EXECUTION COPY
EMPLOYMENT AGREEMENT
AGREEMENT made as of the 1st day of August, 1999, by and between Central
European Media Enterprises Ltd., a Bermuda corporation (the "Corporation"), and
John Schwallie ("Schwallie" together with the Corporation, the "Parties").
WITNESSETH:
WHEREAS, the Corporation wishes to employ Schwallie, and Schwallie wishes
to be employed by the Corporation, on the terms and conditions set forth below;
NOW, THEREFORE, in consideration of the foregoing and the terms and
conditions contained herein, the parties hereto agree as follows:
1. Position and Responsibilities.
1.1. Subject to Section 2.4 hereof, the Corporation hereby employs Schwallie to
serve in an executive capacity as Vice President Finance and Chief Financial
Officer of the Corporation. Subject to the direction and authorization of the
President and Chief Executive of the Corporation, Schwallie shall perform such
functions and undertake such responsibilities as are customarily associated with
such a position. All these functions will take place outside the United Kingdom.
Schwallie shall hold such directorships and executive officerships in the
Corporation and any subsidiary to which, from time to time, he may be elected or
appointed during the term of this Agreement.
1.2. Schwallie shall devote his full time and best efforts to the business and
affairs of the Corporation and to the promotion of its interests; provided,
however, that Schwallie shall be entitled to devote such time as is necessary to
fulfil his obligations under the Employment Agreement dated the date hereof
between Schwallie and CME Development Corporation.
1.3. The parties acknowledge that Schwallie will perform the duties hereunder
wholly outside of the United Kingdom and acknowledge that Schwallie has entered
into an employment agreement with CME Development Corporation which would cover
services to be performed by him inside the United Kingdom. Schwallie will do
such travelling as may reasonably be required in the performance of his duties
hereunder, which the Parties estimate to be approximately 50% of the time on an
overall basis.
2. Term.
2.1. The term of this Agreement shall commence on 1 August 1999 and terminate on
July 31, 2002, unless sooner terminated as provided in this Agreement. The term
of this Agreement and any extension thereof is herein referred to as the "Term."
2.2. Notwithstanding the provisions of Section 2.1 hereof, the Corporation shall
have the right, on written notice to Schwallie, to terminate this Agreement for
Cause (as defined herein), such termination to be effective seven days after the
date on which written notice is given or as of such later date otherwise
specified in the notice.
2.3 For purposes of this Agreement, the term "Cause" shall mean fraud or
dishonesty or acts of gross negligence in the course of providing his services
herein which are injurious to the Corporation; wilful misrepresentation to
shareholders or directors which is injurious to the Corporation; a wilful
failure without reasonable justification to comply with a reasonable written
order of the President and Chief Executive or the Board of Directors of Central
European Media Enterprises Ltd. (the "Board of Directors"), which shall not be
cured within 20 days after written notice; a wilful and material breach of this
Agreement, which shall not be cured within 20 days after written notice; or the
commission of a felony.
2.4 Notwithstanding the provisions of Section 1.1 or Section 2.1 hereof, the
Corporation shall have the right to re-assign Schwallie to other Executive
positions with different responsibilities as determined by the President and
Chief Executive Officer or the Board of Directors in their sole discretion. Any
such reassignment will not constitute "Good Reason" under this Employment
Agreement. "Executive" means a position with management responsibility which
reports directly to the President or Chief Operating Officer of the Corporation,
and which is a Named Executive Officer in the Corporation's reports filed under
the Securities Act of 1934 for as long as the Corporation is required to file
publicly available reports under the Securities Act of 1934.
2.5. For purposes of this Agreement, the term "Good Reason" shall mean any of
the following: (a) a relocation outside of the London metropolitan area without
Schwallie's prior consent; or (b) a re-assignment of Schwallie to a
non-Executive position; or (c) failure by the Corporation to comply with any of
the material terms of this Agreement, which shall not have been cured within 20
days after written notice thereof. For a period of 30 days after the occurrence
of a Good Reason event, Schwallie shall have the right to terminate this
Agreement for Good Reason.
