FIRST AMENDED AND RESTATED
 
OPERATING AGREEMENT
 
OF
 
SUTTON HILL PROPERTIES, LLC
 
Table of Contents
 

   
PAGE
1.
THE
COMPANY                                                                                                          
1
     
2.
MEMBERS’ CAPITAL
CONTRIBUTIONS                                                                                                          
2
     
3.
ALLOCATIONS                                                                                                          
5
     
4.
DISTRIBUTIONS                                                                                                          
9
     
5.
MANAGEMENT                                                                                                          
9
     
6.
MEMBERS                                                                                                          
12
     
7.
ACCOUNTING, BOOKS AND
RECORDS                                                                                                          
15
     
8.
WITHDRAWAL AND
TRANSFERS                                                                                                          
16
     
9.
DISSOLUTION AND WINDING
UP                                                                                                          
19
     
10.
INDEMNIFICATION                                                                                                          
20
     
11.
SINGLE PURPOSE
ENTITY                                                                                                          
20
     
12.
MISCELLANEOUS                                                                                                          
23
   
SCHEDULE I –
MEMBERS                                                                                                                   
27
   
APPENDIX A – INDEX OF DEFINED WORDS AND PHRASES
27

--------------------------------------------------------------------------------

 
FIRST AMENDED AND RESTATED
OPERATING AGREEMENT
OF
SUTTON HILL PROPERTIES, LLC
 
This FirstAmended and Restated Operating Agreement (this “Agreement”) of Sutton
Hill Properties, LLC, a Nevada limited-liability company (the “Company”), is
made and entered into and shall be effective as of the 28th day of June, 2007,
by and between the undersigned persons who comprise all of the members of the
Company (the “Members”).
 
THE COMPANY
 
 
Definitions

 
Capitalized words and phrases used in this Agreement have the meanings provided
for in this Agreement.  Although Appendix A to this Agreement contains a summary
index of the key capitalized words and phrases used in this Agreement, Appendix
A is not an exhaustive list of all of such capitalized words and phrases.
 
 
Purpose; Powers

 
The primary purpose of the Company shall be to acquire, finance, own, operate
(including, without limitation the continuation of the current use of the
property as a cinema), subdivide (including, without limitation subdivision into
condominium interests), redevelop, and to lease, sell or otherwise transfer
interests in (including, without limitation, the lease, sale or other transfer
of the entirety of) that certain property located at 1001 – 1007 Third Avenue,
in the Borough of Manhattan, New York, New York (the “Third Avenue Property”)
and, incident to such primary purpose, to conduct any lawful business activity
permitted by Nevada law and required to perform all acts in furtherance thereof,
including specifically, but without limitation, the borrowing of money and the
encumbering of or the granting or interests and estates in or with respect to
the Property.  The Company has the power to do any and all acts that are
necessary, appropriate, proper, advisable, incidental or convenient to carry out
the purposes of the Company.
 
 
Principal Place of Business

 
The Company’s principal place of business shall be 500 Citadel Drive, Suite 300,
Commerce, California.  In its sole discretion, the Manager (as defined in
Section 5.1 of this Agreement) may change the Company’s principal place of
business to any other place within or outside the State of Nevada with or
without prior notice to the Members.
 
 
Term

 
The term of the Company commenced on May 21, 2004, on the date the Company’s
articles of organization (the “Articles”) were filed in the office of the Nevada
Secretary of State in accordance with the Nevada Revised Statutes (the “NRS”)
(the “Effective Date”), and shall continue until the dissolution and winding up
of the Company is completed pursuant to Section 9 of this Agreement.  This
Agreement was amended as of  June 28, 2007, in order to reflect the admission of
Sutton Hill Capital, L.L.C. (“SH Capital”), as a Member.
 
 
Membership Units

 
Authorized Membership Units.  The Company shall be authorized to issue up to one
million (1,000,000) common membership units (the “Common Units”) and up to one
million (1,000,000) preferred membership units (the “Preferred Units” and
collectively, but without differentiation, with the Common
 
1

--------------------------------------------------------------------------------

 
Units, the “Units” or individually, but again without differentiation each a
“Unit”). Preferred Units may be issued in one or more classes, each with such
rights, privileges and preferences as the Manager shall in its sole discretion
determine without the affirmative vote or written consent of the Members.  Each
Unit shall represent an ownership interest in the Company, including any and all
benefits to which the holder of such Units 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.  The number of authorized Units may be
increased in the sole discretion of the Manager without the affirmative vote or
written consent of the Members.  The Manager is authorized to amend this
Agreement, again without the affirmative vote or written consent of the Members,
in order to memorialize the creation of such one or more classes of Preferred
Units, the rights, privileges and preferences of such one or more classes of
Preferred Units and the number of authorized Units from time to time.
 
Limitation on Transfer.  The Transfer of Units is restricted and must be made in
accordance with the terms and conditions of this Agreement, where, for the
purposes of this Agreement, “Transfer” means, as a noun, any voluntary or
involuntary transfer, sale, pledge, hypothecation, encumbrance or other
disposition and, as a verb, to voluntarily or involuntarily to transfer, sell,
pledge, hypothecate, encumber or otherwise dispose of.
 
 
Title to Property

 
At all times after the Effective Date, any and all real and personal property
acquired by the Company, including, without limitation, cash, improvements to
property and tangible or intangible property (“Property”), shall be held, and
owned by and conveyed in the name of the Company as an entity, and not in the
name of any Member.  Each Unit shall be personal property for all purposes.  No
Property shall be transferred for, or in payment of, any obligation of any
Member.
 
