DHJV COMPANY LLC LIMITED LIABILITY COMPANY AGREEMENT Dated as of May 22, 2009

EXHIBIT 10.1

 

 

 

“*************” DENOTE MATERIAL THAT HAS BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

 

 

DHJV COMPANY LLC

LIMITED LIABILITY COMPANY AGREEMENT



Dated as of May 22, 2009

 

TABLE OF CONTENTS

ARTICLE 1 Definitions

 

1.01.

Definitions

 

1.02.

Construction

 

ARTICLE 2 Organization

 

2.01.

Formation

 

2.02.

Name

 

2.03.

Principal Office

 

2.04.

Registered Agent for Service of Process

 

2.05.

Mission

 

2.06.

Purposes

 

2.07.

Term

 

2.08.

Limited Liability Company Agreement

 

ARTICLE 3 Initial Business Plan; Annual Budget; Common Units; Capital Contributions

 

3.01.

Initial Business Plan

 

3.02.

Annual Budget .

 

3.03.

Common Units

 

3.04.

Deemed Initial Capital Contributions; Tax Treatment

 

3.05.

Additional Capital Contributions; Funding Commitment

 

3.06.

No Third Party Beneficiaries

 

3.07.

Return of Contributions

 

ARTICLE 4 Members; Membership Interests

 

4.01.

Voting Rights of Members

 

4.02.

Meetings of Members

 

4.03.

Proxies

 

4.04.

Action of Members by Written Consent

 

4.05.

Liability to Third Parties

 

4.06.

Lack of Authority

 

ARTICLE 5 Distributions

 

5.01.

Distributions

 

5.02.

Tax Withholding

 

ARTICLE 6 Capital Accounts; Allocations of Profit and Loss

 

6.01.

Capital Account

 

6.02.

In General

 

6.03.

Special Allocations

 

6.04.

Curative Allocations

 

6.05.

Other Allocation Rules

 

6.06.

Tax Allocations:  Code Section 704(c)

 

6.07.

Interim Allocations Due to Percentage Interest Adjustment

 

 

TABLE OF CONTENTS
(Continued)

 

6.08.

Section 754 Election

 

6.09.

Deficit Capital Accounts

 

ARTICLE 7 Management and Operations

 

7.01.

Management by the Board

 

7.02.

Board

 

7.03.

Board Vote .

 

7.04.

Actions by the Board; Committees; Delegation and Duties

 

7.05.

Meetings; Alternates; Observers

 

7.06.

Removal; Vacancies; Resignation .

 

7.07.

Action by Written Consent or Telephone Conference

 

7.08.

Compensation of Directors

 

7.09.

Officers

 

7.10.

Actions of Subsidiaries

 

7.11.

Affiliation Agreements

 

7.12.

Programming Guidelines

 

7.13.

Related-Party Transactions

 

7.14.

Operation of the Network After the Formation Date

 

7.15.

Network Programming .

 

7.16.

************** Commitments

 

7.17.

Network Content

 

7.18.

Transmission of the Network

 

7.19.

Cross Promotion

 

7.20.

Other Discovery-Hasbro Relationships

 

7.21.

Future Merchandising Rights

 

ARTICLE 8 Transfers; Restrictions on Transfer

 

8.01.

Limitation on Transfers

 

8.02.

Assignee’s Rights

 

8.03.

Transferor’s Rights and Obligations

 

8.04.

Compliance with Law

 

8.05.

Prohibited Transfer; Invalid Transfer

 

8.06.

Admission Procedure

 

8.07.

Certain Rights and Obligations not Transferable

 

ARTICLE 9 Withdrawal and Resignation of Members

 

ARTICLE 10 Limitation on Liability and Indemnification

 

10.01.

Limitation on Liability

 

10.02.

Duty of Directors

 

10.03.

Indemnification by the Company; Non-Exclusivity of Rights

 

10.04.

Insurance

 

10.05.

Savings Clause

 

 

TABLE OF CONTENTS
(Continued)

ARTICLE 11 Taxes

 

11.01.

Tax Returns

 

11.02.

Tax Elections

 

11.03.

Tax Matters Partner

 

ARTICLE 12 Books, Records, Reports, Accounts

 

12.01.

Records and Accounting

 

12.02.

Member Reports

 

12.03.

Accounts

 

12.04.

Other Information

 

ARTICLE 13 Exclusivity Covenants

 

13.01.

Exclusivity Covenants of Discovery .

 

13.02.

Exclusivity Covenants of Hasbro

 

13.03.

Other Opportunities

 

ARTICLE 14 Confidentiality

 

14.01.

Confidentiality

 

ARTICLE 15 Termination, Dissolution and Liquidation

 

15.01.

Termination

 

15.02.

Effect of Termination

 

15.03.

Buy-Sell (“Jump Ball”)

 

15.04.

Auction

 

15.05.

Effect of Sale

 

15.06.

Winding Up

 

15.07.

Deferment

 

15.08.

Certificate of Cancellation

 

15.09.

Reasonable Time for Winding Up

 

15.10.

Remedies for Breach

 

ARTICLE 16 General Provisions

 

16.01.

Amendment or Modification

 

16.02.

Notices

 

16.03.

Public Announcements

 

16.04.

Enforcement of Company’s Rights

 

16.05.

Entire Agreement

 

16.06.

Waiver

 

16.07.

Injunctive and Other Relief

 

16.08.

Alternative Dispute Resolution

 

16.09.

Limitation of Liability

 

16.10.

Binding Effect

 

16.11.

Governing Law; Waiver of Jury

 

 

TABLE OF CONTENTS
(Continued)

 

16.12.

Consent to Jurisdiction and Service of Process

 

16.13.

Severability

 

16.14.

Further Assurances

 

16.15.

No Third-Party Beneficiaries

 

16.16.

Waiver of Certain Rights

 

16.17.

Opt-out of Article 8 of the Uniform Commercial Code

 

16.18.

Delivery by Facsimile

 

16.19.

Counterparts

 

16.20.

No Presumption

 

16.21.

Expenses

 

16.22.

DCI Guarantee

 

 

Schedule A

Members’ Schedule

Schedule B

RESERVED

Schedule C

Benchmarks

Schedule D

Revenue Share Payments

Schedule E

Programming Guidelines

Schedule 1.01

Permitted Holders

Schedule 7.3(b)(10)

Affiliation Agreements

Schedule 7.15(e)

Hasbro Core Brands

Schedule 7.17

Network Content

Schedule 7.21

Future Merchandising Rights

 

LIMITED LIABILITY COMPANY AGREEMENT
OF
DHJV Company LLC

 

This LIMITED LIABILITY COMPANY AGREEMENT (this “Agreement”) of DHJV Company LLC (the “ Company ”), is made and entered into as of May 22, 2009, by and among Discovery Communications, LLC, a Delaware limited liability company (“ Discovery ”), and Hasbro, Inc., a Rhode Island corporation (“Hasbro,” and together with Discovery, each a “ Member ”), the Company, and, for the purposes set forth herein, Discovery Communications, Inc., a Delaware corporation (“ DCI ”).

WHEREAS, the Company was formed by Discovery as a limited liability company pursuant to and in accordance with the Delaware Limited Liability Company Act, as it may be succeeded or amended from time to time (the “ Act ”), by the filing of a certificate of formation (the “ Certificate ”) in the office of the Secretary of State of the State of Delaware on April 24, 2009;

WHEREAS, as contemplated by the Purchase Agreement (as defined below), Discovery has assigned to the Company all of its right, title and interest in and to certain assets relating to the Discovery Kids Network (as defined below) (including the Affiliation Agreements (as defined below)), and the Company has assumed certain related liabilities, pursuant to the Assignment and Assumption Agreement (as defined below), and Hasbro has purchased a fifty percent (50%) Membership Interest (as defined below) in the Company from Discovery; and

WHEREAS, the parties hereto intend that this Agreement shall set forth the understandings among the Members with respect to the terms and conditions of each Member’s interest, rights and obligations with respect to the Company, the management and operation of the Company and the economic arrangement among the parties hereto with respect to the Company.

NOW, THEREFORE, in consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows:

ARTICLE 1
Definitions

1.01.      Definitions .  As used in this Agreement, the following terms have the meanings set forth below (and other terms defined herein have the meanings so given them):

 

“ AAA ” has the meaning set forth in Section 16.08.

“ Adjusted Capital Account ” means, with respect to any Member, the balance in such Member’s Capital Account as of the end of the relevant Fiscal Year or other period, after giving effect to the following adjustments:

 

(a)

Crediting to such Capital Account any amounts which such Member is obligated to restore to the Company pursuant to any provision of this Agreement or is deemed to be obligated to restore pursuant to the penultimate sentences of Treasury Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5); and

(b)

Debiting to such Capital Account the items described in Treasury Regulations Sections 1.704-1(b)(2)(ii)( d )( 4 ), 1.704-1(b)(2)(ii)( d )( 5 ) and 1.704-1(b)(2)(ii)( d )( 6 ).

This definition of Adjusted Capital Account is intended to comply with the provisions of Treasury Regulations Section 1.704-1(b)(2)(ii)( d ) and shall be interpreted consistently therewith.

“ Admission Date ” has the meaning set forth in Section 8.03.

“ Affiliate ” of a Person means any Person that directly or indirectly controls, is controlled by, or is under common control with the Person in question, except that no Member nor any Affiliate of any Member shall be deemed to be an Affiliate of any other Member solely by virtue of the Member’s Membership Interest.  The term “ Affiliated ” and similar variations shall have correlative meanings.  For purposes of this Agreement, “ control ” (including with correlative meanings, the terms “ controlling ,” “ controlled by ” or “ under common control with ”) as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities or by contract or otherwise.

“ Affiliation Agreements ” means all carriage, affiliation, distribution and similar agreements with Channel Affiliates for the retransmission of the Network in the United States on a linear or, to the extent specifically for the provision of programming by the Network, non-linear (e.g., video-on-demand) basis, to which any Discovery Controlled Affiliate or the Company is a party as of such time, in each case, solely to the extent relating to the Network; it being understood that (a) certain Affiliation Agreements may provide for the retransmission of the Network and other networks of Discovery Controlled Affiliates and (b) certain Affiliation Agreements may provide for the retransmission solely of the Network.

“ Agreed Name ” means the re-branded name of the Company or Network, or any derivation of such name that is used as the name of the Network, in each case, which has been mutually agreed to by Discovery and Hasbro in accordance with the Agreed Name Letter Agreement or such other name as may be mutually agreed to by Discovery and Hasbro.

“ Agreed Name Letter Agreement ” means the Agreed Name Letter Agreement between Discovery and Hasbro dated as of even date herewith.

“ Ancillary Agreements ” means each of the Purchase Agreement, the Assignment Agreement, the Hasbro Studios Programming Agreement, the Trademark License Agreement, the Hasbro Programming License Agreement, Discovery Programming Letter Agreements, the Discovery Programming License Agreement, the Discovery Services Agreement, the Agreed Name Letter Agreement, the Letter Agreement, the Digital Agreement, the Hasbro-Discovery Agreement and each other agreement to be entered into among or between the Members and the Company and their Affiliates in connection with the Purchase Agreement or this Agreement.

 

“ Animal and Science Programming ” means ********************************************************************************************************************* ********************************************************************************************************************* ********************************************************************************************************************* ********************************************************************************************************************* ******************************************************************************

 

“ Annual Budget ” means the annual operating and capital budget of the Company for each Fiscal Year or portion thereof, which budget shall be prepared and adopted in accordance with Section 3.02, setting forth, among other things, the estimated receipts and expenditures of the Company for such Fiscal Year, including all programming and marketing expenditures, and any anticipated funding requirements and sources thereof, in each case, on a quarterly basis.

“ Acquired Network ” has the meaning set forth in Section 13.01(b).

“ Assignee ” means a Person to whom Membership Interests have been Transferred in accordance with Article 8 but who has not become a Substituted Member pursuant to Section 8.06.

“ Assignment Agreement ” means the Assignment and Assumption Agreement, dated as of the Formation Date, by and between Discovery and the Company.

“ Auction Interests ” has the meaning set forth in Section 15.04(a).

“ Board ” has the meaning set forth in Section 7.01.

