accrual in 2018 that benefited the comparative period.

Slovak Republic
 
For the Three Months Ended June 30, (US$ 000's)
 
For the Six Months Ended June 30, (US$ 000's)
 
 
 
 
 
Movement
 
 
 
 
 
Movement
 
2019

 
2018

 
% Act

 
% Lfl

 
2019

 
2018

 
% Act

 
% Lfl

Television advertising
$
23,516

 
$
23,298

 
0.9
 %
 
7.3
 %
 
$
41,449

 
$
43,138

 
(3.9
)%
 
2.8
 %
Carriage fees and subscriptions
2,291

 
2,193

 
4.5
 %
 
10.9
 %
 
4,563

 
4,436

 
2.9
 %
 
10.0
 %
Other
1,506

 
1,279

 
17.7
 %
 
25.4
 %
 
2,633

 
2,149

 
22.5
 %
 
30.9
 %
Net revenues
27,313

 
26,770

 
2.0
 %
 
8.5
 %
 
48,645

 
49,723

 
(2.2
)%
 
4.6
 %
Costs charged in arriving at OIBDA
18,758

 
22,864

 
(18.0
)%
 
(12.7
)%
 
38,361

 
44,714

 
(14.2
)%
 
(8.2
)%
OIBDA
$
8,555

 
$
3,906

 
119.0
 %
 
131.0
 %
 
$
10,284

 
$
5,009

 
105.3
 %
 
118.3
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
OIBDA margin
31.3
%
 
14.6
%
 
16.7 p.p.

 
16.6 p.p.

 
21.1
%
 
10.1
%
 
11.0 p.p.

 
11.0 p.p.

The television advertising market in the Slovak Republic increased an estimated 6% at constant rates in the six months ended June 30, 2019 compared to the same period in 2018.
Our television advertising revenues increased on a constant currency basis in the second quarter and first half of 2019 due to higher average prices reflecting higher prices in the sales policy for 2019 and additional spending on government informational campaigns, which was partially offset by less spending on sponsorship and product placement. We also sold more GRPs in the second quarter related to the later timing of Easter in 2019 compared to last year. Carriage fees and subscriptions revenue increased in the second quarter and first half of 2019 from higher prices in new contracts.
On a constant currency basis, costs charged in arriving at OIBDA decreased during the second quarter and first half of 2019 due to lower content costs from broadcasting fewer locally produced formats in 2019. There was also a decrease in professional fees (see Item 1, Note 20 Commitments and Contingencies) in both the second quarter and first half of 2019.




33
Index

Slovenia
 
For the Three Months Ended June 30, (US$ 000's)
 
For the Six Months Ended June 30, (US$ 000's)
 
 
 
 
 
Movement
 
 
 
 
 
Movement
 
2019

 
2018

 
% Act

 
% Lfl

 
2019

 
2018

 
% Act

 
% Lfl

Television advertising
$
14,578

 
$
15,723

 
(7.3
)%
 
(1.4
)%
 
$
25,388

 
$
27,233

 
(6.8
)%
 
(0.3
)%
Carriage fees and subscriptions
6,426

 
5,438

 
18.2
 %
 
25.5
 %
 
12,838

 
10,705

 
19.9
 %
 
28.2
 %
Other
1,272

 
1,206

 
5.5
 %
 
11.9
 %
 
1,900

 
1,959

 
(3.0
)%
 
3.4
 %
Net revenues
22,276

 
22,367

 
(0.4
)%
 
5.9
 %
 
40,126

 
39,897

 
0.6
 %
 
7.5
 %
Costs charged in arriving at OIBDA
16,063

 
17,168

 
(6.4
)%
 
(0.5
)%
 
28,982

 
30,045

 
(3.5
)%
 
3.1
 %
OIBDA
$
6,213

 
$
5,199

 
19.5
 %
 
27.0
 %
 
$
11,144

 
$
9,852

 
13.1
 %
 
21.0
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
OIBDA margin
27.9
%
 
23.2
%
 
4.7 p.p.

 
4.6 p.p.

 
27.8
%
 
24.7
%
 
3.1 p.p.

 
3.1 p.p.

The television advertising market in Slovenia declined an estimated 1% at constant rates in the six months ended June 30, 2019 compared to the same period in 2018.
Our television advertising revenues decreased on a constant currency basis in the second quarter due to a shift in the phasing of spending by larger multinationals compared to last year, and lower spending by telecommunications operators. Due to higher levels of spending from new smaller clients in the first quarter, our television advertising revenues were flat in the first half of 2019 compared to the same period in 2018. Carriage fees and subscription revenues increased in the second quarter and first half of 2019 due to price inflation in existing agreements, as well as growth in subscribers.
On a constant currency basis, costs charged in arriving at OIBDA decreased in the second quarter from lower content costs, due to more efficient spending on foreign programming. Costs charged in arriving at OIBDA increased in the first half of 2019 due to higher content costs, as more attractive foreign titles were broadcast in the first quarter compared to the schedule last year.


34
Index

III.    Analysis of the Results of Operations and Financial Position
 
For the Three Months Ended June 30, (US$ 000's)
 
 
 
 
 
Movement
 
2019

 
2018

 
% Act

 
% Lfl

Revenue:
 
 
 
 
 
 
 
Television advertising
$
147,184

 
$
146,662

 
0.4
 %
 
7.2
 %
Carriage fees and subscriptions
29,239

 
28,312

 
3.3
 %
 
10.7
 %
Other revenue
7,176

 
6,934

 
3.5
 %
 
10.0
 %
Net Revenues
183,599

 
181,908

 
0.9
 %
 
7.9
 %
Operating expenses:
 
 
 
 
 
 
 
Content costs
70,356

 
79,967

 
(12.0
)%
 
(5.7
)%
Other operating costs
13,806

 
14,202

 
(2.8
)%
 
3.5
 %
Depreciation of property, plant and equipment
8,154

 
8,561

 
(4.8
)%
 
1.5
 %
Amortization of broadcast licenses and other intangibles
2,113

 
2,267

 
(6.8
)%
 
(0.9
)%
Cost of revenues
94,429

 
104,997

 
(10.1
)%
 
(3.7
)%
Selling, general and administrative expenses
28,708

 
26,894

 
6.7
 %
 
13.8
 %
Operating income
$
60,462

 
$
50,017

 
20.9
 %
 
29.0
 %
 
For the Six Months Ended June 30, (US$ 000's)
 
 
 
 
 
Movement
 
2019

 
2018

 
% Act

 
% Lfl

Revenue:
 
 
 
 
 
 
 
Television advertising
$
258,231

 
$
269,968

 
(4.3
)%
 
3.0
 %
Carriage fees and subscriptions
58,789

 
56,876

 
3.4
 %
 
11.4
 %
Other revenue
13,138

 
11,773

 
11.6
 %
 
19.5
 %
Net Revenues
330,158

 
338,617

 
(2.5
)%
 
5.0
 %
Operating expenses:
 
 
 
 
 
 
 
Content costs
140,716

 
158,427

 
(11.2
)%
 
(4.2
)%
Other operating costs
27,054

 
28,669

 
(5.6
)%
 
1.4
 %
Depreciation of property, plant and equipment
16,380

 
16,948

 
(3.4
)%
 
3.9
 %
Amortization of broadcast licenses and other intangibles
4,307

 
4,623

 
(6.8
)%
 
0.2
 %
Cost of revenues
188,457

 
208,667

 
(9.7
)%
 
(2.7
)%
Selling, general and administrative expenses
53,602

 
55,352

 
(3.2
)%
 
4.2
 %
Operating income
$
88,099

 
$
74,598

 
18.1
 %
 
27.1
 %
Revenue:
Television advertising revenues: We estimate television advertising spending in our markets increased on average by 2% at constant rates in the six months ended June 30, 2019 as compared to the same period in 2018 , positively impacting our television advertising revenues. See "Overview - Segment Performance" above for additional information on television advertising revenues for each of our operating countries.
Carriage fees and subscriptions: Carriage fees and subscriptions revenues during the three and six months ended June 30, 2019 grew approximately 11% at constant rates as compared to the same periods in 2018 primarily due to new contracts with higher prices and an increase in the number of subscribers. See "Overview - Segment Performance" above for additional information on carriage fees and subscription revenues for each of our operating countries.
Other revenues: Other revenues include primarily internet advertising revenues and revenues generated through the licensing of our own productions. Other revenues increased during the three and six months ended June 30, 2019 as compared to the same periods in 2018 primarily due to higher online revenues in the Czech Republic and the Slovak Republic.
Operating Expenses:
Content costs:  Content costs (including production costs and amortization and impairment of program rights) decreased during the three and six months ended June 30, 2019 compared to the same period in 2018 primarily due to fewer sporting events in Bulgaria and Romania and the use of more cost-effective programming in Bulgaria, Romania and the Slovak Republic. The decreases were partially offset by higher quality foreign fiction in the Czech Republic during the three months ended June 30, 2019 and both the Czech Republic and Slovenia for the six months ended June 30, 2019 .
Other operating costs:  At constant rates, other operating costs (excluding content costs, depreciation of property, plant and equipment, amortization of broadcast licenses and other intangibles as well as selling, general and administrative expenses) increased during the three months ended June 30, 2019 compared to the same period in 2018 primarily due to the phasing of local copyright fees in Romania. On a constant currency basis, other operating costs for the six months ended June 30, 2019 were in line with the same period in 2018.

35
Index

Depreciation of property, plant and equipment:  Total depreciation of property, plant and equipment increased at constant rates during the three and six months ended June 30, 2019 compared to the same period in 2018 primarily due to depreciation of machinery and equipment in Romania and Bulgaria that was placed in service during 2018 and 2019.
Amortization of broadcast licenses and other intangibles: At constant rates, total amortization of broadcast licenses and other intangibles for the three and six months ended June 30, 2019 remained in line with the same period in 2018 .
Selling, general and administrative expenses: Selling, general and administrative expenses increased during the three months ended June 30, 2019 compared to the same period in 2018 primarily due to costs incurred relating to our review of strategic alternatives, partially offset by lower legal fees in the Slovak Republic. Selling, general and administrative expenses during the six months ended June 30, 2019 compared to the same period in 2018 , also reflects costs incurred in the first quarter related to the 25th anniversary event in the Czech Republic which was offset by the revision of a legal accrual as well as changes in local VAT legislation in Romania.
Non-cash stock-based compensation charges for the three and six months ended June 30, 2019 and 2018 were US$ 1.1 million and US$ 2.1 million ; and US$ 1.1 million and US$ 2.2 million , respectively. See Item 1, Note 17, "Stock-based Compensation" .
Operating income: At constant rates, operating income during the three and six months ended June 30, 2019 increased compared to the same periods in 2018 primarily due to increases in television advertising and carriage fee revenues and the reduction in content costs.
Our operating margin, which is determined as operating income divided by net revenues, was 32.9% and 27.5% for the three and six months ended June 30, 2019 and 2018 , respectively.
Other income / (expense):
 
For the Three Months Ended June 30, (US$ 000's)
 
For the Six Months Ended June 30, (US$ 000's)
 
2019

 
2018

 
% Act

 
2019

 
2018

 
% Act

Interest expense
$
(7,735
)
 
$
(12,411
)
 
37.7
 %
 
$
(15,977
)
 
$
(30,229
)
 
47.1
 %
Other non-operating income / (expense):
 
 
 
 
 
 
 
 
 
 
 
Interest income
115

 
263

 
(56.3
)%
 
267

 
407

 
(34.4
)%
Foreign currency exchange gain / (loss), net
2,155

 
(6,234
)
 
134.6
 %
 
(922
)
 
(1,844
)
 
50.0
 %
Change in fair value of derivatives
—

 
(1,101
)
 
NM (1)

 
(36
)
 
(1,329
)
 
97.3
 %
Loss on extinguishment of debt
(84
)
 
(179
)
 
53.1
 %
 
(235
)
 
(288
)
 
18.4
 %
Other income, net
51

 
325

 
(84.3
)%
 
66

 
336

 
(80.4
)%
Provision for income taxes
(10,886
)
 
(7,005
)
 
(55.4
)%
 
(15,433
)
 
(11,220
)
 
(37.5
)%
Income from discontinued operations, net of tax
—

 
2,350

 
NM (1)

 
—

 
2,666

 
NM (1)

Net (income) / loss attributable to noncontrolling interests
(119
)
 
16

 
NM (1)

 
(112
)
 
194

 
NM (1)

(1)  
Number is not meaningful.
Interest expense: Interest expense during the three and six months ended June 30, 2019 decreased compared to the same periods in 2018, primarily due to the repricing of our Guarantee Fees in April 2018, the repayment of outstanding amounts of the 2019 Euro Loan, the partial repayment of the 2021 Euro Loan as well as reduced borrowing costs following a reduction in our net leverage ratio as defined within the Reimbursement Agreement. See Item 1, Note 4, "Long-term Debt and Other Financing Arrangements" .
Interest income: Interest income primarily reflects earnings on cash balances and was not material.
Foreign currency exchange gain / (loss), net :  We are exposed to fluctuations in foreign exchange rates on the revaluation of monetary assets and liabilities denominated in currencies other than the local functional currency of the relevant subsidiary. This includes third party receivables and payables, as well as certain of our intercompany loans which are not considered of a long-term investment nature. Our subsidiaries generally receive funding via loans that are denominated in currencies other than the functional currency of the lender, therefore any change in the relevant exchange rate will require us to recognize a transaction gain or loss on revaluation. Certain of our intercompany loans are classified as long-term in nature, and therefore gains or losses on revaluation are not recorded through the statement of operations and comprehensive income / loss. See the discussion under "Currency translation adjustment, net" below.
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
2019

 
2018

 
2019

 
2018

Revaluation of intercompany loans
$
939

 
$
(1,426
)
 
$
759

 
$
(1,157
)
Transaction gains / (losses) on long-term debt and other financing arrangements
422

 
(4,550
)
 
(305
)
 
(2,530
)
Transaction gains / (losses) on revaluation of monetary assets and liabilities
794

 
(258
)
 
(1,376
)
 
1,843

Transaction gains / (losses)
$
2,155

 
$
(6,234
)
 
$
(922
)
 
$
(1,844
)
Change in fair value of derivatives: During the three months ended June 30, 2019 , we did not recognize any losses on our derivative instruments. For the three months ended June 30, 2018 and the six months ended June 30, 2019 , and 2018 we recognized losses as a result of the partial settlement of our interest rate swaps in connection with the repayment of debt. See Item 1, Note 12, "Financial Instruments and Fair Value Measurements" .
Loss on extinguishment of debt: During the three and six months ended June 30, 2019 , we recognized losses on extinguishment of debt related to our partial repayment of the 2021 Euro Loan. During the three and six months ended June 30, 2018, we recognized losses on extinguishment of debt related to our partial repayment of the 2019 Euro Loan.
Other income, net : Our other income / expense, net during the three and six months ended June 30, 2019 and 2018 was not material.