2.6. If this (i) Agreement shall be terminated (a) by the Corporation other than
pursuant to Sections 2.2, 4.1 or 4.2 hereof or (b) by Schwallie for Good Reason
(as defined herein) or (ii) the Corporation does not offer to renew this
Agreement on terms as favourable to Schwallie as contained in this Agreement
(excluding stock options awarded pursuant to Section 3.7) then the Corporation
shall continue to pay to Schwallie his salary for 15 (fifteen) months following
the date of termination, but Schwallie shall not be entitled to receive any
other compensation, bonuses, benefits or other payments relating to such fifteen
month period. In such event, the Corporation will pay relocation expenses back
to the Czech Republic or the Corporation shall pay an amount equivalent to the
cost of relocation of Schwallie to the Czech Republic. In the event this
Agreement shall be terminated by the Corporation pursuant to Sections 4.1 or 4.2
hereof, the Corporation shall continue to pay to Schwallie and/or his wife and
children for all benefits provided in Section 3.3 of this Agreement, and
specifically ensure that health, life and disability insurance shall continue in
effect for the remainder of the Term.
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2.7. Upon termination of this Agreement for any reason, the Corporation will
immediately pay Schwallie all amounts due and owing, including but not limited
to bonuses, accrued vacation, expense reimbursements and earned salary.
2.8. The Corporation will inform Schwallie no later than six months prior to the
termination date of this Agreement whether or not the Corporation wishes to
renew the Agreement.
2.9. Upon expiration or termination of this Agreement, including any extension
thereof, for any reason, all directorships or executive officerships in the
Corporation or any of its affiliates to which Schwallie was elected or appointed
shall also immediately terminate.
2.10. In the event that Schwallie wishes to terminate this Agreement for other
than Good Reason, Schwallie agrees to give the Corporation three months notice.
Nevertheless, at the option of the Corporation, Schwallie shall be required to
perform his duties during this notice period.
3. Salary.
3.1. The Corporation shall pay to Schwallie for the services to be rendered by
Schwallie hereunder a salary at the rate of US$125,000 per annum. The salary
shall be payable in equal monthly installments of US$10,416.66 each. Such salary
will be adjusted on each anniversary of this Agreement to reflect the percentage
change in the consumer price index (HICP) for the London metropolitan area
published by the Office of National Statistics for the preceding year, or if
such index is no longer available, such other generally available index
measuring changes in consumer purchasing power (in the London metropolitan area
or nationally) designated by the Board of Directors; provided, however, in no
event will Schwallie's salary be reduced.
3.2. Schwallie will receive a payment from the Corporation equal to 50% of his
base salary for 1999 if the Corporation or any subsidiary or affiliate obtains a
television broadcast license in the Czech Republic, or if the Corporation or any
subsidiary or affiliate enters into any agreement to restore its operations in
the Czech Republic. Such payments would be in lieu of any other bonus payments
available to Schwallie for 1999. From 2000 onwards, the Corporation shall
provide Schwallie with the opportunity to earn an annual cash bonus. The amount
of any such annual bonus shall be determined by the CEO of the Corporation, and
subject to the Compensation Committee's approval in its sole discretion.
Executive and the Corporation anticipate that Executive shall have a target
annual bonus of approximately 33% of his Base Salary.
3.3. Schwallie shall be entitled to participate in, and receive benefits from,
any insurance, medical, disability, bonus, incentive compensation, or other
employee benefit plan, if any are adopted, of the Corporation or any subsidiary
which may be in effect at any time during this Agreement, provided that in any
event Schwallie shall, at the Corporation's expense, be entitled to private
medical insurance for himself, his wife and dependent children, disability
insurance and permanent health insurance at the maximum permissible levels from
time to time, and life insurance in an amount
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commensurate with the life insurance offered to the other senior executives of
the Corporation. These benefits will not be reduced from the present level
without his prior written consent.