“ Broadcast Television ” means free, over-the-air broadcast television networks and local television stations (whether digital or otherwise) in the United States that are licensed by the FCC, regardless of whether a viewer accesses the signal of such networks or stations over-the-air or through other means.

“ Business ” means the business of programming and distributing the Network in the United States, conducting the Company activities contemplated by this Agreement and the Ancillary Agreements and conducting any other ancillary activities that are approved by the Board, all for the purpose of undertaking and furthering the Mission.

“ Business Day ” means any day other than a Saturday, a Sunday or a holiday on which commercial banks in New York City are authorized or required by law to close.

“ Cable Television Network ” means a branded television service for the delivery of audio-visual television programming (including linear television services and television video-on-demand services) that is distributed in the United States by any Multichannel Video Programming Distributor (as defined by the FCC, including any successor terminology) and/or by any distributor using MVPD Technology (collectively, an “ MVPD ”) to authorized

 

subscribers of such MVPD, excluding Broadcast Television.  Notwithstanding anything to the contrary, the parties acknowledge and agree that the distribution (including streaming and/or downloading) of video, audio-visual and other programming via the public Internet (but not via an IPTV System), mobile wireless platforms, or any successor technology ( e.g. , YouTube, Google Video, AOL Video, video webinars), including via any website or online service accessible over the public Internet, regardless of whether that site or service requires user registration or payment for access to such programming, shall not be considered distribution via a Cable Television Network.

“ Capital Account ” has the meaning set forth in Section 6.01(a).

“ Capital Contribution ” means the contribution or deemed contribution in cash or property to the capital of the Company made by or on behalf of a Member.

“ Changed Elements ” has the meaning set forth in the Hasbro Studios Programming Agreement.

“ Change of Control Transaction ” means:

(a)

with respect to Discovery Ultimate Parent, Hasbro Ultimate Parent or any of their respective Affiliates that hold a Membership Interest, any transaction or a series of related transactions (including a merger or consolidation) or other event that results in any single Person or “group” (as such term is used for purposes of Rule 13d-5 under the Exchange Act) consisting of any Person, other than one or more Permitted Holders, becoming the “beneficial owner” (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a Person shall be deemed to have “beneficial ownership” of all securities that such Person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of thirty percent (30%) or more of the total voting power of the outstanding equity securities of Discovery Ultimate Parent, Hasbro Ultimate Parent or any of their respective Affiliates that hold a Membership Interest, as applicable (exclusive of any voting power retained exclusively by any Permitted Holders, directly or indirectly), and such voting power is greater than the aggregate total voting power of the outstanding equity securities of Discovery Ultimate Parent, Hasbro Ultimate Parent or any of their respective Affiliates that hold a Membership Interest, as applicable, owned or controlled, directly or indirectly, by the Permitted Holders (exclusive of any voting power retained, directly or indirectly, by other members of such “group” other than the Permitted Holders); provided that for purposes of this clause (a), with respect to preferred stock or other securities convertible into common stock of Discovery Ultimate Parent or Hasbro Ultimate Parent, the percentage of total voting power of any common stock, preferred stock or other securities convertible into common stock of the Discovery Ultimate Parent or Hasbro Ultimate Parent, as applicable, shall be equal to the total voting power that such stock would represent after giving effect to the conversion of all such preferred stock or other securities convertible into common stock in accordance with its terms.

(b)

with respect to Discovery Ultimate Parent, Hasbro Ultimate Parent or any of their respective Affiliates that hold a Membership Interest, any transaction or a series of related transactions (including a merger or consolidation) or other event the result of

 

which is that any single Person or “group” (as such term is used for purposes of Rule 13d-5 under the Exchange Act) consisting of any Person, other than one or more Permitted Holders has the right, directly or indirectly, to elect a number of individuals to the board of directors (or similar governing body) of Discovery Ultimate Parent, Hasbro Ultimate Parent or any of their respective Affiliates that hold a Membership Interest, as applicable, such that such individuals (whether new or continuing as directors) would, if elected, constitute a majority of the board of directors (or similar governing body) of such subject Person;

(c)

with respect to Discovery Ultimate Parent, Hasbro Ultimate Parent or any of their respective Affiliates that hold a Membership Interest, the direct or indirect sale, transfer, conveyance or other disposition (other than by way of merger or consolidation) of all or substantially all of the assets of Discovery Ultimate Parent, Hasbro Ultimate Parent or any of their respective Affiliates that hold a Membership Interest, as applicable, to any other Person, other than to one or more Permitted Holders, in one transaction or a series of related transactions;

(d)

with respect to Discovery Ultimate Parent, any act or failure to act that constitutes a violation of Section 13.01(b) by any Discovery Controlled Affiliate; or

(e)

with respect to Hasbro Ultimate Parent, any act or failure to act that constitutes a violation of Section 13.02(b) by any Hasbro Controlled Affiliate.

In the event of the occurrence of a Change of Control Transaction, if the Member(s) entitled to make a termination election pursuant to Section 15.01(i) or 15.01(j), as the case may be, decline(s) to do so within the applicable specified election period, then the definitions of “ Change of Control Transaction ” and, if applicable, “ Permitted Holders ” and “ Permitted Transferees ” and, if applicable, Section 1.02(b) shall be modified appropriately by good faith agreement of the Members to reflect the new holders, direct and indirect, of the affected Membership Interests .

“ Channel Affiliate ” has the meaning set forth in Schedule 1 to the Discovery Services Agreement.

“ Chief Executive Officer ” has the meaning set forth in Section 3.01.

“ Code ” means the Internal Revenue Code of 1986, as amended from time to time (or any corresponding provision of succeeding law).

“ Common Unit ” has the meaning set forth in Section 3.03.

“ Company Intellectual Property ” has the meaning set forth in Section 7.21.

“ Company Minimum Gain ” has the meaning of “partnership minimum gain” that is set forth in Treasury Regulations Section 1.704-2(b)(2).  The amount of Company Minimum Gain shall be determined in accordance with Treasury Regulations Section 1.704-2(d).

“ Comparable Frequency ” means, with respect to the airing of any HS Licensed Program licensed pursuant to the Hasbro Studios Programming Agreement or any Program

 

licensed pursuant to the Hasbro Programming License Agreement, that the buyer in a Sale has aired such HS Licensed Program or Program during the one-year period following the consummation of such Sale in question with comparable or greater frequency to or than the average frequency that such HS Licensed Program or Program was aired by the Company during the two-year period ending on the date of the consummation of such Sale; provided that if such HS Licensed Program or Program was aired by the Company for less than two years prior to the date of consummation of such Sale, such two-year period shall be deemed reduced for purposes of this definition to the actual period that the Company aired such HS Licensed Program or Program.

“ Competitive Cable Television Network ” means ****************************************************************************************************************** ****************************************************************************************************************** ****************************************************************************************************************** ****************************************************************************************************************** ******************************************************************************************

“ Competitive Person ” means (a) with respect to Discovery, any Person that directly or indirectly owns, operates, controls, manages or programs a Cable Television Network and (b) with respect to Hasbro, any Person that directly or indirectly owns, operates, controls or manages a toy or game manufacturer or distributor.

“ Confidential Information ” has the meaning set forth in Section 14.01(a).

“ Consolidating Member ” has the meaning set forth in Section 12.02(b).

“ Contributed Assets ” has the meaning set forth in the Assignment Agreement.

“ Controlled Affiliate ” of a Person means any Affiliate of the Person in question that is directly or indirectly, through one or more intermediaries, controlled by the Person in question.

“ Covered Person ” means a Member, Director, Officer or Affiliate of any Member and any officers, directors, stockholders, partners, members, employees, representatives or agents of a Member or its Affiliates, or any Person who was, at the time of the act or omission in question, such a Person.

“ DCI ” has the meaning set forth in the preamble hereof.  

“ Delaware GCL ” means the Delaware General Corporation Law, as it may be succeeded or amended from time to time.

“ Depreciation ” means, for each Fiscal Year, an amount equal to the depreciation, amortization, or other cost recovery deduction allowable with respect to an asset for such Fiscal

 

Year, except that if the Gross Asset Value of an asset differs from its adjusted basis for federal income tax purposes at the beginning of such Fiscal Year, Depreciation shall be determined in the manner described in Treasury Regulations Section 1.704-1(b)(2)(iv)( g )( 3 ) or Treasury Regulations Section 1.704-3(d)(2), as applicable.

“ Digital Agreement ” has the meaning set forth in the Purchase Agreement (if the Digital Agreement has been executed or, to the extent the Digital Agreement has not been executed, shall mean the Digital Term Sheet).

“ Digital Term Sheet ” has the meaning set forth in the Purchase Agreement.

“ Director ” means an individual appointed by a Member to manage the activities and affairs of the Company as a member of the Board pursuant to Article 7.

 “ Discovery Controlled Affiliate ” means Discovery Ultimate Parent and any of its Controlled Affiliates.

“ Discovery Disclosure Letter ” has the meaning set forth in the Purchase Agreement.

“ Discovery Estimated Tax Amount ” has the meaning set forth in Section 5.01(a)(1).

“ Discovery Final Tax Amount ” has the meaning set forth in Section 5.01(b)(1).

“ Discovery Kids Network ” means the English-language Cable Television Network currently distributed by Discovery in the United States known as “Discovery Kids Channel.”

“ Discovery Kids Programming Library ” has the meaning set forth in the Assignment Agreement.

“ Discovery License ” has the meaning set forth in Section 15.05(a)(4).

“ Discovery Licensed Programming ” means (a) the Underlying Works (as such term is defined in the Discovery Programming License Agreement) and (b) the programming licensed by Discovery to the Company pursuant to the Discovery Programming Letter Agreements.

“ Discovery Material Breach ” means:

(i)

in the case of a termination election by Hasbro pursuant to Section 15.01(g) prior to the Launch Date, a material breach by Discovery or its Controlled Affiliates of this Agreement or the Discovery Services Agreement that, individually or in the aggregate, has a material adverse effect on the Company, taken as a whole, or on Hasbro, taken as a whole; or

(ii)

in the case of a termination election by Hasbro pursuant to Section 15.01(g) after the Launch Date, (x) material and repeated breaches by Discovery or its Controlled Affiliates of material covenants or obligations of Discovery or its Controlled Affiliates in this Agreement that cause material harm to the Company or Hasbro or (y) the

 

termination of the Discovery Services Agreement by the Company (in accordance with the terms thereof) resulting from Discovery’s or its Controlled Affiliates material breach thereof.

 “ Discovery Network ” means any English-language Cable Television Network owned, operated or programmed by any Discovery Controlled Affiliate and distributed in the United States.

“ Discovery Payment ” means each of the payments to be made to Discovery or its Affiliates by the Company under the Ancillary Agreements.

“ Discovery Programming Letter Agreements ” means, together, the two (2) Discovery Programming Letter Agreements between Discovery and the Company dated as of even date herewith.

“ Discovery Programming License Agreement ” means the Discovery Programming License Agreement entered into by and among Discovery and the Company as of the Formation Date.

“ Discovery Services Agreement ” means the Discovery Services Agreement entered into between Discovery and the Company as of the Formation Date.

“ Discovery Ultimate Parent ” means DCI and any successor or assigns thereof (whether by merger, sale of equity, operation of law or otherwise).

“ Discovery Vote ” has the meaning set forth in Section 7.03(a).

“ Distributable Cash ” means, as of any date, the excess of the cash and cash equivalents held by the Company over the sum of the amount determined by the Board to be reasonably necessary for the payment of the Company’s expenses, current liabilities and other current obligations (whether fixed or contingent), including the Company’s obligations with respect to the Discovery Payments and the Hasbro Payments, and for the establishment of appropriate reserves for other expenses, liabilities and obligations of the Company (including long-term items) as may arise, including the maintenance of adequate working capital for the continued conduct of the Business.

“ Effective Tax Rate ” means, at any time and from time to time, the percentage determined by the Board to be a reasonable estimate of the highest marginal combined federal, state, and local income tax rate (without giving effect to the deduction of state and local income taxes) as applicable to income earned by a corporation doing business in New York, New York with respect to taxable income allocated to the Members by the Company for federal income tax purposes.

“ ERISA ” means the Employee Retirement Income Security Act of 1974, as amended.

