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Playboy - Lifford LLC Agreement 12-23-2002

SECOND AMENDED AND RESTATED

OPERATING AGREEMENT

FOR

PLAYBOY TV - LATIN AMERICA, LLC

A CALIFORNIA LIMITED LIABILITY COMPANY

 

 

Portions of this exhibit have been omitted pursuant to a request for

confidential treatment filed with the Securities and Exchange Commission. The

omissions have been indicated by asterisks ("***"), and the omitted text has

been filed separately with the Securities and Exchange Commission.

 

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TABLE OF CONTENTS

 

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ARTICLE 1 DEFINITIONS.............................................1

 

ARTICLE 2 ORGANIZATIONAL MATTERS..................................8

 

2.1 Formation...............................................8

 

2.2 Name....................................................9

 

2.3 Term....................................................9

 

2.4 Office and Agent........................................9

 

2.5 Addresses of the Members, the Managers and the General

Manager.................................................9

 

2.6 Purpose of Company......................................9

 

ARTICLE 3 CAPITAL CONTRIBUTIONS...................................9

 

3.1 Capital Contribution....................................9

 

3.2 Additional Capital Contributions.......................10

 

3.3 Optional Capital Contributions.........................10

 

3.4 Capital Accounts.......................................10

 

3.5 No Interest............................................10

 

3.6 Iberia Agreements......................................11

 

ARTICLE 4 ALLOCATIONS OF NET INCOME AND NET LOSSES AND

DISTRIBUTIONS..........................................11

 

4.1 Allocations of Net Income and Net Loss.................11

 

4.2 Distribution of Distributable Cash by the Company......11

 

4.3 Form of Distribution...................................11

 

4.4 Restriction on Distributions...........................12

 

4.4.1 Restriction..................................12

 

4.4.2 Method of Determination......................12

 

4.4.3 Personal Liability...........................12

 

4.5 Return of Distributions................................12

 

4.6 Withholding............................................12

 

ARTICLE 5 MANAGEMENT AND CONTROL OF THE COMPANY..................13

 

5.1 The Management Committee...............................13

 

5.1.1 General Scope of Authority...................13

 

5.1.2 Veto Rights..................................13

 

5.2 Members of the Management Committee; Appointment and

Removal; Voting........................................14

 

5.3 Meetings of the Management Committee...................15

 

5.4 Delegation of Authority; General Manager and Other

Officers...............................................15

 

5.4.1 General Power to Delegate Authority..........15

 

5.4.2 The General Manager..........................16

 

5.4.3 Duties of the General Manager................16

 

5.4.4 Additional Officers..........................17

 

5.4.5 Officers Serve at the Pleasure of the

Management Committee.........................17

 

5.5 Interested Party Transactions..........................17

 

5.5.1 Approval.....................................17

 

5.5.2 Termination and Remedies.....................17

 

5.5.3 Priority of Payments.........................17

 

5.6 Performance of Duties; Liability of Managers...........18

 

5.6.1 Standards....................................18

 

5.7 Management Company.....................................18

 

5.8 Insurance..............................................18

 

ARTICLE 6 BUSINESS PLANS AND ANNUAL BUDGETS......................18

 

6.1 The Business Plan......................................18

 

6.1.1 The Business Plan............................18

 

6.1.2 Additions to Business Plan...................18

 

6.2 Annual Budgets.........................................18

 

6.2.1 Adjustment to Annual Budget..................18

 

6.2.2 Required Local Programming Expenditures

Allocations..................................19

 

6.2.3 Adjustment to Company Produced Programming

Budget and Marketing Budget..................19

 

ARTICLE 7 [INTENTIONALLY OMITTED]................................19

 

ARTICLE 8 MEMBERS................................................19

 

8.1 Limited Liability......................................19

 

8.2 Admission of Additional Members........................20

 

8.3 Withdrawals or Resignations............................20

 

8.4 Termination of Membership Interest.....................20

 

8.5 Remuneration To Members................................20

 

8.6 Members Are Not Agents; No Management Authority........20

 

8.7 Meetings of Members....................................20

 

8.7.1 Date, Time and Place of Meetings of Members;

Secretary....................................20

 

8.7.2 Power to Call Meetings.......................20

 

8.7.3 Notice of Meeting............................20

 

8.7.4 Manner of Giving Notice; Affidavit of Notice.21

 

8.7.5 Validity of Action...........................21

 

8.7.6 Quorum.......................................21

 

8.7.7 Adjourned Meeting; Notice....................21

 

8.7.8 Waiver of Notice or Consent..................21

 

8.7.9 Action by Written Consent Without a Meeting..21

 

8.7.10 Telephonic Participation by Member at

Meetings.....................................22

 

8.7.11 Record Date..................................22

 

8.7.12 Proxies......................................22

 

ARTICLE 9 TRANSFER AND ASSIGNMENT OF INTERESTS...................23

 

9.1 Transfer and Assignment of Interests...................23

 

9.2 Further Restrictions on Transfer of Interests..........23

 

9.3 Right of First Offer...................................23

 

9.4 Right of First Refusal.................................24

 

9.5 Substitution of Members................................25

 

9.6 Effective Date of Permitted Transfers..................26

 

9.7 Rights of Legal Representatives........................26

 

9.8 PEGI Buy-Up Option.....................................26

 

9.9 Claxson Control Over Membership Interest...............27

 

9.10 Playboy Television B.V. and PTVLA U.S., LLC............28

 

9.11 Venus Operations.......................................29

 

ARTICLE 10 CONSEQUENCES OF DEATH, DISSOLUTION RETIREMENT OR

BANKRUPTCY OF MEMBER...................................30

 

10.1 Withdrawal Dissolution Event...........................30

 

10.2 Purchase Price.........................................30

 

10.3 Notice of Intent to Purchase...........................30

 

10.4 Election to Purchase Less Than All of the Former

Member's Interest......................................31

 

10.5 Payment of Purchase Price..............................31

 

10.6 Closing of Purchase of Former Member's Interest........31

 

10.7 Purchase Terms Varied by Agreement.....................31

 

ARTICLE 11 ACCOUNTING, RECORDS, REPORTING BY MEMBERS..............31

 

11.1 Books and Records......................................31

 

11.2 Delivery to Members and Inspection.....................32

 

11.2.1 Delivery Upon Request........................32

 

11.2.2 Inspection...................................32

 

11.2.3 Authorized Persons...........................32

 

11.2.4 PEI Additional Right of Inspection...........32

 

11.3 Statements.............................................33

 

11.3.1 Annual Report................................33

 

11.3.2 Monthly Report...............................33

 

11.3.3 Tax Information..............................33

 

11.4 Financial and Other Information........................33

 

11.5 Filings................................................33

 

11.6 Bank Accounts..........................................33

 

11.7 Accounting Decisions and Reliance on Others............34

 

11.8 Tax Matters for the Company Handled by Managers and

Tax Matters Member.....................................34

 

ARTICLE 12 DISSOLUTION AND WINDING UP.............................34

 

12.1 Term...................................................34

 

12.2 Dissolution Events.....................................34

 

12.3 Effect of Dissolution..................................36

 

12.4 Dissolution............................................36

 

12.5 Certificate of Dissolution.............................37

 

12.6 Winding Up.............................................37

 

12.7 Distributions in Kind..................................37

 

12.8 Order of Payment of Liabilities Upon Dissolution.......37

 

12.8.1 Distributions to Members.....................37

 

12.8.2 Payment of Debts.............................37

 

12.9 Certificate of Cancellation............................38

 

12.10 No Action for Dissolution..............................38

 

ARTICLE 13 INDEMNIFICATION AND INSURANCE..........................38

 

13.1 Indemnification of Agents..............................38

 

13.2 Insurance..............................................38

 

ARTICLE 14 NON-COMPETITION........................................39

 

14.1 Prohibited Activities..................................39

 

14.2 Separate Covenants.....................................39

 

14.3 Intent; Severability...................................39

 

14.4 Injunctive Relief......................................39

 

ARTICLE 15 MEMBER REPRESENTATIONS AND WARRANTIES..................40

 

15.1 Representations and Warranties by Each Member..........40

 

15.1.1 Experience...................................40

 

15.1.2 No Advertising...............................40

 

15.1.3 Investment Intent............................40

 

15.1.4 Purpose of Entity............................40

 

15.1.5 Economic Risk................................40

 

15.1.6 No Registration of Membership Interest.......40

 

15.1.7 Membership Interest in Restricted Security...40

 

15.1.8 No Obligation to Register....................40

 

15.1.9 No Disposition in Violation of Law...........41

 

15.1.10 Investment Risk..............................41

 

15.1.11 Restrictions on Transferability..............41

 

15.1.12 Information Reviewed.........................41

 

15.1.13 No Representations By Company................41

 

15.1.14 Consultation with Attorney...................42

 

15.1.15 Tax Consequences.............................42

 

15.1.16 No Assurance of Tax Benefits.................42

 

15.2 Indemnity..............................................42

 

ARTICLE 16 DISPUTE RESOLUTION.....................................42

 

16.1 Alternate Dispute Resolution...........................42

 

16.2 Notification and Negotiation...........................42

 

16.3 Arbitration Rules......................................43

 

16.4 Selection of Arbitrators...............................43

 

16.5 Arbitration Procedures.................................43

 

16.6 Effect of Arbitration..................................44

 

16.7 Statute of Limitations.................................44

 

16.8 Service of Process.....................................44

 

16.9 Additional Arbitration Provisions......................44

 

16.10 Availability of Equitable Relief.......................44

 

ARTICLE 17 MISCELLANEOUS..........................................44

 

17.1 Additional Documents and Acts..........................44

 

17.2 Time is of the Essence.................................44

 

17.3 Remedies Cumulative....................................45

 

17.4 Currency; Payments.....................................45

 

17.5 Governing Law..........................................45

 

17.6 Authority..............................................45

 

17.7 Assignment; No Third Party Beneficiary.................45

 

17.8 Agreement Negotiated...................................46

 

17.9 Waivers; Remedies Cumulative, Amendments, etc..........46

 

17.10 Notices................................................46

 

17.11 Public Announcements...................................47

 

17.12 Survival...............................................47

 

17.13 Confidentiality........................................47

 

17.13.1 General Confidentiality Requirements.........48

 

17.13.2 Exceptions to the General Confidentiality

Requirements.................................48

 

 

EXHIBITS

 

EXHIBIT A CAPITAL CONTRIBUTION AND ADDRESSES OF MEMBERS........A-1

EXHIBIT B TAX ALLOCATIONS......................................B-1

EXHIBIT C CALCULATION OF FAIR MARKET VALUE.....................C-1

EXHIBIT D EXISTING AFFILIATE AGREEMENTS........................D-1

EXHIBIT E RESTRICTED TRANSFEREES...............................E-1

EXHIBIT F APPROVED COMPANY NAMES...............................F-1

EXHIBIT G REGISTRATION RIGHTS..................................G-1

EXHIBIT H RELATED DOCUMENTS....................................H-1

EXHIBIT I EXISTING PTV BV AGREEMENTS...........................I-1

EXHIBIT J EXISTING PTV US AGREEMENTS...........................J-1

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EXECUTION COPY

 

 

SECOND AMENDED AND RESTATED

OPERATING AGREEMENT

FOR

PLAYBOY TV - LATIN AMERICA, LLC

A CALIFORNIA LIMITED LIABILITY COMPANY

 

 

This Second Amended and Restated Operating Agreement is made and

entered into on December 23, 2002, effective as of April 1, 2002 (the

"Effective Date"), by and between Playboy Entertainment Group, Inc., a

Delaware corporation (together with its permitted successors and assigns

"PEGI") and Lifford International Co. Ltd., an International Business Company

incorporated under the laws of the British Virgin Islands (together with its

permitted successors and assigns "Lifford"), with reference to the following

facts:

 

A. On June 14, 1996, Articles of Organization for Playboy TV - Latin

America, LLC, a limited liability company organized under the laws of the

State of California (the "Company"), were filed with the California Secretary

of State, and PEGI and Bloomfield Mercantile, Inc. executed an operating

agreement (the "Initial Operating Agreement").

 

B. On November 4, 1998, Bloomfield Mercantile, Inc. assigned all of

its rights and obligations under the Initial Operating Agreement to Lifford

and Lifford was admitted as a Member to the Company.

 

C. On November 10, 1998, PEGI and Lifford amended and restated the

Initial Operating Agreement (the "Amended and Restated Operating Agreement")

in its entirety effective as of June 14, 1996.

 

D. Concurrently with the execution of this Agreement, PEGI and

Claxson are closing the restructuring (the "Restructuring") of the joint

venture relationships between Playboy Enterprises, Inc., a Delaware

corporation ("PEI"), and its Affiliates, on the one hand, and Claxson

Interactive Group Inc., an International Business Company incorporated under

the laws of the British Virgin Islands ("Claxson") and its Affiliates, on the

other hand.

 

E. Concurrently with the execution of this Agreement, Claxson is

contributing Venus to the Company pursuant to the Venus Contribution Agreement

(the "Venus Contribution").

 

F. The parties desire to amend and restate the Amended and Restated

Operating Agreement, as hereafter amended and restated, in its entirety as of

the Effective Date.

 

NOW, THEREFORE, the parties by this Agreement amend and restate the

Amended and Restated Operating Agreement in its entirety under the laws of the

State of California upon the terms and subject to the conditions of this

Agreement.

 

ARTICLE 1

DEFINITIONS

 

When used in this Agreement, the following terms shall have the

meanings set forth below:

 

"AAA" has the meaning set forth in Section 16.3.