36
Index

Provision for income taxes :  The provision for income taxes for the three and six months ended June 30, 2019 reflects income tax charges on profits in Bulgaria, the Czech Republic, Romania, the Slovak Republic and Slovenia and the impact of losses on which no tax benefit has been received.
The provision for income taxes for the three and six months ended June 30, 2018 reflects income tax charges on profits in the Czech Republic, Romania and Slovenia and the impact of losses on which no tax benefit has been received.
Our operating subsidiaries are subject to income taxes at statutory rates of 10% in Bulgaria, 16% in Romania, 19% in the Czech Republic, 19% in Slovenia and 21% in the Slovak Republic.
Income from discontinued operations, net of tax : Income from discontinued operations, net of tax for the three and six months ended June 30, 2018 is the operating result of the Croatia operations which were sold on July 31, 2018.
Net (income) / loss attributable to noncontrolling interests : The results attributable to noncontrolling interests for the three and six months ended June 30, 2019 and 2018 relate to the noncontrolling interest share of our Bulgaria operations.
Other comprehensive (loss) / income:
 
For the Three Months Ended June 30, (US$ 000's)
 
For the Six Months Ended June 30, (US$ 000's)
 
2019

 
2018

 
% Act

 
2019

 
2018

 
% Act

Currency translation adjustment, net
$
17,002

 
$
(34,629
)
 
NM (1)

 
$
1,159

 
$
(22,844
)

NM (1)

Unrealized loss on derivative instruments
(1,220
)
 
(3,119
)
 
60.9
%
 
(4,551
)
 
(2,928
)
 
(55.4
)%
(1)  
Number is not meaningful.
Currency translation adjustment, net:  The underlying equity value of our investments (which are denominated in the functional currency of the relevant entity) are converted into dollars at each balance sheet date, with any change in value of the underlying assets and liabilities being recorded as a currency translation adjustment to the balance sheet rather than net income / (loss). Certain of our intercompany loans are denominated in currencies other than the functional currency of the lender and are considered to be of a long-term investment nature as the repayment of these loans is neither planned nor anticipated for the foreseeable future. The foreign exchange gains on the remeasurement of these intercompany loans to the lender's functional currency are treated in the same manner as currency translation adjustments. Other comprehensive (loss) / income due to currency translation adjustment, net comprised the following for the three and six months ended June 30, 2019 and 2018 :
 
For the Three Months Ended June 30, (US$ 000's)
 
For the Six Months Ended June 30, (US$ 000's)
 
2019

 
2018

 
% Act
 
2019

 
2018

 
% Act
Foreign exchange gain / (loss) on intercompany loans
$
2,868

 
$
(5,055
)
 
NM (1)
 
$
2,256

 
$
(3,524
)
 
NM (1)
Foreign exchange gain / (loss) on the Series B Preferred Shares
3,455

 
(14,828
)
 
NM (1)
 
(1,651
)
 
(7,677
)
 
NM (1)
Currency translation adjustment
10,679

 
(14,746
)
 
NM (1)
 
554

 
(11,643
)
 
NM (1)
Currency translation adjustment, net
$
17,002

 
$
(34,629
)
 
NM (1)
 
$
1,159

 
$
(22,844
)
 
NM (1)
(1)  
Number is not meaningful.

37
Index

The following charts depict the movement of the dollar versus the functional currencies of our operations, based on monthly closing rates, during the six months ended June 30, 2019 and June 30, 2018 .
Percent Change During the Six Months Ended June 30, 2019
CHART-B9479C37CAE55C71A4FA07.JPG
Percent Change During the Six Months Ended June 30, 2018
CHART-72208EF435B65F82C01.JPG
Unrealized loss on derivative instruments :  The unrealized (loss) / gain on derivatives is due to the portion of changes in the fair value of our interest rate swaps designated as cash flow hedges and recognized in accumulated other comprehensive (loss) / income. See Item 1, Note 12, "Financial Instruments and Fair Value Measurements" .

38
Index

Condensed consolidated balance sheets as at June 30, 2019 and December 31, 2018 :
 
Condensed Consolidated Balance Sheet (US$ 000’s)
 
June 30, 2019

 
December 31, 2018

 
% Act

 
% Lfl

Current assets
$
360,963

 
$
374,093

 
(3.5
)%
 
(2.8
)%
Non-current assets
1,107,563

 
1,114,268

 
(0.6
)%
 
(0.4
)%
Current liabilities
169,413

 
139,692

 
21.3
 %
 
22.0
 %
Non-current liabilities
746,231

 
849,978

 
(12.2
)%
 
(11.7
)%
Temporary equity
269,370

 
269,370

 
—
 %
 
—
 %
CME Ltd. shareholders’ equity
283,053

 
229,020

 
NM (1)

 
NM (1)

Noncontrolling interests in consolidated subsidiaries
459

 
301

 
52.5
 %
 
32.7
 %
(1)  
Number is not meaningful.
Note: The analysis below is intended to highlight the key factors at constant rates that led to the movements from December 31, 2018 , excluding the impact of foreign currency translation.
Current assets: Current assets at June 30, 2019 decreased from December 31, 2018 primarily due to the impact of seasonality on our receivables balance and the use of cash collected from receivables to partially repay the 2021 Euro Loan.
Non-current assets:  Non-current assets at June 30, 2019 decreased from December 31, 2018 primarily due to depreciation of property, plant and equipment and programming assets that became current in the period. The decrease was partially offset by the inclusion of operating lease right-of-use assets as a result of adopting new accounting guidance.
Current liabilities:  Current liabilities at June 30, 2019 increased from December 31, 2018 primarily due to customer prepayments on their 2019 advertising campaigns, increases in income taxes payable due to the timing of payments and the recognition of operating lease liabilities following the adoption of new accounting guidance.
Non-current liabilities:  Non-current liabilities at June 30, 2019 decreased from December 31, 2018 primarily due to the repayment of amounts outstanding on the 2021 Euro Loan. See Item 1, Note 4, "Long-term Debt and Other Financing Arrangements" .
Temporary equity:  Temporary equity at June 30, 2019 and December 31, 2018 represents the accreted value of the Series B Preferred Shares.
CME Ltd. shareholders’ equity : The increase in shareholders' equity reflects the net income attributable to CME Ltd. during the six months ended June 30, 2019 which was partially offset by the impact of unrealized losses on derivative instruments recorded in accumulated other comprehensive loss.
Noncontrolling interests in consolidated subsidiaries:  Noncontrolling interests in consolidated subsidiaries represents the noncontrolling interest in Bulgaria.

39
Index

IV.    Liquidity and Capital Resources
IV (a)    Summary of Cash Flows
Cash and cash equivalents increased by US$ 12.6 million during the six months ended June 30, 2019 . The change in cash and cash equivalents for the periods presented below is summarized as follows:
 
For the Six Months Ended June 30, (US$ 000's)
 
2019

 
2018

Net cash generated from continuing operating activities
$
140,280

 
$
79,671

Net cash used in continuing investing activities
(8,266
)
 
(10,164
)
Net cash used in continuing financing activities
(118,929
)
 
(92,003
)
Net cash provided by discontinued operations
—

 
8,839

Impact of exchange rate fluctuations on cash and cash equivalents
(477
)
 
(681
)
Net increase in cash and cash equivalents
$
12,608

 
$
(14,338
)
Operating Activities
Net cash generated from continuing operations increased during the six months ended June 30, 2019 when compared to the same period in 2018 due to higher cash collections from improved operating performance, lower amounts paid for programming and interest and the timing of cash paid for taxes. We paid cash interest (including mandatory cash-pay Guarantee Fees) of US$ 14.0 million during the six months ended June 30, 2019 compared to US$ 26.6 million during the six months ended June 30, 2018 .
Investing Activities
Net cash used in continuing investing activities for the six months ended June 30, 2019 and 2018 primarily reflects capital expenditures in the Czech Republic, Slovenia and Bulgaria.
Financing Activities
Net cash used in continuing financing activities during the six months ended June 30, 2019 primarily reflects EUR 100.0 million (US$ 114.0 million at transaction date rates) of principal repayments made on our obligations under the 2021 Euro Loan. Cash used in continuing financing activities during the six months ended June 30, 2018 primarily reflected principal repayments made on our then outstanding obligation under the 2019 Euro Loan, net of warrant proceeds.
Discontinued Operations
The net cash provided by discontinued operations during the six months ended June 30, 2018 reflects the result of our Croatia operations which were sold on July 31, 2018.
IV (b)    Sources and Uses of Cash
Our ongoing source of cash is primarily the receipt of payments from advertisers, advertising agencies and distributors of our television channels. As at June 30, 2019 , we also had available the aggregate principal amount of US$ 75.0 million under the 2023 Revolving Credit Facility (see Item 1, Note 4, "Long-term Debt and Other Financing Arrangements" ). Surplus cash, after funding ongoing operations, may be remitted to us, where appropriate, by our subsidiaries in the form of debt interest payments, principal repayments, dividends, and other distributions and loans from our subsidiaries.
Corporate law in the Central and Eastern European countries in which we operate stipulates generally that dividends may be declared by the partners or shareholders out of yearly profits subject to the maintenance of registered capital, required reserves (if applicable) and after the recovery of accumulated losses. The reserve requirement restriction generally provides that before dividends may be distributed, a portion of annual net profits (typically at least 5.0% ) be allocated to a reserve, which is capped at a proportion of the registered capital of a company (ranging from 5.0% to 20.0% ). There are no third-party restrictions that limit our subsidiaries' ability to transfer amounts to us in the form of loans or advances.
IV (c)    Contractual Obligations, Commitments and Off-Balance Sheet Arrangements
Our future contractual obligations as at June 30, 2019 were as follows:
 
Payments due by period (US$ 000’s)
 
Total

 
Less than 1 year

 
1-3 years

 
3-5 years

 
More than 5 years

Long-term debt – principal
$
659,056

 
$
—

 
$
125,562

 
$
533,494

 
$
—

Long-term debt – interest
127,896

 
25,674

 
47,924

 
54,298

 
—

Unconditional purchase obligations
69,301

 
23,852

 
31,566

 
13,221

 
662

Operating lease obligations
13,570

 
3,810

 
4,816

 
2,590

 
2,354

Finance lease obligations
15,980

 
6,351

 
8,785

 
844

 
—

Other long-term obligations
25,433

 
14,554

 
6,322

 
4,557

 
—

Total contractual obligations
$
911,236

 
$
74,241

 
$
224,975

 
$
609,004

 
$
3,016


40
Index

Long-Term Debt
For more information on our long-term debt, see Item 1, Note 4, "Long-term Debt and Other Financing Arrangements" . Interest payable on our long-term debt is calculated using interest rates and exchange rates in effect as at June 30, 2019 .
Unconditional Purchase Obligations
Unconditional purchase obligations primarily comprise future programming commitments. At June 30, 2019 , we had commitments in respect of future programming of US$ 69.3 million . This includes contracts signed with license periods starting after June 30, 2019 .
Operating and Finance Leases
For more information on our operating and finance lease commitments, see Item 1, Note 11, "Leases" .
Other Long-Term Obligations
Other long-term obligations are primarily comprised of digital transmission commitments.
Other
Top Tone Media Holdings Limited has exercised its right to acquire additional equity in CME Bulgaria. However, the closing of this transaction has not yet occurred because purchaser financing is still pending. If consummated, we would own 90.0% of our Bulgaria broadcast operations. The option strike price is the fair value of the equity in CME Bulgaria, as determined by an independent valuation.
IV (d)    Cash Outlook
For the six months ending June 30, 2019, net cash generated from continuing operations and unlevered free cash flow were US$ 140.3 million and US$ 146.0 million compared to US$ 79.7 million and US$ 96.1 million for the six months ended June 30, 2018 (See Section II, Overview). As at June 30, 2019 , we had US$ 74.6 million in cash and cash equivalents.
On January 31, 2019 and June 14, 2019, we paid EUR 60.0 million (approximately US$ 68.9 million at January 31, 2019 rates) and EUR 40.0 million (approximately US$ 45.1 million at June 14, 2019 rates), respectively, of the outstanding principal balance of the 2021 Euro Loan with cash generated by our operations. We expect cash paid for interest and Guarantee Fees to decline in 2019 compared to 2018 due to the reduction in our overall indebtedness and a lower weighted average all-in rate.
We expect our unlevered free cash flow to grow due to continued improvement in our operating results. We anticipate the amounts of cash paid for income taxes to continue to increase in 2019 and to further converge with local statutory tax rates as our operating companies in each jurisdiction have returned to generating profits and previous tax losses were utilized.
As at June 30, 2019 , the weighted average all-in rate applicable to the Euro Loans and Guarantee Fees previously paid in kind was approximately 3.6% , all of which is payable in cash, and will decline to 3.4%, effective at the end of July 2019. As at June 30, 2019 , our net leverage ratio improved to 2.6x from 3.0x in the previous quarter and from 3.5x since December 31, 2018 .
Credit ratings and future debt issuances
Our corporate credit is rated B1 by Moody's Investors Service with a positive outlook and B+ by Standard & Poor's with a positive outlook. Our ratings show each agency's opinion of our financial strength, operating performance and ability to meet our debt obligations as they become due. These ratings take into account the particular emphasis the ratings agencies place on metrics such as leverage ratio and cash flow, which they use as measurements of a company's liquidity and financial strength. They also reflect an emphasis by the ratings agencies on the track record of strong financial support from Warner Media. We may be subject to downgrades if our operating performance deteriorates or we fail to maintain adequate levels of liquidity.
Credit risk of financial counterparties
We have entered into a number of significant contracts with financial counterparties as follows:
Interest Rate Swaps
We are party to interest rate swap agreements to mitigate our exposure to interest rate fluctuations on our Euro Loans. These interest rate swaps, certain of which are designated as cash flow hedges, provide the Company with variable-rate cash receipts in exchange for fixed-rate payments over the lives of the agreements, with no exchange of the underlying notional amount.
Foreign Exchange Forwards
We are exposed to movements in the USD to EUR exchange rates related to contractual payments under dollar-denominated agreements. To reduce this exposure, we may decide to enter into pay-Euro receive-dollar forward foreign exchange contracts. We entered no such agreements during the period ending June 30, 2019 .
Cash Deposits
We may deposit cash in the global money markets with a range of bank counterparties and review the counterparties we choose regularly. The maximum period of deposit is three months but we have more recently held amounts on deposit for shorter periods, mainly overnight. The credit rating of a bank is a critical factor in determining the size of cash deposits and we will only deposit cash with banks of investment grade rating. In addition, we also closely monitor the credit default swap spreads and other market information for each of the banks with which we consider depositing or have deposited funds.
IV (e)    Off-Balance Sheet Arrangements
None.

41
Index

V.    Critical Accounting Policies and Estimates
Our accounting policies that have a material effect on our financial condition and results of operations are more fully described in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2018 filed with the Securities and Exchange Commission ("SEC") on February 6, 2019 . The preparation of these financial statements requires us to make judgments in selecting appropriate assumptions for calculating financial estimates, which inherently contain some degree of uncertainty. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable. Using these estimates, we make judgments about the carrying values of assets and liabilities and the reported amounts of revenues and expenses that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
We believe our critical accounting policies are as follows: program rights, goodwill and intangible assets, impairment or disposal of long-lived assets, revenue recognition, leases, income taxes, foreign exchange, determination of the fair value of financial instruments, contingencies and discontinued operations. These critical accounting policies affect our more significant judgments and estimates used in the preparation of our condensed consolidated financial statements. See Item 1, Note 2, "Basis of Presentation" for a discussion of accounting standards adopted in the period, and recently issued accounting standards not yet adopted.