 
MEMBERS’ CAPITAL CONTRIBUTIONS

 
 
Definitions

 
“Allocation Year” or “Tax Year” means the calendar year.
 
“Book Adjustments”  shall mean adjustments with respect to the Gross Asset Value
of the Company’s assets for depreciation, depletion, amortization, and gain or
loss, as computed in accordance with Section 1.704-1(b)(2)(iv)(g) of the
Regulations.
 
“Capital Contributions” means, with respect to any Member, the amount of money
and the initial Gross Asset Value of any Property (other than money) contributed
to the Company with respect to such Member’s Units.
 
“Code” means the Internal Revenue Code of 1986, as amended from time to time.
 
“Gross Asset Value” means, with respect to any Property, the fair market value
of such Property at the time of its contribution to the Company (as adjusted by
Book Adjustment) without respect to the assets of the Company that have been
revalued, the fair market value of such assets as adjusted pursuant to Code
Section 734, 743 and 754 whenever it is determined by the Manager, in the
Manager’s business judgment, that such adjustment is appropriate and
advantageous to the Company.
 
“Majority” means the Members holding a majority of the outstanding Common Units.
 
“Percentage Interest” of each Member shall mean, as of any date, the ratio
(expressed as a percentage) of the number of Common Units held by such Member on
such date to the aggregate Common Units held by all Members on such date.
 
2

--------------------------------------------------------------------------------

 
“Profits” and “Losses” mean, for each Allocation Year, the income gain, loss,
deductions, and credits, as the case may be, of the Company (including items not
subject to federal income tax or deductible for federal income tax purposes),
whether in the aggregate or separately stated, as appropriate, determined under
federal income tax principles.
 
“Regulations” means the Income Tax Regulations, including Temporary Regulations,
promulgated under the Code, as such regulations are amended from time to time.
 
 
Initial Capital Contributions

 
Each Unit shall be issued to the Members in consideration for the Capital
Contributions set forth in the attached Schedule I, which is incorporated
herein.  The name, address, initial Capital Contribution, Units, Percentage
Interest and capital account of each Member are set forth in Schedule I.  The
Manager shall amend Schedule I from time to time to reflect the admission of
additional Members, the making of additional capital contributions, the transfer
of Units as between Members and/or the issuance of additional Units.  The
initial or additional Capital Contribution of a Member shall consist of either
money or the initial Gross Asset Value of any property (other than money) that
is contributed to the Company with respect to the Units held or purchased by
such Member.
 
 
Additional Capital Contributions  

 
1.1.1.  The Members acknowledge that the execution of the Company’s business
plan may, from time to time, require the contribution of additional Funds (the
“Additional Funds”) and agree that they will provide, on a pro-rata basis, in
accordance with their relative ownership of Common Units (each Member’s
“Pro-rata Share”), the funds required for such purposes as a contribution to
capital (each an “Additional Capital Contribution”).  Upon the Managers’
determination that an Additional Capital Contribution is necessary, the Manager
shall give written notice to all Members at least twenty business days prior to
the date the Additional Capital Contribution is due.  The written notice shall
set forth the amount of the Additional Capital Contribution, each Member’s
Pro-rata Share, the date by which the Members must contribute each Member’s
respective Pro-rata Share and the number of Common Units, if any, that will be
issued in consideration of such Additional Capital Contributions.
 
1.1.2.  In the event that any Member should fail to timely make all or any
portion of its Additional Capital Contribution (a “Non-Contributing Member”),
then the Managers may offer the Common Units associated with the remaining
portion of such Additional Capital Contribution (the “Remaining Common Units”)
to the remaining Members (the “Contributing Members”), who shall be entitled
within ten (10) business days of such notice to subscribe, by irrevocable
written notice to the Manager specifying the number of Remaining Common Units
desired, for such Remaining Common Units.  In the event of an oversubscription,
the Remaining Common Units will be allocated by the Managers amongst the
Contributing Members subscribing for such Remaining Common Units so that each
such Member receives not less than the lesser of (i) the quantity of  Remaining
Common Units specified in such Member’s irrevocable notice to the Manager, and
(ii) that proportion of the Remaining Units equal to a fraction (rounded to the
nearest whole Common Unit) the numerator of which is the number of Common Units
held by such Member at the time it issued such irrevocable notice and the
denominator of which is the number of Common Units held as of such date by all
of the Remaining Members issuing irrevocable notices to acquire such Remaining
Common Units, such allocation under this clause (ii) to be further adjusted
upwards on a prorate basis to reflect the fact that one or more such Remaining
Members may have specified a quantity of the Remaining Conmmon Units which,
applying clause (i), represents less than its prorate portion under this clause
(ii).  Any Remaining Common Units not subscribed for may be sold in such manner
and to such person or persons as the Managers may, in their sole discretion,
determine.
 
1.1.3.  In addition, the Managers, acting on behalf of the Company, shall (and
is hereby authorized by any and all Non-Contributing Members to) transfer from
the ownership of the Non-Contributing Member to the ownership of the purchasers
of any Remaining Common Units resulting from the failure of such
Non-Contributing Member to timely contribute all of its Additional Capital
Contribution, an additional quantity of
 
3

--------------------------------------------------------------------------------

 
Common Units equal to 10% (rounded to the nearest number of whole Common Units)
of such Remaining Common Units (such Common Units to be allocated among such
purchasers of such Remaining Common Units on a prorate basis by reference to the
percentage of such Remaining Common Units acquired by each such purchaser) and
to make appropriate adjustments to the relative capital accounts of such Members
to reflect such issuance and/or transfer of Common Units, such adjustment to be
effective either as of the date of the failure of such Non-Contributing Member
to timely make its Additional Capital Contribution, or as of the date such
Remaining Common Units are sold, or at any time between such dates as the
Manager may, in its sole discretion, determine.
 