 

"Act" means the Beverly-Killea Limited Liability Company Act,

codified in the California Corporations Code, Section 17000 et seq., as the

same may be amended from time to time.

 

"Additional Buy-Up Option" has the meaning set forth in Section 9.8.

 

"Adult-Oriented" means, with respect to a Channel or program, that

such Channel or program features content that is comparable to or more

explicit than the content that is exhibited on the Channels in the Territories

as of the date of this Agreement; it being understood that content that would

be rated no more restrictively than "R" by the Motion Picture Association of

America is not "Adult-Oriented" content as such rating standards are currently

in effect.

 

"Adult-Oriented Television Business" means the business of owning or

operating an Adult-Oriented television service or distributing, supplying or

producing Adult-Oriented programming in the Media.

 

"Affiliate" means any Person, directly or indirectly through one or

more intermediaries, controlling, controlled by, or under common control with

the specified Person. The term "control" (and "controlled" and "controlling,"

respectively), as used in the immediately preceding sentence, means the

possession, direct or indirect, of the power to direct or cause the direction

of the management and policies of the specified Person (whether by the holding

of shares or other equity interests, the possession of voting rights or

otherwise).

 

"Agent" has the meaning set forth in Section 13.1.

 

"Agreement" means this Second Amended and Restated Operating

Agreement, as originally executed and as amended from time to time in

accordance with the terms hereof.

 

"Amended Affiliation Agreement" means that certain Amended

Affiliation Agreement, executed concurrently herewith and effective as of the

Effective Date, by and between the Company and PTV BV.

 

"Amended and Restated Operating Agreement" has the meaning set forth

in the recitals.

 

"Annual Budget" has the meaning set forth in Section 6.2.

 

"Articles" means the Articles of Organization for the Company

originally filed with the California Secretary of State and as amended from

time to time.

 

"Bankruptcy" with respect to a Member means: (a) the filing of an

application by a Member for, or such Member's consent to, the appointment of a

trustee, receiver, or custodian of such Member's other assets; (b) the entry

of an order for relief with respect to a Member in proceedings under the

Bankruptcy Code, as amended or superseded from time to time; (c) the making by

a Member of a general assignment for the benefit of creditors; (d) the entry

of an order, judgment, or decree by any court of competent jurisdiction

appointing a trustee, receiver, or custodian of the assets of a Member unless

the proceedings and the person appointed are dismissed within ninety (90)

days; or (e) the failure by a Member generally to pay such Member's debts as

the debts become due within the meaning of Section 303(h)(l) of the Bankruptcy

Code, as determined by the Bankruptcy Court, or the admission in writing of

such Member's inability to pay its debts as they become due.

 

"Bankruptcy Code" means the United States Bankruptcy Code, 11 U.S.C.

101 et seq.

 

"Basic Cable" has the meaning currently or hereafter commonly

understood in the television industry, but will also include for all purposes

of this Agreement any broadcast or other transmission (whether by satellite or

otherwise) to television sets or other television devices, now or hereafter

known, of a program service (other than any free television terrestrial

broadcast station) (a) that is included as part of a package of program

services for which members of the public pay a periodic fee for the right to

receive such package of program services, and (b) for which program service a

separate fee is not generally charged for the right to receive the particular

service in question.

 

"Branded" means a television service or a Program or block of

Programs where PEGI's or any PEGI Affiliate's name or trademarks are used

either in connection or close affiliation with the service or the Program or

block of Programs, or any related advertising.

 

"Business Plan" has the meaning set forth in Section 6.1.

 

"Capital Account" means with respect to any Member the capital

account that the Company establishes and maintains for such Member pursuant to

Section 3.4 and Article 1 of Exhibit B.

 

"Capital Call" has the meaning set forth in Section 3.3.

 

"Capital Call Due Date" has the meaning set forth in Section 3.3.

 

"Capital Contribution" means the total value of cash and fair market

value of property (including promissory notes or other obligation to

contribute cash or property) contributed and/or services rendered or to be

rendered to the Company by Members, other than the Venus Contribution.

 

"Caribbean Basin" means the following territories: Anguilla, Antigua

and Barbuda, Aruba, Barbados, Bermuda, The British Virgin Islands, The Cayman

Islands, Cuba, Dominica, Dominican Republic, Grenada, Haiti, Jamaica,

Montserrat, St. Kitts & Nevis, St. Lucia, St. Vincent and the Grenadines,

Trinidad and Tobago, and the Turks and Caicos Islands.

 

"Channels" means Playboy TV - Latin America, the television program

service based on PEGI's Playboy television network as programmed by PEGI in

the United States from time-to-time, the Spice Networks and Venus, and any

other television program service added from time-to-time, in each case, as

provided for reception within the Territory by PTVLA in accordance with this

Agreement and the Program Supply Agreement (each, a "Channel").

 

"Cisneros Group" means (i) Gustavo A. Cisneros, Ricardo J. Cisneros,

their respective wives and direct descendants or any entity, including trusts,

in which Gustavo A. Cisneros and/or Ricardo J. Cisneros or their respective

wives and direct descendants hold, directly or indirectly, at least 50.1% of

the economic benefit or the total shares, participations or interests in

(however designated) corporate stock, partnership interests, limited liability

company interests, or any equivalents thereof of such entity, and which is

controlled, directly or indirectly, by any of such persons; or (ii) any

entity, including trusts, which is controlled, directly or indirectly, by any

of Gustavo A. Cisneros and/or Ricardo J. Cisneros or their respective wives

and direct descendants.

 

"Claim" has the meaning set forth in Section 15.2.

 

"Claxson" has the meaning set forth in the recitals.

 

"Claxson Guarantee Obligation" has the meaning set forth in Section

12.2.3.

 

"Code" means the Internal Revenue Code of 1986, as amended from time

to time, the provisions of succeeding law, and to the extent applicable, the

Treasury Regulations.

 

"Company" has the meaning set forth in the recitals.

 

"Company Produced Programming" shall mean Programs produced by the

Company for exhibition on the Channels.

 

"Company Produced Programming Budget" has the meaning set forth in

Section 6.2.1.

 

"Corporations Code" means the California Corporations Code, as

amended from time to time, and the provisions of succeeding law.

 

"CPI" means the Consumer Price Index for all Urban Consumers as

released by the Bureau of Labor Statistics, U.S. Department of Labor. If the

Bureau of Labor Statistics, U.S. Department of Labor (i) substantially revises

the methodology (in contrast to benchmark adjustments or other corrections of

previously published data), (ii) discontinues publication of any of the data

referred to above or (iii) temporarily discontinues publication of any of the

data referred to above, the parties shall select a substitute for the revised

or discontinued data, in order to provide substitute data to lead to the same

adjustment result, insofar as possible, as would have been achieved by

continuing the use of the original data as it may have fluctuated had it not

been revised or discontinued.

 

"Dissolution Event" has the meaning set forth in Section 12.2.

 

"Distributable Cash" means the amount of cash that the Management

Committee deems available for distribution to the Members, taking into account

all debts, liabilities and obligations of the Company then due and amounts

that the Management Committee deems necessary to place into reserves for

customary and usual claims with respect to the Company's business.

 

"Distribution Agreement" means that certain Amended Distribution

Agreement, dated as of December 23, 2002 and effective as of April 1, 2002,

between the Company and PEGI.

 

"DTM" has the meaning set forth in Section 3.6.

 

"DTM Arrangement" has the meaning set forth in Section 3.6.

 

"EBITDA" means, for any period, the consolidated earnings from

continuing operations of the Company and its Subsidiaries for such period

before interest expense, income taxes, the cumulative effect of changes in

accounting principle, depreciation of property and equipment, amortization of

intangible assets, amortization of investments in entertainment programming

and amortization of deferred financing fees.

 

"Economic Interest" means a Member's share of one or more of the

Company's Net Income, Net Losses, and distributions of the Company's assets

pursuant to this Agreement and the Act, but shall not include any other rights

of a Member, including, but not limited to, the right to vote or participate

in the management, or except as provided in Section 17106 of the Corporations

Code, any right to information concerning the business and affairs, of the

Company.

 

"Effective Date" is defined in the preamble.

 

"Existing PTV BV Agreements" has the meaning set forth in Section

9.10(a).

 

"Existing PTV US Agreements" has the meaning set forth in Section

9.10(a).

 

"Fair Market Value" with respect to the Company or any asset thereof

means the value determined pursuant to Exhibit C.

 

"Fiscal Year" means the Company's fiscal year, which shall be the

calendar year.

 

"Former Member" has the meaning set forth in Section 10.1.

 

"Former Member's Interest" has the meaning set forth in Section 10.1.

 

"Fully-Participating Member" has the meaning set forth in Section

3.3.1.

 

"GAAP" has the meaning set forth in Section 11.1.

 

"General Manager" has the meaning set forth in Section 5.4.2.

 

"Iberia" means Spain, Portugal and Andorra.

 

"Initial Operating Agreement" has the meaning set forth in the

recitals.

 

"Initial Option Percentage" has the meaning set forth in Section 9.8.

 

"Lifford" has the meaning set forth in the preamble.

 

"Lifford Managers" has the meaning set forth in Section 5.2.1.

 

"Lifford US" has the meaning set forth in Section 9.10(b).

 

"Major Currency" as used herein shall mean US Dollars, UK Pounds,

Euros or Japanese Yen.

 

"Majority Interest" means one or more Percentage Interests of Members

that taken together exceed fifty percent (50%) of the aggregate of all

Percentage Interests.

 

"Management Co." means Claxson USA, Inc., a Florida corporation

(formerly known as Cisneros Television Services Inc.)

 

"Management Committee" has the meaning set forth in Section 5.1.1.

 

"Management Services Agreement" means the Management Services

Agreement entered into as of November 1, 1996 between the Company and

Management Co. relating to the provision of services by Management Co., as

amended by the First Amendment to the Management Services Agreement dated as

of August 31, 1999, and as further amended by the Amended and Restated

Management Services Agreement dated as of the date hereof.

 

"Manager" has the meaning set forth in Section 5.2.1.

 

"Marketable Security" shall mean common stock or an American

Depositary Receipt that is listed for trading on the New York Stock Exchange,

the NASDAQ National Market System, or the London Stock Exchange.

 

"Marketing Budget" has the meaning set forth in Section 6.2.1.

 

"Media" means all forms of television exhibition, transmission and

distribution whether now existing or developed in the future and whether on a

subscription, pay-per-view, video-on-demand or free basis, including but not

limited to the following: (i) conventional VHF or UHF television broadcast,

(ii) Basic Cable and pay cable, (iii) "over the air pay" subscription

television (STV), (iv) direct broadcasting by satellite (DBS), (v) master

antenna television systems (MATV), (vi) multipoint distribution services

(MDS), (vii) multichannel multipoint distribution services (MMDS), (viii)

satellite master antenna television systems (SMATV), and (ix) microwave

transmission. Except as otherwise provided in the Program Supply Agreement,

Media shall exclude Streaming.

 

"Member" means each Person who (a) is an initial signatory to this

Agreement or has been admitted to the Company as a Member in accordance with

this Agreement and (b) has not resigned, withdrawn, been expelled or

dissolved.

 

"Member Offerees" has the meaning set forth in Section 9.3.

 

"Membership Interest" means a Member's entire interest in the Company

including the Member's Economic Interest, the right to vote on or participate

in the management, and the right to receive information concerning the

business and affairs, of the Company.

 

"Negotiated Purchase Price" has the meaning set forth in Section 9.3.

 

"Net Income" and "Net Losses" have the meanings set forth in Article

2 of Exhibit B hereto.

 

"Non-Contributing Member" has the meaning set forth in Section 3.3.1.

 

"Notice" has the meaning set forth in Section 16.2.

 

"Offer Notification" has the meaning set forth in Section 9.3.

 

"Offered Membership Interest" has the meaning set forth in

Section 9.3.

 

"Optional Capital Contribution" has the meaning set forth in

Section 3.3.

 

"PEGI" has the meaning set forth in the preamble.

 

"PEGI Buy-Up Option" has the meaning set forth in Section 9.8.

 

"PEGI Managers" has the meaning set forth in Section 5.2.1.

 

"PEI" has the meaning set forth in the recitals.

 

"PEI Representatives" has the meaning set forth in Section 11.2.4.

 

"PEI Stock" has the meaning set forth in Section 9.8(b).

 

"Percentage Interest" means the percentage of a Member set forth

opposite the name of such Member under the column "Member's Percentage

Interest" in Exhibit A hereto, as such percentage may be adjusted from time to

time pursuant to the terms of this Agreement.

 

"Person" means an individual, general partnership, limited

partnership, limited liability company, corporation, trust, estate, real

estate investment trust, association or any other entity.

 

"Program" or "Programming" means any television program which is, or

may be scheduled to be, broadcast or transmitted on the Channels.

 

"Program Supply Agreement" means the Amended Program Supply

Agreement, executed concurrently herewith and effective as of the Effective

Date, between PEGI and the Company with respect to the supply of programming

for the Channels and the license of certain trademarks.

 

"Proposed Purchaser" has the meaning set forth in Section 9.4(a).

 

"PTV BV" has the meaning set forth in Section 9.10(a).

 

"PTV Holdings" has the meaning set forth in Section 9.10(a).

 

"PTV UK" has the meaning set forth in Section 3.6.

 

"PTV US" has the meaning set forth in Section 9.10(a).

 

"PTV US Affiliation Agreement" means that certain Affiliation

Agreement, dated as of December 23, 2002 and effective as of April 1, 2002, by

and between the Company and PTV US.

 

"Purchase Notification" has the meaning set forth in Section 9.3.

 

"Reference Rate" means the reference rate as set forth from time to

time by The Bank of America Corporation.