42
Index

Item 3.    Quantitative and Qualitative Disclosures about Market Risk
We engage in activities that expose us to various market risks, including the effect of changes in foreign currency exchange rates and interest rates. We do not engage in speculative transactions, nor do we hold or issue financial instruments for trading purposes. The table below sets forth our market risk sensitive instruments as at the following dates:
June 30, 2019 :
Expected Maturity Dates
 
2019

 
2020

 
2021
 
2022

 
2023
 
Thereafter

Long-term Debt (000's):
 
 

 
 

 
 

 
 
 
 
 
 
 
 
Variable rate (EUR)  
 
—

 
—

 
110,335

 
 
—

 
468,800

 
 
—

Average interest rate (1)
 
—

 
—

 
1.28
%
 
 
—

 
1.28
%
 
 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest Rate Swaps (000's):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Variable to fixed (EUR)
 
110,335

 
—

 
579,135

(2)  
 
—

 
468,800

(3)  
 
—

Average pay rate
 
0.31
%
 
—

 
0.31
%
 
 
—

 
0.97
%
 
 
—

Average receive rate
 
—
%
 
—

 
—
%
 
 
—

 
—
%
 
 
—

(1)  
As discussed in Item 1, Note 4, "Long-term Debt and Other Financing Arrangements" , as consideration for Warner Media's guarantee of the Euro Loans, we pay Guarantee Fees to Warner Media based on the amounts outstanding on the Euro Loans, each calculated such that the all-in borrowing rate on the 2021 Euro Loan was 3.25% per annum and the all-in borrowing rate on the 2023 Euro Loan was 3.75% per annum as of June 30, 2019 .
(2)  
The interest rate swaps related to the 2021 Euro Loan maturing in 2021 are forward starting to coincide with the maturity date of the interest rate swaps maturing in 2019. See Item 1, Note 12, "Financial Instruments and Fair Value Measurements" .
(3)  
The interest rate swaps related to the 2023 Euro Loan maturing in 2023 are forward starting to coincide with the maturity date of the interest rate swaps maturing in 2021. See Item 1, Note 12, "Financial Instruments and Fair Value Measurements" .
December 31, 2018 :
Expected Maturity Dates
 
2019

 
2020

 
2021
 
2022

 
2023
 
Thereafter

Long-term Debt (000's):
 
 

 
 

 
 

 
 
 
 
 
 
 
 
Variable rate (EUR)  
 
—

 
—

 
210,335

 
 
—

 
468,800

 
 
—

Average interest rate (1)
 
—

 
—

 
1.28
%
 
 
—

 
1.28
%
 
 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest Rate Swaps (000's):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Variable to fixed (EUR)
 
210,335

 
—

 
679,135

(2)  
 
—

 
468,800

(3)  
 
—

Average pay rate
 
0.31
%
 
—

 
0.33
%
 
 
—

 
0.97
%
 
 
—

Average receive rate
 
—
%
 
—

 
—
%
 
 
—

 
—
%
 
 
—

(1)  
As discussed in Item 1, Note 4, "Long-term Debt and Other Financing Arrangements" , as consideration for Warner Media's guarantee of the Euro Loans, we pay Guarantee Fees to Warner Media based on the amounts outstanding on the Euro Loans, each calculated such that the all-in borrowing rate on the 2021 Euro Loan was 3.25% per annum and the all-in borrowing rate on the 2023 Euro Loan was 3.75% per annum as of December 31, 2018 .
(2)  
The interest rate swaps related to the 2021 Euro Loan maturing in 2021 are forward starting to coincide with the maturity date of the interest rate swaps maturing in 2019. See Item 1, Note 12, "Financial Instruments and Fair Value Measurements" .
(3)  
The interest rate swaps related to the 2023 Euro Loan maturing in 2023 are forward starting to coincide with the maturity date of the interest rate swaps maturing in 2021. See Item 1, Note 12, "Financial Instruments and Fair Value Measurements" .
Foreign Currency Exchange Risk Management
We conduct business in a number of currencies other than our functional currencies. As a result, we are subject to foreign currency exchange rate risk due to the effects that foreign exchange rate movements of these currencies have on our costs and on the cash flows we receive from our subsidiaries. In limited instances we enter into forward foreign exchange contracts to minimize foreign currency exchange rate risk.
We periodically enter into forward foreign exchange contracts to reduce our exposure to movements in the USD to EUR exchange rates related to contractual payments under dollar-denominated agreements. At June 30, 2019 , no forward foreign exchange contracts were outstanding.
Interest Rate Risk Management
The Euro Loans each bear interest at a variable rate based on EURIBOR plus an applicable margin. We are party to a number of interest rate swap agreements intended to reduce our exposure to interest rate movements (see Item 1, Note 12, "Financial Instruments and Fair Value Measurements" ).

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Item 4.    Controls and Procedures
We have established disclosure controls and procedures designed to ensure that information required to be disclosed in our Quarterly Report on Form 10-Q is recorded, processed, summarized and reported within the specified time periods and is designed to ensure that information required to be disclosed is accumulated and communicated to management, including the co-Principal Executive Officers and the Principal Financial Officer, to allow timely decisions regarding required disclosure.
Our co-Principal Executive Officers and our Principal Financial Officer evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2019 and concluded that our disclosure controls and procedures were effective as of that date. There has been no change in our internal control over financial reporting during the three months ended June 30, 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II.    OTHER INFORMATION
Item 1.    Legal Proceedings
General
Litigation
We are from time to time party to legal proceedings, arbitrations and regulatory proceedings arising in the normal course of our business operations, including the proceeding described below. We evaluate, on a quarterly basis, developments in such matters and provide accruals for such matters, as appropriate. In making such decisions, we consider the degree of probability of an unfavorable outcome and our ability to make a reasonable estimate of the amount of a loss. An unfavorable outcome in any such proceedings, if material, could have an adverse effect on our business or condensed consolidated financial statements.
In the fourth quarter of 2016, our Slovak subsidiary MARKIZA-SLOVAKIA, spol. s.r.o. ("Markiza") was notified of claims that were filed in June 2016 in a court of first instance in Bratislava, the Slovak Republic to collect amounts allegedly owing under four promissory notes that have a collective face value of approximately EUR 69.0 million. These four promissory notes were purportedly issued in June 2000 by Pavol Rusko in his personal capacity and were purportedly guaranteed by Markiza under the signature of Mr. Rusko, who was an executive director of Markiza at that time as well as one of its shareholders. Two of the notes purport to be issued in favor of Marian Kocner, a controversial Slovak businessman, and the other two to a long-time associate of Mr. Kocner. All four notes were supposedly assigned several times, for no apparent consideration, to companies owned by or associated with Mr. Kocner and ultimately to Sprava a inkaso zmeniek, s.r.o., a company owned by Mr. Kocner that initiated the claims for payment in these proceedings.
Two of the notes, each of which purportedly has a face value of approximately EUR 8.3 million , allegedly matured in 2015; and the other two , each of which purportedly has a face value of approximately EUR 26.2 million , allegedly matured in 2016. The four notes accrue interest from their purported maturity dates. Although Mr. Rusko has asserted in testimony in the civil proceedings that he signed the notes in June 2000, we do not believe that the notes were signed in June 2000 or that any of the notes are authentic.
Despite a random case assignment system in the Slovak Republic, claims in respect of three of the notes were initially assigned to the same judge. One of those claims, concerning one of the promissory notes having a face value of approximately EUR 8.3 million (the "First PN Case"), was subsequently reassigned. Proceedings on the claim in respect of the fourth promissory note (in the amount of approximately EUR 26.2 million ) (the “Fourth PN Case”) were terminated in January 2017 by the presiding judge because the plaintiff failed to pay court fees and were terminated a second time by a different presiding judge in September 2017 after the plaintiff refiled but failed to pay court fees a second time.
During the first quarter of 2018, the court of first instance began to schedule hearings in respect of the First PN Case as well in respect of the claims relating to the second promissory note having a face value of approximately EUR 8.3 million (the "Second PN Case") and one of the promissory notes having a face value of approximately EUR 26.2 million (the "Third PN Case").
On April 26, 2018, the judge in the First PN Case ruled in favor of the plaintiff. Markiza appealed that decision.
On May 14, 2018, Markiza filed a criminal complaint with the Special Prosecutor's Office of the Slovak Republic (the "Special Prosecutor’s Office") alleging that Mr. Kocner and Mr. Rusko committed the offenses of (1) counterfeiting, falsification, and illegal production of money and securities and (2) obstruction or perversion of justice. The Special Prosecutor’s Office opened criminal proceedings in the matter at that time.
On June 20, 2018, the Special Prosecutor’s Office issued a decision to formally charge Mr. Kocner and Mr. Rusko with counterfeiting, falsification, and illegal production of money and securities and with obstruction or perversion of justice. Following this decision, Mr. Kocner has been taken into pre-trial custody by the Slovak authorities, where he remains. Subsequently, the Special Prosecutor’s Office has charged Mr. Kocner’s long-time associate, who received two of the alleged promissory notes as the original beneficial owner and purported to endorse those notes to a company controlled by Mr. Kocner, with counterfeiting, falsification, and illegal production of money and securities.
On October 12, 2018, the court of first instance terminated proceedings in respect of the Second PN Case because the plaintiff failed to pursue the claim, which the plaintiff appealed.
On December 14, 2018, the appellate court suspended proceedings in respect of the First PN Case until a final and enforceable decision has been rendered in the criminal proceedings.
On December 21, 2018, the appellate court reversed the decision of the court of first instance to terminate the Second PN Case and directed the case be tried on the merits.
On March 19, 2019, following the conclusion of the pre-trial investigation, the Special Prosecutor’s Office formally indicted Mr. Kocner and Mr. Rusko with counterfeiting, falsification, and illegal production of money and securities and with obstruction or perversion of justice and filed the indictment with the Special Criminal Court of the Slovak Republic.
On May 14, 2019, the court of first instance decided to suspend proceedings in respect of the Second PN Case until a final and enforceable decision has been rendered in the criminal proceedings.

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There have been no hearings held in respect of the Third PN Case since the initiation of the criminal proceedings. On May 14, 2019, the court of first instance decided to suspend proceedings in respect of the Third PN Case until a final and enforceable decision has been rendered in the criminal proceedings.
The plaintiff re-filed its claim with respect to the Fourth PN Case, which purportedly has a face value of approximately EUR 26.2 million, on May 13, 2019 and subsequently paid the requisite court fees. On June 6, 2019, the court of first instance decided to suspend proceedings in respect of the Fourth PN Case until a final and enforceable decision has been rendered in the criminal proceedings.
Accordingly, civil proceedings in respect of all four promissory notes have now been suspended until a final and enforceable decision is rendered in the criminal proceedings. The Special Criminal Court overseeing the criminal proceedings has scheduled initial hearings for the end of July 2019.
In the event any of the civil proceedings are not dismissed as a result of the successful conclusion of the criminal proceedings, Markiza will continue to vigorously defend the claims.
Based on the facts and circumstances of these cases, we have not accrued any amounts in respect of these claims.
Item 1A.    Risk Factors
This report and the following discussion of risk factors contain forward-looking statements as discussed in Part I, Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations". Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including the risks and uncertainties described below and elsewhere in this report. These risks and uncertainties are not the only ones we may face. Additional risks and uncertainties of which we are not aware, or that we currently deem immaterial, may also become important factors that affect our financial condition, results of operations and cash flows.
Risks Relating to Our Financial Position
Changes in global or regional economic conditions may adversely affect our financial position and results of operations.
The results of our operations depend heavily on advertising revenue, and demand for advertising is affected by general economic conditions in the region and globally. Our markets have experienced overall growth in real GDP (as adjusted for inflation) and advertising spending since 2014; however, we cannot predict if the current growth trends will continue in the future. Recessions or periods of low or negative growth in the region or globally in the future may cause a deterioration of general economic conditions in one or more of our markets, which would have an adverse economic impact on our advertising revenues. The United States has imposed tariffs on certain products from many of its trading partners, including Europe and China, and has threatened to impose additional tariffs. If trade tensions between the United States and Europe escalate, this may result in the imposition of tariffs on cars and auto part exports from Europe. Such tariffs could have a significant adverse impact on the economies of our countries of operation. Additionally, a slowdown in China resulting from existing or increased tariffs on Chinese products may have an adverse impact on the global economy, which may ultimately reduce demand for European exports and the rate of GDP growth in the countries in which we operate. Other factors that may affect general economic conditions in our markets include defaults by sovereigns or systemically important companies, austerity programs, natural disasters, acts of terrorism, civil or military conflicts or general political instability and responses to it, any of which may also reduce advertising spending. In addition, although we believe the advertising spend per capita of the countries in which we operate and advertising intensity (the ratio of total advertising spend per capita to nominal GDP per capita) will eventually converge with developed markets in Europe, such convergence may not occur in the time frame we expect, or at all. Any of these developments would have a significant negative effect on our financial position, results of operations and cash flows.
The impact of ending the quantitative easing program implemented by the European Central Bank ("ECB") and the impact on the region of the United Kingdom’s exit from the European Union ("EU") may adversely affect our financial position and results of operations.
The ECB embarked upon quantitative easing in 2015 to address economic softness and a slowdown in growth of consumer prices in the Eurozone. The ECB also created funding and stability mechanisms to provide liquidity and financial assistance to Eurozone member states and financial institutions. Economic growth in recent years in the Eurozone, including strong growth in 2017, has been helped by the ECB’s quantitative easing program which was recalibrated in January 2018. Citing improved economic conditions, the ECB ended its quantitative easing program at the end of December 2018. The cessation of quantitative easing may adversely impact future growth in Eurozone countries, including the countries we operate in which would negatively impact our business.
At present, the period during which the United Kingdom is to finalize the terms and process for leaving the EU, commonly referred to as "Brexit", will expire on October 31, 2019. There is significant uncertainty regarding the specific timing and the terms on which the United Kingdom will leave the EU, and it is expected that economic conditions in the EU will be impacted by Brexit. Given the ongoing uncertainty over the final terms of Brexit, the overall economic impact of Brexit on the EU and the Euro continues to be difficult to estimate as decisions to conserve cash and reduce spending by consumers and businesses in the United Kingdom would have a negative impact on economic growth rates in the United Kingdom and, to a lesser extent, in the EU, in particular those countries that are significant exporters to the United Kingdom. Furthermore, the departure of the United Kingdom from the EU may further affect the budgetary contributions and allocations among the EU member states in the medium term, including the countries in which we operate, which have historically been net recipients of EU funding. Economic uncertainty caused by Brexit or other instability in the EU resulting from Brexit could cause significant volatility in EU markets and reduce economic growth rates in the countries in which we operate, which would negatively impact the demand for advertising and consequently our financial position, results of operation and cash flows.