2.3.4.  Preemptive Rights.  Subject to the terms and conditions contained in
this Agreement, each Member shall have the preemptive right to purchase its pro
rata portion of any newly issued Units that the Company may, from time to time,
propose to sell and issue (the “Preemptive Right”).  Any portion of such newly
issued Units not purchased pursuant to the Preemptive Right may be sold to other
Members or to other purchasers.  Each Member shall have ten (10) business days
following approval of the newly issued Units, and notice thereof, to agree to
purchase up to its pro rata portion of the newly issued units, for the price and
upon the terms specified in the approval of such newly issued Units, by giving
written notice to the Manager and stating therein the quantity of newly issued
Units to be purchased.  Upon exercise of the Preemptive Right, the Company and
the relevant Member shall be legally obligated to consummate the purchase
contemplated thereby and shall use their reasonable best efforts to secure any
approvals required in connection therewith.  In the event a Member fails to
exercise its Preemptive Right within said ten (10) business day period, the
Company shall have one-hundred and eighty (180) days thereafter to sell or enter
into an agreement to sell the newly issued Units not elected to be purchased by
such Member.  In the event the Company has not entered into an agreement to sell
such Units within said one-hundred and eighty (180) day period, the Company
shall not thereafter issue or sell any newly issued Units without first offering
such Units to the Members as provided in this Section 2.3.4.

 
Capital Accounts

 
The term, “Capital Account,” shall mean, with respect to any Member, the Capital
Account maintained for such Member in accordance with the following provisions:
 
Each Member’s Capital Account shall be increased by:  (i) such Member’s Capital
Contributions; (ii) such Member’s distributive share of Profits and any items in
the nature of income or gain that are specially allocated pursuant to Section 3
of this Agreement; and (iii) the amount of any Company liabilities assumed by
such Member or that are secured by any Property distributed to such Member;
provided, however, the principal amount of a promissory note that is not readily
traded on an established securities market and that is contributed to the
Company by the maker of the note (or a Member related to the maker of the note
within the meaning of Regulations Section 1.704-1(b)(2)(ii)(c)) shall not be
included in the Capital Account of any Member until the Company makes a taxable
disposition of the note or until (and to the extent that) principal payments are
made on the note, all in accordance with Regulations Section
1.704-1(b)(2)(iv)(d)(2);
 
Each Member’s Capital Account shall be decreased by:  (i) the amount of money
and the Gross Asset Value of any Property distributed to such Member pursuant to
any provision of this Agreement; (ii) such Member’s distributive share of Losses
and any items in the nature of expenses or losses that are specially allocated
pursuant to Section 3 of this Agreement; and (iii) the amount of any liabilities
of such Member assumed by the Company or that are secured by any Property
contributed by such Member to the Company;
 
In the event Units are transferred in accordance with the terms of this
Agreement, the transferee shall succeed to the Capital Account of the transferor
to the extent such Capital Account relates to the transferred Units; and
 
4

--------------------------------------------------------------------------------

 
In determining the amount of any liability for purposes of subparagraphs (a) and
(b) above, Code Section 752(c) and any other applicable provisions of the Code
and Regulations shall be taken into account.
 
The provisions of this Agreement relating to the maintenance of Capital Accounts
are intended to comply with Regulations Section 1.704-1(b), and shall be
interpreted and applied in a manner consistent with such Regulations.  In the
event the Manager shall determine that it is prudent to modify the manner in
which the Capital Accounts, or any increases or decreases thereto (including,
without limitation, the increases or decreases relating to liabilities that are
secured by contributed or distributed property or that are assumed by the
Company or any Members), are computed in order to comply with such Regulations,
the Manager may make such modification, provided that such modification is not
likely to have a material effect on the amounts distributed to any person
pursuant to Section 9 of this Agreement upon the dissolution of the
Company.  The Manager shall also make any adjustments that are necessary or
appropriate, with the consent of the Company’s counsel, to maintain equality
between the Capital Accounts of the Members and the amount of capital reflected
on the Company’s balance sheet, as computed for book purposes, in accordance
with Regulations Section 1.704-1(b)(2)(iv)(q), and shall, with the consent of
the Company’s counsel, make any appropriate modifications in the event
unanticipated events might otherwise cause this Agreement not to comply with
Regulations Section 1.704-1(b).
 