 

"Related Documents" means those agreements set forth on Exhibit H

attached hereto.

 

"Remaining Members" has the meaning set forth in Section 10.1.

 

"Remediable Breach" has the meaning set forth in Section 12.2.2(b).

 

"Renewal" has the meaning set forth in Section 5.4.5.

 

"Required Expenditure Adjustment" has the meaning set forth in

Section 6.2.3.

 

"Response" has the meaning set forth in Section 16.2.

 

"Restructuring" has the meaning set forth in the recitals.

 

"Rules" has the meaning set forth in Section 16.3.

 

"SEC" means the U.S. Securities and Exchange Commission.

 

"Second Option Percentage" has the meaning set forth in Section 9.8.

 

"Securities Act" has the meaning set forth in Section 15.1.6.

 

"Securities Exchange Act" means the Securities Exchange Act of 1934,

as amended.

 

"Selling Member" has the meaning set forth in Section 9.3.

 

"Shortfall" has the meaning set forth in Section 6.2.3.

 

"Spice Networks" means collectively, Spice, Spice 2, Spice Platinum,

The Hot Zone, The Hot Network, Vivid TV, and successor networks, if any, as

PEGI may include from time-to-time, as programmed by PEGI.

 

"Streaming" means ***.

 

"Subsequent Transfer Offer Period" has the meaning set forth in

Section 9.3.

 

"Subsequent Third-Party Transfer Offer Period" has the meaning set

forth in Section 9.4(b).

 

"Subsidiary" means, with respect to any Person at any time, any

corporation, partnership, limited liability company or other entity, a

majority of the equity interests of which shall, at the time as of which any

determination is made, be owned, controlled or held by such Person either

directly or through Subsidiaries of such Person.

 

"Tax Matters Member" shall be Lifford or such Member's successor as

designated pursuant to Section 11.8.

 

"Term" has the meaning set forth in Section 12.1.

 

"Terms" has the meaning set forth in Section 9.3.

 

"Territory" means (a) Mexico and each country comprising Central and

South America; (b) Iberia; (c) the Caribbean Basin; and (d) the territories

and possessions of each of the foregoing, if any.

 

"Third Party" has the meaning set forth in Section 17.13.2(a).

 

"Third Party Buyer" has the meaning set forth in Section 9.3.

 

"Third Party Transfer Notice" has the meaning set forth in Section

9.4(a).

 

"Third-Party Transfer Offer Period" has the meaning set forth in

Section 9.4(b).

 

"Transfer" has the meaning set forth in Section 9.1.

 

"Transfer Offer Period" has the meaning set forth in Section 9.3.

 

"Treasury Regulations" has the meaning set forth in Exhibit B.

 

"Unbranded" means a television service or a Program or block of

Programs where PEGI's or any PEGI Affiliate's name or trademarks are not used

either in connection or close affiliation with the service or the Program or

block of Programs or any related advertising other than in customary

production, logo credits or end sequences of such Program or block of

Programs, for use solely in the credit block in advertising for such Program,

where applicable.

 

"Venus" means that certain premium and pay-per-view adult content

channel, launched in 1994, and owned and distributed throughout Latin America

by Claxson and its Subsidiaries and Affiliates.

 

"Venus Argentina" has the meaning set forth in Section 9.11.

 

"Venus Assets" has the meaning set forth in the Venus Contribution

Agreement.

 

"Venus Contribution" has the meaning set forth in the recitals.

 

"Venus Contribution Agreement" means that certain Venus Contribution

Agreement dated as of December 23, 2002, by and among Claxson, Lifford, the

Company and PEGI.

 

"Venus Entities" has the meaning set forth in Section 9.11.

 

"Venus International" has the meaning set forth in Section 9.11.

 

"Web Site Revenue Share Agreement" means the Web Site Revenue Share

Agreement, executed concurrently herewith and effective as of the Effective

Date, by and among Playboy.com, Inc., a Delaware corporation, Claxson and

PTVLA.

 

"Withdrawal Dissolution Event" means, with respect to any Member, one

or more of the following: the expulsion, Bankruptcy, dissolution or occurrence

of any other event that terminates the continued membership of any Member

unless the other Member(s) consent to continue the business of the Company

pursuant to Section 10.1.

 

"Zagasse" has the meaning set forth in Section 9.10(b).

 

ARTICLE 2

ORGANIZATIONAL MATTERS

 

2.1 Formation. Pursuant to the Act, the Members formed a limited

liability company under the laws of the State of California by filing the

Articles with the California Secretary of State and entering into the Initial

Operating Agreement. The rights and liabilities of the Members shall be

determined pursuant to the Act and this Agreement. To the extent that the

rights or obligations of any Member are different by reason of any provision

of this Agreement than they would be in the absence of such provision, this

Agreement shall, to the extent permitted by the Act, control.

 

2.2 Name. The name of the Company shall be "Playboy TV - Latin

America, LLC." The Management Committee shall be permitted to change the name

of the Company to any of the names set forth on Exhibit F attached hereto at

any time, or to any other name which does not appear on Exhibit F with the

approval of the PEGI Managers, within twenty-four (24) months from the date

hereof. The business of the Company may be conducted under such name or, upon

compliance with applicable laws, any other name set forth on Exhibit F. The

General Manager shall file any fictitious name certificates and similar

filings, and any amendments thereto, that the Management Committee considers

appropriate or advisable. Notwithstanding the foregoing, if there is no PEGI

Manager on the Management Committee or PEGI is no longer a Member, at PEGI's

request the Articles shall be amended to change the name of the Company to a

name that does not contain or utilize any Playboy trademarks or any

confusingly similar designation or mark.

 

2.3 Term. The term of this Agreement shall be co-terminus with the

period of duration of the Company provided in the Articles, unless extended or

sooner terminated as hereinafter provided.

 

2.4 Office and Agent. The Company shall continuously maintain an

office and registered agent in the State of California as required by the Act.

The principal office of the Company shall be as the Management Committee may

determine. The Company also may have such offices, anywhere within and without

the State of California, as the Management Committee from time to time may

determine, or the business of the Company may require. The registered agent

shall be as stated in the Articles or as otherwise determined by the

Management Committee.

 

2.5 Addresses of the Members, the Managers and the General Manager.

The respective addresses of the Members are set forth on Exhibit A, which

exhibit will be modified from time to time to reflect changes therein. The

respective addresses of the Managers and the General Manager shall be

maintained in the books of the Company and made available to any Member on

request.

 

2.6 Purpose of Company. The purpose of the Company is to engage in

any lawful activity for which a limited liability company may be organized

under the Act. Notwithstanding the foregoing, without the majority approval of

the Management Committee and subject to the veto right under Section 5.1.2(a),

the Company shall not engage in any business other than (i) the Adult-Oriented

Television Business in the Territory; (ii) licensing programming to third

parties in the Territory, except for Company Produced Programming, which can

be distributed worldwide to PEGI or one of its Affiliates pursuant to the

terms of the Distribution Agreement; (iii) development and marketing of

Adult-Oriented commercial websites, subject to any restrictions set forth in

the Web Site Revenue Share Agreement, targeted to Spanish and Portuguese

language audiences in the Territory, including the PTVLA websites, Venus

commercial website and Spice websites; and (iv) such other activities

ancillary and related thereto as may be necessary, advisable or appropriate,

in the reasonable opinion of the Management Committee to further the

businesses set forth in clauses (i) - (iii) above. Notwithstanding any

territorial or other restrictions contained in this Agreement, the parties

hereto acknowledge that the distribution of the Channels in Puerto Rico in the

Spanish language via DirecTV Latin America, LLC, so long as such distribution

is conducted solely in Puerto Rico in Spanish via DTH, shall not be deemed to

violate any such territorial restrictions.

 

ARTICLE 3

CAPITAL CONTRIBUTIONS

 

3.1 Capital Contribution. Each Member has contributed the amounts set

forth on Exhibit A as of the Effective Date. Exhibit A shall be revised to

reflect any additional contributions contributed in accordance with Section

3.3. Notwithstanding anything to the contrary contained herein, the parties

agree and acknowledge that the Venus Contribution shall have no impact on the

Capital Accounts of Lifford and PEGI.

 

3.2 Additional Capital Contributions. No Member shall be required to

make any additional Capital Contributions.

 

3.3 Optional Capital Contributions. The Management Committee may

reasonably determine in good faith from time to time, that additional Capital

Contributions from the Members (each, an "Optional Capital Contribution") are

necessary or appropriate for the conduct of the Company's business, including

without limitation, expansion or diversification thereof. Upon the Management

Committee making such a determination, the Company shall provide written

notice of such request for additional Capital Contributions (a "Capital Call")

to each Member not less than thirty (30) days prior to the date such Optional

Capital Contributions are due (the "Capital Call Due Date"). Such notice shall

set forth the aggregate amount of the Capital Call, the purposes for which

such Capital Contributions will be used and the date on which Optional Capital

Contributions are due. No Member shall be obligated to make any such Capital

Contributions. However, each Member shall have the opportunity, but not the

obligation, to participate in a Capital Call on a pro rata basis in accordance

with its Percentage Interest by making an Optional Capital Contribution. In

addition, a Member may elect to make its Optional Capital Contribution

conditional (a "Conditional Capital Contribution") upon the other Members

making their respective Optional Capital Contributions, in which event such

Conditional Capital Contribution shall be deemed made, if at all, only at such

time as the other Members make their respective Optional Capital

Contributions. If a Member elects to make a Conditional Capital Contribution

and the other Members decline or fail to make their respective Optional

Capital Contributions, then the Company shall immediately return the

Conditional Capital Contribution to the Member making such Conditional Capital

Contribution and such Conditional Capital Contribution shall be deemed never

to have been made. Immediately following any Optional Capital Contribution by

a Member, the Percentage Interests shall be adjusted to reflect the new

relative proportions of the Capital Accounts of the Members. Each of Lifford

and PEGI will have the right, by written notice to the General Manager and the

other Members at least five (5) business days prior to the Capital Call Due

Date, to fund its Optional Capital Contributions through retention by the

Company of the fees payable under the Related Documents then accrued, to the

extent sufficient to cover such requirements, subject to the timely review and

approval of the other Members of the offset amount.

 

3.3.1 If a Member (a "Non-Contributing Member") does not make an

Optional Capital Contribution equal to its pro rata share of the Capital Call

by the Capital Call Due Date, the Company shall notify each Member that made

an Optional Capital Contribution equal to its pro rata share of such Capital

Call (each, a "Fully-Participating Member") that such Fully-Participating

Member may, within the fourteen (14) day period from the date of such notice,

increase its Optional Capital Contribution to the Company to cover amounts

that the Non-Contributing Member declined to contribute on a pro rata basis,

in which case the Percentage Interests of the Members shall be adjusted to

reflect the new relative proportions of the Capital Accounts of the Members.

 

3.4 Capital Accounts. The Company has established an individual

Capital Account for each Member in accordance with Article 1 of Exhibit B

hereto. If a Member transfers all or a part of its Membership Interest in

accordance with this Agreement, such Member's Capital Account attributable to

the transferred Membership Interest shall carry over to the new owner of such

Membership Interest pursuant to Treasury Regulations Section

l.704-l(b)(2)(iv)(l). Each Member's Capital Account as of the Effective Date

is set forth in Exhibit A hereto.

 

3.5 No Interest. No Member shall be entitled to receive any interest

on its Capital Contributions.

 

3.6 Iberia Agreements. The parties acknowledge that Playboy TV UK

Limited ("PTV UK") has entered into certain agreements through Desarrollos

Tecnicos Multimedia s.l. ("DTM") as listed on Exhibit D hereto, relating to

the distribution of Spice Platinum and The Adult Channel in Iberia (the "DTM

Arrangement"). Promptly following the Closing, the Company shall have the

right to determine the following:

 

(1) Whether to permit DTM to continue to enter into

agreements on behalf of PTV UK and its Affiliates in the Territory;

and

 

(2) Whether to require that the agreements that DTM has

entered into on behalf of PTV UK and its Affiliates be transferred to

the Company or terminated, and PTVI or one of its Affiliates shall

bear all costs associated with such termination.

 

The Company shall inform PEGI of its decision with regard to these matters

promptly, and promptly thereafter PEGI shall cause PTV UK to use its

commercially reasonable efforts to implement the decision of the Company. If

the Company elects to cause the DTM Arrangement to be transferred to the

Company, such transfer shall be made for no additional consideration. In the

event that agreements required by the Company to be transferred to the Company

are not assignable according to their terms, PEGI shall cause PTV UK to use

its commercially reasonable efforts to terminate such agreements as promptly

as practicable in accordance with the terms of such agreements, and PTVI or

one of its Affiliates shall bear all costs associated with such termination.

Until such time as the transfer of the DTM Arrangement to the Company is

complete, PEGI shall pay over to the Company all of the net revenues that it

receives from the DTM Arrangement, less a distribution fee of twenty percent

(20%) of such revenues. In the event that the Company wishes to receive the

Spice Platinum feed or The Adult Channel feed for distribution through the DTM

Arrangement in Iberia following the transfer of such agreements, the Company

and PEGI shall negotiate in good faith the terms under which such feed will be

supplied, taking into account the revenues likely to be derived by the Company

from such feed and the fixed costs of Spice Platinum and The Adult Channel.

 

ARTICLE 4

ALLOCATIONS OF NET INCOME AND NET LOSSES AND DISTRIBUTIONS

 

4.1 Allocations of Net Income and Net Loss. Net Income and Net Loss

shall be allocated to the Members in accordance with Article 1 of Exhibit B.