“ Estimated Tax Date ” has the meaning set forth in Section 5.01(a)(3).

“ Estimated Tax Distribution Amount ” has the meaning set forth in Section 5.01(a).

 

“ Exchange Act ” means the Securities Exchange Act of 1934, as amended.

“ Existing Merchandising Agreements ” means ******************************************************************************************************************** ******************************************************************************************************************** ******************************************************************************************************************** ******************************************

“ Fair Market Value ” means:

(a)

for purposes of clauses (b), (c) and (d) of the definition of Gross Asset Value and for purposes of Sections 6.01(a)(1)(ii), 6.01(a)(2)(iii) and 15.06(b), “ Fair Market Value ” of property means the price at which a willing seller would sell and a willing buyer would buy the subject property having full knowledge of the facts, in an arms’ length transaction without time constraints and without any compulsion to sell.  Such determinations of Fair Market Value shall be made by the Board in the exercise of its judgment in good faith; provided , however , that if a determination of Fair Market Value results in a deadlock pursuant to the procedures set forth in Section 7.03(c), then the Board shall engage a Third-Party Appraiser and such appraiser’s determination of the Fair Market Value shall be final and binding on the parties; and

(b)

****************************************************************************************** ************************************************************************************************************ ************************************************************************************************************ ************************************************************************************************************ ************************************************************************************************************ ************************************************************************************************************ ************************************************************************************************************ ************************************************************************************************************ ************************************************************************************************************ ************************************************************************************************************ ************************************************************************************************************ ***************************************************************************

 

********************************* ************************************************************************************************************ ************************************************************************************************************ ************************************************************************************************************ ************************************************************************************************************ ************************************************************************************************************ ****************************

“ Family Group ” means:

(a)

with respect to any individual (other than *************):  (i) such person’s spouse, (ii) any lineal ancestor or descendant (natural or adopted) of such person and (iii) any trust or trusts in which any of the foregoing, individually or collectively, retains control over such trust or trusts in the capacity as trustee(s) and has, directly or indirectly, at least a majority of the beneficial interests; and

(b)

with respect to *************:  (i) ************* spouse, children (natural and adopted), grandchildren (natural and adopted) and other family members, (ii) any trust, corporation, foundation, limited or general partnership, limited liability company, limited liability limited partnership or any other entity (a “Subject Entity”) established by *************, any person listed in clause (b)(i) or any combination thereof in connection with his, her or their good faith estate planning and similar wealth management programs and arrangements, provided that *************, any person listed in clause (b)(i) or any combination thereof retains control, directly or indirectly, of, or a substantial beneficial interest in, the corpus of such Subject Entity, (iii) any foundation, corporation, charitable organization or similar entity established by *************, any person listed in clause (b)(i) or any combination thereof in connection with his, her or their charitable giving, provided that *************, any person listed in clause (b)(i) or any combination thereof retains control, directly or indirectly, of, or a substantial beneficial interest in,  the corpus of such foundation, corporation, charitable organization or similar entity, (iv) any donee or other recipient of equity securities or interests in Discovery Ultimate Parent from *************, any person listed in clause (b)(i), (ii) or (iii) or any combination thereof, provided that *************, any person listed in clause (b)(i) or any combination thereof retains the right to direct the voting power represented by such equity securities or interests, and (v) upon the death of *************or any of the persons listed in clause (b)(i), such person’s estate and the executor or personal representative thereof.

“ FCC ” means the U.S. Federal Communications Commission or any successor agency thereto.

 “ Final Tax Distribution Amount ” has the meaning set forth in Section 5.01(b).

“ First Negotiation Notice ” has the meaning set forth in Section 8.01(b).

 

“ Fiscal Year ” means the calendar year or, in the case of the first and the last fiscal years of the Company, the fraction thereof commencing on the date on which the Company is formed under the Act or ending on the date on which the winding up of the Company is completed, as the case may be.

“ Formation Date ” means the date hereof.

“ 14-and-Under Programming ” means programming that is targeted to the 14-and-under demographic or any subsidiary demographic ( e.g. , the 12-and-under demographic).  ******************************************************************************************************************* ******************************************************************************************************************* ******************************************************************************************************************* *********************************************

“ Funding Cap ” has the meaning set forth in Section 3.05.

“ GAAP ” means generally accepted accounting principles in the United States, as in effect from time to time.

“ Gross Asset Value ” means with respect to any asset, the asset’s adjusted basis for federal income tax purposes, except as follows:

(a)

The initial Gross Asset Value of the assets deemed contributed to the Company pursuant to Section 3.04 shall be the gross fair market value of such assets as set forth in the Members’ Schedule;

(b)

The Gross Asset Values of all Company assets shall be adjusted to equal their respective Fair Market Values, as of the following times:  (1) the acquisition of an additional Membership Interest in the Company by any new or existing Member in exchange for more than a de minimis Capital Contribution or for services to be rendered to or on behalf of the Company; (2) the distribution by the Company to a Member of more than a de minimis amount of Company property as consideration for a Membership Interest in the Company; and (3) the liquidation of the Company within the meaning of Treasury Regulations Section 1.704-1(b)(2)(ii)(g); provided, however, that the adjustments pursuant to clauses (1) and (2) shall be made only if the Board reasonably determines in accordance with Article 7 that such adjustments are necessary or appropriate to reflect the relative economic interests of the Members in the Company;

(c)

The Gross Asset Value of any Company asset distributed to any Member shall be adjusted to equal the Fair Market Value of such asset on the date of distribution; and

(d)

The Gross Asset Value of Company assets shall be increased (or decreased) to reflect any adjustments to the adjusted basis of such assets pursuant to Code Section 734(b) or Code Section 743(b), but only to the extent that such adjustments are taken

 

into account in determining Capital Accounts pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(m) and Section 6.03(a); provided, however, that Gross Asset Value shall not be adjusted pursuant to this clause (d) to the extent the Board determines in accordance with Article 7 that an adjustment pursuant to clause (b) is necessary or appropriate in connection with a transaction that would otherwise result in an adjustment pursuant to this clause (d).

If the Gross Asset Value of an asset has been determined or adjusted pursuant to clauses (a), (b), or (d) of this definition, such Gross Asset Value shall thereafter be adjusted by the Depreciation taken into account with respect to such asset for purposes of computing Net Profit and Net Loss.

“ Hasbro Brand ” means the specific trademark (or derivatives of the trademark) that is part of the Hasbro Intellectual Property and that is used as the title of a game (e.g., BATTLESHIP) or the title of a toy or non-game product line (e.g., TRANSFORMERS), including umbrella trademarks (or derivatives of the trademarks) that apply to multiple product lines (e.g., PLAYSKOOL) (but only the specific umbrella trademark (or derivatives of the trademark) and not any trademarks that apply to games, toys or product lines within such umbrella brand).  For the avoidance of doubt, the mark CRANIUM as it appears on Schedule 7.15(e) is in reference to the CRANIUM game and not to the CRANIUM umbrella mark.    

“ Hasbro Controlled Affiliate ” means Hasbro Ultimate Parent and any of its Controlled Affiliates.

“ Hasbro Core Brand Material Element ” means (x) with regard to games, any trademark (or derivatives of the trademark) that is part of the Hasbro Intellectual Property and that is used as the title of a game (e.g., BATTLESHIP), (y) with regard to toy or non-game product lines, any trademark (or derivatives of the trademark) that is used as the title for such toy or product line (e.g., TRANSFORMERS) and any principal character or principal feature associated with such toy or product line (e.g., “Optimus Prime,” “Decepticons”), and (z) with regard to umbrella trademarks (or derivatives of the trademarks) that apply to multiple product lines, only the umbrella trademark (e.g., PLAYSKOOL) (or derivatives of the trademark) and not any trademarks that apply to games, toys or product lines within such umbrella brand.

“ Hasbro Core Brands ” has the meaning set forth in Section 7.15(e).

“ Hasbro - Discovery Agreement ” means the Hasbro-Discovery Agreement entered into by and between Hasbro and Discovery as of the Formation Date.

“ Hasbro Estimated Tax Amount ” has the meaning set forth in Section 5.01(a)(2).

“ Hasbro Intellectual Property ” has the meaning set forth in Schedule D hereto.

“ Hasbro Material Breach ” means

(i)

in the case of a termination election by Discovery pursuant to Section 15.01(h) prior to the Launch Date, a material breach by Hasbro or its Controlled

 

Affiliates of this Agreement, the Hasbro Studios Programming Agreement, the Trademark License Agreement or the Digital Agreement that, individually or in the aggregate, has a material adverse effect on the Company, taken as a whole, or on Discovery, taken as a whole; or

(ii)

in the case of a termination election by Discovery pursuant to Section 15.01(h) after the Launch Date, (x)  material and repeated breaches by Hasbro or its Controlled Affiliates of material covenants or obligations of Hasbro or its Controlled Affiliates in this Agreement that cause material harm to the Company or Discovery or (y) the termination of the Hasbro Studios Programming Agreement or the Trademark License Agreement by the Company or the Company’s election to terminate the Digital Agreement (each in accordance with the terms thereof) resulting from Hasbro’s or its Controlled Affiliate’s material breach thereof.

“ Hasbro Payments ” means each of the payments to be made to Hasbro or its Affiliates by the Company under the Ancillary Agreements.

“ Hasbro Programming License Agreement ” means the Hasbro Programming Library License Agreement entered into by and among Hasbro and the Company as of the Formation Date.

“ Hasbro Studios ” means Hasbro, Inc. or any subsidiary or division thereof designated by Hasbro, Inc. to produce, license or distribute television programming in the United States under the Hasbro Studios Programming Agreement.

“ Hasbro Studios Programming Agreement ” means the Hasbro Studios Programming Development and License Agreement entered into among Discovery, Hasbro, Hasbro Studios and the Company as of the Formation Date.

“ Hasbro Ultimate Parent ” means Hasbro, Inc. and any successor or assigns thereof (whether by merger, sale of equity, operation of law or otherwise).

“ Hasbro Vote ” has the meaning set forth in Section 7.03(a).

“ Hassenfeld Family ” means Alan or Sylvia Hassenfeld and each of their Family Groups.

“ Initial Annual Budgets ” has the meaning set forth in the Purchase Agreement.

“ Initial Business Plan ” has the meaning set forth in the Purchase Agreement.

“ Initial Period ” means ******************************************************************************************************************* *****************************************

“ Insufficient Bid ” has the meaning set forth in Section 15.04(b)(5).

“ Intellectual Property ” means any (a) patents, patent applications, invention disclosures, inventions conceived whether or not reduced to practice and whether patentable or unpatentable,

 

and related improvements, (b) trademarks, service marks, trade dress, logos, trade names, d/b/a’s, jingles, slogans, and corporate names, and any telephone numbers containing or reflecting any of the other items identified in this definition, along with any associated goodwill, (c) copyrights, copyrightable works and works of authorship (including advertisements, commercials and promotional materials), (d) rights of publicity, (e) trade secrets and confidential business information (including ideas, formulas, compositions, know-how, research and development information, software, drawings, specifications, designs, plans, proposals, technical data, processes, techniques, databases, financial, marketing and business data, pricing and cost information, business, marketing and programming plans, and past and present customer, advertiser, website visitor, and supplier lists and information), (f) URLs, domain names and websites, including all content and materials displayed on and/or accessible through such sites, (g) copies and tangible embodiments of any of the foregoing (in whatever form or medium), and (h) licenses granting any rights with respect to any of the foregoing (including public performance licenses), (i) registrations and applications to register any of the foregoing, if applicable, and (j) rights to sue with respect to past, current and future infringements of any of the foregoing.

“ Intentions Notices ” has the meaning set forth in Section 15.03.

“ International Website ” has the meaning set forth in Section 13.01(d).

“ IPTV System ” means a system that digitally encodes audio-visual television programming services and uses internet protocol for the transmission and routing of such television programming services between or within the authorized point of reception and device(s) that enable the display of such services by subscribers ( e.g. , cable card, digital television set-top box, cable-ready television); provided that the signal related to such IPTV System is delivered to subscribers via a secure and closed transmission path and is not distributed via the public Internet and, if required by applicable law, is delivered only in specific local communities where the distributor is expressly authorized by a governmental authority to serve those communities.