3.4. The Corporation agrees to reimburse Schwallie for all reasonable and
necessary business expenses incurred by, him on behalf of the Corporation in the
course of his duties hereunder upon the presentation by Schwallie of appropriate
receipts therefore.
3.5. For each calendar month during the Term that Schwallie maintains a
principle residence in the Greater London Metropolitan area, Schwallie shall be
entitled to a monthly living allowance of Pound Sterling (pound)1,666.67 to be
paid in equal monthly installments and adjusted on each anniversary of this
Agreement to reflect the percentage change in the consumer price index (HICP)
for the London metropolitan area published by the Office of National Statistics
for the preceding year, or if such index is no longer available, such other
generally available index measuring changes in consumer purchasing power (in the
London metropolitan area or nationally) designated by the Board of Directors
provided, however, in no event will this allowance be reduced.
3.6. Schwallie's entitlement to paid vacation is governed by the Corporation's
Employee Handbook.
3.7. The Corporation shall grant to Schwallie an option to purchase 80,000
shares of Class A Common Stock of the Corporation as of the date of this
Agreement under the terms of the Corporation's 1995 Stock Option Plan, as
amended (the "Stock Option Plan"). The option prices for these shares shall be
US$13.00 per share. The options shall become exercisable in equal annual
installments over a three year period on the anniversary of the grant of the
options provided that Schwallie is engaged by the Corporation on such date. The
options shall remain exercisable on a cumulative basis until the expiry of 7
years from the date of the grant, except if this Agreement is terminated for
Cause as defined in Section 2.3 hereof, in which case the options will
terminate. Option exercise shall be accelerated in the event of termination of
Schwallie's engagement by reason of death or Disability, by notice of
termination for Good Reason and by the Corporation by notice other than for
Cause. In addition, the Corporation may at its sole discretion extend the Stock
Option Plan in the future. The timing and amount of any subsequent option awards
shall be at the discretion of the Compensation Committee and the Board of
Directors of the Corporation. Options will be incentive stock options to the
extent permitted by Section 422(d) of the US Internal Revenue Code 1986, as
amended. In the event that any of the terms of the Stock Option Plan become more
favourable to Executives of the Company, then Schwallie shall be entitled to
benefit from such provisions to the extent allowed by the Compensation
Committee.
3.8 In the event that this Agreement is terminated by the Corporation for any
reason other than Cause, or if the Agreement is terminated by Schwallie for Good
Reason, the Corporation shall be obliged to enter into a non-exclusive
Consulting Agreement with Schwallie for the nominal fee of US$1.00 per year for
a period which will allow all of the options granted to Schwallie by the
Corporation to vest and thus become exercisable. The sole purpose of such a
Consulting Agreement is to enable certain of
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Schwallie's options granted under this Section 3 to vest and remain exercisable
as though Schwallie were still an employee under the terms of this Agreement. It
is understood that the Consulting Agreement itself would not prevent Schwallie
from taking a full-time job with another company.
4. Death; Incapacity.
4.1. If, during the Term, because of illness or other incapacity, Schwallie
shall fail for a period of 180 consecutive days, or for shorter periods
aggregating more than 180 days during any twelve month period, to render the
services contemplated hereunder, then the Corporation, at its option, may
terminate this Agreement by notice from the Corporation to Schwallie, effective
on the giving of such notice.
4.2. In the event of the death of Schwallie during the Term, this Agreement
shall terminate on the date of such death.
4.3. Upon termination of this Agreement, the Corporation shall pay to Schwallie
or his legal representatives any amounts owed to him including but not limited
to expense reimbursement, accrued vacation and earned bonuses, and Schwallie
shall pay to the Corporation any amounts owed to the Corporation, to the date of
termination.