 

4.2 Distribution of Distributable Cash by the Company. Subject to

applicable law and any limitations contained elsewhere in this Agreement, the

Management Committee shall cause the Company to distribute Distributable Cash

on a quarterly basis to the Members, which distributions shall be made to the

Members in proportion to their Percentage Interests as of the end of the

relevant quarter.

 

4.3 Form of Distribution. Except as provided in Section 12.7, a

Member, regardless of the nature of the Member's Capital Contribution, has no

right to demand and receive any distribution from the Company in any form

other than money. No Member may be compelled to accept from the Company a

distribution of any asset in kind in lieu of a proportionate distribution of

money being made to other Members. Except upon a dissolution and the winding

up of the Company, no Member may be compelled to accept a distribution of any

asset in kind.

 

4.4 Restriction on Distributions.

 

4.4.1 Restriction. No distribution shall be made if, after giving

effect to the distribution:

 

(a) The Company would not be able to pay its debts as they become due

in the usual course of business.

 

(b) The Company's total assets would be less than the sum of its

total liabilities.

 

4.4.2 Method of Determination. The Management Committee may base a

determination that a distribution is not prohibited on any of the following:

(i) financial statements prepared on the basis of accounting practices and

principles that are generally consistent with those used to prepare the

Company's audited financial statements; (ii) a fair valuation; or (iii) any

other method that is reasonable in the circumstances.

 

Except as provided in Section 17254(e) of the Corporations Code, the

effect of a distribution is measured as of the date the distribution is

authorized if the payment occurs within one hundred twenty (120) days after

the date of authorization, or the date payment is made if it occurs more than

one hundred twenty (120) days of the date of authorization.

 

4.4.3 Personal Liability. A Member or Manager who votes for a

distribution in violation of this Agreement or the Act is personally liable to

the Company for the amount of the distribution that exceeds what could have

been distributed without violating this Agreement or the Act if it is

established that the Member or Manager did not act in compliance with the

terms of this Agreement. Any Member or Manager who is so liable shall be

entitled to compel contribution from (a) each other Member or Manager who also

is so liable and (b) each Member for the amount the Member received with

knowledge of facts indicating that the distribution was made in violation of

this Agreement or the Act.

 

4.5 Return of Distributions. Except for distributions made in

violation of the Act or this Agreement, no Member shall be obligated to return

any distribution to the Company or pay the amount of any distribution for the

account of the Company or to any creditor of the Company. The amount of any

distribution returned to the Company by a Member or paid by a Member for the

account of the Company or to a creditor of the Company shall be added to the

account or accounts from which it was subtracted when it was distributed to

the Member.

 

4.6 Withholding. Notwithstanding any other provision of this

Agreement, the Management Committee is authorized to take any action that it

determines to be necessary or appropriate to cause the Company to comply with

any federal, state, local or foreign withholding requirement with respect to

any payment, allocation or distribution by the Company to any Member or other

person. Any amount withheld pursuant to the preceding sentence shall be

treated as a distribution to the Member to which such amount would have been

distributed under this Agreement but for the withholding. If any such

withholding requirement with respect to any Member exceeds the amount

distributable to such Member under this Agreement, or if any such withholding

requirement was not satisfied with respect to any item previously paid,

allocated or distributed to such Member, such Member or any successor or

assignee with respect to such Member's interest hereby indemnifies and agrees

to hold harmless the other Members and the Company for such excess amount or

such unsatisfied withholding requirement, as the case may be, and any

penalties assessed on such amounts.

 

ARTICLE 5

MANAGEMENT AND CONTROL OF THE COMPANY

 

5.1 The Management Committee.

 

5.1.1 General Scope of Authority. The business and affairs of the

Company shall be managed by a management committee of the Company (the

"Management Committee") appointed and constituted in the manner provided in

Section 5.2 hereof. The Management Committee shall be responsible for all

aspects of the operations and development of the Company and, except as

otherwise expressly provided for in this Agreement, the Management Committee

shall have exclusive authority and full discretion with respect to the

management of the business of the Company and shall have the exclusive right,

power and authority to cause the Company to do, or cause to be done, all acts

and actions which in its sole judgment are necessary, proper, convenient or

desirable in order to operate and conduct the business of the Company and to

carry out and fulfill the purposes of the Company.

 

5.1.2 Veto Rights. Notwithstanding anything to the contrary contained

in this Agreement: (i) the Lifford Managers may (so long as Lifford or any of

its Affiliates is a Manager) and the PEGI Managers may (so long as PEGI or any

of its Affiliates is a Manager) veto any decision of the Management Committee

to perform, or cause the Company to perform, any of the acts or transactions

described in subsections (d) and (h) below; and (ii) the Lifford Managers may

(so long as Lifford and its Affiliates hold, in aggregate, Percentage

Interests equal to at least 10%) and the PEGI Managers may (so long as PEGI

and its Affiliates hold, in aggregate, Percentage Interests equal to at least

10%) veto any decision of the Management Committee to perform, or cause the

Company to perform, any of the following acts or transactions:

 

(a) any material change in the basic business of the Company as

defined in Section 2.6;

 

(b) any material acquisition or sale by the Company of any business

(whether by asset purchase, stock purchase, merger or other business

combination);

 

(c) any borrowing by the Company or making or guaranteeing loans by

the Company or incurrence or guaranteeing of obligations of others by the

Company in the aggregate at any time exceeding the lesser of (i) one times

EBITDA of the Company for the most recent Fiscal Year or (ii) $5.0 million;

provided, however, that the Company may not pledge, transfer, assign or

otherwise encumber its rights under any agreements with PEI (or its

Affiliates), including without limitation, any of the Related Documents, in

connection with the foregoing;

 

(d) the sale of all or substantially all of the assets of the Company

or the merger, consolidation or reorganization of the Company with or into

another Person;

 

(e) the acceptance of any additional capital other than Optional

Capital Contributions from any Member pursuant to Section 3.3;

 

(f) the issuance of Membership Interests except in connection with an

Optional Capital Contribution for a Member pursuant to Section 3.3;

 

(g) other than pursuant to the Related Documents, transactions with

any Member or any Affiliate of any Member;

 

(h) commencement by the Company of a voluntary case under the

Bankruptcy Code or any applicable bankruptcy, insolvency or other similar law

now or hereafter in effect; or consent by the Company to the entry of an order

for relief in an involuntary case, or to the conversion of an involuntary case

to a voluntary case under any such law; or consent by the Company to the

appointment of or taking of possession by a receiver, trustee or other

custodian for all or substantially all of its property; or making by the

Company of a general assignment for the benefit of creditors;

 

(i) any amendment, modification or waiver relating to a Related

Document;

 

(j) any distribution by the Company on the Membership Interests other

than distributions of Distributable Cash;

 

(k) loans by the Company to any Member or any Affiliate of any

Member;

 

(l) the selection or replacement of the Company's accountants if the

selected or replacement accountants are not one of the following firms:

PricewaterhouseCoopers, LLP, KPMG, LLP, Ernst & Young, LLP or Deloitte &

Touche LLP; or

 

(m) (i) filing any tax return or (ii) making any tax election or

taking any position with respect to any examination audit or proceeding by a

taxing authority that could have an adverse impact on any Member or the

Company.

 

5.2 Members of the Management Committee; Appointment and Removal;

Voting.

 

5.2.1 For so long as Lifford (or its Affiliates) and PEGI (or its

Affiliates) are the only Members, the Management Committee shall consist of

five members, three representatives selected by Lifford (the "Lifford

Managers") and two representatives selected by PEGI (the "PEGI Managers"). The

number of Managers shall not be amended without the approval of both the

Lifford and the PEGI Managers. No other Member shall have the right to appoint

Managers. Each member of the Management Committee is referred to as a

"Manager", and, collectively, as the "Managers". A Manager need not be a

resident of the State of California or a citizen of the United States. To the

fullest extent permitted by law, no Manager shall be deemed an agent or

sub-agent of the Company. Each Member, by execution of this Agreement, agrees

to, consents to, and acknowledges the delegation of powers and authority to

such Managers and the Management Committee, and to the actions and decisions

of such Managers and the Management Committee within the scope of such

Manager's and Management Committee's authority as provided herein. No Manager

shall have the authority in his capacity as a Manager to enter into any

transaction on behalf of the Company.

 

5.2.2 Each of Lifford and PEGI shall have the absolute and

unconditional right from time to time to designate the Managers appointed by

it by delivery of written notice to the Members. A Manager may be removed with

or without cause at the sole discretion of the Member that appointed that

Manager by delivery of written notice to the other Members. A vacancy on the

Management Committee may only be filled by the Member that originally

appointed the Manager whose death, disability, removal or resignation created

such vacancy. Each of Lifford and PEGI shall also have the right to appoint

alternates to each Manager by designating the name of such alternates in a

written notice to the other Members. In case of the absence of a Manager, any

individual designated as an alternate for that Manager shall have the right

and power to exercise all rights and powers of the absent Manager.

 

5.2.3 The Lifford Managers and PEGI Managers will be designated by

each such Member within thirty days (30) days after the date hereof by written

notice to the other Member and to the Company. Such individuals will serve on

the Management Committee until their death, disability, removal or

resignation.

 

5.2.4 Except as provided in Section 5.1.2 or as otherwise

specifically provided in this Agreement, the affirmative vote of Managers

holding the Majority Interests shall be required for any decision or approval

of the Management Committee or to cause the Company to engage in any act or

transaction. The Managers shall have voting power in proportion to the ratio

of Percentage Interests held by the Member appointing them. All Managers

appointed by a Member will collectively exercise such voting power and each

Member entitled to designate Managers will designate one Manager to vote on

behalf of all Managers appointed by such Member in the event of a disagreement

among the Managers appointed by such Member.

 

5.3 Meetings of the Management Committee.

 

5.3.1 Regular quarterly meetings of the Management Committee shall be

held without call or notice at such time as shall from time to time be fixed

by standing resolution of the Management Committee. Special meetings of the

Management Committee may be held at any time whenever called by any Manager.

Written Notice of a special meeting of the Management Committee shall be given

to the other Managers by the Manager calling the meeting at least seventy-two

(72) hours before such special meeting.

 

5.3.2 All meetings of the Management Committee shall be held at such

location as the Management Committee shall agree by majority vote; provided,

however, at least one (1) meeting per year shall be held in Miami or Los

Angeles as the Management Committee shall agree by majority vote. The presence

of at least one Lifford Manager and at least one PEGI Manager at a duly

noticed meeting of the Management Committee shall constitute a quorum for the

transaction of business; provided, however, that with respect to the taking of

any action for which the vote of any Managers may be excluded or any matter

for which a unanimous vote is required to take action (e.g., pursuant to

Section 5.1.2), the presence of at least one Manager appointed by each Member

whose Managers are entitled to vote on such action shall constitute a quorum

for purpose of taking such action. Managers may participate in a meeting

through the use of conference telephone or similar communications equipment,

and such Managers shall be considered present in person as long as all

Managers participating in such meeting can hear one another.

 

5.3.3 Every act of the Management Committee taken at any meeting of

the Management Committee, however called and noticed or wherever held, shall

be as valid as though made or performed at a meeting duly held after regular

call and notice, if a quorum is present and if, either before or after the

meeting, each of the Managers not present or who, though present, has prior to

the meeting or at its commencement, protested the lack of proper notice to

such Manager, signs a written waiver of notice or a written consent to holding

such meeting or approval of the minutes thereof.

 

5.3.4 Any action required or permitted to be taken at any meeting of

the Management Committee may be taken without a meeting if one Lifford Manager

and one PEGI Manager consent thereto in writing, and the writing is filed with

the minutes of proceedings of the Management Committee.

 

5.4 Delegation of Authority; General Manager and Other Officers.

 

5.4.1 General Power to Delegate Authority. The Management Committee

may delegate the right, power and authority to manage the day-to-day business,

affairs, operations and activities of the Company to any officer of the

Company or Management Co. pursuant to the Management Services Agreement, or to

any other Person with the prior approval of the PEGI Managers, subject to the

ultimate direction, control and supervision of the Management Committee;

provided, however, that no officer or other Person, including without

limitation Management Co., shall be authorized to take any action or engage in

any activity where unanimous approval of the Management Committee is required

or where the approval of a specified Person is required, without first

obtaining the required approvals.

 

5.4.2 The General Manager. The Members intend that the Management

Committee delegate the management of the day-to-day business, affairs,

operations and activities of the Company to a general manager (the "General

Manager"). Subject to the supervisory powers of the Management Committee, the

General Manager shall have general and active management of the business of

the Company and shall see that all orders and resolutions of the Management

Committee are carried into effect. The General Manager shall have the power to

execute any agreements and instruments on behalf of the Company, except where

the execution thereof shall be expressly reserved by the Management Committee

or delegated by the Management Committee to some other officer or agent of the

Company. The General Manager shall have such other powers and duties as may be

prescribed by the Management Committee or this Agreement.