1.2.  Manager Buy-Out Right. It is currently contemplated that the Third Avenue
Property will eventually be redeveloped.  The development and proposal of the
redevelopment plan will be the responsibility of the Managers; provided,
however, that so long as SH Capital is a Member no redevelopment plan proposed
by the Managers may be adopted if such plan requires additional capital
contributions by the Members, unless that redevelopment plan is approved by a
Majority including SH Capital..  Provided, further, however that in the event
that SH Capital does not approve the redevelopment plan within thirty (30) days
of the date on which such approval is requested in writing by the Manager, then,
the Manager shall have the right, but not the obligation, to acquire SH
Capital’s Units  for an amount equal to the net fair market value of the assets
of the Company multiplied by SH Capital’s Percentage Interest.  Net fair market
value will be based upon the highest and best use of the property (restricted
only by applicable zoning and land use laws and regulations (including without
limitation, limitation on the demolition or modification of historically or
architecturally significant structures)) calculated net of any debt or other
obligations of the Company or encumbrances on the assets of the Company ranking
senior to the interests of the Common Units. The procedures for determining net
fair market value shall be as set forth in Section 8.4.6.2.  This option must be
exercised no later than ninety (90) days following the date that approval is
requested in writing by Manager from SH Capital, and must close within sixty
(60) days after the purchase price is determined.  At the option of the Manager,
this buy-out right may be assigned to the Company with the result that the SH
Capital Units are transferred directly from SH Capital to the Company.  The
parties hereto acknowledge and agree that, notwithstanding anything to the
contrary contained in this Agreement, so long as SH Capital is a Member, absent
the consent of SH Capital, the Company shall not authorize or issue any Units
except (i) in connection with Section 2.3 hereof, or (ii) in connection with a
redevelopment plan for the Third Avenue Property.
 
 
ALLOCATIONS

 
 
Definitions

 
“Adjusted Capital Account Deficit” means, with respect to any Member, the
deficit balance, if any, in such Member’s Capital Account as of the end of the
relevant Allocation Year, after giving effect to the following adjustments:
 
a.  Increase to such Capital Account of any amounts which such Member is deemed
to be obligated to restore pursuant to the penultimate sentences in Regulations
Sections 1.704-2(g)(1) and 1.704-2(i)(5); and
 
5

--------------------------------------------------------------------------------

 
b.  Decrease to such Capital Account of the items described in 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).
 
The foregoing definition of Adjusted Capital Account Deficit is intended to
comply with the provisions of Regulations Section 1.704-1(b)(2)(ii)(d) and shall
be interpreted consistently therewith.
 
“Company Minimum Gain” has the meaning given the term “partnership minimum gain”
in Regulations Sections 1.704-2(b)(2) and 1.704-2(d).
 
“Member Nonrecourse Debt” has the same meaning as the term “Partner nonrecourse
debt” in Regulations Section 1.704-2(b)(4).
 
“Member Nonrecourse Debt Minimum Gain” means an amount, with respect to each
Member Nonrecourse Debt, equal to the Company Minimum Gain that would result if
such Member Nonrecourse Debt were treated as a Nonrecourse Liability, determined
in accordance with Regulations Section 1.704-2(i)(3).
 
“Member Nonrecourse Deductions” has the same meaning as the term “Partner
nonrecourse deductions” in Section 1.704-2(i) of the Regulations.
 
“Net Cash Flow” means the gross cash proceeds of the Company less the portion
thereof used to pay or establish reserves for all Company expenses, debt
payments, capital improvements, replacements and contingencies, all as
determined by the Manager.  “Net Cash Flow” shall not be reduced by
depreciation, amortization, cost recovery deductions or similar allowances, but
shall be increased by any reductions of reserves previously established pursuant
to the first sentence of this definition.
 
“Nonrecourse Deductions” has the meaning set forth in Regulations Section
1.704-2(b)(1).
 
“Nonrecourse Liability” has the meaning set forth in Regulations Section
1.704-2(b)(3).
 
 
Profits

 
After giving effect to the special allocations set forth in Sections 3.4 and 3.5
of this Agreement, Profits for any Allocation Year shall be allocated to the
Members in proportion to their respective Percentage Interests.
 
 
Losses

 
After giving effect to the special allocations set forth in Sections 3.4 and 3.5
of this Agreement, and subject to Section 3.6 of this Agreement, Losses for any
Allocation Year shall be allocated to the Members in proportion to their
respective Percentage Interests.
 
 
Special Allocations

 
The following special allocations shall be made in the following order:
 
Minimum Gain Chargeback.  Except as otherwise provided in Regulations Section
1.704-2(f), notwithstanding any other provision of this Section 3, if there is a
net decrease in Company Minimum Gain during any Allocation Year, each Member
shall be specially allocated items of the Company’s income and gain for such
Allocation Year (and, if necessary, subsequent Allocation Years) in an amount
equal to such Member’s share of the net decrease in Company Minimum Gain,
determined in accordance with 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 to
be so allocated shall be determined in accordance with Regulations Sections
1.704-2(f)(6) and 1.704-2(j)(2).  This Section
 
6

--------------------------------------------------------------------------------

 
3.4.1 is intended to comply with the minimum gain chargeback requirement in
Regulations Section 1.704-2(f) and shall be interpreted consistently therewith.
 
Member Minimum Gain Chargeback.  Except as otherwise provided in Regulations
Section 1.704-2(i)(4), notwithstanding any other provision of this Section 3, if
there is a net decrease in Member Nonrecourse Debt Minimum Gain attributable to
a Member Nonrecourse Debt during any Allocation Year, each Member who has a
share of the Member Nonrecourse Debt Minimum Gain attributable to such Member
Nonrecourse Debt, determined in accordance with Regulations Section
1.704-2(i)(5), shall be specially allocated items of the Company’s income and
gain for such Allocation Year (and, if necessary, subsequent Allocation Years)
in an amount equal to such Member’s share of the net decrease in Member
Nonrecourse Debt, determined in accordance with 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 to be so allocated shall be determined in
accordance with Regulations Sections 1.704-2(i)(4) and 1.704-2(j)(2).  This
Section 3.4.2 is intended to comply with the minimum gain chargeback requirement
in Regulations Section 1.704-2(i)(4) and shall be interpreted consistently
therewith.
 