“ Latin America ” has the meaning set forth in Section 7.15(b)(2).

“ Launch Date ” means ******************************************************************************************************************** ******************************************************************************************************************** ********************************************************************************

“ Letter Agreement ” means the Supplemental Letter Agreement between Discovery and Hasbro dated as of even date herewith.

 “ Losses ” means any and all losses, liabilities, damages, assessments, fines, judgments, costs and expenses, including reasonable attorney’s fees.

 

“ Material Breach ” means a Discovery Material Breach or Hasbro Material Breach, as applicable.

“ Member Nonrecourse Debt ” has the meaning of “partner nonrecourse debt” set forth in Treasury Regulations Section 1.704-2(b)(4).

“ Member Nonrecourse Debt Minimum Gain ” has the meaning of “partner nonrecourse debt minimum gain” that is set forth in Treasury Regulations Section 1.704-2(i)(2).  The amount of Member Nonrecourse Debt Minimum Gain shall be determined in accordance with Treasury Regulations Section 1.704-2(i)(3).

“ Member Nonrecourse Deductions ” has the meaning of “partner nonrecourse deductions” set forth in Treasury Regulations Section 1.704-2(i)(1) and (2).  The amount of Member Nonrecourse Deductions shall be determined in accordance with Treasury Regulations Section 1.702-2(i)(2).

“ Members’ Schedule ” means Schedule A attached hereto, as set forth in Section 3.03.

“ Membership Interest ” means an ownership interest in the Company and includes any and all benefits to which the holder of such Membership Interest may be entitled as provided in this Agreement, together with all obligations of such Person to comply with the terms and provisions of this Agreement, and which may be expressed as a number of Common Units or as a Percentage Interest.

“ Merchandise License Agreement ” means any agreement entered into between Hasbro and the Company after the Formation Date pursuant to which the Company grants merchandising rights to Hasbro based on Intellectual Property owned or controlled by the Company.

“ Mission ” has the meaning set forth in Section 2.05.

“ MVPD ” has the meaning set forth in the definition of “Cable Television Network.”

“ MVPD Technology ” means cable, wire or fiber of any material, satellite, satellite master antenna, single- and multi-channel multi-point microwave distribution (so-called BRS and EBS licensed by the FCC), an IPTV System, or any successor technology adopted by any Channel Affiliates from time to time as the principal method of video programming distribution for in-home viewing; provided that the signal relating to any such television service is not intended to be intelligibly received unless authorized by the video program distributor of such service and is distributed to subscribers via a secure and closed transmission path (regardless of the technology used for such distribution).

 “ Net Profit ” or “ Net Loss ” means, for each Fiscal Year, an amount equal to the Company taxable income or loss for such Fiscal Year, determined in accordance with Code Section 703(a) (for this purpose, all items of income, gain, loss, or deduction required to be stated separately pursuant to Code Section 703(a)(1) shall be included in taxable income or loss), with the following adjustments:

 

(a)

Any income of the Company that is exempt from federal income tax and not otherwise taken into account in computing such Net Profit or Net Loss shall be added to such taxable income or loss;

(b)

Any expenditures of the Company described in Code Section 705(a)(2)(B), or treated as Code Section 705(a)(2)(B) expenditures pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)( i ), and which are not otherwise taken into account in computing such Net Profit or Net Loss, shall be subtracted from such taxable income or loss;

(c)

In the event the Gross Asset Value of any Company asset is adjusted pursuant to clause (b) or (c) of the definition of Gross Asset Value, the amount of such adjustment shall be taken into account as gain or loss from the disposition of such asset for purposes of computing Net Profit or Net Loss and in the event of an adjustment pursuant to clause (b) of such definition, any such gain or loss shall be added to Net Profit or Net Loss, as the case may be, as if the Company had sold all of its assets at fair market value in liquidation in accordance with Section 15.06;

(d)

Gain or loss resulting from any disposition of Company property with respect to which gain or loss is recognized for federal income tax purposes shall be computed by reference to the Gross Asset Value of the property disposed of, notwithstanding that the adjusted tax basis of such property differs from its Gross Asset Value;

(e)

In lieu of the depreciation, amortization, and other cost recovery deductions taken into account in computing such taxable income or loss, there shall be taken into account Depreciation for such Fiscal Year;

(f)

Notwithstanding anything to the contrary in the definition of the terms “ Net Profit ” and “ Net Loss ,” any items which are specially allocated pursuant to Section 6.03 (other than as provided in Section 6.03(a)) or Section 6.04 hereof shall not be taken into account in computing such Net Profit or Net Loss; and

(g)

For purposes of this Agreement, any deduction for a loss on a sale or exchange of Company property which is disallowed to the Company under Code Section 267(a)(1) or 707(b) shall be treated as a Code Section 705(a)(2)(B) expenditure.

The amounts of the items of Company income, gain, loss, or deduction available to be specially allocated pursuant to Section 6.03 or 6.04 shall be determined by applying rules analogous to those set forth in this definition of Net Profit and Net Loss.

“ Network ” means the English-language Cable Television Network to be distributed by the Company in the United States airing for 24 hours a day, seven days a week, which will initially be the Discovery Kids Network and which will, after the rebranding of the Discovery Kids Network, be distributed under the Agreed Name, together with any so-called “multiplexed” Cable Television Networks that are approved by the Board pursuant to Section 7.03; it being understood that the term “ Network ” shall be deemed to include any such “multiplexed” Cable Television Networks for all purposes under the Ancillary Agreements.

 

“ ************************ ” means *********************** and their Family Group.

“ Nonrecourse Deductions ” has the meaning set forth in Treasury Regulations Section 1.704-2(b)(1).

“ Nonrecourse Liability ” has the meaning set forth in Treasury Regulations Sections 1.704-2(b)(3) and 1.752-1(a)(2).

“ Offeree ” has the meaning set forth in Section 8.01(b).

“ Offeror ” has the meaning set forth in Section 8.01(b).

“ Officers ” has the meaning set forth in Section 7.09(a).

“ Operating Cash Flow Deficit ” has the meaning set forth in Section 3.05.

“ Percentage Interest ” means, with respect to a Member, such Member’s percentage interest in the Company as determined by dividing the number of Common Units owned by such Member by the total number of Common Units then outstanding, as specified in Schedule A attached hereto as amended from time to time.

“ Permitted Holder ” means, subject to the last sentence in the definition of “Change of Control Transaction,”

(a)

with respect to Discovery Ultimate Parent, each of the following Persons:  (1) ******************; (2) any publicly-traded corporation listed on Schedule 1.01 attached hereto of which ****************** and his Family Group are the “beneficial owners” (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that ****************** and his Family Group shall be deemed to have “beneficial ownership” of all securities that ****************** and his Family Group have the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of greater than 20 percent (20%) of the total voting power of the outstanding equity securities or interests of such publicly-traded corporation (exclusive of any voting power retained, directly or indirectly, by other members of any “group” (as such term is used for purposes of Rule 13d-5 under the Exchange Act) other than ****************** and his Family Group) and such voting power is greater than the total voting power of the outstanding equity securities or interests of such publicly-traded corporation “beneficially owned” by any other Person (exclusive of any voting power retained exclusively by ****************** and his Family Group, directly or indirectly, as a member of any “group”)); (3) Controlled Affiliates of ****************** ; (4) members of the Family Group of ****************** or their Controlled Affiliates; (5) the ******************; (6) ******************  (so long as it is a Controlled Affiliate of the ******************); and (7) Controlled Affiliates of the ******************;

(b)

with respect to any Affiliate of Discovery Ultimate Parent which owns Membership Interests, (1) any Permitted Holder of Discovery Ultimate Parent or (2) any Wholly-Owned Affiliate of Discovery Ultimate Parent;

 

(c)

with respect to Hasbro Ultimate Parent, each of the following Persons: (1) the Hassenfeld Family; and (2) Controlled Affiliates of the Hassenfeld Family; and

(d)

 with respect to any Affiliate of Hasbro Ultimate Parent which owns Membership Interests, (1) any Permitted Holder of Hasbro Ultimate Parent or (2) any Wholly-Owned Affiliate of Hasbro Ultimate Parent.

“ Permitted Transferee ” has the meaning set forth in Section 8.01(a), subject to the last sentence in the definition of “Change of Control Transaction.”

“ Person ” means an individual or a corporation, partnership, limited liability company, trust, unincorporated organization, association or any other entity.

“ Pre-Launch Programming Fees ” means an amount equal to (a) any amounts paid by the Company to Hasbro Studios pursuant to the Hasbro Studios Programming Agreement and (b) any amounts paid by the Company to Hasbro pursuant to the Hasbro Programming License Agreement, in each case, during the period commencing on the Formation Date and ending on the date of a Sale pursuant to Section 15.02(a).

“ Programming Guidelines ” has the meaning set forth in Section 7.12.

“ Purchase Agreement ” means the Purchase Agreement entered into by and among the Hasbro, Discovery and DCI on April 29, 2009.

“ Receiving Party ” has the meaning set forth in Section 14.01(b).

“ Regulatory Allocations ” has the meaning set forth in Section 6.04.

“ Related-Party Transaction ” has the meaning set forth in Section 7.13.

“ Sale ” means an auction and/or sale of the Company or the portion thereof as provided in Sections 15.02, 15.03 and/or 15.04 (whether by way of merger, consolidation, sale of equity, sale of assets or otherwise).

 “ Securities Act ” means the Securities Act of 1933, as amended.

“ Signing Date ” means the date of execution of the Purchase Agreement.

“ Subject Entity ” has the meaning set forth in the definition of “ Family Group .”

“ Subject Interests ” has the meaning set forth in Section 8.01(b).

“ Substituted Member ” has the meaning set forth in Section 8.06(a).

“ Superior Offer ” means any bid, offer or proposal made in writing on terms which are, taking into account all financial, regulatory, legal and other aspects of such bid, offer or proposal, including the financing terms thereof, (a) more favorable from a financial point of view to the Member or Members, as applicable, than any other competing bid, offer or proposal and (b) reasonably capable of being completed.

 

“ Tax Matters Partner ” has the meaning given to such term in Section 6231 of the Code.

“ Telecast Rights ” means the rights to create and/or authorize the creation of, a television program and to distribute and/or authorize the distribution of, such program on a Cable Television Network or via Broadcast Television in the United States.

“ Term ” means the period commencing on the Formation Date and ending on the date a Sale is consummated or the Company is earlier dissolved and terminated in accordance with the provisions of Article 15.

 “ Termination Costs ” means any costs and expenses incurred or reasonably expected to be incurred by the Company that arise out of the termination of any contracts, agreements, or other arrangements or relationships with third parties (including employees of the Company) following a termination pursuant to the first and second sentences of Section 15.02(a) ( e.g. , severance payable to employees, termination payments to extinguish contractual obligations, etc.).

“ Third-Party Appraiser ” means an independent third-party appraiser from a nationally recognized investment bank, independent accounting firm or appraisal firm familiar with the media and entertainment industries.  Where the context contemplates that Discovery and Hasbro will mutually agree on a third-party appraiser, “Third-Party Appraiser” means such an appraiser mutually agreed upon by Discovery and Hasbro, and if Discovery and Hasbro are unable to agree upon such appraiser, each shall designate a third-party appraiser from a nationally recognized investment bank, independent accounting firm or appraisal firm familiar with the media and entertainment industries, which two appraisers shall designate a third appraiser to be the independent third-party appraiser.

“ Trademark License Agreement ” means the Trademark License Agreement entered into by and among the Company, Hasbro and Discovery as of the Formation Date.

“ Transfer ” means to transfer, sell, assign, convey, pledge, mortgage, encumber, hypothecate or otherwise dispose of all or any portion of the ownership interest or other rights in question, irrespective of whether any of the foregoing are effected voluntarily or involuntarily, directly or indirectly, by merger, sale of equity, operation of law or otherwise.  The terms “ Transferred ,” “ Transferor, ” “ Transferee ” and similar variations shall have correlative meanings.

“ Treasury Regulations ” includes proposed, temporary and final regulations promulgated under the Code in effect as of the date of filing the Certificate of Formation and the corresponding sections of any regulations subsequently issued that amend or supersede those regulations.