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Our operating results will be adversely affected if we cannot generate strong advertising sales.
We generate the majority of our revenues from the sale of advertising airtime on our television channels. While we have implemented pricing strategies to increase sales and television advertising spending, the success of these strategies has varied from market to market and continues to be challenged by pressure from advertisers and discounting by competitors. In addition to advertising pricing, other factors that may affect our advertising sales include general economic conditions (described above), competition from other broadcasters and operators of other distribution platforms, changes in programming strategy, changes in distribution strategy, our ability to secure distribution on cable, satellite or IPTV operators, our channels’ technical reach, technological developments relating to media and broadcasting, seasonal trends in the advertising market, changing audience preferences and in how and when people view content and the accompanying advertising, increased competition for the leisure time of audiences and shifts in population and other demographics. Our advertising revenues also depend on our ability to maintain audience ratings and to generate GRPs. This requires us to have a distribution strategy that reaches a significant audience as well as to maintain investments in programming at a sufficient level to continue to attract audiences. Changes in the distribution of our channels, such as our decision to cease broadcasting on digital terrestrial television ("DTT") in the Slovak Republic and Slovenia in 2017, may reduce the number of people who can view our channels, which may negatively impact our audience share and GRPs generated. Furthermore, significant or sustained reductions in investments in programming or other operating costs in response to reduced advertising revenues had and, if repeated, may have an adverse impact on our television viewing levels. Reductions in advertising spending in our markets and resistance to price increases as well as competition for ratings from broadcasters seeking to attract similar audiences may have an adverse impact on our ability to maintain our advertising sales. A failure to maintain and increase advertising sales could have a material adverse effect on our financial position, results of operations and cash flows.
We may be unable to repay or refinance our existing indebtedness and may not be able to obtain favorable refinancing terms.
We have a substantial amount of indebtedness. Under the Reimbursement Agreement and the 2023 Revolving Credit Facility (when drawn), we can incur only limited amounts of additional indebtedness, other than indebtedness incurred to refinance existing indebtedness. In addition, all commitments under the 2023 Revolving Credit Facility also terminate on the refinancing of any Euro Loan. We face the risk that we will not be able to renew, repay or refinance our indebtedness when due, or that the terms of any renewal or refinancing will not be on better terms than those of such indebtedness being refinanced. Furthermore, pursuant to the Reimbursement Agreement, the all-in rates on each of the Euro Loans increase to a maximum of 10.0% (or 3.5% above the then-current all-in rate, if lower), on the date that is 365 days following a change of control of CME Ltd. (as defined therein); and pursuant to the 2023 Revolving Credit Facility, all commitments terminate following a change of control (as defined therein) and the interest rate on amounts outstanding increases to 10% plus LIBOR or 9% plus the alternate base rate on the date that is 365 days following such change of control. In the event we are not able to refinance our indebtedness, we might be forced to dispose of assets on disadvantageous terms or reduce or suspend operations, any of which would materially and adversely affect our financial condition, results of operations and cash flows.
Our debt service obligations and covenants may restrict our ability to conduct our operations.
We have significant debt service obligations under the Euro Loans as well as the 2023 Revolving Credit Facility (when drawn), including the Guarantee Fees to Warner Media as consideration for its guarantees of the Euro Loans (collectively, the "WM Guarantees"). In addition, if cash flows from operations do not meet our forecasts, we would not be able to reduce our indebtedness as planned and would continue to bear higher average borrowing costs on our senior debt and pay more interest and Guarantee Fees. As a result of our debt service obligations and covenants contained in the related loan agreements, we are restricted under the Reimbursement Agreement and the 2023 Revolving Credit Facility (when drawn) in the manner in which our business is conducted, including but not limited to our ability to obtain additional debt financing to refinance existing indebtedness or to fund future working capital, capital expenditures, business opportunities or other corporate requirements. We may have a proportionally higher level of debt and debt service obligations than our competitors, which may put us at a competitive disadvantage by limiting our flexibility in planning for, or reacting to, changes in our business, economic conditions or our industry. For additional information regarding the Reimbursement Agreement, the 2023 Revolving Credit Facility and the WM Guarantees, see Part I, Item 1, Note 4, "Long-term Debt and Other Financing Arrangements".
We may be subject to changes in tax rates and exposure to additional tax liabilities.
We are subject to taxes in a number of foreign jurisdictions, including in respect of our operations as well as capital transactions undertaken by us. We are subject to regular review and audit by tax authorities, and in the ordinary course of our business there are transactions and calculations where the ultimate tax determination is unknown. Significant judgment is required in determining our provision for taxes. The final determination of our tax liabilities resulting from tax audits, related proceedings or otherwise could be materially different from our tax provisions. Economic and political pressures to increase receipts in various jurisdictions may make taxation and tax rates subject to significant change and the satisfactory resolution of any tax disputes more difficult. The occurrence of any of these events could have a material adverse effect on our financial position, results of operations and cash flows.
A default by us in connection with our obligations under our outstanding indebtedness could result in our inability to continue to conduct our business.
Pursuant to the Reimbursement Agreement and the 2023 Revolving Credit Facility, we pledged all of the shares of CME NV and of CME BV, which together own all of our interests in our operating subsidiaries, in favor of Warner Media as security for this indebtedness. If we or these subsidiaries were to default under the terms of any of the relevant agreements, Warner Media would have the ability to sell all or a portion of the assets pledged to it in order to pay amounts outstanding under such debt instruments. This could result in our inability to conduct our business.
Fluctuations in exchange rates may continue to adversely affect our results of operations.
Our reporting currency is the dollar and CME Ltd.'s functional currency is the Euro. Our consolidated revenues and costs are divided across a range of European currencies. Any strengthening of the dollar will have a negative impact on our reported revenues. Furthermore, fluctuations in exchange rates may negatively impact programming costs. While local programming is generally purchased in local currencies, a significant portion of our content costs relates to foreign programming purchased pursuant to dollar-denominated agreements. If the dollar appreciates against the functional currencies of our operating segments, the cost of acquiring such content would be adversely affected, which could have a material adverse effect on our results of operations and cash flows.

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Our strategies to enhance our carriage fees and diversify our revenues may not be successful.
We are focused on creating additional revenue streams from our broadcast operations as well as increasing revenues generated from television advertising, which is how we generate most of our revenues. Our main efforts with respect to this strategy are on increasing carriage fees from cable, satellite and IPTV operators for carriage of our channels as well as continuing to seek improvements in advertising pricing. Agreements with operators generally have a term of one or more years, at which time agreements must be renewed. There can be no assurance that we will be successful in renewing carriage fee agreements on similar or better terms. During negotiations to implement our carriage fees strategy in prior years, some cable and satellite operators suspended the broadcast of our channels, which negatively affected the reach and audience shares of those operations and, as a result, advertising revenues. There is a risk that operators may refuse to carry our channels while carriage fee negotiations are ongoing, which would temporarily reduce the reach of those channels and may result in clients withdrawing advertising from our channels. The occurrence of any of these events may have an adverse impact on our financial position, results of operations and cash flows. If we are ineffective in negotiations with carriers or in achieving further carriage fee increases, our profitability will continue to be dependent primarily on television advertising revenues, which increases the importance placed on our ability to improve advertising pricing and generate advertising revenues. In addition to carriage fees, we are also working to build-out our offerings of advertising video-on-demand products and other opportunities for advertising online. There can be no assurances that our revenue diversification initiatives will ultimately be successful, and if unsuccessful, this may have an adverse impact on our financial position, results of operations and cash flows.
A downgrading of our corporate credit ratings may adversely affect our ability to raise additional financing.
Moody’s Investors Service rates our corporate credit as B1 with a positive outlook. Standard & Poor’s rates our corporate credit B+ (with a positive outlook). Our ratings show each agency's opinion of our financial strength, operating performance and ability to meet our debt obligations as they become due. These ratings take into account the particular emphasis the ratings agencies place on metrics such as leverage ratio and cash flow, which they use as measurements of a company's liquidity and financial strength. They also reflect an emphasis placed by the ratings agencies on the historically strong financial support from Warner Media. We may be subject to downgrades if our operating performance deteriorates or we fail to maintain adequate levels of liquidity. In the event our corporate credit ratings are lowered by the rating agencies, we may not be able to refinance our existing indebtedness or raise new indebtedness that may be permitted under the Reimbursement Agreement and the 2023 Revolving Credit Facility (when drawn), and we will have to pay higher interest rates, all of which would have an adverse effect on our financial position, results of operations and cash flows.
If our goodwill, other intangible assets and long-lived assets become impaired, we may be required to record significant charges to earnings.
We review our long-lived assets for impairment when events or changes in circumstances indicate the carrying amount may not be recoverable. Goodwill and indefinite-lived intangible assets are required to be assessed for impairment at least annually. Factors that may be considered a change in circumstances indicating that the carrying amount of our goodwill, indefinite-lived intangible assets or long-lived assets may not be recoverable include slower growth rates in our markets, reduced expected future cash flows, increased country risk premium as a result of political uncertainty and a decline in stock price and market capitalization. We consider available current information when calculating our impairment charge. If there are indicators of impairment, our long-term cash flow forecasts for our operations deteriorate or discount rates increase, we may be required to recognize additional impairment charges in later periods. See Part I, Item 1, Note 3, "Goodwill and Intangible Assets" for the carrying amounts of goodwill in each of our reporting units.
Risks Relating to Our Operations
Our operations are vulnerable to significant changes in viewing habits and technology that could adversely affect us.
The television broadcasting industry is affected by rapid innovations in technology. The implementation of these new technologies and the introduction of non-traditional content distribution systems have increased competition for audiences and advertisers. Platforms such as direct-to-home cable and satellite distribution systems, the internet, subscription and advertising video-on-demand, user-generated content sites and the availability of content on portable digital devices have changed consumer behavior by increasing the number of entertainment choices available to audiences and the methods for the distribution, storage and consumption of content. This development has fragmented television audiences in more developed markets and could adversely affect our ability to retain audience share and attract advertisers as such technologies penetrate our markets. As we adapt to changing viewing patterns, it may be necessary to expend substantial financial and managerial resources to ensure necessary access to new technologies or distribution systems. Such initiatives may not develop into profitable business models. Furthermore, technologies that enable viewers to choose when, how, where and what content to watch, as well as to fast-forward or skip advertisements, may cause changes in consumer behavior that could have a negative impact on our advertising revenues. In addition, compression techniques and other technological developments allow for an increase in the number of channels that may be broadcast in our markets and expanded programming offerings that may be offered to highly targeted audiences. Reductions in the cost of launching new channels could lower entry barriers and encourage the development of increasingly targeted niche programming on various distribution platforms. This could increase the competitive demand for popular programming, resulting in an increase in content costs as we compete for audiences and advertising revenues. A failure to successfully adapt to changes in our industry as a result of technological advances may have an adverse effect on our financial position, results of operations and cash flows.
Content may become more expensive to produce or acquire or we may not be able to develop or acquire content that is attractive to our audiences.
Television programming is one of the most significant components of our operating costs. The ability of our programming to generate advertising revenues depends substantially on our ability to develop, produce or acquire programming that matches audience tastes and attracts high audience shares, which is difficult to predict. The commercial success of a program depends on several tangible and intangible factors, including the impact of competing programs, the availability of alternate forms of entertainment and leisure time activities, our ability to anticipate and adapt to changes in consumer tastes and behavior, and general economic conditions. The cost of acquiring content attractive to our viewers, such as feature films and popular television series and formats, is likely to increase in the future. Our expenditures in respect of locally produced programming may also increase due to competition for talent and other resources, wage inflation, changes in audience tastes in our markets or from the implementation of any new laws and regulations mandating the broadcast of a greater number of locally produced programs. In addition, we typically acquire syndicated programming rights under multi-year commitments before knowing how such programming will perform in our markets. In the event any such programming does not attract adequate audience share, it may be necessary to increase our expenditures by investing in additional programming, subject to the availability of adequate financial resources, as well as to write down the value of any underperforming programming. Any material increase in content costs could have a material adverse effect on our financial condition, results of operations or cash flows.

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Our operating results are dependent on the importance of television as an advertising medium.
We generate most of our revenues from the sale of our advertising airtime on television channels in our markets. Television competes with various other media, such as print, radio, the internet and outdoor advertising, for advertising spending. In all of the countries in which we operate, television constitutes the single largest component of all advertising spending. There can be no assurance that the television advertising market will maintain its current position among advertising media in our markets. Furthermore, there can be no assurances that changes in the regulatory environment or improvements in technology will not favor other advertising media or other television broadcasters. Increases in competition among advertising media arising from the development of new forms of advertising media and distribution could result in a decline in the appeal of television as an advertising medium generally or of our channels specifically. A decline in television advertising spending as a component of total advertising spending in any period or in specific markets would have an adverse effect on our financial position, results of operations and cash flows.
We are subject to legal compliance risks and the risk of legal or regulatory proceedings being initiated against us.
We are required to comply with a wide variety of laws and other regulatory obligations in the jurisdictions in which we operate and compliance by our businesses is subject to scrutiny by regulators and other government authorities in these jurisdictions. Compliance with foreign as well as applicable U.S. laws and regulations related to our businesses, such as broadcasting content and advertising regulations, competition regulations, tax laws (including the Economic Substance Act in Bermuda which came into force in July 2019), employment laws, data protection requirements including the EU General Data Protection Regulation, and anti-corruption laws, increases the costs and risks of doing business in these jurisdictions. We believe we have implemented appropriate risk management and compliance policies and procedures that are designed to ensure our employees, contractors and agents comply with these laws and regulations; however, a violation of such laws and regulations or the Company’s policies and procedures could occur. A failure or alleged failure to comply with applicable laws and regulations, whether inadvertent or otherwise, may result in legal or regulatory proceedings being initiated against us and fines or other penalties being levied against us.
In 2016 the prosecuting authorities in Romania requested information in respect of an investigation into certain transactions entered into by Pro TV in 2014 primarily with certain related parties. We believe that the transactions under review are fully supported and have cooperated with the authorities in responding to the information request. In Slovenia, the competition law authorities launched an investigation in 2017 into whether our Slovenia subsidiary is dominant and abused its dominant position when concluding carriage fee agreements with platform operators in connection with its decision to cease broadcasting on DTT there. To date there has been no determination that a breach of competition has occurred. If these or other contingencies result in legal or regulatory proceedings being initiated against us, or if developments occur in respect of our compliance with existing laws or regulations, or there are changes in the interpretation or application of such laws or regulations, we may incur substantial costs, be required to change our business practices (including on what terms and conditions we offer our channels under carriage agreements), our reputation may be damaged or we may be exposed to unanticipated civil or criminal liability, including fines and other penalties that may be substantial. This could have a material adverse effect on our business, financial position, results of operations and cash flows.
Our operations are in developing markets where there are additional risks related to political and economic uncertainty, biased treatment and compliance with evolving legal and regulatory systems.
Our revenue-generating operations are located in Central and Eastern Europe and we may be significantly affected by risks that may be different to those posed by investments in more developed markets. These risks include, but are not limited to, social and political instability, changes in local regulatory requirements including restrictions on foreign ownership, inconsistent regulatory or judicial practice, corruption and increased taxes and other costs. The economic and political systems, legal and tax regimes, regulatory practices, standards of corporate governance and business practices of countries in this region continue to develop. Policies and practices may be subject to significant adjustments, including following changes in political leadership, as well as to the influence of commercial and governmental actors. This may result in inconsistent application of tax and legal regulations, arbitrary or biased treatment, and other general business risks as well as social or political instability or disruptions and the potential for political influence on the media. The relative level of development of our markets, the risk of corruption, and the influence of local commercial and governmental actors also present a potential for biased or unfair treatment of us before regulators or courts in the event of disputes. If such a dispute occurs, those regulators or courts may not act with integrity or may favor local interests over our interests. Other potential risks inherent in markets with evolving economic and political environments include exchange controls, higher taxes, tariffs and other levies as well as longer payment cycles. Ultimately, the occurrence of any of these could have a material adverse impact on our business, financial position, results of operations and cash flows.
Piracy of our content may decrease revenues we can earn from our content and adversely impact our business and profitability.
Piracy of our content poses significant challenges in our markets. Technological developments, including digital copying, file compressing, the use of international proxies and the growing penetration of high bandwidth internet connections, have made it easier to create, transmit and distribute high quality unauthorized copies of content in unprotected digital formats. Furthermore, there are a growing number of video streaming sites, increasing the risk of online transmission of our content without consent. The proliferation of such sites broadcasting content pirated from us could result in a reduction of revenues that we receive from the legitimate distribution of our content, including through video-on-demand and other services. Protection of our intellectual property is in large part dependent on the manner in which applicable intellectual property laws in the countries in which we operate are construed and enforced. We seek to limit the threat of content piracy. However, detecting and policing the unauthorized use of our intellectual property is often difficult and remedies may be limited under applicable law. Steps we take may not prevent the infringement by third parties. There can be no assurance that our efforts to enforce our rights and protect our intellectual property will be successful in preventing piracy, which limits our ability to generate revenues from our content.
We rely on network and information systems and other technology that may be subject to disruption, security breaches or misuse, which could harm our business or our reputation.
We make extensive use of network and information systems and other technologies, including those related to our internal network management as well as our broadcasting operations. These systems are central to many of our business activities. Network and information systems-related events, such as computer hackings, computer viruses, worms or other destructive or disruptive software, process breakdowns, malicious activities or other security breaches could result in a disruption or degradation of our services, the loss of information or the improper disclosure of personal data. The occurrence of any of these events could negatively impact our business if we are required to expend resources to remedy such a security breach or if they result in legal claims or proceedings or our reputation is harmed. In addition, improper disclosure of personal data could subject us to liability under laws, including the EU General Data Protection Regulation, that protect personal data in the countries in which we operate. The development and maintenance of systems to prevent these events from occurring requires ongoing monitoring and updating as efforts to overcome security measures become more sophisticated. As technologies evolve, we will need to expend additional resources to protect our technology and information systems, which could have an adverse impact on our results of operations and cash flows.