 

5.4.3 Duties of the General Manager. Unless and until any of the

following duties are delegated to another officer by the Management Committee,

the General Manager shall:

 

(a) attend all meetings of the Management Committee and all meetings

of the Members, unless directed not to do so by the Management Committee, and

record all the proceedings of the meetings in a book to be kept for that

purpose;

 

(b) give, or cause to be given, notice of all special meetings of the

Management Committee and all meetings of the Members;

 

(c) keep, or cause to be kept, at the principal executive office, a

register, or a duplicate register, showing the names of all Members and their

addresses, their Percentage Interests, and all documents described in this

Agreement or required under the Act to be maintained at the principal

executive office of the Company;

 

(d) keep and maintain, or cause to be kept and maintained, adequate

and correct books and records of accounts of the properties and business

transactions of the Company, including accounts of its assets, liabilities,

receipts, disbursements, gains, losses, capital, Membership Interests and

Economic Interests, which books of account shall at all reasonable times be

open to inspection by any Manager or his/her representatives;

 

(e) have or supervise the custody of the funds and securities of the

Company, keep or cause to be kept full and accurate accounts of receipts and

disbursements in books belonging to the Company, and deposit or cause to be

deposited all monies and other valuable effects in the name and to the credit

of the Company in such depositories as may be designated by the Management

Committee;

 

(f) disburse or cause to be disbursed the funds of the Company as may

be ordered by the Management Committee, taking proper vouchers for such

disbursements, and render to the Management Committee, at their regular

meetings, or when Members so require, at a meeting of the Members, an account

of the financial condition of the Company; and

 

(g) prepare or cause to be prepared the various financial statements

and reports required to be delivered to the Members in this Agreement.

 

5.4.4 Additional Officers. The Company may have such other officers

with such powers and duties as the Management Committee shall determine from

time to time.

 

5.4.5 Officers Serve at the Pleasure of the Management Committee.

Subject to whatever rights an officer may have under a contract of employment

with the Company, all officers of the Company shall serve at the pleasure of

the Management Committee. Other than the renewal on substantially similar

terms of the employment agreement of an officer, including, but not limited to

the General Manager, of the Company (a "Renewal"), the Company shall not enter

into any new employment agreement or amend any existing employment agreement

with an officer of the Company, including, but not limited to, the General

Manager, without the prior approval of the PEGI Managers during any of the

following time periods: (i) the period of time commencing upon the receipt of

an Offer Notification from Lifford pursuant to Section 9.3 hereof and expiring

on the later of (a) the date that PEGI may no longer exercise its right of

first offer or (b) the date of closing on PEGI's purchase of the additional

Membership Interests pursuant to such right of first offer; (ii) the period of

time commencing upon the receipt of a Third-Party Transfer Notice pursuant to

Section 9.4 hereof and expiring on the later of (a) the date that PEGI may no

longer exercise its right of first refusal of (b) the date of closing on

PEGI's purchase of the additional Membership Interests pursuant to such right

of first refusal; and (iii) the period of time commencing upon PEGI's notice

that it is exercising its buy-up option pursuant to Section 9.8 hereof and

expiring upon the closing of PEGI's purchase of additional Membership

Interests pursuant to such buy-up option; provided, however, that any Renewal

during any such time periods shall not be for a term extending beyond the end

of such time periods and shall not result in the Company being subject to any

liabilities with respect to such officer after the end of such time periods.

 

5.5 Interested Party Transactions.

 

5.5.1 Approval. Except for transactions provided in the Related

Documents, the Company shall only engage in a transaction with a Member or any

Affiliate of a Member if the transaction is on terms and conditions fair and

reasonable to the Company and at least as favorable to the Company as those

generally available in a similar transaction between parties operating at

arm's length and is approved by the Management Committee. A transaction shall

conclusively be deemed to have met the above requirements if, after full

disclosure, the transaction is unanimously approved by the Management

Committee. In addition, any transaction between the Company and any member of

the Cisneros Group, for so long as any such member directly or indirectly

holds an interest in Claxson, shall be subject to the approval of the PEGI

Managers. Each Member agrees to disclose to the Management Committee the

nature and extent of the interest of such Member and its Affiliates in any

transaction to be acted on by the Management Committee pursuant to this

Section 5.5.1 prior to such action. Subject to applicable law, if a Member or

an Affiliate thereof engages in a transaction with the Company, such Member

and/or such Affiliate shall have the same rights and obligations with respect

thereto as a Person who is not a Member.

 

5.5.2 Termination and Remedies. With respect to any contract between

the Company and a Member or any Affiliate of a Member, including but not

limited to every Related Document, the Managers appointed by the Members

independent of such contract shall have the right, acting by majority vote, to

determine what actions, if any, should be taken upon the other party's default

or non-performance and to cause the Company to exercise any and all remedies

it may have under such contract or applicable law, including without

limitation, the termination of such contract.

 

5.5.3 Priority of Payments. The General Manager and the Management

Committee shall cause any payments made to Lifford and its Affiliates to be

made pari passu with payments to be made to PEGI and its Affiliates.

 

5.6 Performance of Duties; Liability of Managers.

 

5.6.1 Standards. A Manager shall not be liable to the Company or to

any Member for any loss or damage sustained by the Company or any Member,

unless the loss or damage shall have been the result of fraud, deceit, gross

negligence, reckless or intentional misconduct, or a knowing violation of law

by the Manager. The Managers shall perform their managerial duties in good

faith, in a manner they reasonably believe to be in the best interests of the

Company and its Members, and with such care, including reasonable inquiry, as

an ordinarily prudent person in a like position would use under similar

circumstances. A Manager who so performs the duties of Manager shall not have

any liability by reason of being or having been a Manager of the Company.

 

5.7 Management Company. The Members intend that the General Manager

delegate certain of the day-to-day operational and financial responsibilities

of the Company to Management Co., subject to the terms and conditions of the

Management Services Agreement. Such services shall be rendered under the

supervision of the General Manager and, as set forth in the Management

Services Agreement, shall include, without limitation, the following services:

financial management, payroll services and accounting; collections and

accounts payable; facilities acquisition and management; and management of day

to day business and legal affairs.

 

5.8 Insurance. The Members shall cause the Company to secure errors

and omissions and other customary liability insurance for the Company covering

exhibitions of programming by the Company, which insurance policies shall meet

Claxson's customary standards, and liability and other insurance covering the

activities of the Company consistent with good business customs and practices

in the Territory and the other locations in which the Company conducts

business. All insurance policies shall name each Member and their respective

Affiliates as named insureds.

 

ARTICLE 6

BUSINESS PLANS AND ANNUAL BUDGETS

 

6.1 The Business Plan.

 

6.1.1 The Business Plan. The Management Committee and the General

Manager shall conduct the business of the Company in accordance with the three

year Business Plans and the Annual Budgets (each as defined below), as

adjusted from time to time by the Management Committee. The financial model

for the operation of the Company and the Channels, as annually updated

pursuant to Section 6.1.2, is the "Business Plan." On or before March 15,

2003, the Management Committee shall deliver to the Members a copy of the

revised Business Plan for the Company for fiscal years 2003 through 2005.

 

6.1.2 Additions to Business Plan. The Business Plan shall be updated

annually by the Management Committee not later than sixty (60) days prior to

the conclusion of the then current Fiscal Year and each Business Plan so

adopted shall cover the next three (3) consecutive Fiscal Years.

 

6.2 Annual Budgets. The annual update to the Business Plan shall

include a budget for the coming Fiscal Year (the "Annual Budget"). The General

Manager will prepare the Annual Budget and present it to the Management

Committee for approval at least sixty (60) days prior to commencement of the

applicable Fiscal Year. The approved Annual Budget for a given Fiscal Year

will supersede the data contained in the Business Plan for that Fiscal Year.

 

6.2.1 Adjustment to Annual Budget. Beginning January 1, 2003 and

ending December 31, 2003, the Company shall spend *** to produce Company

Produced Programming (the "Company Produced Programming Budget") and shall

spend *** for marketing purposes (the "Marketing Budget"). For each subsequent

Fiscal Year during the term of the Program Supply Agreement, the Company shall

spend the Company Produced Programming Budget and the Marketing Budget, each

of which shall be adjusted each Fiscal Year by any change in the CPI. ***.

Subject to Section 6.2.3, the Company shall not spend less than the annual

Marketing Budget and Company Produced Programming Budget for that Fiscal Year

without the prior written approval of the PEGI Managers.

 

6.2.2 Required Local Programming Expenditures Allocations. Beginning

on January 1, 2003 and ending on December 31, 2003, the Company shall spend:

(i) at least *** of the Company Produced Programming Budget to produce Branded

Company Produced Programming; and (ii) no more than *** of the Company

Produced Programming Budget to produce Unbranded Company Produced Programming.

In each of Fiscal Years 2004 through 2007, the Company shall spend at least

*** of the Company Produced Programming Budget to produce Branded Company

Produced Programming and no more than *** of the Company Produced Programming

Budget to produce Unbranded Company Produced Programming. In each of Fiscal

Years 2008 through 2012, the Company shall spend at least *** of the Company

Produced Programming Budget to produce Branded Company Produced Programming

and no more than *** of the Company Produced Programming Budget to produce

Unbranded Company Produced Programming.

 

6.2.3 Adjustment to Company Produced Programming Budget and Marketing

Budget. In the event that the Company would be unable to meet its obligations

as they become due if it met its payment obligations to PEGI pursuant to the

Program Supply Agreement (a "Shortfall"), the Management Committee, in its

sole discretion, may reduce the amount of the annual Company Produced

Programming Budget and annual Marketing Budget by an amount equal to the

Shortfall in order to allow the Company to make such payments to PEGI (a

"Required Expenditure Adjustment"); provided, however, that the Management

Committee shall cause any payments made to PEGI or Lifford and their

respective Affiliates or members of the Cisnero Group, thereafter to be

reduced pari passu with such Required Expenditure Adjustment; provided,

further, that if the cash flow provided from operations of the Company after

any Required Expenditure Adjustment is sufficient to enable the Company to

make all or any part of the annual Company Produced Programming Budget or

annual Marketing Budget in effect prior to such Required Expenditure

Adjustment, then the Company shall fund the maximum possible local Company

Produced Programming Budget and Marketing Budget until such initial annual

required Company Produced Programming Budget or annual Marketing Budget has

been met. The Management Committee shall make no more than two (2) such

Required Expenditure Adjustments during the Term.

 

ARTICLE 7

[INTENTIONALLY OMITTED]

 

ARTICLE 8

MEMBERS

 

8.1 Limited Liability. Except as required under the Act or as

expressly set forth in this Agreement, no Member shall be personally liable

for any debt, obligation, or liability of the Company, whether that liability

or obligation arises in contract, tort, or otherwise. In the event any Member

becomes personally liable for any debt, obligation or liability of the Company

arising from any action or approval of the Members or Management Committee

taken without the approval of such Member or the Managers appointed by such

Member where such approval is required under the terms hereof, then, in

addition to any other rights set forth herein, the Members taking or who

appointed the Managers taking such action shall indemnify and hold harmless

such Member from and against any liability, loss, claim or damage, including

but not limited to, reasonable attorneys fees and cost, arising from or

relating to such action.

 

8.2 Admission of Additional Members. Subject to Sections 5.1.2 and

9.2, the Management Committee may admit to the Company additional Members. Any

additional Members shall obtain Membership Interests and will participate in

the management, Net Income, Net Losses, and distributions of the Company on

such terms as are determined by the Management Committee.

 

8.3 Withdrawals or Resignations. No Member may withdraw or resign

from the Company.

 

8.4 Termination of Membership Interest. Upon the transfer of a

Member's Membership Interest in violation of this Agreement or the occurrence

of a Withdrawal Dissolution Event as to such Member that does not result in

the dissolution of the Company, the Membership Interest of a Member shall be

terminated by the Managers designated by the other Members or such Membership

Interest shall be purchased by the Company or remaining Members as provided

herein. Each Member acknowledges and agrees that such termination or purchase

of a Membership Interest upon the occurrence of any of the foregoing events is

not unreasonable under the circumstances existing as of the Effective Date.

 

8.5 Remuneration To Members. Except as otherwise authorized in, or

pursuant to, this Agreement, no Member is entitled to remuneration for acting

in the Company business, subject to the entitlement of Managers or Members

winding up the affairs of the Company to reasonable compensation.

 

8.6 Members Are Not Agents; No Management Authority. Pursuant to this

Agreement and the Articles, the management of the Company is vested in the

Management Committee. No Member, acting solely in the capacity of a Member, is

an agent of the Company nor can any Member in such capacity bind nor execute

any instrument on behalf of the Company. The Members shall have no power to

participate in the management of the Company except as expressly authorized by

this Agreement and except as expressly required by the Act.

 

8.7 Meetings of Members.

 

8.7.1 Date, Time and Place of Meetings of Members; Secretary.

Meetings of Members may be held at such date, time and place within or without

the State of California as the Management Committee may fix from time to time.

No annual or regular meetings of Members is required. At any Members' meeting,

the General Manager shall preside at the meeting and shall act as secretary of

the meeting.

 

8.7.2 Power to Call Meetings. Unless otherwise prescribed by the Act,

meetings of the Members may be called by the Management Committee acting by

majority vote or by any Member or group of Members holding more than fifteen

percent (15%) of the Percentage Interests for the purpose of addressing any

matters on which the Members may vote.

 

8.7.3 Notice of Meeting. Written notice of a meeting of Members shall

be sent or otherwise given to each Member not less than ten (10) nor more than

sixty (60) days before the date of the meeting. The notice shall specify the

place, date and hour of the meeting and the general nature of the business to

be transacted. No other business may be transacted at such meeting without the

consent of all Members. Upon written request to the General Manager by any

Person entitled to call a meeting of Members, the General Manager shall

immediately cause notice to be given to the Members entitled to vote that a

meeting will be held at a time requested by the Person calling the meeting,

not less than ten (10) days nor more than sixty (60) days after the receipt of

the request. If the notice is not given within twenty (20) days after the

receipt of the request, the Person entitled to call the meeting may give the

notice.

 

8.7.4 Manner of Giving Notice; Affidavit of Notice. Notice of any

meeting of Members shall be given either personally or by first-class mail or

telegraphic or other written communication, charges prepaid, addressed to the

Member at the address of that Member appearing on the books of the Company or

given by the Member to the Company for the purpose of notice.