“ Treasury Secretary ” has the meaning set forth in Section 11.03(b).

“ United States ” or “ U.S. ” means the United States and its territories, possessions and commonwealths (including Puerto Rico, the United States Virgin Islands and Guam).

 

“ Unrecouped Guarantees ” means an amount equal to (a) the sum of all Guarantee Payments paid to the Company pursuant to Section 1.03 of Schedule D minus (b) the sum of all Hasbro Revenue Share Payments payable by Hasbro pursuant to Section 1.04(a) of Schedule D that were recouped rather than paid in accordance with Section 1.03(b) of Schedule D, in each case, during the period commencing on the Formation Date and ending on the date of consummation of a Sale.

“ Unwind Price ” means:  

************************************************************************************************************* ******************************************************************************************************************* ******************************************************************************************************************* ******************************************************************************************************************* ******************************************************************************************************************* ******************************************************************************************************************* ******************************************************************************************************************* ******************************************************************************************************************* ******************************************************************************************************************* ******************************************************************************************************************* *******************************************************************************************************************

 

“ Withholding Advance ” has the meaning set forth in Section 5.02(b).

“ Wholly-Owned Affiliate ” of a Person means (i) any Wholly-Owned Subsidiary (as defined below) of such Person, (ii) any Affiliate of such Person that owns, directly or indirectly, all of the equity interests of such Person, and (iii) any direct or indirect Wholly-Owned Subsidiary of any such Affiliate described in clause (ii), where “ Wholly-Owned Subsidiary ” of a Person means any Affiliate of such Person all of the equity interests of which are owned, directly or indirectly, by such Person.

1.02.

Construction .  

(a)

Whenever the context requires, the gender of all words used in this Agreement includes the masculine, feminine and neuter, and words (including defined terms) in the singular include the plural and vice versa.  All references to Articles and Sections refer to articles and sections of this Agreement (unless the context otherwise requires), and all

 

references to Schedules and Exhibits are to schedules and exhibits attached hereto (unless the context otherwise requires), each of which is made a part hereof for all purposes.  The words “include,” “includes” and “including” shall be deemed to be followed by the phrase “without limitation.”  The word “for example,” the abbreviation “ e.g. ” and similar variations shall be deemed to be followed by the phrase “by way of illustration and not limitation.”  The terms “hereof,” “herein,” “herewith,” and “hereunder” and words of similar import shall be construed to refer to this Agreement as a whole (including all of the Schedules and Exhibits hereto) and not to any particular provision of this Agreement unless otherwise specified.

(b)

Unless the context otherwise requires, in the event a Member directly Transfers a portion (but not all) of its Membership Interest to a Permitted Transferee and the Permitted Transferee is admitted as a Member:  (1) such initial Member and Permitted Transferee shall (A) be grouped together and considered a single Member, (B) act collectively and (C) be represented by such initial Member, who shall have the authority to represent and bind such Permitted Transferee and to receive and provide all notices on its behalf; (2) with respect to Discovery, any references to Member or Discovery shall collectively refer to Discovery and such Permitted Transferee; and (3) with respect to Hasbro, any references to a Member or Hasbro shall collectively refer to Hasbro and such Permitted Transferee.  

(c)

Unless the context otherwise requires, in the event a Member Transfers its entire Membership Interest in accordance with Article 8, subject to Section 8.07, and the Transferee is admitted to the Company as a Substituted Member pursuant to Section 8.06, references to Member, Hasbro or Discovery, as applicable, in this Agreement shall mean such Substituted Member, and such Substituted Member shall be considered the initial Member for purposes of Section 1.02(b).

(d)

For the avoidance of doubt, the terms of construction set forth in Sections 1.02(b) and (c) shall be fully applicable (except where they are not applicable by their terms above) whether or not a particular provision of this Agreement includes or does not include a specific reference to “Permitted Transferee.”

(e)

For purposes of this Agreement, any reference to a defined term in or provision of any Ancillary Agreement that shall have been terminated as of any date of determination shall, to the extent consistent with the substantive effect of such termination, be deemed to be a reference to such defined term or provision as in effect immediately prior to the termination of such Ancillary Agreement.

(f)

For the purposes of this Agreement, although the Company would be an Affiliate and Controlled Affiliate of each of Discovery, DCI and Hasbro, the Parties have agreed that the Company shall not be treated as such for the purposes of this Agreement.  Accordingly, without limiting the foregoing, any provision hereof purporting to be binding upon, or to obligate, a Member and its “Affiliates” or “Controlled Affiliates,” or which requires a Member to cause its “Affiliates” or “Controlled Affiliates” to take, or refrain from taking, any action, shall be deemed to exclude the Company and its Controlled Affiliates unless expressly provided otherwise.

 

ARTICLE 2
Organization

2.01.

Formation .  Discovery has caused the Certificate to be filed with the Secretary of State of the State of Delaware.  The Company shall cause the Certificate to be filed or recorded in any other public office where filing or recording is required or advisable.  The Members and the Company shall do, and continue to do, all things that are required or advisable to maintain the Company as a limited liability company existing pursuant to the laws of the State of Delaware.

2.02.

Name .  The name of the Company is “ DHJV Company LLC .”  The Board may change the name of the Company at any time and from time to time, subject to the affirmative written approval of each Member.   The Business may be conducted in the name of the Company or such other names that comply with applicable law as the Board may select from time to time, subject to the affirmative written approval of each Member and compliance with the Ancillary Agreements.

2.03.

Principal Office .  The principal office of the Company shall be at such place as the Board may designate from time to time, which office need not be in the State of Delaware.  The Company may also have such other offices as the Board may designate from time to time.

2.04.

Registered Agent for Service of Process .  The Company shall continuously maintain with the State of Delaware an agent for service of process, which agent shall be named in the Certificate, as it may be amended from time to time.  The Board may change the agent for service of process as it from time to time may determine.

2.05.

Mission .  The “ Mission ” of the Company shall be to operate an English-language Network primarily programmed with 14-and-Under Programming.

2.06.

Purposes .  The purpose of the Company shall be solely to engage in the Business.

2.07.

Term .  The Company commenced on the date the Certificate was filed pursuant to the Act and shall exist perpetually unless earlier dissolved and terminated in accordance with the provisions of Article 15.

2.08.

Limited Liability Company Agreement .  Each Member hereby executes this Agreement for the purpose of establishing the affairs of the Company and the conduct of its business in accordance with the provisions of the Act.  Each Member acknowledges that, during the Term, the rights and obligations of the Members with respect to the Company shall be determined in accordance with the Act and the terms and conditions of this Agreement; provided that to the extent that the rights and obligations of either 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.  

 

ARTICLE 3
Initial Business Plan; Annual Budget; Common Units; Capital Contributions

3.01.

Initial Business Plan .  The Initial Business Plan shall be the business plan of the Company for the period from the Formation Date through December 31, 2015 and sets forth the Initial Annual Budgets for each Fiscal Year during the Initial Period.  Following the appointment of the chief executive officer of the Company (the “ Chief Executive Officer ”), the Members shall consult with the Chief Executive Officer regarding the Initial Business Plan and the Initial Annual Budgets, and after such consultations, Discovery and Hasbro may make any adjustments and modifications to the Initial Business Plan and the Initial Annual Budgets as they may mutually agree upon, which as so agreed shall constitute the applicable Initial Business Plan and the Initial Annual Budgets for purposes of this Agreement from and after the time so agreed.   

3.02.

Annual Budget .

(a)

By October 15 of each calendar year beginning in 2009, the Chief Executive Officer shall cause to be prepared and presented to the Board the proposed Annual Budget for the next succeeding Fiscal Year (or, in the case of any Annual Budget for a Fiscal Year during the Initial Period, the Chief Executive Officer’s proposed modifications, if any, to the applicable Initial Annual Budget for the next succeeding Fiscal Year).  The proposed Annual Budget for all Fiscal Years shall set forth the annual operating and capital budget of the Company on a quarterly basis.

(b)

For a period of 30 days following the date on which the proposed Annual Budget is presented to the Board, the Board shall review such Annual Budget and shall make such modifications to such proposed Annual Budget as are mutually desirable and agreeable.  If the Board does not approve any proposed modifications to an Initial Annual Budget (including after applying the deadlock procedures set forth in Section 7.03(c)), then the Initial Annual Budget shall continue in effect with respect to any such Fiscal Year until the earlier of such time as such an Initial Annual Budget modification is approved or the end of the applicable Fiscal Year.  If the Board does not approve an Annual Budget for any Fiscal Year after the Initial Period (including after the deadlock procedures set forth in Section 7.03(c)), then, subject to the Members’ termination rights under Article 15, the Annual Budget for the immediately preceding Fiscal Year shall be the Annual Budget for the Fiscal Year in question.  Notwithstanding the foregoing, to the extent that, after giving effect to Section 3.05, the Company would still reasonably be expected to have an Operating Cash Flow Deficit, then, unless the Board may otherwise determine, the Chief Executive Officer shall modify variable expense line items contained in any such Annual Budget in order to eliminate such Operating Cash Flow Deficit; provided , however , that any such modification shall be designed to minimize any reduction in the Company’s programming expenditures to the maximum extent reasonably practicable and shall not reduce the budget for programming to be licensed by the Company from Hasbro Studios; provided further that if, after giving effect to Section 3.05 and after such modifications to variable expense line items are made, the Company would still reasonably be expected to have an Operating Cash Flow deficit, then, unless the Board may otherwise determine, the Chief Executive Officer may reduce the budget for programming to be licensed by the Company from Hasbro Studios but on no more

 

than a pro rata basis as compared to the aggregate reduction of all variable expense line items.

3.03.

Common Units .  The Membership Interests of the Members shall be represented by issued and outstanding “ Common Units .”  The Secretary, or other Officer, of the Company shall maintain a schedule of all Members, with their respective addresses and facsimile numbers and the Common Units held by them indicated therein, which shall be amended, modified or supplemented from time to time to reflect accurately any Transfer in accordance with Article 8 or any other future changes with respect to the Members and the Common Units, a copy of which as of the execution of this Agreement is attached hereto as Schedule A (the “ Members’ Schedule ”). The number of Common Units issued to each Member as of the Formation Date is set forth opposite such Member’s name on the Members’ Schedule attached hereto as Schedule A .

3.04.

Deemed Initial Capital Contributions; Tax Treatment .  The parties agree that for federal income tax purposes, (i) the purchase of the fifty percent (50%) Membership Interest by Hasbro from Discovery pursuant to the Purchase Agreement shall be treated consistently and in accordance with Revenue Ruling 99-5, 1999-1 C.B. 434 and (ii) immediately after such purchase, the Company shall be classified as a partnership for federal income tax purposes.

3.05.

Additional Capital Contributions; Funding Commitment .  To the extent the revenues of the Company are insufficient to fund the Company’s operating costs and expenses (an “ Operating Cash Flow Deficit ”) as budgeted in the Initial Business Plan or any Annual Budget, each Member shall be obligated to make Capital Contributions to the Company in accordance with this Section 3.05, up to the aggregate amount of $15 million for each Member (the “ Funding Cap ”).  Each month, not less than five Business Days prior to the last Business Day of such month, the Board, in consultation with the Company’s Chief Executive Officer, shall determine the total amount of the Operating Cash Flow Deficit, if any, reasonably anticipated for the succeeding month.  On or before the last Business Day of such month, each Member shall make a cash Capital Contribution in the amount of its proportionate share (based on its Percentage Interest) of the applicable Operating Cash Flow Deficit, provided that no Member shall be obligated to make an aggregate amount of Capital Contributions during the Term in excess of its Funding Cap.  After a Member has made Capital Contributions pursuant to this Section 3.05 in an aggregate amount equal to its Funding Cap, no Member shall have any further obligations under this Section 3.05.  Except as provided under this Section 3.05, neither Discovery nor Hasbro shall have any obligation or commitment to make any additional Capital Contributions or otherwise provide funds to the Company .

3.06.

No Third Party Beneficiaries .  The right of the Company to call for contributions of additional capital or arrange for loans to the Company under the terms of this Agreement does not confer any rights or benefits to or upon any Person who is not a party to this Agreement.

3.07.