Qualified Income Offset.  In the event any Member unexpectedly receives any
adjustment, allocation, or distribution described in Regulations Sections
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 the Company’s income and gain shall be specially allocated to such
Member in an amount and manner sufficient to eliminate, to the extent required
by the Regulations, the Adjusted Capital Account Deficit of the Member as
quickly as possible; provided, however, that an allocation pursuant to this
Section 3.4.3 shall be made only if, and to the extent that, the Member would
have an Adjusted Capital Account Deficit after all other allocations provided
for in this Section 3 have been tentatively made as if this Section 3.4.3 were
not in this Agreement.
 
Gross Income Allocation.  In the event any Member, at the end of any Allocation
Year, has a deficit Capital Account that is in excess of the amount such Member
is obligated to restore pursuant to the penultimate sentences of Regulations
Sections 1.704-2(g)(1) and 1.7042(i)(5), each such Member shall be specially
allocated items of the Company’s income and gain in the amount of such excess as
quickly as possible; provided, however, that an allocation pursuant to this
Section 3.4.4 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 Section 3 have been made as if Section 3.4.3 and this
Section 3.4.4 were not in this Agreement.
 
Nonrecourse Deductions.  Nonrecourse Deductions for any Allocation Year shall be
specially allocated to the Members in proportion to their respective Percentage
Interests.
 
Member Nonrecourse Deductions.  Any Member Nonrecourse Deductions for any
Allocation Year 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 Deduction is attributable in accordance with Regulations
Section 1.704-2(i)(1).
 
Section 754 Adjustments.  To the extent an adjustment to the adjusted tax basis
of any Property is required, pursuant to 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, 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
interests in the Company in the event Regulations Section
1.704-1(b)(2)(iv)(m)(2) applies, or to the Member to whom such distribution was
made in the event Regulations Section 1.704-1(b)(2)(iv)(m)(4) applies.
 
Allocations Relating to Taxable Issuance of Units.  Any income, gain, loss or
deduction realized as a direct or indirect result of the issuance of Units by
the Company to a Member shall be allocated among the Members so that, to the
extent possible, the net amount of such income, gain, loss or deduction,
together with all other allocations under this Agreement to each Member shall be
equal to the net amount that would have been allocated to each such Member if
such income, gain, loss or deduction had not been realized.
 
7

--------------------------------------------------------------------------------

 
 
Curative Allocations

 
The allocations set forth in Sections 3.4.1 through 3.4.7, inclusive, and 3.6 of
this Agreement (the “Regulatory Allocations”) are intended to comply with
certain requirements of the 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 the
Company’s income, gain, loss or deduction pursuant to this
Section 3.5.  Therefore, notwithstanding any other provision of this Section 3
(other than the Regulatory Allocations), the Manager shall make such offsetting
special allocations of the Company’s income, gain, loss or deduction in whatever
manner it determines appropriate 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 if the Regulatory Allocations
were not part of the Agreement and all Company items were allocated pursuant to
Sections 3.2, 3.3 and 3.4.8 of this Agreement.
 
 
Loss Limitation

 
Losses allocated pursuant to Section 3.3 of this Agreement shall not exceed the
maximum amount of Losses that can be allocated without causing any Member to
have an Adjusted Capital Account Deficit at the end of any Allocation Year.  In
the event some but not all of the Members would have Adjusted Capital Account
Deficits as a consequence of an allocation of Losses pursuant to Section 3.3,
the limitation set forth in this Section 3.6 shall be applied on a
Member-by-Member basis and Losses not allocable to any Member as a result of
such limitation shall be allocated to the other Members in accordance with the
positive balances in such Member’s Capital Accounts so as to allocate the
maximum permissible Losses to each Member under Regulations Section
1.704-1(b)(2)(ii)(d).
 
 
Other Allocation Rules

 
Determination of Period.  For purposes of determining Profits, Losses or any
other items allocable to any period, Profits, Losses and any such other items
shall be determined on a daily, monthly or other basis, as determined by the
Manager using any permissible method under Code Section 706 and the Regulations
thereunder.
 
Acknowledgement of the Income Tax Consequences.  The Members are aware of the
income tax consequences of the allocations made by this Section 3 and hereby
agree to be bound by the provisions of this Section 3 in reporting their shares
of the Company’s income and loss for income tax purposes.
 
Excess Nonrecourse Liabilities.  Solely for purposes of determining a Member’s
proportionate share of the “excess nonrecourse liabilities” of the Company
within the meaning of Regulations Section 1.752-3(a)(3), the Members’ interests
in Profits are in proportion to their Percentage Interests.
 
Distributions of Net Cash Flow.  To the extent permitted by Regulations Section
1.704-2(h)(3), the Manager shall endeavor to treat distributions of Net Cash
Flow 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 an Adjusted Capital Account Deficit for any Member.
 
 
Tax Allocations: Code Section 704(c)

 
In accordance with Code Section 704(c) and the Regulations thereunder, income,
gain, loss, and deduction with respect to any Property 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 (computed in accordance with the definition of Gross Asset
Value) using the traditional method with curative allocations.
 
In the event the Gross Asset Value of any Property is adjusted pursuant to
subparagraph (b) of Section 2.1.5 of this Agreement, subsequent allocations of
income, gain, loss, and deduction with respect to
 
8

--------------------------------------------------------------------------------

 
such asset shall take into account 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 Regulations thereunder.
 