 

8.7.5 Validity of Action. Any action approved at a meeting other than

by unanimous approval of those entitled to vote, shall be valid only if the

general nature of the proposal so approved was stated in the notice of meeting

or in any written waiver of notice.

 

8.7.6 Quorum. The presence in person or by proxy of the holders of a

Majority Interest shall constitute a quorum at a meeting of Members. The

Members present at a duly called or held meeting at which a quorum is present

may continue to do business until adjournment, notwithstanding the loss of a

quorum, if any action taken after loss of a quorum (other than adjournment) is

approved by at least Members holding a Majority Interest.

 

8.7.7 Adjourned Meeting; Notice. Any Members' meeting, whether or not

a quorum is present, may be adjourned from time to time by the vote of the

majority of the Membership Interests represented at that meeting, either in

person or by proxy, but in the absence of a quorum, no other business may be

transacted at that meeting, except as provided in Section 8.7.6. When any

meeting of Members is adjourned to another time or place, notice need not be

given of the adjourned meeting if the time and place are announced at a

meeting at which the adjournment is taken, unless a new record date for the

adjourned meeting is subsequently fixed, or unless the adjournment is for more

than forty-five (45) days from the date set for the original meeting, in which

case the Managers shall set a new record date. At any adjourned meeting the

Company may transact any business that might have been transacted at the

original meeting.

 

8.7.8 Waiver of Notice or Consent. The actions taken at any meeting

of Members however called and noticed, and wherever held, have the same

validity as if taken at a meeting duly held after regular call and notice, if

a quorum is present either in person or by proxy, and if, either before or

after the meeting, each of the Members entitled to vote, who was not present

in person or by proxy, signs a written waiver of notice or consents to the

holding of the meeting or approves the minutes of the meeting. All such

waivers, consents or approvals shall be filed with the Company records or made

a part of the minutes of the meeting.

 

Attendance of a Member or its representative at a meeting shall

constitute a waiver of notice of that meeting, except when the Member or such

representative objects, at the beginning of the meeting, to the transaction of

any business because the meeting is not lawfully called or convened, and

except that attendance at a meeting is not a waiver of any right to object to

the consideration of matters not included in the notice of the meeting if that

objection is expressly made at the meeting. Neither the business to be

transacted nor the purpose of any meeting of Members need be specified in any

written waiver of notice.

 

8.7.9 Action by Written Consent Without a Meeting. Any action that

may be taken at a meeting of Members may be taken without a meeting, if a

consent in writing setting forth the action so taken, is signed and delivered

to the Company within sixty (60) days of the record date for that action by

Members having not less than the minimum number of votes that would be

necessary to authorize or take that action at a meeting at which all Members

entitled to vote on that action at a meeting were present and voted. All such

consents shall be filed with the General Manager and shall be maintained in

the Company records. Any Member giving a written consent, or the Member's

proxy holders, may revoke the consent by a writing received by the General

Manager before written consents of the number of votes required to authorize

the proposed action have been filed.

 

Unless the consents of all Members entitled to vote have been

solicited in writing, notice of any Member approval without a meeting by less

than unanimous written consent, shall be given at least ten (10) days before

the consummation of the action authorized by such approval to those Members

entitled to vote who have not consented in writing.

 

8.7.10 Telephonic Participation by Member at Meetings. Members may

participate in any Members' meeting through the use of any means of conference

telephones or similar communications equipment as long as all Members

participating can hear one another. A Member so participating is deemed to be

present in person at the meeting.

 

8.7.11 Record Date.

 

(a) Fixed By Managers or Members. To enable the Company to determine

the Members of record entitled to notices of any meeting or to vote, or

entitled to receive any distribution or to exercise any rights in respect of

any distribution or to exercise any rights in respect of any other lawful

action, the Management Committee or Members representing more than fifteen

percent (15%) of the Percentage Interests, may fix, in advance, a record date,

that is not more than sixty (60) days nor less than ten (10) days prior to the

date of the meeting and not more than sixty (60) days prior to any other

action.

 

(b) If Not Fixed. If no record date is fixed, the record date for

determining Members entitled to notice of or to vote at a meeting of Members

shall be at the close of business on the business day preceding the day on

which notice is given or, if notice is waived, at the close of business on the

business day preceding the day on which the meeting is held. The record date

for determining Members entitled to give consent to Company action in writing

without a meeting shall be the day on which the first written consent is

given. The record date for determining Members for any other purpose shall be

at the close of business on the day on which the Management Committee adopts

the resolution relating thereto, or the sixtieth (60th) day prior to the date

of the other action, whichever is later.

 

8.7.12 Proxies. Every Member entitled to vote on any matter shall

have the right to do so either in person or by one or more agents authorized

by a written proxy signed by the person and filed with the General Manager. A

proxy shall be deemed signed if the Member's name is placed on the proxy

(whether by manual signature, typewriting, telegraphic transmission,

electronic transmission or otherwise) by the Member or the Member's attorney

in fact. A proxy may be transmitted by an oral telephonic transmission if it

is submitted with information from which it may be determined that the proxy

was authorized by the Member or the Member's attorney in fact. A validly

executed proxy that does not state that it is irrevocable shall continue in

full force and effect unless revoked by the Person executing it, before the

vote pursuant to that proxy, by a writing delivered to the General Manager

stating that the proxy is revoked, or by a subsequent proxy executed by, or

attendance at the meeting and voting in person by, the Person executing the

proxy; provided, however, that no proxy shall be valid after the expiration of

eleven (11) months from the date of the proxy, unless otherwise provided in

the proxy. The revocability of a proxy that states on its face that it is

irrevocable shall be governed by the provisions of Corporations Code Sections

705(e) and 705(f) or any successor provisions.

 

ARTICLE 9

TRANSFER AND ASSIGNMENT OF INTERESTS

 

9.1 Transfer and Assignment of Interests. No Member shall be entitled

to transfer, assign, sell, encumber or in any way alienate or dispose of

(each, a "Transfer"), including to an Affiliate, all or any portion of its

Membership Interest if such Transfer: (i) is to a party which is materially

less creditworthy than the transferring Member (taking into account the

obligations of such transferring Member's Affiliates under this Agreement and

the Related Documents); or, (ii) would cause the termination or dissolution of

the Company. Notwithstanding the foregoing, a Member shall be entitled to

pledge all of such Member's Membership Interest as collateral as part of a

blanket pledge of all of such Member's assets to a financial institution.

Transfers in violation of this Article 9 shall be null and void and the

transferee shall have no right to vote or participate in the management of the

business, property and affairs of the Company, to exercise any rights of a

Member or to receive the share of one or more of the Company's Net Income, Net

Losses and distributions of the Company's assets to which the transferor would

otherwise be entitled. After the consummation of any transfer of any part of a

Membership Interest, the Membership Interest so transferred shall continue to

be subject to the terms and provisions of this Agreement and any further

transfers shall be required to comply with all the terms and provisions of

this Agreement. If the secured party receiving a pledge of an Economic

Interest of a Member forecloses on such Economic Interest, such Person shall

not be admitted as a Member, shall not be entitled to further transfer or

otherwise dispose of such Economic Interest without the approval of the

Members and shall have no rights of a Member other than the right to receive

the share of one or more of the Company's Net Income, Net Losses and

distributions of the Company's assets to which the pledging Member would

otherwise be entitled.

 

9.2 Further Restrictions on Transfer of Interests. In addition to

other restrictions found in this Agreement, no Member shall Transfer all or

any part of its Membership Interest: (a) without compliance with Section

15.1.9, and (b) if the Membership Interest to be transferred, assigned, sold

or exchanged, when added to the total of all other Membership Interests sold

or exchanged in the preceding twelve (12) consecutive months prior thereto,

would cause the termination of the Company under the Code, as determined by

the Managers. Notwithstanding anything to the contrary contained in this

Agreement, Lifford (nor any of its respective Affiliates which may hold

Membership Interests, collectively) shall not Transfer any Membership Interest

to any of the Persons set forth on Exhibit E or any of such Persons'

Affiliates, successors or assigns.

 

9.3 Right of First Offer. In addition to other restrictions found in

this Agreement, in the event any Member (such Member being herein referred to

as the "Selling Member"), desires to Transfer any of its Membership Interest

to any Person which is not an Affiliate of such Selling Member, and, in the

case of Lifford, any member of the Cisneros Group (a "Third Party Buyer"),

such Selling Member must first make a bona fide offer in good faith (including

as to price and terms) to Transfer such Membership Interest to the other

Members (such other Members being referred to as the "Member Offerees") on a

pro rata basis and must Transfer such Membership Interest to any Member

Offeree that accepts such offer as set forth below. In the event any such

Selling Member desires to Transfer such offered Membership Interest, such

Selling Member will notify in writing (the "Offer Notification") the Company

and the Member Offerees of such desire setting forth the amount of the

Membership Interest proposed to be Transferred and the proposed purchase price

thereof (the "Offered Membership Interest") and other terms of the proposed

sale (the "Terms"); provided, that the consideration must be in United States

Dollars and must constitute a bona fide, good faith offer. For a period of

thirty (30) days following the receipt of the Offer Notification, the Selling

Member and the Member Offerees shall negotiate in good faith to agree upon a

final purchase price and terms for the Offered Membership Interest (a

"Negotiated Purchase Price"). If the Selling Member and the Member Offerees

agree on a Negotiated Purchase Price, then the Member Offerees shall purchase

the Offered Membership Interest at the Negotiated Purchase Price. If the

Selling Member and the Member Offerees are unable in good faith to agree on a

purchase price and terms, the Member Offerees shall have the right for a

period of fifteen (15) days following the end of the thirty (30) day

negotiation period, to elect to purchase all or any portion of its pro rata

share of such Offered Membership Interest on the Terms originally set forth in

the Offer Notification (the "Transfer Offer Period"). If the Member Offeree

elects not to purchase the Offered Membership Interest prior to the

termination of the forty-five (45) day period, such Member Offeree shall be

deemed to have waived its right to purchase the Offered Membership Interest

under this Section 9.3 (but not under any other section of this Agreement). If

any Member Offeree desires to purchase such Offered Membership Interest, it

will notify in writing (the "Purchase Notification") the Selling Member of

such desire. In the event that any Member Offeree does not elect to purchase

its full pro rata share of any such Offered Membership Interest, such

unpurchased Offered Membership Interest will be offered by the Selling Member

to the other Member Offerees (if any) subscribing to purchase the Offered

Membership Interest on a pro rata basis for a period of fifteen (15) days

commencing on the expiration of the Transfer Offer Period (the "Subsequent

Transfer Offer Period"); provided, however, that if there is only one other

Member, there shall be no Subsequent Transfer Offer Period. In the event that,

after compliance with the foregoing provisions of this Section 9.3, the Member

Offerees, taken together, fail to purchase all of the Offered Membership

Interest, then (i) the Member Offerees shall have no right to purchase any of

the Offered Membership Interest (other than pursuant to Section 9.4 or 9.8

below), and (ii) such Selling Member may offer to Transfer all of the Offered

Membership Interest to any Person; provided, however, that any such Transfer

must be made in accordance with the provisions set forth in Section 9.4 below.

The closing of any purchase by the Member Offerees of any of the Offered

Membership Interest as provided in this Section 9.3 will take place at the

offices of the Company on such date as designated by the Member Offerees

occurring within fifteen (15) days after the expiration of the Subsequent

Transfer Offer Period, or if there be none, the Transfer Offer Period. At such

closing, the Member Offerees will be entitled to receive customary

representations and warranties from the Selling Member regarding ownership and

title of the Offered Membership Interest and the Company will evidence such

Transfer on the books of the Company.

 

9.4 Right of First Refusal.

 

(a) Subject to, and after compliance with, the requirements set forth

in Section 9.3 above, in the event any Selling Member desires to Transfer any

of its Membership Interest to any Third Party Buyer who shall have made a

written bona fide offer to purchase such Membership Interest, which, in the

Selling Member's reasonable judgment, has a substantial likelihood of closing

and is not subject to a financing or other material contingency other than

applicable antitrust or similar clearances, provided, that such offer may be

subject to a financing contingency if such offer is accompanied by financing

commitments from institutions of national standing in the United States or

other international institutions of comparable standing on usual and customary

terms, the Selling Member will promptly furnish to the Company and all Member

Offerees written notification (the "Third Party Transfer Notice") of such

desire to Transfer such Membership Interest and of the bona fide offered price

for such Membership Interest, the method of payment of such offered price

(which must be in either cash in a Major Currency or Marketable Securities,

provided that such Marketable Securities must be freely tradable upon the

receipt thereof by the Selling Member), the identity of the prospective

purchaser or purchasers (the "Proposed Purchaser") and all other pertinent

terms and conditions of such bona fide offer to purchase such Membership

Interest.