Return of Contributions .  A Member shall not be entitled to the return of any part of its Capital Contributions or to be paid interest in respect of either its Capital Account or its Capital Contributions.  An unrepaid Capital Contribution is not a liability of the Company or of any Member.  A Member shall not be required to contribute or to lend any cash or property to the Company to enable the Company to return any Member’s Capital Contributions.  Subject to

 

Article 15, under any circumstances requiring a return of all or any portion of a Capital Contribution, no Member shall have the right to receive property other than cash; provided that in the event any property is distributed to the Members, except as otherwise provided in Article 15, each Member shall have the right to receive its pro rata portion of such property based on such Member’s Percentage Interest.

ARTICLE 4
Members; Membership Interests

4.01.

Voting Rights of Members .  Members shall not be entitled to vote with respect to any matters except as required by nonwaivable provisions of applicable law or this Agreement.  On all matters submitted to a vote of the Members, each of Discovery and Hasbro shall have one vote.  This provision is in addition to, and does not affect, any provision of this Agreement or any Ancillary Agreement that requires the consent or approval of a Member with respect to a particular matter.

4.02.

Meetings of Members.

(a)

A quorum shall be present at a meeting of Members only if each of Discovery and Hasbro is represented at the meeting in person, via conference telephone or similar communications equipment or by proxy.  With respect to any matter, any resolution adopted, decision made or action undertaken by the Members shall require the affirmative vote of each of Discovery and Hasbro.  This provision is in addition to, and does not affect, any provision of this Agreement or any Ancillary Agreement that requires the consent or approval of a Member with respect to a particular matter.

(b)

All meetings of the Members shall be held at such time and place as the Board may from time to time determine, provided that Members may participate in or hold any such meeting by means of conference telephone or similar communications equipment by means of which all Persons participating in the meeting can hear each other.  The Board shall provide each Member with at least 48 hours notice of any such meeting.  Such notice need not state the purpose or purposes of, nor the business to be transacted at, such meeting, except as may otherwise be required by nonwaivable provisions of applicable law or this Agreement.  Representation of a Member at a meeting shall constitute a waiver of notice of such meeting, except where a representative of a Member attends a meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting is not called or convened lawfully or in accordance with this Agreement.

4.03.

Proxies .  A Member may vote either in person, via conference telephone or similar communications equipment, or by proxy executed in writing by such Member.  A facsimile or similar transmission by any Member (including a facsimile delivered by electronic mail), or a photographic, photostatic or similar reproduction of a writing executed by such Member shall be treated as an execution in writing for purposes of this Section 4.03.  A proxy shall be revocable unless the proxy form conspicuously states that the proxy is irrevocable.

4.04.

Action of Members by Written Consent .  Any action required or permitted to be taken at any meeting of the Members may be taken without a meeting, without prior notice, and

 

without a vote, if a consent in writing, setting forth the action so taken, shall be signed by all of the Members and the consent is filed with the minutes of the proceedings of the Members.

4.05.

Liability to Third Parties .  No Member, Director or Officer shall be liable for the debts, obligations or liabilities of the Company in their capacity as such.  

4.06.

Lack of Authority .  Except as specifically provided herein, none of the Members, in such capacity, shall have the authority or power to act for or on behalf of the Company, to do any act that would be binding on the Company, or to incur any obligations or liabilities on behalf of the Company.

ARTICLE 5
Distributions

5.01.

Distributions .

(a)

As soon as practicable after the delivery of the reports described in Section 12.02(a)(2) for a calendar quarter, the Tax Matters Partner shall estimate in good faith the taxable income to be allocated to each of Discovery and Hasbro for such calendar quarter.  Thereafter, subject to any contractual restrictions to which the Company is subject, within five (5) days after such estimate is so determined, the Company shall distribute to the Members Distributable Cash, in accordance with their Percentage Interests, in an amount equal to the Estimated Tax Distribution Amount.  For purposes of this Section 5.01(a), the “ Estimated Tax Distribution Amount ” shall equal the greater of the Discovery Estimated Tax Amount or the Hasbro Estimated Tax Amount.

(1)

The “ Discovery Estimated Tax Amount ” means (i) the taxable income to be allocated to Discovery for the calendar quarter ended on the Estimated Tax Date (as estimated in good faith by the Tax Matters Partner), multiplied by (ii) the Effective Tax Rate for such calendar quarter, and divided by (iii) Discovery’s Percentage Interest.

(2)

The “ Hasbro Estimated Tax Amount ” means (i) the taxable income to be allocated to Hasbro for the calendar quarter ended on the Estimated Tax Date (as estimated in good faith by the Tax Matters Partner), multiplied by (ii) the Effective Tax Rate for such calendar quarter, and divided by (iii) Hasbro’s Percentage Interest.

(3)

An “ Estimated Tax Date ” means the last day of a calendar quarter.

(b)

Within five (5) days after the filing of the Company’s federal income tax return for a taxable year, the Company shall distribute to the Members Distributable Cash, in accordance with their Percentage Interests, in an amount equal to the Final Tax Distribution Amount.  For purposes of this Section 5.01(b), the “ Final Tax Distribution Amount ” shall equal the greater of the Discovery Final Tax Amount or the Hasbro Final Tax Amount.

 

(1)

The “ Discovery Final Tax Amount ” means (i) the excess, if any, of (1) the taxable income allocated to Discovery for such taxable year as shown on such federal income tax return, multiplied by the Effective Tax Rate for such taxable year, over (2) the sum of the distributions to Discovery for each of the calendar quarters in such taxable year pursuant to Section 5.01(a), divided by (ii) Discovery’s Percentage Interest.

(2)

The “ Hasbro Final Tax Amount ” means (i) the excess, if any, of (1) the taxable income allocated to Hasbro for such taxable year as shown on such federal income tax return, multiplied by the Effective Tax Rate for such taxable year, over (2) the sum of the distributions to Hasbro for each of the calendar quarters in such taxable year pursuant to Section 5.01(a), divided by (ii) Hasbro’s Percentage Interest.

(c)

To the extent there is insufficient Distributable Cash to make the distributions required by Sections 5.01(a) or 5.01(b) at the time required, the Company shall distribute the available Distributable Cash to the Members in accordance with their Percentage Interests, and thereafter as Distributable Cash becomes available the Company shall distribute the excess of the amounts required to be distributed pursuant to Sections 5.01(a) and 5.01(b) over the amounts actually distributed.

(d)

After the Company has made distributions required by Sections 5.01(a), 5.01(b), and 5.01(c), the Company shall, subject to any contractual restrictions to which the Company is subject, distribute, at least annually, all remaining Distributable Cash to the Members in accordance with their Percentage Interests.  

(e)

Distributions to each Member pursuant to this Agreement shall be made pursuant to payment instructions specified by each such Member by notice given to the Company pursuant to Section 16.02.

(f)

No distribution shall be made by the Company except in accordance with this Article 5 and Article 15, except as otherwise agreed by the Board or the Members.

5.02.

Tax Withholding .

(a)

The Company shall seek to qualify for and obtain exemptions from any provision of the Code or any provision of state, local, or foreign tax law that would otherwise require the Company to withhold amounts from payments or distributions to the Members.  If the Company does not obtain any such exemption, the Company is authorized, after notice to the Members, to withhold from any payment or distribution to either Member any amounts that are required to be withheld pursuant to the Code or any provision of any state, local, or foreign tax law that is binding on the Company.

(b)

Any amount withheld with respect to any payment or distribution to any Member shall be credited against the amount of the payment or distribution to which the Member would otherwise be entitled.  If the Code or any provision of any state, local, or foreign tax law that is binding on the Company requires that the Company remit to any taxing authority any withholding tax with respect to, or for the account of, any Member in its

 

capacity as a Member, the Company shall, to the extent that Company funds are available therefor, remit the full required amount of such withholding tax to the taxing authority and shall notify such Member in writing of its obligation to pay to the Company such withholding tax to the extent it exceeds the amount of any payment or distribution to which such Member would otherwise then be entitled.  Each Member shall pay to the Company, within five Business Days after its receipt of written notice from the Company that withholding is required with respect to such Member, any amounts required to be remitted by the Company to any taxing authority with respect to such Member that are in excess of the amount of any payment or distribution to which such Member would otherwise be entitled.  If the Company is required to remit any withholding tax with respect to, or for the account of, any Member prior to the Company’s receipt of any payment required to be made by such Member pursuant to the preceding sentence, the amount of the payment required to be made by such Member shall be treated as a loan (the “ Withholding Advance ”) from the Company to the Member, which shall accrue interest from the date the Company is required to remit such withholding tax until paid by such Member or credited against payments or distributions to which such Member would otherwise be entitled as provided in Section 5.02(c), at a rate of 15.0 percent (15.0%) per year, compounded semi-annually.

(c)

Any Withholding Advance made to a Member and any interest accrued thereon shall be credited against, and shall be offset by, the amount of any later payment or distribution to which the Member would otherwise be entitled (without duplication of the credit provided in the first sentence of Section 5.02(b)), with any credit for accrued and unpaid interest as of the date such payment or distribution would otherwise have been made being applied before any credit for the amount of the Withholding Advance.  Any Withholding Advance made to a Member and any interest accrued thereon, to the extent it has not previously been paid by the Member in cash or fully credited against payments or distributions to which the Member would otherwise be entitled, shall be paid by the Member to the Company upon the earliest of (1) the dissolution of the Company or (2) the date on which the Member ceases to be a Member of the Company.

(d)

All amounts that are credited against distributions to which a Member would otherwise be entitled pursuant to this Article 5 shall be treated as amounts distributed to such Member for all purposes of this Agreement, and, if credited against payments to which a Member would otherwise be entitled under this Agreement or any other amount due to such Member from the Company, such amounts shall be treated as amounts paid to such Member for all purposes of this Agreement.

ARTICLE 6
Capital Accounts; Allocations of Profit and Loss

6.01.

Capital Account .

(a)

A separate Capital Account shall be maintained for each Member.  With respect to each Member, “ Capital Account ” shall mean the fair market value of the property deemed to have been contributed by such Member to the Company pursuant to Section 3.04 (net of liabilities that are secured by such contributed property or that the Company or any other Member is considered to assume or take subject to under Code

 

Section 752) as set forth on the Members’ Schedule, (1) increased by (i) any cash contributed or deemed contributed to the Company by such Member on or after the Formation Date, (ii) the Fair Market Value of any other property contributed or deemed contributed by such Member to the Company (net of liabilities that are secured by such contributed property or that the Company or any other Member is considered to assume or take subject to under Code Section 752), (iii) allocations to such Member of Net Profit and any items of income and gain that are specially allocated pursuant to Section 6.03, 6.04 or 6.05, (iv) any Company liabilities assumed by the Member or secured, in whole or in part, by any Company assets that are distributed to the Member, and (v) other additions allocated to such Member in accordance with the Code; and (2) decreased by (i) the amount of cash distributed to such Member by the Company, (ii) allocations to such Member of Net Loss and any items of loss and deduction that are specially allocated pursuant to Section 6.03, 6.04 or 6.05, (iii) the Fair Market Value of property distributed to such Member by the Company (net of liabilities that are secured by such distributed property or that such Member is considered to assume or take subject to under Code Section 752), and (iv) other deductions allocated to such Member in accordance with the Code.

(b)

The foregoing provisions and the other provisions of this Agreement relating to the maintenance of Capital Accounts are intended to comply with Treasury Regulations Section 1.704-1(b)(2)(iv), and shall be interpreted and applied in a manner consistent with such regulations.

(c)

In the event of a permitted Transfer of Common Units pursuant to Article 8, the Capital Account (or applicable portion thereof) of the Transferor shall become the Capital Account of the Transferee to the extent it relates to the Transferred Common Units.

6.02.

In General .

(a)

Net Profit or Net Loss for each Fiscal Year (or portion thereof) shall be allocated to the Members in accordance with their Percentage Interests:

(b)

To the extent an allocation of Net Loss pursuant to Section 6.02(a) would cause a Member to have a deficit balance in its Adjusted Capital Account as of the end of the Fiscal Year to which the allocation relates (or would increase any such deficit), such Net Loss shall be reallocated to the other Members having positive Capital Account balances pro rata in accordance with the positive balance of such Members’ Capital Accounts.

6.03.

Special Allocations .