Any election or other decision relating to such allocations shall be made by the
Manager in any manner that reasonably reflects the purpose and intention of this
Agreement.  Allocations pursuant to this Section 3.8 are solely for purposes of
federal, state, and local taxes and shall not affect, or in any way be taken
into account in computing, any Member’s Capital Account or share of Profits,
Losses, other items, or distributions pursuant to any provision of this
Agreement.
 
3.9.Depreciation and Amortization. Notwithstanding the above, it is the intent
of the parties that, subject to the intention that all allocations of income and
expense have substantial economic effect and that all allocations of income and
expense are made in a manner that conforms with applicable law, that
depreciation and amortization expense be allocated first to SH Capital, for so
long as it shall be a Member, until such time as either SH Capital’s capital
account has been reduced to zero, or the Members have determined in their best
judgment to do otherwise.
 
 
DISTRIBUTIONS

 
 
Net Cash Flow

 
Except as otherwise provided in Section 9 of this Agreement and unless otherwise
determined by the Manager in the reasonable exercise of its discretion in order
to preserve a prudent level of liquidity and to make reasonable provision for
the debts, liabilities and other obligations of the Company and the execution of
the Company’s business plan, an amount equal to not less than the lesser of (i)
45% of Taxable Income and (ii) 100% of Net Cash Flow, if any, shall be
distributed not later than the thirtieth (30th) day after the end of each fiscal
quarter to the Members in proportion to their respective Percentage Interests,
or at such other interval determined by the Manager.
 
 
Limitations on Distributions

 
The Company shall make no distributions to the Members except as provided in
this Section 4 and Section 9 of this Agreement, or as agreed to by all of the
Members.  No Member may receive a distribution from the Company to the extent
such distribution would violate applicable law.
 
 
MANAGEMENT

 
 
Manager

 
Management by Manager; Voting.  Except as otherwise provided in this Agreement,
the Members agree that the management of the Company shall be exclusively vested
in one or more managers (the “Managers”).  In the situation where there is only
one manager, the term “Managers” though in the plural will be deemed to refer
solely to this sole manager.  Managers may be individual persons, corporations,
trusts, companies or other business entities.  The initial Manager shall be:
 
Name
 
Address
Citadel Cinemas, Inc
 
500 Citadel Drive, Suite 300
Commerce, California 90040
 
Tel:              (213) 235-2240
Fax:              (213) 235-2229

The Members, by signing this Agreement, hereby designate the person identified
above as the Manager until its successor is elected and qualified.  Except as
otherwise provided in this Agreement, the Manager shall act
 
9

--------------------------------------------------------------------------------

 
by the affirmative vote of a majority of the total number of Managers, where
each Manager shall have one (1) vote.
 
Election of Managers, Removal and Vacancies.  Each Manager shall remain in
office until such Manager resigns, is removed or is disqualified to serve, or
the Manager’s successor is elected by a Majority and qualified.  Each Manager
may be removed at any time, with or without cause, by a Majority.  In the event
any Manager dies or is unwilling or unable to serve or is removed from office by
a Majority, the Members may, through a Majority, appoint a successor to such
Manager.
 
Delegation.  The Managers shall have the power to form and to delegate authority
to such committees of Managers, or their representatives, as they may from time
to time designate, such committees to operate under and in accordance with the
procedures set forth in their respective charters as established from time to
time by the Managers.
 
 
Meetings of the Managers

 
Meetings.  The Managers shall hold meetings at such intervals as determined by
the Managers and shall establish meeting times, dates and places and requisite
notice requirements and adopt rules or procedures consistent with the terms of
this Agreement; provided, however, that in the event that there is a single
Manager, no such meetings shall be required.
 
Notice.  Except as otherwise provided in this Section 5.2, written notice of any
meeting of the Manager shall be given to each Manager entitled to vote at the
meeting and addressed to the Manager’s address appearing on the books of the
Company.  All such notices shall be sent to each Manager entitled thereto by
telecopier, telegram, electronic mail or similar method (in each case, notice
shall be given at least seventy-two (72) hours before the time of the meeting)
or by first-class mail (in which case, notice shall be deposited in the mail,
postage prepaid, at least five (5) days before the meeting).  Each such notice
shall state:  (a) the time, date, place (which shall be at the principal office
of the Company unless otherwise determined by the Manager) or other means of
conducting such meeting; and (b) the purpose(s) of the meeting.  If a Manager
gives no address, notice shall be deemed to have been given to the Manager if
sent by mail or other means of written communication addressed to the Manager at
the principal offices of the Company.
 
Quorum.  A majority of the Managers, either in person or represented by proxy,
shall constitute a quorum for the transaction of business by the Managers.  A
meeting at which a quorum is initially present may continue to transact
business, notwithstanding the withdrawal from the meeting of any Manager, if
such action is approved by a majority of the required quorum at such meeting.
 
Waiver of Notice.  Any action taken at any meeting of the Managers, however
called and noticed or wherever held, shall be as valid as though taken at a
meeting regularly called and noticed, if:  (a) all of the Managers are present
at the meeting and the action taken is unanimously approved by such Managers; or
(b) a quorum of the Managers is present and unanimously approved by the Managers
to present, and if, in addition, either before or after the meeting, each
Manager not present signs a waiver of notice or a consent to holding such
meeting or an approval of the minutes thereof, which waiver, consent or approval
shall be filed with the other records of the Company or otherwise made a part of
the minutes of such meeting.
 