 

(b) For a period of thirty (30) days commencing on the date that the

Member Offerees receive the Third-Party Transfer Notice (provided, that, in

the event that the price for the Membership Interest set forth in the Third

Party Transfer Notice is less than *** of the price set forth in the Offer

Notification delivered by the Selling Member to the other Members pursuant to

Section 9.3, or the consideration is different than, or the terms are more

favorable to the third party than the terms set forth in the Offer

Notification, such period shall be extended for an additional five (5)

business days, the Member Offerees will have the right to elect to purchase on

a pro rata basis all (but not less than all) of the Membership Interest on the

same terms and conditions as described in the Third-Party Transfer Notice and

at the bona fide offer price using cash in a Major Currency if the Proposed

Purchaser is using cash in a Major Currency, or using its own Marketable

Securities or cash, if the Proposed Purchaser intends to use its own

Marketable Securities as consideration (the "Third Party Transfer Offer

Period"); provided, that if PEGI is a Member Offeree and desires to use PEI

Stock as its own Marketable Securities, (i) the PEI Stock so used shall have

the registration rights set forth on Exhibit G hereto; (ii) the closing of

PEGI's purchase and the transfer of the PEI Stock shall occur on the effective

date of the registration statement filed by PEI with respect to such PEI

Stock; and (iii) the number of shares of PEI Stock issued with respect to such

payment will be determined at the time the registration statement filed by PEI

with respect to such PEI Stock becomes effective by dividing (x) the aggregate

consideration by (y) the average closing trading price for PEI Stock for the

twenty (20) trading days ending on the trading day three trading days prior to

the effective date of such registration statement. Any Member Offeree desiring

to purchase any Membership Interest must notify the Selling Member in writing

of such desire. In the event that any Member Offeree does not elect to

purchase its full pro rata share of any Membership Interest proposed to be

Transferred, such unpurchased Membership Interest will be offered by the

Selling Member to the other Member Offerees (if any) subscribing to purchase

Membership Interests on a pro rata basis for a period of 15 days commencing on

the expiration of the Third-Party Transfer Offer Period (the "Subsequent Third

Party Transfer Offer Period"); provided, however, that if there is only one

other Member, there shall be no Subsequent Third Party Transfer Offer Period.

No such Membership Interest may be made available for purchase by any Proposed

Purchaser pursuant to the remaining provisions of this Section 9.4 unless and

until all Member Offerees have had an opportunity to purchase all such

Membership Interest in accordance with the provisions of this clause (b).

 

(c) Except as otherwise provided in Section 9.4(b), the closing of

any purchase by the Member Offerees of any Membership Interest as provided in

this Section 9.4 will take place at the offices of the Company on such date as

designated by the Member Offerees occurring within 15 days after the

expiration of the Subsequent Third-Party Transfer Offer Period, or if there be

none, the Third-Party Transfer Offer Period. At such closing, the Member

Offerees will be entitled to receive customary representations and warranties

from the Selling Member regarding ownership and title of the subject

Membership Interest and the Company will evidence such Transfer on the books

of the Company.

 

(d) In the event that, after compliance with the foregoing provisions

of this Section 9.4, the Member Offerees fail to purchase all of the

Membership Interest proposed to be Transferred by the Selling Member, then for

a period of one-hundred-twenty (120) days commencing on the date that no

Member Offeree remains entitled to exercise its right to purchase any

Membership Interest in accordance with the foregoing provisions of this

Section 9.4, the Selling Member may Transfer to the Proposed Purchaser any of

the Membership Interest described in the Third-Party Transfer Notice which the

Member Offerees are not purchasing; provided, however, that (1) any such

Transfer to the Proposed Purchaser must be made for the consideration and upon

the terms and conditions set forth in the Third-Party Transfer Notice, (2) any

such transfer to the Proposed Purchaser remains subject to those restrictions

on transfers contained in this Agreement, including the restrictions on

transfer included in this Article 9, and (3) at the closing of any such

Transfer, the Proposed Purchaser executes and delivers to the Company a

counterpart of, or an agreement adopting, this Agreement. Such Member Offerees

who fail to purchase all of the Membership Interest proposed to be transferred

by the Selling Member shall be deemed to have consented to the Transfer of the

Membership Interest to the Third-Party Transferee. If the Selling Member shall

not consummate the Transfer of such remaining Membership Interest to the

Proposed Purchaser within such one-hundred-twenty (120) day period, such

Membership Interest shall remain subject to the provisions of this Agreement

and the Seller Member shall not thereafter Transfer any such Membership

Interest to any Person without again first complying with all of the

provisions of this Agreement.

 

9.5 Substitution of Members. A transferee of a Membership Interest

shall have the right to become a substitute Member only if (a) the

requirements of Sections 9.1 and 9.2 relating to securities and tax

requirements hereof are met, (b) the requirements of Sections 9.3 and 9.4

relating to rights of first offer and rights of first refusal are met, (c)

such Person executes an instrument reasonably satisfactory to the Management

Committee accepting and adopting the terms and provisions of this Agreement,

and (c) such Person pays any reasonable expenses in connection with its

admission as a new Member. The admission of a Member shall not result in the

release of the Member who assigned the Membership Interest from any liability

that such Member may have to the Company.

 

9.6 Effective Date of Permitted Transfers. Any permitted transfer of

all or any portion of a Membership Interest shall be effective as of the first

business day following the date upon which the requirements of Sections 9.1,

9.2, 9.3, 9.4 and 9.5 have been met. The General Manager shall promptly

provide the Members with written notice of such transfer. Any transferee of a

Membership Interest shall take subject to the restrictions on transfer imposed

by this Agreement.

 

9.7 Rights of Legal Representatives. If a Member who is an individual

dies or is adjudged by a court of competent jurisdiction to be incompetent to

manage the Member's person or property, the Member's executor, administrator,

guardian, conservator, or other legal representative may exercise all of the

Member's rights for the purpose of settling the Member's estate or

administering the Member's property, including any power the Member has under

this Agreement to give an assignee the right to become a Member. If a Member

is a corporation or other entity and is dissolved or terminated, the powers of

that Member may be exercised by its legal representative or successor.

 

9.8 PEGI Buy-Up Option.

 

(a) Starting on December 23, 2002 and continuing through December 23,

2012, PEGI (or its Affiliates who are then Members of the Company) has the

option to acquire up to *** of additional Membership Interests in the Company

(the applicable percentage from time to time being the "Initial Option

Percentage") by purchasing such additional Membership Interests from Lifford

(and any of its Affiliates which hold Membership Interests, collectively) (the

"PEGI Buy-Up Option") provided, however; (i) that if PEGI (and its Affiliates,

collectively) Transfers Membership Interests to any Person(s) which is not an

Affiliate of PEGI, the Initial Option Percentage will be adjusted downward,

pro rata, in accordance with the decline in PEGI's and its Affiliates'

aggregate Membership Interests in the Company; (ii) in the event that Lifford

receives additional Membership Interests in the Company, the Initial Option

Percentage shall be increased in accordance with the then outstanding

Membership Interests of the Company such that following the exercise by PEGI

of its option to acquire the Initial Option Percentage pursuant to this

Section 9.8, PEGI and any third Person not affiliated with Lifford shall hold

*** of the Membership Interests of the Company. Starting on December 23, 2007

and continuing through December 23, 2008, PEGI (or its Affiliates who are then

Members of the Company) has the option (the "Additional Buy-Up Option") to

acquire up to the remaining *** of additional Membership Interest in the

Company (the applicable percentage from time to time being the "Second Option

Percentage") by purchasing all of the additional Membership Interests owned by

Lifford (and any of its Affiliates which hold Membership Interests,

collectively); provided, that PEGI (or its Affiliates) has previously or

concurrently exercised its option to acquire the entire Initial Option

Percentage, it being the intent of the Members that PEGI would own *** of the

Membership Interests following PEGI's purchase of the Second Option

Percentage, and payment therefor.

 

(b) PEGI's buy-in price for the Initial Option Percentage and the

Second Option Percentage will be *** at the time of purchase (as determined in

accordance with Exhibit C). PEGI may pay the purchase price for the Initial

Option Percentage ***, which election will be set forth in PEGI's notice that

it is exercising its buy-up option; ***. The closing of any purchase by PEGI

as provided in this Section 9.8 shall take place at the offices of the Company

(i) on such date as mutually agreed to by PEGI and Lifford, ***, or (ii) ***.

At such closing, PEGI will be entitled to receive customary representations

and warranties from Lifford (and any of its Affiliates which hold Membership

Interests, collectively) regarding ownership and title of the purchased

Membership Interest and the Company will evidence such Transfer on the books

of the Company. ***. In the event PEGI fails to timely pay for any additional

Percentage Interests for which it exercised its buy-up option, Lifford may

elect either: (i) to terminate permanently PEGI's right to purchase such

Percentage Interests; or (ii) to cause the Company to withhold any payments

otherwise due to PEGI under this Agreement or the Program Supply Agreement or

any other agreement that requires the Company to make payments to PEGI or its

Affiliates and to pay such amounts to Lifford until Lifford is paid in full

(including interest at the Reference Rate from the date such payment was due)

for such additional interests, and Lifford will then transfer such interests

to PEGI.

 

(c) ***

 

(d) In the event Lifford sells Membership Interests representing

fifty and one-tenths percent (50.1%) or more of the Company to a third party

after giving PEGI the opportunity to exercise its right of first offer and

right of first refusal pursuant to Sections 9.3 and 9.4 of this Agreement

(which Lifford may do at any time), the Additional PEGI Buy-Up Option will

terminate.

 

9.9 Claxson Control Over Membership Interest. Subject to a Member's

right to transfer and assign its Membership Interest pursuant to the right of

first offer in Section 9.3, right of first refusal in Section 9.4 and PEGI's

Buy-Up Option in Section 9.8, at all times during the term of this Agreement,

Claxson will, directly or indirectly, (i) own 100% of the Membership Interest

owned by Lifford on the date of this Agreement, (ii) retain all voting rights

with respect to such Membership Interest, (iii) retain all rights to

participate in the management of the business, property and affairs of the

Company with respect to such Membership Interest, and (iv) retain all rights

to the Economic Interest with respect to such Membership Interest, subject to

Claxson's right to pledge all of its indirect Membership Interest as

collateral as part of a blanket pledge of all such Member's assets to a

financial institution.

 

9.10 Playboy Television B.V. and PTVLA U.S., LLC

 

(a) The Members hereby agree and acknowledge that Playboy Television

B.V., a Netherlands limited liability company ("PTV BV") has been created by

the Members and their Affiliates to distribute the Channels in Spain and

Mexico, that Playboy TV Holdings, LLC, a Delaware limited liability company

("PTV Holdings"), has been created by the Members and their Affiliates to

serve as a holding company for PTV BV, and that PTVLA U.S., LLC, a Delaware

limited liability company ("PTV US") has been created by the Members and their

Affiliates to distribute the Channels in the United States, Canada and Puerto

Rico. A true, correct and complete list of Contracts to which either or both

of PTV Holdings or PTV BV is a party ("Existing PTV BV Agreements") is

attached hereto as Exhibit I. A true, correct and complete list of Contracts

to which PTV US is a party ("Existing PTV US Agreements") is attached hereto

as Exhibit J. At all times during the Term, Claxson and PEI will, directly or

indirectly, (i) own the same percentage ownership interest in PTV Holdings or

PTV US as they may hold in the Company from time to time; (ii) in the event of

transfer of any Membership Interest, transfer a corresponding percentage of

such Equity Interest to the same purchaser so long as such transfer does not

have a material adverse tax effect on any member of PTV Holdings or PTV US;

(iii) retain all voting rights with respect to such Equity Interests, (iv)

retain all rights to participate in the management of the business, property

and affairs of PTV Holdings and PTV US with respect to such Equity Interests.

Without the prior written consent of the PEGI Managers, Claxson and Lifford

shall not, and shall cause their respective Subsidiaries and Affiliates

(including without limitation PTV Holdings, PTV BV and PTV US) not to:

 

(i) take any action with respect to PTV Holdings, PTV BV or PTV US

that would require the consent of the PEGI Managers as set forth in

Section 5.1.2, determined as if the definition of "Company" contained

therein included, for the purposes of this Section 9.10(a)(i) only,

PTV Holdings, PTV BV and PTV US;

 

(ii) authorize the issuance of or issue any additional Equity

Interests in PTV Holdings, PTV BV or PTV US, other than to the

Company in connection with a capital contribution;

 

(iii) allow or permit PTV Holdings to conduct any business other than

owning all of the issued and outstanding Equity Interests of PTV BV;

 

(iv) allow or permit PTV BV to conduct any business other than the

licensing of rights from PEGI and the sublicensing of such rights in

the territory of Spain and Mexico in the English, Spanish and

Portuguese languages as contemplated and permitted by the Amended

Affiliation Agreement;

 

(v) allow or permit PTV US to conduct any business other than the

licensing of rights from PTVLA and the sublicensing of such rights to

PEGI in the territory of the United States, Canada and Puerto Rico in

the Spanish language as contemplated and permitted by the PTV US

Affiliation Agreement and the Distribution Agreement;

 

(vi) amend or modify the certificate of formation, deed of

incorporation, operating agreement, by-laws or any other constitutive

or organizational document of PTV Holdings, PTV BV or PTV US;

 

(vii) sell any of the assets of PTV Holdings, PTV BV or PTV US,

except in the ordinary course of business, or merge, consolidate or

reorganize PTV Holdings, PTV BV or PTV US with or into another

Person, other than another wholly owned Subsidiary of the Company; or

 

(viii) take any action with respect to PTV Holdings, PTV BV or PTV US

that would have a disproportionate adverse impact (financial or

otherwise) on PEGI or its Subsidiaries or Affiliates.