(a)

Except as otherwise provided in Treasury Regulations Section 1.704-2(f), notwithstanding any other provision of this Article 6 , if there is a net decrease in Company Minimum Gain during any Company Fiscal Year, each Member shall be specially allocated items of Company income and gain for such Fiscal Year (and, if necessary, for subsequent Fiscal Years) in an amount equal to such Member’s share of the net decrease in Company Minimum Gain, determined in accordance with Treasury Regulations Section 1.704-2(g).  Allocations pursuant to the previous sentence shall be made in

 

proportion to the respective amounts required to be allocated to each Member pursuant thereto.  The items of Company income and gain to be allocated pursuant to this Section 6.03(a) shall be determined in accordance with Treasury Regulations Sections 1.704-2(f)(6) and 1.704-2(j)(2).  This Section 6.03(a) is intended to comply with the minimum gain chargeback requirement in Treasury Regulations Section 1.704-2(f) and shall be interpreted consistently therewith.

(b)

Except as otherwise provided in Treasury Regulations Section 1.704-2(i)(4), notwithstanding any other provision of this Article 6 other than Section 6.03(a), if there is a net decrease in Member Nonrecourse Debt Minimum Gain attributable to a Member Nonrecourse Debt during any Fiscal Year, each Member with a share of the Member Nonrecourse Debt Minimum Gain attributable to such Member Nonrecourse Debt, determined in accordance with Treasury Regulations Section 1.704-2(i)(5), shall be specially allocated items of Company income and gain for the year (and, if necessary, for subsequent Fiscal Years) in an amount equal to such Member’s share of the net decrease in Member Nonrecourse Debt Minimum Gain attributable to such Member Nonrecourse Debt (determined in accordance with Treasury Regulations Section 1.704-2(i)(4)).  Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Member pursuant thereto.  The items of Company income and gain to be allocated pursuant to this Section 6.03(b) shall be determined in accordance with Treasury Regulations Sections 1.704-2(i)(4) and 1.704-2(j)(2).  This Section 6.03(b) is intended to comply with the minimum gain chargeback requirement in Treasury Regulations Section 1.704-2(i)(4) and shall be interpreted consistently therewith.

(c)

In the event any Member unexpectedly receives any adjustments, allocations or distributions described in Treasury Regulations Section 1.704-1(b)(2)(ii)( d )( 4 ), 1.704-1(b)(2)(ii)( d )( 5 ), or 1.704-1(b)(2)(ii)( d )( 6 ), items of Company income and gain shall be specially allocated to each such Member in an amount and manner sufficient to eliminate, to the extent required by the Treasury Regulations, any deficit balance of such Member’s Adjusted Capital Account as quickly as possible; provided , however , that an allocation pursuant to this Section 6.03(c) shall be made only if and to the extent that such Member would have a deficit balance in its Adjusted Capital Account after all other allocations provided for in this Article 6 have been tentatively made as if this Section 6.03(c) were not in this Agreement.

(d)

In the event any Member has a deficit Capital Account at the end of any Fiscal Year that is in excess of the sum of (i) the amount such Member is obligated to restore to the Company pursuant to any provision of this Agreement, (ii) the amount such Member is deemed to be obligated to restore pursuant to the penultimate sentence of Treasury Regulations Section 1.704-2(g)(1) and (iii) the amount such Member is deemed to be obligated to restore pursuant to the penultimate sentence of Treasury Regulations Section 1.704-2(i)(5), each such Member shall be specially allocated items of Company income and gain in the amount of such excess as quickly as possible; provided , however , that an allocation pursuant to this Section 6.03(d) shall be made only if and to the extent that such Member would have a deficit Capital Account in excess of such sum after all other allocations provided for in this Article 6 have been tentatively made as if Section 6.03(c) and this Section 6.03(d) were not in this Agreement.

 

(e)

Nonrecourse Deductions for any Fiscal Year or other period shall be specially allocated to the Members in accordance with their Percentage Interests.

(f)

Any Member Nonrecourse Deductions for any Fiscal Year or other period shall be specially allocated to the Member who bears the economic risk of loss with respect to the Member Nonrecourse Debt to which such Member Nonrecourse Deductions are attributable in accordance with Treasury Regulations Section 1.704-2(i).

(g)

To the extent an adjustment to the adjusted tax basis of any Company asset pursuant to Code Section 734(b) or 743(b) is required pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)( m )( 4 ) to be taken into account in determining Capital Accounts as a result of a distribution other than in liquidation of a Member’s Membership Interest, the amount of such adjustment shall be treated as an item of gain (if the adjustment increases the basis of such asset) or loss (if the adjustment decreases the basis of the asset) from the disposition of the asset and shall be taken into account for purposes of computing Net Profit and Net Loss.  To the extent an adjustment to the adjusted tax basis of any Company asset pursuant to Code Section 734(b) or Code Section 743(b) is required, pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)( m )( 2 ) or 1.704-1(b)(2)(iv)( m )( 4 ), to be taken into account in determining Capital Accounts as the result of a distribution to a Member in complete liquidation of its interest, the amount of such adjustment to Capital Accounts shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis), and such gain or loss shall be specially allocated to the Members in accordance with their Percentage Interests in the Company in the event Treasury Regulations Section 1.704-1(b)(2)(iv)( m )( 2 ) applies, or to the Member to whom such distribution is made in the event Treasury Regulations Section 1.704-1(b)(2)(iv)( m )( 4 ) applies.

6.04.

Curative Allocations .  The allocations set forth in Section 6.02(b) and Section 6.03 hereof (the “ Regulatory Allocations ”) are intended to comply with certain requirements of the Treasury Regulations.  It is the intent of the Members that, to the extent possible, all Regulatory Allocations shall be offset either with other Regulatory Allocations or with special allocations of other items of Company income, gain, loss or deduction pursuant to this Section 6.04.  Therefore, notwithstanding any other provision of this Article 6 (other than the Regulatory Allocations), the Board shall cause the Company to make such offsetting special allocations of Company income, gain, loss or deduction in whatever manner it determines to be appropriate in accordance with Article 6 so that, after such offsetting allocations are made, each Member’s Capital Account balance is, to the extent possible, equal to the Capital Account balance such Member would have had if the Regulatory Allocations were not in this Agreement.  In exercising its discretion under this Section 6.04, the Board shall take into account future Regulatory Allocations under Sections 6.03(a) and 6.03(b) that, although not yet made, are likely to offset other Regulatory Allocations previously made under Sections 6.03(e) and 6.03(f).

6.05.

Other Allocation Rules.

(a)

If any fees or other payments deducted for federal income tax purposes by the Company are recharacterized by a final determination of the Internal Revenue Service as nondeductible distributions to any Member, then, notwithstanding all other allocation

 

provisions, items of income and gain shall be allocated to such Member (for each Fiscal Year in which such recharacterization occurs) in an amount equal to the fees or payments recharacterized.

(b)

The Board is hereby authorized in its discretion to amend this Agreement without the consent of the Members in any manner necessary or desirable to (1) provide for “forfeiture allocations” under any final Treasury Regulations concerning the transfers of partnership interests in connection with the performance of services and (2) to enable the Company and any Person issued a Membership Interest for services to value for income tax purposes such compensatory membership interest at its liquidation value.  Each Member hereby agrees, upon the request of the Board, to consent to and to provide any required information in connection with any such forfeiture allocations, related tax elections or other related actions of the Company.

(c)

In the event that any item or items of income, gain, loss or deduction of the Company or any Member is reallocated between the Company and any Member pursuant to Section 482 of the Code, then the allocation of the income, gain, loss or deduction of the Company for the year in which such reallocation occurs shall be made in such a fashion that the Capital Accounts of all Members, after taking into account any deemed contributions or distributions arising in connection with such reallocation, shall be, to the fullest extent possible, in proportion to each Member’s Percentage Interest.

(d)

Solely for purposes of determining a Member’s proportionate share of the “excess nonrecourse liabilities” of the Company within the meaning of Treasury Regulations Section 1.752-3(a), the Members’ interests in the Company’s profits are in proportion to their Percentage Interests.

(e)

To the extent permitted by Treasury Regulations Section 1.704-2(h)(3), the Board shall endeavor to treat distributions of cash as having been made from the proceeds of a Nonrecourse Liability or a Member Nonrecourse Debt only to the extent that such distributions would cause or increase a deficit balance in any Member’s Adjusted Capital Account.

6.06.

Tax Allocations:  Code Section 704(c).

(a)

Except as otherwise provided in this Section 6.06, all items of income, gain, loss and deduction recognized for income tax purposes shall be allocated to the Members in accordance with the allocation of the corresponding “book” items pursuant to Sections 6.02, 6.03, 6.04 and 6.05.

(b)

In accordance with Code Section 704(c) and the Treasury Regulations thereunder, income, gain, loss and deduction with respect to any property contributed or deemed contributed to the capital of the Company shall, solely for tax purposes, be allocated among the Members so as to take account of any variation between the adjusted basis of such property to the Company for federal income tax purposes and its initial Gross Asset Value using the remedial allocation method described in Treasury Regulations Section 1.704-3(d).

 

(c)

In the event the Gross Asset Value of any Company asset is adjusted pursuant to clause (b) of the definition of Gross Asset Value, subsequent allocations of income, gain, loss, and deduction with respect to such asset shall take account of any variation between the adjusted basis of such asset for federal income tax purposes and its Gross Asset Value in the same manner as under Code Section 704(c) and the Treasury Regulations thereunder.

(d)

Any elections or other decisions relating to such allocations shall be made by the Board in any manner that reasonably reflects the purpose and intention of this Agreement.

6.07.

Interim Allocations Due to Percentage Interest Adjustment .  If a Percentage Interest is the subject of a Transfer or is changed pursuant to the terms of this Agreement during any Fiscal Year, the amount of Net Income and Net Loss to be allocated to the Members for such entire Fiscal Year in accordance with their respective Percentage Interests shall be allocated to the portion of such Fiscal Year which precedes the date of such Transfer or change (and if there shall have been a prior Transfer or change in such Fiscal Year, which commences on the date of such prior Transfer or change) and to the portion of such Fiscal Year which occurs on and after the date of such Transfer or change (and if there shall be a subsequent Transfer or change in such Fiscal Year, which precedes the date of such subsequent Transfer or change), in proportion to the number of days in each such portion (or, in the case of a Transfer, in accordance with an interim closing of the books at the election and the expense of the parties to the Transfer), and the amounts of the items so allocated to each such portion shall be credited or charged to the Members in proportion to their respective Percentage Interest during each such portion of the Fiscal Year in question.  Such allocation shall be made without regard to the date, amount or receipt of any distributions that may have been made with respect to the transferred Percentage Interest.

6.08.

Section 754 Election .  If requested to do so by any Transferor Member or any Transferee Member (or such Member’s Assignee or Substituted Member), the Company shall make an election under Section 754 of the Code (and a corresponding election under applicable state and local law).  Upon request of either Member, the Company shall also make an election under Section 754 of the Code upon a distribution of property or money to a Member

6.09.

Deficit Capital Accounts .  Notwithstanding anything to the contrary contained in this Agreement, the Members shall not be obligated at any time to repay or restore to the Company all or any part of any distributions made to the Members by the Company, nor shall any Member be required to restore a deficit Capital Account balance to the Company.

ARTICLE 7
Management and Operations

7.01.

Management by the Board .  Except for those matters for which the approval or consent of any Member is required by this Agreement, any Ancillary Agreement or by nonwaivable provisions of applicable law, the business and affairs of the Company and any subsidiary of the Company shall be managed by the Members acting through a Board of Directors (the “ Board ”), and the Board shall have, subject to the terms of this Agreement and the

 

Ancillary Agreements, full, exclusive and complete discretion, power and authority to manage, control, administer and operate the business and affairs of the Company and its subsidiaries.  Decisions of the Board within its scope of authority shall be binding upon the Company and its Members (in their capacity as Members).  Actions of the Board shall require the affirmative vote or consent of the Directors on the Board as provided in Sections 7.03 and 7.07.

7.02.