48
Index

Our broadcasting licenses may not be renewed and may be subject to revocation.
We require broadcasting and, in some cases, other operating licenses as well as other authorizations from national regulatory authorities in our markets in order to conduct our broadcasting business. While our broadcasting licenses for our operations in the Slovak Republic and Slovenia are valid for indefinite time periods, our other broadcasting licenses expire at various times from November 2019 through 2028. While we expect that our material licenses and authorizations will be renewed or extended as required to continue to operate our business, we cannot guarantee that this will occur or that they will not be subject to revocation, particularly in markets where there is relatively greater political risk as a result of less developed political and legal institutions. The failure to comply in all material respects with the terms of broadcasting licenses or other authorizations or with applications filed in respect thereto may result in such licenses or other authorizations not being renewed or otherwise being terminated. Furthermore, no assurances can be given that renewals or extensions of existing licenses will be issued on the same terms as existing licenses or that further restrictions or conditions will not be imposed in the future. Any non-renewal or termination of any other broadcasting or operating licenses or other authorizations or material modification of the terms of any renewed licenses may have a material adverse effect on our financial position, results of operations and cash flows.
Our success depends on attracting and retaining key personnel.
Our success depends partly upon the efforts and abilities of our key personnel and our ability to attract and retain key personnel. Our management teams have significant experience in the media industry and have made important contributions to our growth and success. Although we have been successful in attracting and retaining such people in the past, competition for highly skilled individuals is intense. There can be no assurance that we will continue to be successful in attracting and retaining such individuals in the future. The loss of the services of any of these individuals could have an adverse effect on our businesses, results of operations and cash flows.
Risks Relating to Enforcement Rights
We are a Bermuda company and enforcement of civil liabilities and judgments may be difficult.
We are a Bermuda company. Substantially all of our assets and all of our operations are located, and all of our revenues are derived, outside the United States. In addition, several of our directors and officers are non-residents of the United States, and all or a substantial portion of the assets of such persons are or may be located outside the United States. As a result, investors may be unable to effect service of process within the United States upon such persons, or to enforce against them judgments obtained in the United States courts, including judgments predicated upon the civil liability provisions of the United States federal and state securities laws. There is uncertainty as to whether the courts of Bermuda and the countries in which we operate would enforce (a) judgments of United States courts obtained against us or such persons predicated upon the civil liability provisions of the United States federal and state securities laws or (b) in original actions brought in such countries, liabilities against us or such persons predicated upon the United States federal and state securities laws.
Our Bye-laws restrict shareholders from bringing legal action against our officers and directors.
Our Bye-laws contain a broad waiver by our shareholders of any claim or right of action in Bermuda, both individually and on our behalf, against any of our officers or directors. The waiver applies to any action taken or concurred in by an officer or director, or the failure of an officer or director to take any action, in the performance of his or her duties, except with respect to any matter involving any fraud or dishonesty on the part of the officer or director. This waiver limits the right of shareholders to assert claims against our officers and directors unless the act or failure to act involves fraud or dishonesty.
Risks Relating to our Common Stock
Our share price may be adversely affected by sales of unregistered shares or future issuances of our shares.
AT&T, through its wholly owned subsidiaries Warner Media and TW Investor, is the largest beneficial owner of shares of our Class A common stock, holding 162,334,771 unregistered shares of Class A common stock, one share of Series A preferred stock ("Series A Preferred Share"), and 200,000 shares of Series B preferred stock ("Series B Preferred Shares"). The share of Series A Preferred Shares is convertible into 11,211,449 shares of Class A common stock and the Series B Preferred Shares are convertible into approximately 111.1 million shares of Class A common stock at the option of Warner Media (subject to certain exceptions). Warner Media has registration rights with respect to all its shares of Class A common stock now held or hereafter acquired. For additional information on the Series A Preferred Shares, Series B Preferred Shares and warrants, see Part I, Item 1, Note 13, "Convertible Redeemable Preferred Shares" and Note 14, "Equity" .
We cannot predict what effect, if any, the entry into trading of previously issued unregistered shares of Class A common stock will have on the market price of our shares. We may also issue additional shares of Class A common stock or securities convertible into our equity in the future. If more shares of our Class A common stock (or securities convertible into or exchangeable for shares of our Class A common stock) are issued to Warner Media, the economic interests of current shareholders may be diluted and the price of our shares may be adversely affected.
The interests of AT&T may conflict with the interests of other investors.
Through its wholly owned subsidiaries Warner Media and TW Investor, the aggregate beneficial ownership interest of AT&T in the Company is approximately 75.7% . In connection with the exercise of the warrants by Warner Media and TW Investor in April 2018, each of them issued standing proxies to the independent directors of the Company, pursuant to which it granted the right to vote the 100,926,996 shares received on the exercise of those warrants (the “Warrant Shares”) on all matters other than any transaction resulting in a change in control. In accordance with these proxies, the Warrant Shares will be voted in proportion to votes cast at a general meeting of the Company, excluding such Warrant Shares. Warner Media and TW Investor have undertaken to maintain this proxy arrangement until April 2020 and may extend it for an additional year at their option. As a result of the standing proxies, after giving effect to its ownership of the Series A Preferred Share, AT&T has a 44.3% voting interest in the Company. Furthermore, AT&T has the right to appoint one less than the number required to constitute a majority of our board of directors, provided that AT&T continues to own not less than 40% of the voting power of the Company. As such, AT&T is in a position to exercise significant influence over the outcome of corporate actions requiring shareholder approval, such as the election of directors, amendments to our Bye-laws, or certain transactions, including transactions resulting in a change of control.

49
Index

We are also party to an amended investor rights agreement with Warner Media and the other parties thereto under which, among other things, Warner Media was granted a contractual pre-emptive right (subject to certain exclusions) with respect to issuances of the Company’s equity securities, which permits it to maintain its pro rata economic interest as well as a right to top any offer that would result in a change of control of the Company. Under Bermuda law, there is no takeover code or similar legislation requiring an acquirer of a certain percentage of our Class A common stock to tender for the remaining publicly held shares. Warner Media is also our largest secured creditor, as it guarantees 100% of our outstanding senior indebtedness and is the lender under the 2023 Revolving Credit Facility. The 2023 Revolving Credit Facility (when drawn) and the Reimbursement Agreement contain maintenance covenants in respect of interest cover and total leverage ratios and includes covenants in respect of the incurrence of indebtedness (including refinancing indebtedness), the provision of guarantees, acquisitions and disposal and granting security. As such, Warner Media may be in a position to determine whether to permit transactions, waive defaults or accelerate such indebtedness or take other steps in its capacity as a secured creditor in a manner that might not be consistent with the interests of the holders of our Class A common stock. Furthermore, in certain circumstances, the interests of AT&T as our largest beneficial owner could be in conflict with the interests of minority shareholders
We are subject to risk and uncertainties related to our review of strategic alternatives that may adversely affect our business.
On March 25, 2019, we announced that our Board of Directors, working with the Company's management team and its legal and financial advisors, commenced a process to explore and evaluate potential strategic alternatives for the Company focused on maximizing shareholder value. Our Board has formed a committee of independent directors to lead this process. The potential alternatives may include, among others, the sale of part or all of the Company, a merger with another strategic partner, a recapitalization or the Company's continuing to execute on the long-term business plan.
The process of exploring strategic alternatives involves the dedication of significant resources and the incurrence of fees and expenses and will likely result in the incurrence of significant fees and expenses if we determine to move forward with any of the strategic alternatives. In addition, our exploration of strategic alternatives may expose our business to other risks and uncertainties, including the diversion of management and employee attention and time; difficulty in recruiting, hiring, and retaining necessary personnel; and disruption to our relationships with clients and suppliers as well as to other commercial and strategic relationships. Furthermore, speculation regarding any developments related to the review of strategic alternatives and or uncertainty regarding the outcome could cause our share price to fluctuate significantly. There is no timeline for the completion of the strategic review and we do not intend to provide updates or further information on developments related to the strategic review unless we determine that additional disclosure is necessary or appropriate. There can be no assurance that our exploration of strategic alternatives will result in the Company determining to proceed with any transaction and it is not possible to predict the impact of the conclusion of the strategic review on our business or share price. If we are unable to effectively mitigate the risks related to the strategic review, it may disrupt our business and adversely impact our financial results, results of operations and cash flows.
The price of our Class A common stock may be volatile.
The market price of shares of our Class A common stock may be influenced by many factors, some of which are beyond our control, including but not limited to those described in the Risk Factor above ”We are subject to risk and uncertainties related to our review of strategic alternatives that may adversely affect our business” and under "Risks Relating to Our Operations" as well as the following: general economic and business trends, variations in quarterly operating results, license renewals, regulatory developments in our operating countries and the European Union, the condition of the media industry in our operating countries, the volume of trading in shares of our Class A common stock, future issuances of shares of our Class A common stock and investors’ and securities analysts’ perception of us and other companies that investors or securities analysts deem comparable in the television broadcasting industry. In addition, stock markets in general have experienced extreme price and volume fluctuations that have often been unrelated to and disproportionate to the operating performance of broadcasting companies. These broad market and industry factors may materially impact the market price of shares of our Class A common stock, regardless of our operating performance.
Our business could be negatively impacted as a result of shareholder activism.
In recent years, shareholder activists have become involved in numerous public companies. Shareholder activists frequently propose to involve themselves in the governance, strategic direction and operations of the Company, as occurred when TCS Capital Management, LLC ("TCS Capital"), filed an amendment to its Schedule 13D in January 2017 in which it disclosed its opinions on the Company’s governance and strategic direction. Such proposals may disrupt our business and divert the attention of our management and employees, and any perceived uncertainties as to our future direction resulting from such a situation could result in the loss of potential business opportunities, be exploited by our competitors, cause concern to our current or potential customers, and make it more difficult to attract and retain qualified personnel and business partners, all of which could adversely affect our business. In addition, actions of activist shareholders may cause significant fluctuations in our stock price based on temporary or speculative market perceptions or other factors that do not necessarily reflect the underlying fundamentals and prospects of our business.

50
Index

Item 6.    Exhibits

EXHIBIT INDEX
Exhibit Number
 
Description
3.01
 
 
 
 
10.01
 
 
 
 
31.01
 
 
 
 
31.02
 
 
 
 
31.03
 
 
 
 
32.01
 
 
 
 
101.INS
 
XBRL Instance Document
 
 
 
101.SCH
 
XBRL Taxonomy Schema Document
 
 
 
101.CAL
 
XBRL Taxonomy Calculation Linkbase Document
 
 
 
101.DEF
 
XBRL Taxonomy Definition Linkbase Document
 
 
 
101.LAB
 
XBRL Taxonomy Label Linkbase Document
 
 
 
101.PRE
 
XBRL Taxonomy Presentation Linkbase Document

+ Exhibit is a management contract or compensatory plan.

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Index

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.
Date:
July 23, 2019
/s/ David Sturgeon
David Sturgeon
Executive Vice President and Chief Financial Officer
Principal Financial Officer and Principal Accounting Officer

52


Exhibit 3.01

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, 25th May 2000, 15th May 2002, 3rd June, 2008, 13th June 2012, 12th June 2013 and 20th May 2019 and at special general meeting of 14th April 2014).

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


31881/CorpDocs



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
Reserve
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



31881/CorpDocs




INTERPRETATION

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 "Directors"
the Board of Directors of the Company or 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 regulatory authority"
a competent regulatory authority in the territory where the shares of the Company are listed or quoted on a stock exchange in such territory
 
 
"debenture" and "debenture holder"
include debenture stock and debenture stockholder respectively
 
 
"Designated Stock Exchange"
a stock exchange which is an appointed stock 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
 
 

1

"head office"
such office of the Company as the Directors may from time to time determine to be the principal office of the Company
 
 
"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 Office"
in respect of any class of share capital such 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

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;
 
(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, litography, 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.







3

SHARE CAPITAL

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

(a) 440,000,000 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
 
(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.


4

(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 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.


5

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 Preferred Shares of any and all series, to share, rateably 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.


6

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 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.


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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 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.



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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.

(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.


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(3)    The Company may purchase its own shares for cancellation or acquire them as Treasury Shares in accordance with the Act on such terms as the Board may from time to time determine. All rights attaching to Treasury Shares shall be suspended and shall not be exercised by the Company while it holds such Treasury Shares and, except where required by the Act, all Treasury Shares shall be excluded from the calculation of any percentage or fraction of the share capital, or shares, of the Company. For the purposes of these Bye-Laws, “Treasury Share” shall mean a share of the Company that was or is treated as having been acquired and held by the Company and has been continuously held by the Company since it was so acquired and has not been cancelled.