5. Other Activities During Agreement.
5.1. Schwallie agrees to devote up to 120 working days per year to performing
services under this Agreement and up to 120 working days per year to performing
services under the Employment Agreement dated the date hereof between Schwallie
and CME Development Corporation; Schwallie shall devote his full business time
to performing services under these two agreements.
5.2. During the Term and for a period of two years thereafter, and except as
contemplated herein, neither Schwallie nor any entity in which he may be
interested as a partner, trustee, director, officer, employee, shareholder,
option holder, lender of money or guarantor (each, a "Schwallie Affiliate")
shall be engaged directly or indirectly in the business of licensing of
television or radio stations and provision of programming engaged in by the
Corporation, or any subsidiary, in any country in Europe where the Corporation,
or any subsidiary, conducts such business at any time during the Term (a
"Competitive Activity"); provided, however, that the foregoing shall not be
deemed to prevent Schwallie from investing in not more than 5% of the
outstanding securities of a public company. If, for a period of two years after
the Term, Schwallie or a Schwallie Affiliate proposes to engage in what may be a
Competitive Activity, Schwallie shall so notify the Corporation in writing which
shall fully set forth and describe in detail the nature of the activity which
may be a Competitive Activity, the names of the companies or other entities with
or for whom such activity is proposed to be undertaken, and whether it is
proposed to be engaged in by Schwallie or by a Schwallie Affiliate (the "Section
5 Notice"). If, within 30 days after notice to the Corporation pursuant to a
Section 5 Notice, the Corporation shall fail to notify Schwallie that it deems
the proposed activity to be a Competitive Activity, then Schwallie shall be free
to engage in the activities described in the Section 5 Notice without violation
of this Section 5.2. It is understood and agreed that any opportunity directly
or indirectly related to any business
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engaged in by the Corporation, or any subsidiary, in any country in Europe where
the Corporation, or any subsidiary, conducts such business at any time during
the Term shall be deemed a corporate opportunity of the Corporation and
Schwallie shall promptly make such opportunity available exclusively to the
Corporation.
5.3. Schwallie shall not at any time during this Agreement or after the
termination hereof directly or indirectly divulge, furnish, use, publish or make
accessible to any person or entity other than Central European Media Enterprises
Ltd. Any Confidential Information (as hereinafter defined) other than in
connection with the performance of his duties hereunder. It is the specific
intent of the Corporation and Schwallie that each and all of the provisions set
forth hereinabove shall be valid and enforceable as specifically set forth
hereinabove; and that Schwallie acknowledges that the Corporation's remedies at
law are likely to be inadequate, and Schwallie consents to the application of
the equitable remedies of specific performance to enforce the Corporation's
rights hereunder. Further, should any person seek to legally compel Schwallie
(by oral questions, interrogatories, requests for information or documents,
subpoena, civil investigative demands or otherwise) to disclose any Confidential
Information, Schwallie shall provide the Corporation with prompt notice followed
up in writing so that the Corporation may seek a protective order or other
appropriate remedy, failing which Schwallie shall be entitled to make such
disclosure as is legally required. In any event Schwallie shall use his best
efforts with the advice of counsel to furnish only that portion of the
Confidential Information which is legally required and, with the cooperation of
the Corporation, will exercise his best efforts to obtain reliable assurance
that confidential treatment will be accorded information so disclosed. In the
event of a breach or a threatened breach by Schwallie of the provisions of this
Section 5.3, the Corporation may, in addition to any other remedies it may have,
obtain injunctive relief in any court of appropriate jurisdiction to enforce
this Section 5.3. The provisions of this Section 5.3 shall survive the
expiration or termination, for any reason, of this Agreement and shall be
separately enforceable. Any records of Confidential Information prepared by
Schwallie or which come into Schwallie's possession during the Term are and
remain the property of the Corporation and upon termination of this Agreement
all such records and copies thereof shall be either left with or returned to the
Corporation.