Manner of Meeting.  Unless otherwise approved by the Managers, each meeting of
the Managers may be held telephonically, electronically or physically at the
Company’s principal place of business or other location set by the
Managers.  The participation of a Manager at a meeting telephonically or
electronically shall constitute presence in person at such meeting and waiver of
notice for such meeting.  At such meetings, the Managers shall transact such
business as may properly be brought before the meeting.
 
Written Consent.  Notwithstanding anything in this Section 5.2, the Managers may
take any action that may be taken by the Managers without a meeting if such
action is approved by the written consent of a
 
10

--------------------------------------------------------------------------------

 
majority of the Managers.  The written consent may be executed in one or more
counterparts and by facsimile and each such consent so executed shall be deemed
an original.  Whenever action is taken by written consent, a meeting of the
Managers need not be called or noticed.
 
 
Manager Duties, Powers and Limitations

 
Performance of Duties; Individual Liability.  In performing their duties as
Managers under this Agreement, the Managers shall exercise the same standards of
loyalty, care and good faith as required by the directors of a corporation
formed under the laws of the State of Nevada; but shall likewise be entitled to
the benefits and protections of the business judgment rule and to all of the
limitations on their respective duties of loyalty, care and good faith as are
available to the directors of such corporations.
 
Powers.  The Managers may exercise all powers of the Company and do all such
lawful acts as are not by statute, the Articles or this Agreement directed or
required to be exercised or done exclusively by the Members.  In exercising such
powers, the Managers shall have the right and authority to take any and all
actions that the Managers, in their absolute and sole discretion, deems
necessary, useful or appropriate for the management of the Company.  In the
event of any disagreement between the Members as to the interpretation of this
Agreement, the interpretation of the Manager, absent final determination by a
court of competent jurisdiction that such interpretation is in fact incorrect
and was made either in bad faith or with manifest error, will control.  The cost
of obtaining a determination of any such matter by a court of competent
jurisdiction will be a cost of the Company.
 
Limitations.  The Managers shall cause the Company to conduct its business
separate and apart from that of any Member, Manager or affiliate thereof.
 
Definition of an “Affiliate”.  For the purposes of this Agreement, an
“Affiliate” means, with respect to any person:  (a) any person (other than the
Company or any subsidiary of the Company) directly or indirectly controlling,
controlled by or under common control with such person; (b) any officer,
director, general partner, member or trustee of such person; or (c) any person
who is an officer, director, general partner, member or trustee of any person
described in clauses (a) or (b) of this sentence.  For purposes of this
definition, the terms “controlling,” “controlled by” or “under common control
with” shall mean the possession, direct or indirect, of the power to direct or
cause the direction of the management and policies of a person or entity,
whether through the ownership of voting securities, by contract or otherwise, or
the power to elect at least fifty percent (50%) of the directors, managers,
members, or persons exercising similar authority with respect to such person or
entities.
 
 
Reimbursements

 
The Company shall reimburse any Manager for all expenses heretofore incurred in
connection with  the organization of the Company and hereafter incurred in the
execution of such Manager’s duties and obligations and the exercise of such
Manager’s discretion under this Agreement, including, without limitation,
expenses of maintaining an office, telephones, travel, office equipment,
liability and casualty insurance, and secretarial, administrative and other
personnel and any other general and administrative types of expenses as may
reasonably be attributable to the Company.  Managers may, in their sole
discretion, but shall not be obligated to, include the Company, its employees,
agents, consultants, contractors and/or assets, within the coverage of any one
or more policies of insurance as may be maintained from time to time by such one
or more Managers, and to charge to the Company a reasonable percentage of the
costs of such insurance.
 
 
Independent Activities

 
Each Manager shall be required to devote such time to the affairs of the Company
as may be reasonably necessary to manage and operate the Company, and shall be
free to serve any other person or enterprise in any capacity that such Manager
may deem appropriate in such Manager’s sole and absolute discretion, so long as
Manager continues to satisfy his, her or its obligations under this
Agreement.  Insofar as permitted by applicable law, neither this Agreement nor
any activity undertaken pursuant hereto shall
 
11

--------------------------------------------------------------------------------

 
prevent any Member, Manager or Affiliate thereof from engaging in whatever
activities the Member, Manager or Affiliate thereof chooses, whether the same
are competitive with the Company or otherwise, and any such activities may be
undertaken without having or incurring any obligation to offer any interest in
such activities to the Company or any Member, or require any Member, Manager or
Affiliate thereof to permit the Company or any other Member, Manager or
Affiliate thereof to participate in any such activities.  As a material part of
the consideration for the execution of this Agreement by each Member, each
Member hereby waives, relinquishes and renounces any such right or claim of
participation.
 
 
Officers and Senior Management

 
The Managers shall have the discretion to create such officer and senior
management positions, to vest such officer and senior management positions with
such delegated authority and to appoint such persons to fill such officer and
senior management positions as they may from time to time determine in their
sole discretion.  Any persons appointed to fill such officer or senior
management positions will serve at the pleasure of the Managers, and the
authority delegated to such persons may be terminated, suspended, increased or
reduced as the Managers may, again in their sole discretion, from time to time
determine. The Managers may retain the persons serving in such offices and
senior management positions as full or part time employees or as consultants and
may adopt  such compensation arrangements,  management incentive plans and
employee benefit plans as they may in their discretion determine.  To the extent
appointed by the Managers, the officers and senior managers of the Company shall
be responsible for conducting, in the name of, and on behalf of, the Company,
the day-to-day business and affairs of the Company.  The Company’s officers and
senior managers may include, without limitation, a chief executive officer,
president, chief financial officer, one or more vice presidents, secretary, one
or more assistant secretaries, treasurer and one or more assistant treasurers.
 