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.    The shares of the Company’s stock may be certificated or uncertificated, as provided under the Act. 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

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class or several certificates each for one or more of such shares of such class upon request in writing to the Company and upon payment for every certificate after the first of such reasonable out‑of‑pocket expenses as the Board from time to time determines. A shareholder who does not submit such a request in writing to the Company shall receive uncertificated shares.

19.    Share certificates requested pursuant to Bye-Law 18 shall be issued in the case of an issue of shares within twenty‑one (21) days (or such longer period as the terms of the issue provide) after such a request or in the case of a transfer of fully or partly paid shares within twenty‑one (21) days after such a request following the lodgement 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.

20.    Upon every transfer of certificated shares, the certificate held by the transferor shall be given up to be cancelled, and shall forthwith be cancelled accordingly, and if requested by the tranferee pursuant to Bye-Law 18 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 if so requested by the transferor pursuant to Bye-law 18.

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.


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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.

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.

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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.

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.

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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 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.


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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.

(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.


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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 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.


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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 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.

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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 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.


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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)    A Member may raise business, including the nomination of a candidate for election as a Director, to be considered at annual and special general meetings of the Company, provided, however, that in order to be brought before a general meeting Member proposals must (i) be a proper matter for Member action under the Act and the rules and regulations promulgated by the U.S. Securities and Exchange Commission (the “Rules and Regulations”), (ii) comply with the requirements of this Bye-law 58 and (iii) with respect to Director nominees, the Member submitting such proposal shall have beneficially owned at least five percent of any class of the Company’s outstanding stock for a period of at least one year. Where a Member proposal is to be considered at an annual general meeting, notice of such Member proposal must be received by the Secretary not less than 120 days prior to the anniversary date of the prior year’s annual general meeting proxy statement. Where a Member proposal is to be considered at a special general meeting, such notice must be received not later than five (5) days following the earlier of the date on which notice of the special general meeting was given to Members in accordance with these Bye-laws or the date on which public disclosure of the date of the special general meeting was made. Any notice of a Member proposal shall contain (i) the name, address and relationship to the Company of the proposing Member and, with respect to director nominations, the proposed nominee, (ii) with respect to director nominations, a statement to the effect that the proposed nominee has no direct or indirect business conflict of interest with the Company, (iii) with respect to director nominations, a statement to the effect that the proposed nominee meets the Company’s published minimum criteria for consideration as a nominee for director of the Company, (iv) the form of resolution to be included in the proxy statement, (v) a brief description as to why the passing of the resolution is beneficial to the Company and (vi) any such other information as would be required under the rules and regulations of the U.S. Securities and Exchange Commission to be included in the Company’s proxy statement if such proposal were to be included therein. Notwithstanding the foregoing, in order to include information with respect to a Member proposal in the Company’s proxy statement and form of proxy for a general meeting, such Member must provide notice as required by, and otherwise comply with, the Act and the Rules and Regulations. The Company may exclude a Member’s proposal from the Company’s proxy statement and form of proxy in accordance with the Act and the Rules and Regulations.


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NOTICE OF GENERAL MEETINGS

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.


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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.

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.


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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 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.


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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.

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.


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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.    If an instrument appointing a proxy is in writing, it shall be 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 instrument of proxy in writing 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.    Subject to the Act, the instrument appointing a proxy, whether in writing or in any other form as may be approved by the Board, 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 or otherwise submitted or communicated to the Company in such form and manner or 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 for instruments in writing, 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, if such instrument is in writing, or the date it is submitted or communicated to the Company, if such instrument is in a form other than in writing, 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, submission or communication, as the case may be, 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.


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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 or provide access to 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 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.


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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 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.


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(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 or nominated by a Member pursuant to Bye-Law 58(2), be eligible for election as a Director at any general meeting.

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 mine or dies;

(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.


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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 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.


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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.

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).


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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 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.

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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 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
 

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(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 where the nature or extent of the interest of such chairman as known to such chairman has not been fairly disclosed to the Board.


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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 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.


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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 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.



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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.


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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.

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.


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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.


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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.



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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

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 there from 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.


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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 divident 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;

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.    The Board may, subject to these Bye-laws and in accordance with the Act, declare a dividend in any currency to be paid to the Members, in proportion to the number of shares held by them except in so far as the rights attaching to, or the terms of issue of, any share otherwise provide. The Board 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 its liabilities.


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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.

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.


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145.    Whenever the Board 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.    Intentionally Deleted

RESERVES

147.    Before declaring 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 dividend or distribute to the Members.

CAPITALISATION

148.    (1)    The Board may resolve to capitalise any part of the amount for the time being standing to the credit of any of the Company's share premium or other reserve accounts or to the credit of the profit and loss account or otherwise available for dividend or distribution by applying such sum in paying up unissued shares to be allotted as fully paid bonus shares pro rata to the Members.

(2)    The Board may resolve to capitalise any sum standing to the credit of a reserve account or sums otherwise available for dividend or distribution by applying such amounts in paying up in full partly paid shares of those Members who would have been entitled to such sums if they were distributed by way of dividend or distribution.


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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;


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(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.


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(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.


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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.

(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, other disability or other circumstances at a time when his services are required, the Directors may 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.


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NOTICES

160.    (1)    Any Notice from the Company to a Member may be given:
        
(a)
by delivering it to such Member in person; or
 
 
(b)
by sending it by letter mail or courier to such Member's address in the Register of Members; or
 
 
(c)
if consented to by the Member to whom such notice is given, by transmitting it by electronic means (including facsimile and electronic mail, but not telephone) in accordance with such directions as may be given by such Member to the Company for such purpose; or
 
 
(d)
if consented to by the Member to whom such notice is given, by posting on an electronic network together with a separate notice to the Member of the specific posting; or
 
 
(e)
if consented to by the Member to whom such notice is given, by any other form of electronic transmission.

(2)    Any consent given by a Member with respect to a method of notice set forth in Bye-laws 160 (1)(c)-(e) above may be given by letter mail, courier, or any form of electronic transmission and shall be revocable by the Member by notice to the Company given by letter mail, courier, or any form of electronic transmission. Any such consent shall be deemed revoked if the Company is unable to deliver three consecutive notices in accordance with such consent or when such inability to deliver notice becomes known to the Company’s secretary or transfer agent or other person responsible for the giving of notice.
(3)     Any Notice from a Member to the Company may be given in accordance with such directions as may be given by the Company for such purpose on its website or otherwise.

161.    (1)    Any notice delivered in accordance with Bye-laws 160(1)(a) or 160(1)(b) shall be deemed to have been served at the time when the same would be delivered in the ordinary course of transmission and, in proving such service, it shall be sufficient to prove that the notice was properly addressed and prepaid, if posted, and the time when it was posted or delivered to the courier.

(2)    Any notice delivered in accordance with Bye-law 160(1)(c) shall be deemed to have been served when directed to a number or an electronic mail address at which the Member has consented to receive notice.

(3)    Any notice delivered in accordance with Bye-laws 160(1)(d) or 160(1)(e) shall be deemed to have been served upon the later of (i) the notification of the Member in accordance with such Bye-law; and (ii) the publication of the information or document on the electronic network.

162.    Any notice required to be given to a Member shall, with respect to any shares held jointly by two or more persons, be given to whichever of such persons is named first in the Register of Members and notice so given shall be sufficient notice to all the holders of such shares.

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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.


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INDEMNITY

166.    (1)    The Directors, Secretary and other officers (such term to include, for the purposes of this Bye-law 166 any person appointed to any committee by the Board) for the time being and each such 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 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 in which the Company is or was engaged acting in relation to any of the affairs 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 every one of them, and their heirs, executors and administrators, 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 heirs, executors or administrators, shall or may incur or sustain by or by reason of any act done, purported to be done, concurred in or omitted in or about the execution of their duty, or supposed duty, or in their respective offices or trusts, or on behalf of the Company or purportedly on behalf of the Company, and none of them shall be answerable for the acts, receipts, neglects or defaults of the 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.

(2)    Each Member agrees to waive and release any claim or right of action such Member might have, whether individually or by or in the right of the Company, against any Director or officer on account of any act done, purported to be done, concurred in or omitted in or about the execution of their duty, or supposed duty, or in their respective offices or trusts by such Director or officer, or the failure of such Director or officer to take any action in the performance of his duties with or for the Company, PROVIDED THAT such waiver shall not extend to any matter in respect of any fraud or dishonesty which may attach to such Director or officer.

(3)    The indemnity provided by Bye-law 166(1) above shall extend, as a matter of contract between each Member and each former Director and officer of the Company and their heirs, executors and administrators, to any act done, purported to be done, concurred in or omitted in or about the execution of their duty, or supposed duty, or in their respective offices or trusts by the former Directors and officers of the Company. The waiver of claims or right of action by each Member provided by Bye-law 166(2) above shall extend, as a matter of contract between each Member and each former Director and officer of the Company and their heirs, executors and administrators, to any act done, purported to be done, concurred in or omitted in or about the execution of their duty, or supposed duty, or in their respective offices or trusts by the former Directors and officers of the Company.

(4)    Any repeal or modification of this Bye-law 166 shall not adversely affect any right or protection existing under this Bye-law 166 immediately prior to such repeal or modification.


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(5)    The Company may advance moneys to an individual who is indemnified pursuant to Bye-law 166(1) above for the costs, charges and expenses incurred by such individual in defending any civil or criminal proceedings against them, on condition that such individual shall repay the advance if any allegation of fraud or dishonesty is proved against them.

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.

*****
***
*


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Exhibit 10.01
 
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
2015 STOCK INCENTIVE PLAN

1.    Purpose and Types of Awards

The purpose of the Central European Media Enterprises Ltd. 2015 Stock Incentive Plan (as amended from time to time, the “ Plan ”) is to promote the long-term growth and profitability of the Company by (i)  enabling the Company to recruit and retain employees, and non-employee directors, (ii) providing key people with incentives to contribute to the growth and financial success of the Company through the granting of Awards, and (iii) promoting increased ownership of equity of the Company to better align the interests of employees and directors of the Company with its shareholders.

The Plan permits the granting of Options, Restricted Stock Units, Restricted Stock, SARs, or any combination of the foregoing.

2.    Definitions

Under this Plan, except where the context otherwise indicates, the following definitions apply:

(a) “ Affiliate ”  means any entity (including, but not limited to, joint ventures, limited liability companies, and partnerships) which directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, the Company; provided , that AT&T Inc. (as the successor to the beneficial ownership interest of Time Warner Inc. in the Company) shall not be an Affiliate of the Company for purposes of this definition. For this purpose, “ control ” shall mean ownership of 50% or more of the total combined voting power or value of all classes of securities or interests of the entity, or the power to direct the management and policies of the entity, by contract or otherwise.
 
(b) “ Award ”   means any Option, Restricted Stock Unit Award, Restricted Stock Award, or SAR .
 
(c) “ Award Agreement ” means a written or electronic agreement and any amendments thereto (including any amendments effected through a Participant’s employment agreement or amendments thereto), between the Company and a Participant setting out the terms and conditions of an Award granted pursuant to the Plan.
 
(d)   “ Board ” means the Board of Directors of the Company.






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(e) “Change in Control”  means:
 
(i) the consummation of any amalgamation, consolidation or merger of the Company pursuant to which the shareholders of the Company immediately prior to the amalgamation, merger or consolidation do not constitute, immediately after the amalgamation, consolidation or merger, the beneficial owners (within the meaning of Rule 13d-3 under the Exchange Act) of 50% or more of the voting power of the then outstanding securities of the Company (or the surviving entity) generally entitled to vote in the election of directors; provided , that any amalgamation, consolidation, merger or other business combination effected solely to change the domicile of the Company shall not constitute a Change in Control;
 
(ii) the occurrence of an event the result of which is that any “person” or “group” of related persons (as defined in Section 13(d) and 14(d)(2) of the Exchange Act), becomes the beneficial owner, directly or indirectly, of securities representing more than 50% of the combined voting power of the then outstanding securities of the Company entitled to vote generally in the election of directors;
 
(iii) the sale or other disposition (in one transaction or a series of transactions) of all or substantially all of the assets of the Company and its Affiliates to an unaffiliated third party or the liquidation or dissolution of the Company; or
 
(iv) a change in the composition of the Board in any two-year period, such that a majority of the members of the Board are not (A) persons who were directors at the beginning of such period or (B) persons who are elected, or nominated for election, to the Board by an affirmative vote of the majority of the such directors (but shall not include an individual whose election or nomination is in connection with an actual or threatened proxy contest relating to the election of directors to the Board);
 
provided , however , that (I) a Change in Control shall not include a Time Warner Transaction, and (II) for purposes of any Award or subplan that may constitute deferred compensation within the meaning of Code section 409A, the Committee, in its discretion, may specify a different definition of Change in Control in order to comply with or cause an Award to be exempt from the provisions of Code section 409A.
 
(f) “ Code ”   means the U.S. Internal Revenue Code of 1986, as amended, and any successor thereto, as well as any regulations promulgated thereunder.
 
(g) “ Committee ” means the Compensation Committee of the Board or such other committee appointed by the Board consisting of no fewer than two members that has been delegated authority to administer the Plan as provided in Section 3 hereof.
 
(h) “ Company ” means Central European Media Enterprises Ltd., a Bermuda company limited by shares.
 

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(i) “ Effective Date ”   means April 20, 2015, the date the Board approved the Plan.
 
(j) “ Exchange Act ”   means the U.S. Securities Exchange Act of 1934, as amended.
 
(k) “ Fair Market Value ” means, with respect to the Shares, as of any date:
 
(i) if there is a public market for the Shares and the Shares are listed on NASDAQ, the closing price per Share for a regular market session on that date on NASDAQ or, if no sale is reported for that date, on the last preceding day on which a sale was reported;
 
(ii) if the Shares are no longer listed on NASDAQ, the closing price per Share on the principal exchange or market for the Shares (as determined by the Committee if the Shares are listed or admitted to trading on more than one exchange or market) or, if no sale is reported for that date, on the last preceding day on which a sale was reported; or
 
(iii) if the Shares are neither listed or admitted to trading on a national securities exchange or an established securities market the value determined by the Committee in good faith by the reasonable application of a reasonable valuation method.
 
(l) “ Incentive Stock Option ” means any Option granted under Section 6 that is intended to meet the requirements of Section 422 of the Code.
 
(m) “ Non-qualified Stock Option ” means any Option granted under Section 6 that is not an Incentive Stock Option.
 
(n) “ Option ” means any option granted under Section 6.
 
(o) “ Participant ” means an employee, prospective employee, or non-employee director of the Company or an Affiliate who is selected by the Committee to participate in the Plan.
 
(p) “ Performance-Based Award ” means an Award that vests on the attainment of one or more Performance Measures established by the Committee.
 