5.4. The term "Confidential Information" shall mean information disclosed to
Schwallie or known, learned, created or observed by him as a consequence of or
through this Agreement, not generally known in the relevant trade or industry,
about the Corporation's business activities, services and processes, including
but not limited to information concerning advertising, sales promotion,
publicity, sales data, research, programming and plans for programming,
finances, accounting, methods, processes, business plans (including prospective
or pending license applications or investments in license holders or
applicants), client or supplier lists and records, potential client or supplier
lists, and client or supplier billing.
6. Indemnification.
6.1. The Corporation will indemnify Schwallie and pay on his behalf all Expenses
(as defined below) incurred by Schwallie in any Proceeding (as defined below),
whether the Proceeding which gave rise to the right of indemnification pursuant
to this Agreement occurred prior to or after the date of this Agreement provided
that Schwallie shall
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promptly notify the Corporation of such Proceedings and the Corporation shall be
entitled to participate in such Proceedings and, to the extent that it wishes,
jointly with Schwallie, assume the defense thereof with counsel of its choice.
This indemnification shall not apply if it is determined by a court of competent
jurisdiction in a Proceeding that any losses, claims, damages or liabilities
arose primarily out of the gross negligence, wilful misconduct or bad faith of
Schwallie.
6.2. The term "Proceeding" shall include any threatened, pending or completed
action, suit or proceeding, or any inquiry or investigation, whether brought in
the name of the Corporation or otherwise and whether of a civil, criminal,
administrative or investigative nature, including, but not limited to, actions,
suits or proceedings brought under or predicated upon any securities laws, in
which Schwallie may be or may have been involved as a party or otherwise, and
any threatened, pending or completed action, suit or proceeding or any inquiry
or investigation that Schwallie in good faith believes might lead to the
institution of any such action, suit or proceeding or any such inquiry or
investigation, by reason of the fact that Schwallie is or was a director,
officer, employee, agent or fiduciary of the Corporation, by reason of any
action taken by Schwallie or of any inaction on his part while acting as such
director, officer, employee, agent or fiduciary or by reason of the fact that he
is or was serving at the request of the Corporation as a director, officer,
employee, trustee, fiduciary or agent of another corporation, partnership, joint
venture, employee benefit plan, trust or other enterprise, whether or not he is
serving in such capacity at the time any liability or expense is incurred for
which indemnification or reimbursement can be provided under this Agreement.
6.3. The term "Expenses" shall include, without limitation thereto, expenses
(including, without limitation, attorneys' fees and expenses) of investigations,
judicial or administrative proceedings or appeals, damages, judgements, fines,
penalties or amounts paid in settlement by or on behalf of Schwallie and any
Expenses of establishing a right to indemnification under this Agreement.
6.4. The Expenses incurred by Schwallie in any Proceeding shall be paid by the
Corporation as incurred and in advance of the final disposition of the
Proceeding at the written request of Schwallie. Schwallie hereby agrees and
undertakes to repay such amounts if it shall ultimately be decided in a
Proceeding that he is not entitled to be indemnified by the Corporation pursuant
to this Agreement or otherwise.
6.5. The indemnification and advancement of Expenses provided by this Agreement
shall not be deemed exclusive of any other rights to which Schwallie may be
entitled under the Corporation's Articles of Incorporation or Bye-Laws, any
agreement, any vote of stockholders or disinterested directors, the laws under
which the Corporation was formed, or otherwise, and may be exercised in any
order Schwallie elects and prior to, concurrently with or following the exercise
of any other such rights to which Schwallie may be entitled, including pursuant
to directors and officers insurance maintained by the Corporation, both as to
action in official capacity and as to action in another capacity while holding
such office, and the exercise of such rights shall not be deemed a waiver of any
of the provisions of this Agreement. To the extent that a change in law (whether
by statute or judicial decision) permits greater indemnification by agreement
than would be afforded currently under the Corporation's Articles of
Incorporation, Bye-Laws and
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this Agreement, it is the intent of the parties hereto that Schwallie shall
enjoy by this Agreement the greater benefit so afforded by such change. The
provisions of this Section 6 shall survive the expiration or termination, for
any reason, of this Agreement and shall be separately enforceable.