 

(b) In the event that PEGI at any time acquires additional Membership

Interests in the Company, whether pursuant to Section 9.3, 9.4 of 9.8 hereof

or otherwise, at the closing of the acquisition by PEGI of such Membership

Interests, PEGI shall have the right, exercisable by written notice to Lifford

not later than two days prior to the date of such closing:

 

(i) with respect to PTV Holdings and PTV BV, to elect that either:

(i) Lifford or its Affiliates shall contribute to PEGI a

corresponding membership interest in PTV Holdings, and in the event

that PEGI so elects, Claxson shall cause Zagasse Corp., N.V., a

Netherlands Antilles limited liability company ("Zagasse"), or any

other Affiliate of Claxson that then holds an interest in PTV

Holdings, to contribute to PEGI for no additional consideration and

at no additional cost to PEGI a corresponding membership interest in

PTV Holdings simultaneously with the closing of PEGI's acquisition of

additional Membership Interests in the Company, such that following

such closing, PEGI's membership interest in PTV Holdings shall be

equal to PEGI's Membership Interest in the Company. Notwithstanding

the foregoing, in the event that PEGI acquires 100% of the Membership

Interests in the Company, PEGI may, in lieu of acquiring all of the

membership interests in PTV Holdings, elect to dissolve PTV Holdings

and PTV BV. In such event, Claxson shall, and shall cause its

Subsidiaries to, take all actions necessary or desirable to effect

such dissolution simultaneously with, and effective as of, the

closing of PEGI's acquisition of additional Membership Interests in

the Company; and

 

(ii) with respect to PTV US, to elect that either: (i) Lifford or its

Affiliates shall contribute to PEGI a corresponding membership

interest in PTV US, and in the event that PEGI so elects, Claxson

shall cause Lifford US, Inc., a Delaware corporation ("Lifford US"),

or any other Affiliate of Claxson that then holds an interest in PTV

US, to contribute to PEGI for no additional consideration and at no

additional cost to PEGI a corresponding membership interest in PTV US

simultaneously with the closing of PEGI's acquisition of additional

Membership Interests in the Company, such that following such

closing, PEGI's membership interest in PTV US shall be equal to

PEGI's Membership Interest in the Company. Notwithstanding the

foregoing, in the event that PEGI acquires 100% of the Membership

Interests in the Company, PEGI may, in lieu of acquiring all of the

membership interests in PTV US, elect to dissolve PTV US. In such

event, Claxson shall, and shall cause its Subsidiaries to, take all

actions necessary or desirable to effect such dissolution

simultaneously with, and effective as of, the closing of PEGI's

acquisition of additional Membership Interests in the Company.

 

9.11 Venus Operations

 

(a) The Members hereby agree and acknowledge that Contribution

S.R.L., an Argentine limited liability company ("Venus Argentina"), and Venus

TV International, Inc., a British Virgin Islands corporation ("Venus

International", and together with Venus Argentina, the "Venus Entities") will

be acquired by the Company to own and operate the Venus Channels in the

Territory. Without the prior written consent of the PEGI Managers, the Company

shall not, and shall cause Venus Argentina and Venus International not to:

 

(i) Transfer the Venus Assets from the Venus Entities to any other

Person, including without limitation the Company or any of its

Subsidiaries or Affiliates;

 

(ii) allow or permit the Transfer of any assets from any other

Person, including the Company and any of its Subsidiaries or

Affiliates, to either or both of the Venus Entities;

 

(iii) allow or permit the Venus Entities to own any assets other than

the Venus Assets;

 

(iv) operate the Venus Entities other than as stand-alone entities,

provided, however, that the Company may manage either or both of the

Venus entities;

 

(v) allow or permit the Venus Channels to be operated other than as

businesses separate and distinct from the other Channels and

businesses of the Company, provided, however, that the Company may

manage either or both of the Venus entities;

 

(vi) commingle any of the assets of a Venus Entity with any other

assets of the Company and its Subsidiaries and Affiliates; or

 

(vii) merge the Venus Entities, merge any other Person into a Venus

Entity or otherwise combine the operations of the Venus Entities with

any other Person.

 

ARTICLE 10

CONSEQUENCES OF DEATH, DISSOLUTION

RETIREMENT OR BANKRUPTCY OF MEMBER

 

10.1 Withdrawal Dissolution Event. Upon the occurrence of a

Withdrawal Dissolution Event, the Company shall dissolve unless the remaining

Members (the "Remaining Members") holding all of the remaining Membership

Interests consent within ninety (90) days of the Withdrawal Dissolution Event

to the continuation of the business of the Company. If the Remaining Members

consent to the continuation of the business of the Company, the Remaining

Members and/or, if applicable pursuant to Section 10.4, the Company shall

purchase, and the Member whose actions or conduct resulted in the Withdrawal

Dissolution Event ("Former Member") or such Former Member's legal

representative shall sell, the Former Member's Membership Interest ("Former

Member's Interest") as provided in this Article 10 to avoid dissolution of the

Company.

 

10.2 Purchase Price. The purchase price for the Former Member's

Interest shall be the lesser of (i) the positive Capital Account balance of

the Former Member or (ii) the Fair Market Value of the Former Member's

Interest. Notwithstanding the foregoing, if the Withdrawal Dissolution Event

results from a breach of this Agreement by the Former Member, the purchase

price paid by the Remaining Members and/or the Company shall be reduced by an

amount equal to the damages suffered by such purchasing parties as a result of

such breach.

 

10.3 Notice of Intent to Purchase. Within thirty (30) days after the

General Manager has notified the Remaining Members as to the purchase price of

the Former Member's Interest determined in accordance with Section 10.2, each

Remaining Member shall notify the General Manager in writing of its desire to

purchase a portion of the Former Member's Interest. The failure of any

Remaining Member to submit a notice within the applicable period shall

constitute an election on the part of the Member not to purchase any of the

Former Member's Interest. Each Remaining Member so electing to purchase shall

be entitled to purchase a portion of the Former Member's Interest in the same

proportion that the Percentage Interest of the Remaining Member bears to the

aggregate of the Percentage Interests of all of the Remaining Members electing

to purchase the Former Member's Interest.

 

10.4 Election to Purchase Less Than All of the Former Member's

Interest. If any Remaining Member elects to purchase none or less than all of

its pro rata share of the Former Member's Interest, then the Remaining Members

can elect to purchase more than their pro rata share. If the Remaining Members

fail to purchase the entire interest of the Former Member, the Company shall

purchase any remaining share of the Former Member's Interest.

 

10.5 Payment of Purchase Price. The purchase price shall be paid by

the Remaining Members and/or the Company, as the case may be, at the closing

one-fifth (1/5) in cash and the balance of the purchase price in four equal

annual principal installments, plus accrued interest, and be payable each year

on the anniversary date of the closing. Any such payment by the Company shall

be made solely out of Distributable Cash allocable to the Remaining Members.

The unpaid principal balance shall accrue interest at the current applicable

federal rate as provided in the Code for the month in which the initial

payment is made, but the Company and the Remaining Members shall have the

right to prepay in full or in part at any time without penalty. The obligation

to pay the balance due shall be evidenced by a promissory note, and if

purchased by a Remaining Member, secured by a pledge of the Membership

Interest being purchased.

 

10.6 Closing of Purchase of Former Member's Interest. The closing for

the sale of a Former Member's Interest pursuant to this Article 10 shall be

held on a business day at the principal office of the Company no later than

sixty (60) days after the determination of the purchase price. At the closing,

the Former Member or such Former Member's legal representative shall deliver

to the Company or the Remaining Members an instrument of transfer (containing

warranties of title and no encumbrances) conveying the Former Member's

Interest. The Former Member or such Former Member's legal representative, the

Company and the Remaining Members shall do all things and execute and deliver

all papers as may be necessary fully to consummate such sale and purchase in

accordance with the terms and provisions of this Agreement.

 

10.7 Purchase Terms Varied by Agreement. Nothing contained herein is

intended to prohibit Members from agreeing upon other terms and conditions for

the purchase by the Company or any Member of the Membership Interest of any

Member in the Company desiring to retire, withdraw or resign, in whole or in

part, as a Member.

 

ARTICLE 11

ACCOUNTING, RECORDS, REPORTING BY MEMBERS

 

11.1 Books and Records. The books and records of the Company shall be

kept, and the financial position and the results of its operations recorded,

in accordance with United States generally accepted accounting principles as

in effect from time to time ("GAAP") and the accounting methods followed for

United States federal income tax purposes. The books and records of the

Company shall reflect all the Company transactions and shall be appropriate

and adequate for the Company's business. The Company shall maintain at its

principal office all of the following:

 

(a) A current list of the full name and last known business or

residence address of each Member, together with the Capital Contributions,

Capital Account and Percentage Interest of each Member;

 

(b) A current list of the full name and business or residence address

of each Manager;

 

(c) A copy of the Articles and any and all amendments thereto

together with executed copies of any powers of attorney pursuant to which

amendments thereto have been executed;

 

(d) Copies of the Company's federal, state, and local income tax or

information returns and reports, if any, for the six (6) most recent taxable

years;

 

(e) A copy of this Agreement and any and all amendments thereto

together with executed copies of any powers of attorney pursuant to which this

Agreement or any amendments thereto have been executed;

 

(f) Copies of the financial statements of the Company, if any, for

the six (6) most recent Fiscal Years; and

 

(g) The Company's books and records as they relate to the internal

affairs of the Company for at least the current and past four (4) Fiscal

Years.

 

11.2 Delivery to Members and Inspection.

 

11.2.1 Delivery Upon Request. Upon the request of any Member for

purposes reasonably related to the interest of that Person as a Member, the

General Manager shall promptly deliver to the requesting Member, at the

expense of the Company, a copy of the information required to be maintained by

Sections 11.1(a), (b) and (d), and a copy of this Agreement, as amended. The

General Manager shall promptly furnish to a Member a copy of any amendment to

the Articles or this Agreement executed by a Manager pursuant to a power of

attorney from the Member.

 

11.2.2 Inspection. Each Member has the right, upon reasonable request

for purposes reasonably related to the interest of the Person as Member to:

 

(a) inspect and copy during normal business hours any of the Company

records described in Sections 11.1(a) through (g); and

 

(b) obtain from the General Manager, promptly after their becoming

available, a copy of the Company's federal, state, and local income tax or

information returns for each Fiscal Year.

 

11.2.3 Authorized Persons. Any request, inspection or copying by a

Member under this Section 11.2 may be made by that Person or that Person's

agent or attorney.

 

11.2.4 PEI Additional Right of Inspection. Upon reasonable notice,

the Company shall, and shall cause the Company's independent public

accountants and outside counsel and each of the Company's employees, agents

and representatives to: (i) afford the officers, employees and authorized

agents, independent public accountants, outside counsel, financing sources and

representatives of PEI (the "PEI Representatives") access, during normal

business hours, to the offices, properties, other facilities, books and

records of the Company and to the Company's independent public accountants and

outside counsel and those employees, agents and representatives of the Company

who have any knowledge relating to the business, assets and properties of the

Company or the Channels and (ii) furnish promptly to the PEI Representatives

such additional financial and operating data and other information regarding

the business, assets and properties of the Company or the Channels as PEI may

from time to time reasonably request; provided, however, that PEI shall not be

entitled to exercise such rights of inspection more than once in a twelve (12)

month period, unless Lifford or any of its Affiliates are in breach of this

Agreement, in which case there shall be no limit on the number of such

inspections.

 

11.3 Statements.

 

11.3.1 Annual Report. The General Manager shall cause an audited

annual report to be sent to each of the Members not later than forty-five (45)

days after the close of the Fiscal Year 2002, and not later than thirty (30)

days after the close of Fiscal Year 2003 and every year thereafter or sooner

if the reporting obligations of PEI or Claxson are accelerated due to a change

in applicable SEC or other regulatory requirements. The report shall contain a

balance sheet as of the end of the Fiscal Year and an income statement and

statement of changes in financial position for the Fiscal Year. The report

shall be prepared in accordance with GAAP consistently applied and fairly

present the results of operations and financial condition of the Company and

its Subsidiaries for the periods covered thereby. Such financial statements

shall be accompanied by the report thereon, if any, of the independent

accountants engaged by the Company.

 

11.3.2 Monthly Report. The General Manager shall cause a monthly

report to be sent to each of the Members not later than twenty (20) days after

the end of each month during a Fiscal Year, subject to customary year-end

adjustments. The report shall contain a balance sheet as of the last day of

such month and an income statement and statement of changes in financial

position for the period then ended. The report shall be prepared in accordance

with GAAP consistently applied and fairly present the results of operations

and financial condition of the Company and its Subsidiaries for the periods

covered thereby subject to customary year-end adjustments. Such financial

statements will be unaudited but will prepared on a consistent basis with the

Company's audited annual report described above.

 

11.3.3 Tax Information. The General Manager shall cause to be

prepared at least annually, at Company expense, information necessary for the

preparation of the Members' federal and state income tax returns. The General

Manager shall send or cause to be sent to each Member within ninety (90) days

after the end of each taxable year such information as is necessary to

complete federal, state, and local income tax or information returns, and a

copy of the Company's federal, state, and local income tax or information

returns for that year.

 

11.4 Financial and Other Information. The General Manager shall

provide such financial and other information relating to the Company, as a

Member may reasonably request.

 

11.5 Filings. The General Manager, at Company expense, shall cause

the income tax returns for the Company to be prepared and timely filed with

the appropriate authorities. Within seventy five (75) days after the close of

the taxable year, the General Manager shall deliver to the Managers copies of

such returns for their approval pursuant to Section 5.1.2(m) prior to the

filing due date. The General Manager, at Company expense, shall also cause to

be prepared and timely filed, with appropriate federal and state regulatory

and administrative bodies, amendments to, or restatements of, the Articles and

all reports required to be filed by the Company with those entities under the

Act or other then current applicable laws, rules, and regulations. If a

Manager required by the Act to execute or file any document fails, after

demand, to do so within a reasonable period of time or refuses to do so, any

other Manager or Member may prepare, execute and file that document with the

California Secretary of State.

 

11.6 Bank Accounts. The General Manager shall maintain the funds of

the Company in one or more separate bank accounts in the United States or the

European Union in the name of the Company and in any other jurisdiction where

the applicable laws of such jurisdiction require the Company to maintain such

an account and shall not permit the funds of the Company to be commingled in