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(q) “ Performance Measures ” mean criteria established by the Committee relating to any of the following, as it may apply to an individual, one or more business units, divisions or subsidiaries, or on a Company-wide basis, and in either absolute terms or relative to the performance of one or more comparable companies or an index covering multiple companies: revenue; earnings before interest, taxes, depreciation and amortization (EBITDA); operating income before depreciation and amortization (OIBDA); operating income; pre- or after-tax income; free cash flow; cash flow per Share; net earnings; earnings per Share; price-to-earnings ratio; return on equity; return on invested capital; return on assets; growth in assets; Share price performance; total shareholder return; improvement in or attainment of expense levels; improvement in or attainment of working capital levels; relative performance to a group of companies comparable to the Company, and strategic business criteria consisting of one or more objectives based on the Company’s meeting specified goals relating to revenues, costs, market penetration or share, business expansion, acquisitions, divestitures or other corporate transactions.
 
(r) “ Prior Plan ” means the Company’s Amended and Restated Stock Incentive Plan, as amended.
 
(s) “ Restricted Stock ” means Shares granted pursuant to Section 8 that are subject to such vesting and transfer restrictions as determined by the Committee and such other restrictions as set forth in the Plan and the applicable Award Agreement.
 
(t) “ Restricted Stock Unit ” means a contractual right granted to a Participant who receives an Award pursuant to Section 7 which represents a notional unit interest equal in value to a Share.
 
(u) “ SAR ” means a stock appreciate right granted pursuant to Section 9.
 
(v) “ Share ” means a share of Class A Common Stock, par value $0.08 per share, of the Company.
 
(w) “ Subsidiary ” means any “ subsidiary corporation ” of the Company, as defined in Section 424(f) of the Code.
 
(x) “ Time-Based Award ” means an Award that vests in one or more installments over a period of a Participant’s employment or other service to the Company as specified by the Committee.
 

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(y) “ Time Warner Transaction ” means (i) any transaction or event (including the exercise of conversion rights under any convertible security) the result of which is that AT&T Inc. (as the successor to the beneficial ownership interest of Time Warner Inc. in the Company) becomes the beneficial owner, directly or indirectly, of securities (including any securities attributed to it as part of a group under Section 13(d) of the Exchange Act) representing more than 50% of the combined voting power of the then outstanding securities of the Company entitled to vote generally in the election of directors; or (ii) the consummation of any amalgamation, consolidation or merger of the Company pursuant to which the shareholders of the Company immediately prior to the amalgamation, merger or consolidation do not constitute, immediately after the amalgamation, consolidation or merger, the beneficial owners (within the meaning of Rule 13d-3 under the Exchange Act) of 50% or more of the voting power of the then outstanding securities of the Company (or the surviving entity) generally entitled to vote in the election of directors; provided , that AT&T Inc. is the beneficial owner of 20% of the voting power of the then outstanding securities of the Company (or the surviving entity) generally entitled to vote in the election of directors following such amalgamation, consolidation or merger. For the avoidance of doubt, in the event AT&T Inc. is the beneficial owner of less than 20% of the voting power of the then outstanding securities of the Company (or the surviving entity) generally entitled to vote in the election of directors following such amalgamation, consolidation or merger, such transaction shall constitute a Change in Control.

3.    Administration

(a)     Administration of the Plan. The Plan shall be administered by the Committee. It is intended that each member of the Committee shall satisfy the requirements for (i) an “independent director” for purposes of the charter of the Committee and the NASDAQ Marketplace Rules (or rules of such other applicable exchange) and (ii) a “nonemployee director” for purposes of Rule 16b-3 of the Exchange Act.

(b)     Powers of the Committee . The Committee shall have all the powers vested in it by the terms of the Plan, such powers to include authority, in its sole and absolute discretion, to grant, and establish terms and conditions of, Awards under and consistent with the Plan, prescribe Award Agreements evidencing such Awards and establish programs for granting Awards. Awards may be granted individually or with other types of Awards. All Awards are subject to the terms and conditions provided in the Award Agreement and the Plan.

The Committee shall have full power and authority to take all other actions necessary to carry out the purpose and intent of the Plan, including, but not limited to, the authority to: (i) determine the Participants; (ii) determine the types of Awards to be granted; (iii) determine the number of Shares to be covered by or used for reference purposes for each Award; (iv) establish such terms, limitations, restrictions and conditions upon any such Award consistent with the Plan as the Committee shall deem appropriate; (v) modify, amend, extend or renew outstanding Awards, or accept the surrender of outstanding Awards and substitute new Awards ( provided , that, except as provided in Sections 6 to 10 of the Plan, any modification that would materially adversely affect any outstanding Award shall not be made without the consent of the holder and no such modification, amendment or substitution that results in repricing the Award, as described in Section 10(e),

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shall be made without prior shareholder approval); (vi) accelerate or otherwise change the time in which an Award may be exercised or becomes payable and to waive or accelerate the lapse, in whole or in part, of any restriction or condition with respect to such Award, including, but not limited to, any restriction or condition with respect to the vesting or exercisability of an Award following termination of any Participant’s employment or other relationship with the Company; (vii) establish objectives and conditions, if any, for earning Awards and determining whether Awards will be paid with respect to a performance period; and (viii) for any purpose, including but not limited to, qualifying for preferred tax treatment under foreign tax laws or otherwise complying with the regulatory requirements of local or foreign jurisdictions, to establish, amend, modify, administer or terminate sub‑plans, and prescribe, amend and rescind rules and regulations relating to such sub‑plans.

The Committee shall have full power and authority, in its sole and absolute discretion, to administer, construe and interpret the Plan, Award Agreements and all other documents relevant to the Plan and Awards issued thereunder, to establish, amend, rescind and interpret such rules, regulations, agreements, and instruments for the administration of the Plan as the Committee deems necessary or advisable, and to correct any defect, supply any omission or reconcile any inconsistency in the Plan or in any Award in the manner and to the extent the Committee shall deem it desirable to carry it into effect. All actions taken and decisions and determinations made by the Committee on all matters relating to the Plan pursuant to the powers vested in it hereunder shall be in the Committee’s sole and absolute discretion and shall be conclusive and binding on all parties concerned (including, but not limited to, the Participants and their successors).

(c)     Non-Uniform Determinations . The Committee’s determinations under the Plan (including without limitation, determinations of the Participants, the form, amount and timing of Awards; the terms and provisions of such Awards, the Award Agreements evidencing such Awards, and the ramifications of a Change in Control and/or a Time Warner Transaction on outstanding Awards) need not be uniform and may be made by the Committee selectively among Awards or persons who receive, or are eligible to receive, Awards under the Plan, whether or not such persons are similarly situated.


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4.    Shares Available for the Plan

Subject to adjustments as provided in Section 10 of the Plan, the Shares that may be issued with respect to Awards granted under the Plan shall not exceed an aggregate of 16 million Shares plus the number of Shares that remain available for future grants of Awards under the Prior Plan immediately before its termination as of the Effective Date; provided , however , that no more than an aggregate of 16 million Shares may be issued pursuant to Incentive Stock Options. The Company shall reserve such number of Shares for Awards under the Plan, subject to adjustments as provided in Section 10 of the Plan. If any award, or portion of an award, under the Plan or Prior Plan expires or terminates unexercised, becomes unexercisable, is settled in cash without delivery of Shares, or is forfeited or otherwise terminated, surrendered or canceled as to any shares, or if any Shares are surrendered to the Company in connection with any award under this Plan or the Prior Plan, or if any Shares are withheld by the Company, the Shares subject to such award under this Plan or the Prior Plan and the surrendered and withheld Shares shall thereafter be available for further Awards under the Plan.

5.    Participation

Participation in the Plan shall be open to all employees, officers, and directors of the Company, or of any Affiliate of the Company, as may be selected by the Committee from time to time. The Committee may also grant Awards to individuals in connection with hiring, recruiting or otherwise, prior to the date the individual first performs services for the Company or an Affiliate, provided , that such Awards shall not become effective, vested or exercisable, and no Shares shall be issued to such individual, prior to the date the individual first commences performance of such services.

6.    Options

(a)     Stock Options. The Committee may from time to time grant to Participants Awards of Incentive Stock Options or Non-qualified Stock Options.

(b)     Exercise Price. The exercise price of an Option shall be determined by the Committee but shall not be less than 100% of the Fair Market Value of a Share on the date the Option is granted.

(c)     Vesting of Options . Options granted under the Plan shall vest and become exercisable at such times and on such terms and conditions as determined by the Committee, which will be set out in an Award Agreement. Except as otherwise specified in the Award Agreement or permitted under the Plan, the first installment of an Award of Options shall not vest during the period commencing on the date of grant of such the Award of such Options and ending on the day preceding the first anniversary of such grant date. In no event shall an Option be exercisable for more than ten years after the date it is granted.


7

(d)     Exercise of Options . Except as otherwise provided in the Plan or in an Award Agreement, an Option may be exercised for all or any part of the Shares for which it is then exercisable. The purchase price and any applicable withholding tax for the Shares as to which the Option is exercised shall be paid to the Company pursuant to one or more of the following methods: (i) in cash, (ii) by delivering irrevocable instructions to a broker to sell such number of Shares obtained on the exercise of the Option and to deliver promptly to the Company an amount of proceeds of such sale equal to the purchase price for the Options being exercised and any applicable withholding tax, (iii) such other method as set forth in an Award Agreement, or (iv) a combination of the foregoing.

(e)     Incentive Stock Options . Awards of Incentive Stock Options shall be limited to employees of the Company or of any Affiliate and any other individuals who are eligible to receive incentive stock options under the provisions of Code section 422. No Option shall be an Incentive Stock Option unless so designated by the Committee at the time of grant or in the Award Agreement evidencing such Option.

(f)     No Rights as Shareholder . A Participant who receives an Award of Options shall not be a shareholder on receipt of such Award and such a Participant shall not have any rights of a shareholder with respect to any Shares in respect of such Award or have any rights to dividends until such Shares are delivered under such Award.
 
7.    Restricted Stock Units

(a)     Grants of Restricted Stock Units . The Committee may make Awards of Restricted Stock Units.

(b)     Vesting of Restricted Stock Units . The Committee shall determine any vesting requirements with respect to an Award of Restricted Stock Units, which will be set out in the applicable Award Agreement. Awards of Restricted Stock Units may be Time-Based Awards or Performance-Based Awards. In addition, except as otherwise specified in the Award Agreement or permitted under the Plan, the first installment of an Award of Restricted Stock Units shall not vest during the period commencing on the date of grant of the Award of such Restricted Stock Unit and ending on the day preceding the first anniversary of such grant date.
(c)     Settlement . Each Restricted Stock Unit may be settled at the time or times determined by the Committee and on such other terms as specified in the Award Agreement, which may be on or following the vesting of an Award. The Committee shall determine at the time of the grant of an Award of Restricted Stock Units whether the Award shall be settled in Shares or in cash.
(d)     No Rights as Shareholder . A Participant who receives an Award of Restricted Stock Units shall not be a shareholder on receipt of such Award and such a Participant shall not have any rights of a shareholder with respect to any Shares in respect of such Award or have any rights to dividends until such Shares are delivered under such Award.


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8.    Restricted Stock

(a)     Grants of Restricted Stock . The Committee may make Awards of Restricted Stock.
(b)     Vesting of Restricted Stock . The Committee shall determine any vesting requirements with respect to an Award of Restricted Stock, which will be set out in the applicable Award Agreement. The Committee may make Awards of Restricted Stock that are Time-Based Awards or Performance-Based Awards. In addition, except as otherwise specified in the Award Agreement or permitted under the Plan, the first installment of an Award of Restricted Stock shall not vest during the period commencing on the date of grant of the Award of such Restricted Stock and ending on the day preceding the first anniversary of such grant date.
(c)     Shares of Restricted Stock . Shares representing an Award of Restricted Stock shall be evidenced in such manner as the Committee may deem appropriate, including book-entry registration or one or more stock certificates (which may bear appropriate legends referring to the terms, conditions and restrictions applicable to such Award). The Committee may require that any stock certificates in respect of an Award of Restricted Stock be held in custody by the Company until any restrictions thereon shall have lapsed and that the Participant deliver a share transfer form, endorsed in blank, relating to the Shares covered by such Award that will permit the transfer to the Company of any or all Shares of Restricted Stock that shall be forfeited in accordance with the corresponding Award Agreement or shall not become vested in accordance with the corresponding Award Agreement or the Plan.

9

(d)     Rights as Shareholder . A Participant who receives an Award of Restricted Stock shall on receipt of such Award be a shareholder of the Company with respect to all shares of Restricted Stock and be entitled to vote such Shares, to receive all cash dividends made in respect of such shares and to exercise all other rights in respect of such Restricted Stock except that during the period when the Shares are unvested (the “ Restricted Period ”):
(i) for any stock certificates for which the Committee requires that the Company retain custody, a Participant will not be entitled to delivery of the stock certificate or other evidence of such Restricted Stock before the end of such Restricted Period and unless all other vesting requirements shall have been satisfied;
 
(ii) the Company will not issue any dividends or other distributions (“ Retained Distributions ”) made or declared with respect to such Restricted Stock until such time as the Shares of Restricted Stock in respect of which such Retained Distributions shall have been made or declared shall have become vested (and such Retained Distributions shall be subject to the same restrictions and other terms and conditions as are applicable to the Shares of Restricted Stock underlying such Restricted Distributions);
 
(iii) except as permitted by Section 11(b), a Participant who receives an Award of Restricted Stock shall not sell, assign, exchange, transfer, pledge, charge, hypothecate or otherwise dispose of or encumber any of the Shares of Restricted Stock before the end of the Restricted Period and unless all other vesting requirements have been satisfied; and
 
(iv) any breach of any restrictions or other terms or conditions of such Award of any Restricted Stock or any Retained Distributions in respect thereof will result in such Restricted Stock or Retained Distributions being forfeited by means of repurchase in accordance with the corresponding Award Agreement.
9.    Stock Appreciation Rights

The Committee may from time to time grant Awards of SARs to Participants. An SAR entitles the Participant to receive, subject to the provisions of the Plan and the Award Agreement, a payment having an aggregate value equal to the product of (i) the excess of (A) the Fair Market Value on the exercise date of one Share over (B) the base price per Share specified in the Award Agreement, times (ii) the number of Shares specified by the SAR, or portion thereof, which is exercised. The base price per Share specified in the Award Agreement shall not be less than the lower of the Fair Market Value on the grant date or the exercise price of any tandem Option Award to which the SAR is related. No SAR shall have a term longer than ten years’ duration. Payment by the Company of the amount receivable upon any exercise of an SAR may be made by the delivery of Shares or cash, or any combination of Shares and cash, as determined in the sole discretion of the Committee. If upon settlement of the exercise of an SAR, a Participant is to receive a portion of such payment in Shares, the number of Shares shall be determined by dividing such portion by the Fair Market Value of a Share on the exercise date.

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No fractional Shares shall be used for such payment and the Committee shall determine whether cash shall be given in lieu of such fractional Shares or whether such fractional Shares shall be eliminated.