7. Assignment. The Corporation shall require any successor or assign to all or
substantially all the assets of the Corporation, prior to consummation of any
transaction therewith, to expressly assume and agree to perform in writing this
Agreement in the same manner and to the same extent that the Corporation would
be required to perform it if no such succession or assignment had taken place.
This Agreement shall inure to the benefit of and be binding upon the Corporation
and its successors and assigns. Schwallie shall not transfer, assign, convey,
pledge or encumber this Agreement, or his rights, title or interest herein
without the prior consent of the Corporation.
8. No Third Party Beneficiaries. This Agreement does not create, and shall not
be construed as creating, any rights enforceable by any person not a party to
this Agreement, except as provided in Sections 2.6, 2.7, 4.3, 6 and 7 hereof.
9. Headings. The headings of the sections hereof are inserted for convenience
only and shall not be deemed to constitute a part hereof nor to affect the
meaning thereof.
10. Interpretation. In case any one or more of the provisions contained in this
Agreement shall, for any reason, be held to be invalid, illegal or unenforceable
in any respect, such invalidity, illegality or unenforceability shall not affect
any other provisions of this Agreement, and this Agreement shall be construed as
if such invalid, illegal or unenforceable provision had never been contained
herein. If, moreover, any one or more of the provisions contained in this
Agreement shall for any reason be held to be excessively broad as to duration,
geographical scope, activity or subject, it shall be construed by limiting and
reducing it, so as to be enforceable to the extent compatible with the
applicable law as it shall then appear.
11. Notices. All notices under this Agreement shall be in writing and shall be
deemed to have been given at the time when mailed by registered or certified
mail or when delivered by hand or recognized overnight courier service,
addressed to the address below stated of the party to which notice is given, or
to such changed address as such party may have fixed by notice:
To the Corporation:
52 Poland Street
London W1V 3DF England
Attn: President and Chief Executive Officer
with a copy to:
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Legal Department
52 Poland Street
London W1V 3DF England
To Schwallie:
52 Poland Street
London W1V 3DF England
with a copy to:
Mark T. Schwallie, Esq.
116 Chesterfield Road
Westhampton, MA 01027
USA
and a copy to:
James D. Lebson
Lebson & Muller PC,
26 Franklin Street
Tenafly,
New Jersey 07670 USA
provided, however, that any notice of change of address shall be effective only
upon receipt.
12. Waivers. If any party should waive any breach of any provision of this
Agreement, it shall not thereby be deemed to have waived any preceding or
succeeding breach of the same or any other provision of this Agreement.
13. Complete Agreement; Amendments. The foregoing is the entire agreement of the
parties with respect to the subject matter hereof and may not be amended,
supplemented, cancelled or discharged except by written instrument executed by
the parties hereto.
14. Survival. Sections 2.4 - 2.9, 2.9, 3.3, 3.7, 4.3, 5.2 - 5.4, 6 and 16 shall
survive the termination hereof, whether such termination shall be by expiration
of this Agreement or an early termination pursuant to Section 2 hereof.
15. Termination of Agreements. Effective as of the date hereof, this Agreement
replaces and cancels the Employment Agreement by and between the Corporation and
Schwallie dated as of November 21, 1997 ("Previous Agreement") and the Amendment
to the Previous Agreement, by and between the Corporation and Schwallie dated
December 8, 1998.
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16. Governing Law. This Agreement is to be governed by and construed in
accordance with the laws of New York, without giving effect to principles of
conflicts of law. The Parties hereby consent to the jurisdiction of the courts
of the State of New York with respect to any claim arising under or based upon
this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
By:/s/ Fred T. Klinkhammer
------------------------
Name:
Title:
JOHN SCHWALLIE /s/ John A. Schwallie
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