Board .  The number of Directors constituting the entire Board shall be six.  Each of Discovery and Hasbro shall have the right to appoint three Directors, each of whom shall be an employee of such Member (unless otherwise approved by the non-appointing Member) and one of whom shall be the chief executive officer of such Member (or of DCI, in the case of Discovery).  Each Member shall notify the Company and the other Member of the identity of each of its appointed Directors.  Each Director shall hold office until the earliest of his or her death, resignation or removal as provided in Section 7.06.  

7.03.

Board Vote .

(a)

The Directors appointed to the Board by Discovery shall collectively have one vote (the “ Discovery Vote ”), and the Directors appointed to the Board by Hasbro shall collectively have one vote (the “ Hasbro Vote ”).  Any resolution adopted, decision made or action undertaken by the Board shall require two affirmative votes ( i.e. , an affirmative Discovery Vote and an affirmative Hasbro Vote).

(b)

Notwithstanding anything to the contrary as a result of a delegation of authority pursuant to this Article 7, in addition to any other matters the approval of which is reserved to the Board in accordance with the terms of this Agreement or the approval of which the Board may reserve to itself pursuant to its authority described in Section 7.01, the following actions shall require the express approval of the Board:

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(c)

If the Board becomes deadlocked with respect to the approval of any proposed matter within the authority of the Board ( i.e. , excluding matters reserved for Discovery or Hasbro) and the subsequent good faith efforts of the Directors do not resolve the deadlock, either Discovery or Hasbro may request that one designated representative from each party, who initially shall be David Zaslav and Brian Goldner, meet, confer and discuss in person or by telephone conference the deadlocked matter in an attempt to resolve the deadlock.  Upon such request by either Discovery or Hasbro, such designated representatives are conferred with authority to cast the Discovery Vote and the Hasbro Vote, respectively, with respect to the deadlocked matter.  In the event such representatives do not resolve the deadlock within 30 days after the initial vote of the Board on the matter, the matter shall be deemed not to have been approved by the Board.  Discovery shall designate a successor representative (who shall be a senior member of management of Discovery) for purposes of this Section 7.03(c) if David Zaslav ceases to act as such representative, and Hasbro shall designate a successor representative (who shall be a senior member of management of Hasbro) for purposes of this Section 7.03(c) if Brian Goldner ceases to act as such representative.

7.04.

Actions by the Board; Committees; Delegation and Duties .

(a)

In managing the business and affairs of the Company and exercising its powers, the Board may act:  (i) collectively through meetings and written consents pursuant to Sections 7.05 and 7.07, (ii) through committees pursuant to Section 7.04(b), or (iii) through Officers and other agents to whom authority and duties have been delegated pursuant to Section 7.09(a).  No individual Director or Officer in his or her capacity as such or other Person shall have the authority to act for or on behalf of the Company, to do any act that would be legally binding on the Company or to incur any obligations or liabilities for or on behalf of the Company unless expressly authorized to do so by the Board or by this Agreement, including authorization under Section 7.09.

 

(b)

The Board may, from time to time, designate one or more committees, each of which shall be composed of an equal number of Directors appointed by each of Discovery and Hasbro.   Any such committee, to the extent provided in the authorizing resolutions of the Board, shall have and may exercise all of the authority of the Board, subject to the other provisions of this Agreement.  The Directors appointed to a committee by Discovery shall collectively have one vote, and the Directors appointed to a committee by Hasbro shall collectively have one vote, with respect to all matters and actions considered or undertaken by such committee.  At every meeting of any such committee, an affirmative vote of the Discovery Directors and an affirmative vote of the Hasbro Directors shall be necessary for the approval of any action and adoption of any resolution, and the presence of at least that number of Directors entitled to cast such affirmative votes shall constitute a quorum.  The Board may dissolve any committee at any time.

7.05.

Meetings; Alternates; Observers .

(a)

Unless otherwise required by nonwaivable provisions of applicable law or this Agreement, the presence of at least one Director appointed by each of Discovery and Hasbro shall constitute a quorum for the transaction of business of the Board.

(b)

Regular meetings of the Board or any committee designated by the Board may be held at such place or places as shall be determined from time to time by resolution of the Board or such committee, respectively; provided that any Director (in the case of the Board) or any Director who is a member of such committee (in the case of a committee) who was not present when such resolution was approved shall receive notice of any such meeting at least 72 hours in advance.  Special meetings of the Board or any committee designated by the Board may be called by any Director (in the case of the Board) or any Director who is a member of such committee (in the case of a committee) on at least 72 hours notice to each other Director (in the case of the Board) or other Director who is a member of such committee (in the case of a committee).  Such notice need not state the purpose or purposes of, nor the business to be transacted at, such meeting, except as may otherwise be required by law or this Agreement.  Attendance of a Director at a meeting shall constitute a waiver of notice of such meeting, except where a Director attends a meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting is not called or convened lawfully or in accordance with this Agreement.

(c)

Pursuant to a written notice to the Company, any Director may appoint an alternate (an “ Alternate ”) who may attend, participate and serve as a proxy for the absent Director that appointed such Alternate at any Board or committee meeting or for a stated period of time ( provided that any Alternate shall be an employee of the Member (or its Wholly-Owned Affiliate) that designated the appointing Director who is familiar with the Business of the Company as a result of such employment).  Alternates shall exercise the same rights as the absent Director could have exercised.

(d)

Each Member may designate observers to attend any meeting of the Board or any committee ( provided that any such observer shall be an employee of such Member (or its Wholly-Owned Affiliate) who is familiar with the Business of the Company as a result of such employment), and the Company shall provide each such observer with the

 

same financial and other information that is provided to Directors in connection with such meeting; provided that no such observer shall be counted for the purpose of determining a quorum for the transaction of business by the Board or committee, nor shall any such observer be permitted to vote on any matter considered by the Board or committee at such meeting; and provided further that the Company reserves the right to withhold any information and to exclude any such observer from any meeting if access to such information or attendance at such meeting could adversely affect the attorney-client privilege between the Company and its legal counsel.

7.06.

Removal; Vacancies; Resignation .

(a)

A Director may be removed only by the Member that appointed such Director, with or without cause, at any time in the sole discretion of such Member.  Upon such removal or the earlier death or the resignation of any Director, the Member that appointed such Director shall appoint a successor, which successor shall be an employee of such Member (unless otherwise approved by the non-appointing Member).  Each Member shall notify the Company and the other Member of any change in the identity of any of its appointed Directors.  

(b)

Any Director may resign at any time.  Such resignation shall be made in writing to the Board and shall take effect at the time specified therein, or if no time be specified, at the time of its receipt by the Board.  The acceptance of a resignation shall not be necessary to make it effective, unless expressly so provided in the resignation.

7.07.

Action by Written Consent or Telephone Conference .  Any action permitted or required by the Act or this Agreement to be taken at a meeting of the Board or of any committee designated by the Board may be taken without a meeting if a consent in writing, setting forth the action to be taken, is signed by at least one Director or member of such committee, as the case may be, representing Discovery and one Director or member of such committee, as the case may be, representing Hasbro.  The Directors or members of any committee designated by the Board may participate in or hold a meeting of the Board or any committee, as the case may be, by means of a conference telephone or similar communications equipment by means of which all Persons participating in the meeting can hear each other, and participation in such meeting by such means shall constitute attendance and presence in person at such meeting, except where a Person participates in the meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting is not called or convened lawfully or in accordance with this Agreement.

7.08.

Compensation of Directors .  None of the Directors shall receive any compensation for their services but shall be reimbursed by the Company for their reasonable out-of-pocket costs and expenses incurred in the course of their service hereunder in accordance with policies determined from time to time by the Board.  

7.09.

Officers.

(a)

Subject to Section 7.09(b), the Board may, from time to time, designate one or more Persons to be officers of the Company (the “ Officers ”).  Any Officer

 

so designated shall have such authority and perform such duties as the Board may, from time to time, delegate to them.  The Board may assign titles to particular Officers (including Chief Executive Officer, President, Chief Operating Officer, Chief Financial Officer, Executive or other Vice President, Secretary or Treasurer).  Unless the Board decides otherwise, if the title is one commonly used for officers of a business corporation formed under the Delaware GCL, the assignment of such title shall constitute the delegation to such Officer of the authority and duties that are normally associated with that office, subject to any specific delegation of authority and duties made to such Officer by the Board and any authority or duty expressly reserved by the Board and subject to the terms of this Agreement and the Ancillary Agreements.  The Board may delegate such authority and responsibility otherwise attributable to an Officer to an agent that is not an Officer.

(b)

Notwithstanding any provision of this Agreement to the contrary, each of Discovery and Hasbro, acting individually, shall have the authority to discharge and remove the Chief Executive Officer at any time following 180 days after the appointment of such Chief Executive Officer; provided that in the event a Member discharges and removes the Chief Executive Officer pursuant to this Section 7.09(b), such Member may not discharge and remove any subsequent Chief Executive Officer until the second anniversary of such prior discharge and removal.  The foregoing limitations in this Section 7.09(b) on the discharge and removal of the Chief Executive Officer shall not apply in the event of a termination for cause (which includes any material breach by the Company of any material provision of the Ancillary Agreements or Affiliation Agreements where the breach arose from the action or inaction of the management of the Company or as to which the management of the Company failed to take reasonable steps requested by such Member to cure such material breach).  In the event of the death, resignation or removal the Chief Executive Officer, the appointment of any successor Chief Executive Officer shall be determined by the Board.  

(c)

Each Officer shall hold office until his or her successor shall be duly designated and qualified or until his or her death, resignation or removal in the manner hereinafter provided.  Any number of offices may be held by the same Officer.  The salaries or other compensation, if any, of the Officers and agents of the Company shall be fixed from time to time by the Board, subject to the terms of any applicable employment agreements.  Subject to any applicable employment agreement, any Officer may resign as such at any time.  Such resignation shall be made in writing and shall take effect at the time specified therein, or if no time be specified, at the time of its receipt by the Board.  The acceptance of a resignation shall not be necessary to make it effective, unless expressly so provided in the resignation.  Any Officer may be removed as such, either with or without cause, by the Board, subject to Section 7.09(b).  Designation of an Officer shall not of itself create a contract of employment between such Officer and the Company.  Any vacancy occurring in any office of the Company shall be filled in accordance with this Section 7.09.

7.10.

Actions of Subsidiaries .  The Company shall not permit any subsidiary of the Company to take any action that (i) if taken by the Company, would require the approval of the Board or a Member, or (ii) would require the approval of the board of directors or other governing body or person of such subsidiary, unless such action by such subsidiary has been approved by the Board or such Member in accordance with the terms of this Agreement.

 

7.11.

Affiliation Agreements .  The Company shall, and shall cause its Controlled Affiliates to (and to the extent that Discovery or Hasbro has the authority and right (in its capacity as an individual party) to unilaterally cause the Company to not comply with any Affiliation Agreement, each of Discovery and Hasbro shall not take any action that would cause the Company not to), comply with and perform, in all material respects, all of their respective obligations under each Affiliation Agreement (including all obligations under any (a) Affiliation Agreement assumed by the Company pursuant to the Assignment Agreement (in the case of the Company and Hasbro, to the extent such obligations have not been redacted from the Affiliation Agreements delivered to the Company and Hasbro) or (b) any amendments or modifications of the Affiliation Agreements or any new, replacement or extension Affiliation Agreements entered into after the date hereof in accordance with Section 7.03(b)(10) to the extent such obligations are not redacted from the Affiliation Agreements delivered to the Company and Hasbro); provided that each of Discovery’s and Hasbro’s respective liability under this Section 7.11 resulting from breaches of any Affiliation Agreement shall be only to the extent such action by such Member gives rise to such breach.  For the avoidance of doubt, the parties acknowledge and agree that to the extent any programming aired by the Company (including programming provided to the Company by Hasbro in accordance with the Hasbro Studios Programming Agreement) is determined to breach any Affiliation Agreement, such breach shall be deemed a breach solely by the Company, and neither Discovery nor Hasbro shall be deemed to have in any way caused such breach.  Discovery shall, and shall cause its Controlled Affiliates to, comply with and perform, in all material respects, all of their respective obligations under each Affiliation Agreement to the extent that the failure to so comply therewith or perform thereunder would have a material and adverse effect on the Company’s rights and obligations thereunder with respect to the Network.

7.12.

Programming Guidelines .   The Company shall conduct the businesses and operations of the Network,