10.    Adjustments Following Certain Events

Except to the extent otherwise provided in an Award Agreement and notwithstanding any other provisions of the Plan to the contrary, the following provisions shall apply to all Awards granted under the Plan:

(a)     Changes in Capitalization . In the event there is any change with respect to the outstanding Shares by reason of any share dividend, share split, recapitalization, reclassification, split up, combination of shares, any distribution to holders of Shares other than cash dividends, or any reorganization, amalgamation, merger, consolidation or similar corporate transaction affecting the Shares (other than a transaction described in Section 10(b) or (c)), then (i) the number and type of Shares or other rights or securities available for issuance under the Plan (including such rights or securities issuable in the event the Company is not the surviving entity in such reorganization, amalgamation, merger or consolidation), (ii) the number, class or price per share of any outstanding Awards, or (iii) any other affected term of any Award, shall be equitably adjusted by the Committee

(b)     Change in Control . In the event of any transaction resulting in a Change in Control of the Company, outstanding Options and other Awards that are payable in or convertible into Shares under this Plan will terminate upon the effective time of such Change in Control unless provision is made in connection with the transaction for the continuation or assumption of such Awards or for the substitution of equivalent awards by the surviving or successor entity or a parent thereof, as determined in the sole discretion of the Committee. In the event of such termination, the Committee may, in its discretion, accelerate the vesting or payment of, or cause the restrictions to lapse with respect to, the outstanding Options and other Awards that will terminate upon the effective time of the Change in Control, with effect on or immediately before the effective time of the Change in Control (including any Performance-Based Awards, which, if accelerated, shall vest in respect of the target amount of such Awards), and may permit the holders of Options and other Awards under the Plan, immediately before the Change in Control, to exercise or convert all portions of such Options or other Awards under the Plan that are then exercisable or convertible or which become exercisable or convertible upon or prior to the effective time of the Change in Control.

The Committee may, in its sole discretion and without the consent of any Award holder, determine that, upon the occurrence of a Change in Control, each or any Award outstanding immediately prior to the Change in Control and not previously exercised or settled shall be canceled in exchange for a payment with respect to each vested Share subject to such canceled Award in (I) cash, (II) stock of the Company or of a corporation or other business entity a party to the Change in Control, or (III) other property which, in any such case, shall be in an amount having a fair market value (as determined by the Committee) equal to the fair market value of the consideration to be paid per Share in the Change in Control, reduced (but not below zero) by the exercise or purchase price per Share, if any, under such Award. In the event such determination is made by the Committee,

11

an Award having an exercise or purchase price per Share equal to or greater than the fair market value (as determined by the Committee) of the consideration to be paid per Share in the Change in Control may be canceled without payment of consideration to the holder thereof.

(c)     Time Warner Transaction . The Committee shall set forth in the applicable Award Agreements the effect of a Time Warner Transaction on the Award.

(d)     Unusual or Nonrecurring Events. The Committee is authorized to make, in its discretion and without the consent of holders of Awards, adjustments in the terms and conditions of, and the criteria included in, Awards in recognition of unusual or nonrecurring events affecting the Company, or the financial statements of the Company or any Affiliate, or of changes in applicable laws, regulations, or accounting principles, whenever the Committee determines that such adjustments are appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan; provided , that no such adjustment shall be made in contravention of Code section 409A with respect to any Award that constitutes a deferred compensation arrangement within the meaning of Code section 409A.

(e)     Option or SAR Repricing . Without the affirmative vote of holders of a majority of the Shares cast in person or by proxy at a meeting of the shareholders of the Company at which a quorum representing a majority of all outstanding Shares is present or represented by proxy, the Committee shall not approve a program providing for either (a) the cancellation of outstanding Options or SARs having exercise prices per Share greater than the then Fair Market Value of a Share (“ Underwater Awards ”) and the grant in substitution therefor of new Options or SARs having a lower exercise price, other Awards or payments in cash, or (b) the amendment of outstanding Underwater Awards to reduce the exercise price thereof. This Section shall not be construed to apply to (i) “issuing or assuming a stock option in a transaction to which Section 424(a) applies,” within the meaning of Section 424 of the Code, (ii) adjustments pursuant to the assumption of or substitution for an Option or SAR in a manner that would comply with Section 409A, or (iii) an adjustment pursuant to the foregoing subsections of this Section 10.

11.    Miscellaneous

(a)     Withholding of Taxes and Offsets . Participants and holders of Awards shall pay to the Company or its Affiliate, or make provision satisfactory to the Committee for payment of, any taxes required to be withheld in respect of Awards under the Plan no later than the date of the event creating the tax liability. If determined by the Committee, any withholding obligations may be settled with Shares, including Shares that are part of the Award that gives rise to the withholding requirement; and the Committee may establish such procedures as it deems appropriate for the settlement of withholding obligations with Shares. In the event that payment to the Company or its Affiliate of such tax obligations is made in Shares, such Shares shall be valued at Fair Market Value on the applicable date for such purposes and shall not exceed in amount the minimum statutory tax withholding obligation. The Company or its Affiliate may, to the extent permitted by law, deduct any such tax obligations from any payment of any kind otherwise due to a Participant or holder of an Award.

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Any amounts owed to the Company or an Affiliate by the Participant of whatever nature may be offset by the Company from the value of any Shares, cash or other thing of value under this Plan or an Award Agreement to be transferred to the Participant, and no Shares, cash or other thing of value under this Plan or an Award Agreement shall be transferred unless and until all disputes between the Company and the Participant have been fully and finally resolved and the Participant has waived all claims against the Company and its Affiliates in respect thereof.

(b)     Non-Transferability . Except as otherwise determined by the Committee and, in any event in the case of an Incentive Stock Option or a SAR granted with respect to an Incentive Stock Option, no Award granted under the Plan shall be transferable by a Participant otherwise than by will or the laws of descent and distribution. Unless otherwise determined by the Committee in accord with the provisions of the immediately preceding sentence, an Award may be exercised during the lifetime of a Participant, only by the Participant or, during the period the Participant is under a legal disability, by the Participant’s guardian or legal representative. The Committee shall establish such procedures as it deems appropriate for Awards to be exercised following the death of a Participant.

(c)     Substitution of Awards in Mergers and Acquisitions. Awards may be granted under the Plan from time to time in substitution for awards held by employees, officers, or directors of entities who become or are about to become employees, officers, or directors of the Company or an Affiliate as the result of a merger or consolidation of the employing entity with the Company or an Affiliate, or the acquisition by the Company or an Affiliate of the assets or stock of the employing entity. The terms and conditions of any substitute Awards so granted may vary from the terms and conditions set forth herein to the extent that the Committee deems appropriate at the time of grant to conform the substitute Awards to the provisions of the awards for which they are substituted.

(d)     No Restrictions on Corporate Acts . Neither the existence of the Plan nor any Award shall in any way affect the right or power of the Company or its shareholders to make or authorize any or all adjustments, recapitalizations, reorganizations or other changes in the Company’s capital structure or its business, or any amalgamations, merger or consolidation of the Company, or any issue of bonds, debentures, preferred or prior preference stock ahead of or affecting the Shares or the rights thereof, or dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding whether of a similar character or otherwise.


13

(e)     Amendment, Modification and Termination of the Plan . The Board may amend or modify or terminate the Plan at any time. However, without further approval of the Company’s shareholders, there shall be (i) no increase in the number of Shares that may be issued under the Plan (except by operation of the Plan’s adjustment sections), (ii) no change in the class of persons eligible to receive Incentive Stock Options, and (c) no other amendment of the Plan that would require the approval of the Company’s shareholders under any applicable law, regulation or rule, including the rules of any stock exchange or quotation system on which the Shares may then be listed or quoted. No amendment, suspension or termination of the Plan shall affect any then outstanding Award unless expressly provided by the Committee. Except as provided in the next sentence, no amendment, suspension or termination of the Plan may have a materially adverse effect on any then outstanding Award without the consent of the Participant. Notwithstanding any other provision of the Plan or any Award Agreement to the contrary, the Committee may, in its sole and absolute discretion and without the consent of any Participant, amend the Plan or any Award Agreement, to take effect retroactively or otherwise, as it deems necessary or advisable for the purpose of conforming the Plan or such Award Agreement to or exempting them from any present or future law, regulation or rule applicable to the Plan, including, but not limited to, Code section 409A.

(f)     No Guarantee of Employment or Service . Nothing in the Plan or in any Award Agreement thereunder shall confer any right on an individual to continue in the service of the Company of an Affiliate or shall interfere in any way with the right of the Company or its Affiliates to terminate such service at any time with or without cause or notice and whether or not such termination results in (i) the failure of any Award to vest; (ii) the forfeiture of any unvested or vested portion of any Award; and/or (iii) any other adverse effect on the individual’s interests under the Plan. Nothing contained in the Plan shall prevent the Company or any Affiliate from adopting other or additional compensation arrangements, plans or schemes.

(g)     Compliance with Securities Laws; Listing and Registration . If at any time the Committee determines that the delivery of Shares under the Plan is or may be unlawful under the laws of any applicable jurisdiction, or Federal, state or foreign securities laws, the right to exercise an Award or receive Shares pursuant to an Award shall be suspended until the Committee determines that such delivery is lawful. If at any time the Committee determines that the delivery of Share under the Plan would or may violate the rules of the national exchange on which the Shares are then listed for trade, the right to exercise an Award or receive Shares pursuant to an Award shall be suspended until the Committee determines that such delivery would not violate such rules. The Company shall have no obligation to effect any registration or qualification of the Shares under Federal, state or foreign laws.


14

The Company may require that a Participant, as a condition to exercise of an Award, and as a condition to the delivery of any share certificate, make such written representations (including representations to the effect that such person will not dispose of the Shares so acquired in violation of Federal, state or foreign securities laws) and furnish such information as may, in the opinion of counsel for the Company, be appropriate to permit the Company to issue the Shares in compliance with applicable Federal, state or foreign securities laws. The stock certificates for any Shares issued pursuant to this Plan may bear a legend restricting transferability of such Shares unless such shares are registered or an exemption from registration is available under the U.S. Securities Act of 1933, as amended, and applicable state or foreign securities laws.

None of the Company, any Affiliate or the Committee shall have any duty or obligation to disclose affirmatively in any manner to a Participant or holder of any Award, and such holder shall have no right to be advised of, any material non-public information regarding the Company or any Affiliate at any time prior to, upon or in connection with, the receipt, exercise or settlement of an Award.

(h)     Plan Binding . This Plan shall inure to the benefit of and be binding on each successor and assign of the Company. All obligations imposed on a Participant, and all rights granted to the Company hereunder, shall be binding on the Participant’s heirs, legal representatives, successors and assigns. This Plan and each Award Agreement or certificate granting an Award constitute the entire agreement with respect to the subject matter hereof and thereof.

(i)     Governing Law . The validity, construction and effect of the Plan, of Award Agreements, and of any rules, regulations, determinations or decisions made by the Committee relating to the Plan or such Award Agreements, and the rights of any and all persons having or claiming to have any interest therein or thereunder, shall be determined exclusively in accordance with the laws of Bermuda.

(j)     Severability . If any provision of this Plan shall for any reason be held to be invalid or unenforceable, such invalidity or unenforceability shall not affect any other provision hereby, and this Plan shall be construed as if such invalid or unenforceable provision were omitted.

(k)     International Participants . To the extent that the Committee determines that the restrictions imposed by the Plan preclude the achievement of the material purposes of the Awards in jurisdictions outside the United States of America, the Committee may in its discretion modify those restrictions as it determines to be necessary or appropriate to conform to applicable requirements or practices of such jurisdictions.


15

(l)     Section 409A . The Plan and all Awards granted hereunder are intended to comply with, or otherwise be exempt from, Code section 409A. The Plan and all Awards granted under the Plan shall be administered, interpreted, and construed in a manner consistent with Code section 409A to the extent necessary to avoid the imposition of additional taxes under Code section 409A(a)(1)(B). Should any provision of the Plan, any Award Agreement, or any other agreement or arrangement contemplated by the Plan be found not to comply with, or otherwise be exempt from, the provisions of Code section 409A, such provision may be modified and given effect (retroactively if necessary), in the sole discretion of the Committee, and without the consent of the holder of the Award, in such manner as the Committee determines to be necessary or appropriate to comply with, or to effectuate an exemption from, Code section 409A. Notwithstanding anything in the Plan to the contrary, in no event shall the Committee exercise its discretion to accelerate the payment or settlement of an Award where such payment or settlement constitutes deferred compensation within the meaning of Code section 409A unless, and solely to the extent that, such accelerated payment or settlement is permissible under Treasury Regulation section 1.409A-3(j)(4) or any successor provision. Notwithstanding any other provision of the Plan, the Company makes no representation that Awards shall be exempt from or comply with Section 409A. Neither the Company nor any Affiliate shall be liable for any tax, penalty or interest imposed on a Participant by Section 409A.

(m)     Effective Date; Expiration of the Plan . The Plan became effective on April 20, 2015 and was approved by the Company’s shareholders on June 1, 2015. The Plan was amended by the Board on March 28, 2019, subject to the approval of the Company’s shareholders in accordance with Section 11(e). No Award shall be granted under the Plan after the close of business on the day immediately preceding the tenth anniversary of the Effective Date of the Plan. Subject to other applicable provisions of the Plan, all Awards made under the Plan prior to such termination of the Plan shall remain in effect until such Awards have been satisfied or terminated in accordance with the Plan and the terms of such Awards.

* * * * *


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Exhibit 31.01

 
CERTIFICATION OF CO-PRINCIPAL EXECUTIVE OFFICER
 
I, Michael Del Nin, certify that:
 
1.
I have reviewed this quarterly report on Form 10-Q of Central European Media Enterprises Ltd.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any changes in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report), that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
 
 
/s/ Michael Del Nin
 
Michael Del Nin
 
co-Chief Executive Officer
 
(co-Principal Executive Officer)
 
July 23, 2019

 





Exhibit 31.02

 
CERTIFICATION OF CO-PRINCIPAL EXECUTIVE OFFICER
 
I, Christoph Mainusch, certify that:
 
1.
I have reviewed this quarterly report on Form 10-Q of Central European Media Enterprises Ltd.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any changes in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report), that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
 
 
/s/ Christoph Mainusch
 
Christoph Mainusch
 
co-Chief Executive Officer
 
(co-Principal Executive Officer)
 
July 23, 2019

 





Exhibit 31.03

 
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
 
I, David Sturgeon, certify that:
 
1.
I have reviewed this quarterly report on Form 10-Q of Central European Media Enterprises Ltd.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any changes in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report), that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
 
 
/s/ David Sturgeon
 
David Sturgeon
 
Chief Financial Officer
 
(Principal Financial Officer)
 
July 23, 2019
 
 





Exhibit 32.01

 
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Central European Media Enterprises Ltd. (the “Company”) on Form 10-Q for the quarterly period ended June 30, 2019 , as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, Michael Del Nin and Christoph Mainusch, co-Chief Executive Officers of the Company, and David Sturgeon, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2
the information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company as of the dates and for the periods explained in the Report.

 
/s/  Michael Del Nin
 
/s/  Christoph Mainusch
 
/s/  David Sturgeon
 
Michael Del Nin
 
Christoph Mainusch
 
David Sturgeon
 
co-Chief Executive Officer
 
co-Chief Executive Officer
 
Chief Financial Officer
 
(co-Principal Executive Officer)
 
(co-Principal Executive Officer)
 
(Principal Financial Officer)
 
July 23, 2019
 
July 23, 2019
 
July 23, 2019