 
Certain Conflict of Interest Issues

 
Without limiting the generality of Section 5.5. above, it is (a) acknowledged
that the Manager operates directly, and/or through Affiliates, cinemas in the
area of the Third Avenue Property and (b) agreed that nothing herein, or any
statutory, legal or equitable duty, obligation or principle will require the
Manager or any such one or more Affiliates to cease their operations of such
cinemas or to dispose of their interests in such cinemas or prevent or prohibit
the Manager or any such one or more affiliates from acquiring additional cinema
interests.
 
1.3.  Cinema Management Agreement
 
Simultaneously with the execution and delivery of this Amended and Restated
Operating Agreement, the Company and Citadel Cinemas, Inc. have entered into a
management agreement providing for the management by Citadel Cinemas of the
cinema comprising a portion of the Third Avenue Property (as the same may be
amended or modified from time to time as provided in this Agreement, the “Cinema
Management Agreement”), and the execution and delivery of the Cinema Management
Agreement is hereby ratified and affirmed by the Members.  A copy of the Cinema
Management Agreement being entered into simultaneously with the execution and
delivery of this Agreement is attached as Appendix B to this Agreement.
 
 
MEMBERS

 
 
Rights or Powers

 
The Members shall not have any right or power to take part in the management or
control of the Company or to act for or to bind the Company in any
way.  Notwithstanding the foregoing, the Members shall have all the rights and
powers specifically set forth in this Agreement and, to the extent not
inconsistent with this Agreement, in the NRS.
 
12

--------------------------------------------------------------------------------

 
 
Voting Rights

 
No Member has any voting rights except with respect to those matters
specifically reserved for a Member vote that are set forth in this Agreement and
as required in the NRS. The Members may approve of a matter or take any action
by the vote of the Members at a meeting, in person or by proxy, or by the
written consent of the Members.  The vote of a Majority, either at a meeting or
by written consent, shall constitute a valid and binding action of the
Members.  All Common Units shall be entitled to one (1) vote per Common
Unit.  The voting rights of any Preferred Unit will be as set forth in the
rights, privileges and preferences of such Preferred Units at their time of
issuance and as reflected in the applicable amendment to this Agreement.
 
Matters Requiring Member Vote.  Notwithstanding any other provision of this
Agreement, the Company shall not take any action (whether by the Manager, or
otherwise) in connection with any of the following matters without the
affirmative vote of the holders of not less than eighty percent (80%) of the
Common Units:
 
6.2.1.1.  Any activity that is manifestly inconsistent with and materially
antagonistic to the purposes of the Company as set forth in Section 1.2 of this
Agreement; provided, however, that this provision will not be deemed to require
the approval by the Members of a decision by the Managers to sell all or
substantially all of the assets of the Company and incident to that sale to
liquidate the Company, provided that (i) the Managers have first offered to the
Members in writing the right to purchase such assets for the same price and on
the same terms as the assets are to be offered to third parties and (ii) no
Member has accepted such offer within sixty (60) days of receipt of the proposed
terms of sale and (iii) a binding agreement for sale is entered into within one
hundred eighty (180) days of the expiration of such sixty (60) day period on
terms no less favorable than those offered to the Members (provided that in a
case where more than one Member accepts the offer, an auction shall be held
within thirty (30) days of the expiration of such sixty (60) day period, and the
bidder offering the highest cash price for the asset (such price to be no lower
than the price specified in the offer delivered by the Managers) will be deemed
to have accepted a revised offer at that higher price;
 
6.2.1.2.  Any transaction between the Company and any Member, Manager or
Affiliate thereof, unless such transaction is (i) with an entity that is
beneficially owned by the Members in the same proportion as the Members then own
the Common Units of the Company, or (ii) otherwise specifically provided for by
the terms of this Agreement;
 
6.2.1.3.  [Intentionally Omitted];
 
6.2.1.4.  Any amendment of this Agreement, except to the extent required to
reflect (i) the creation and/or issuance of Units, (ii) the admission of new or
substitute Members, or (iii) the transfer of Units;
 
6.2.1.5.  The payment of any compensation to the Managers (other than
reimbursement of costs or expenses, the advancement of costs of defense, and/or
the performance of any indemnity obligations, as provided elsewhere in this
Agreement or payments made pursuant to the Cinema Management Agreement);
 
6.2.1.6.  Any amendment or modification of the Cinema Management Agreement;
 
6.2.1.7.  The taking of any action that would result in  personal liability on
the part of any Member or which would result in the treatment of the Company as
a C corporation for purposes of Federal income Taxes;
 
6.2.1.8.  Any transaction by the Company to merge or consolidate with another
person;
 
13

--------------------------------------------------------------------------------

 
6.2.1.9.  Any sale of all or substantially all of the assets of the Company or
liquidation of the Company, other than as provided in Section 6.2.1.1., above
 
6.2.1.10. Any requirement for Additional Capital Contributions in excess of
$1,000,000 in the aggregate relating to improvements to the existing cinema
building; and
 
6.2.1.11.  Any act in contravention of this Agreement.
 
 
Meetings of the Members

 
Meetings; Notice.  The Company will not hold regular annual meetings of the
Members.  Meetings of the Members, for any purpose or purposes whatsoever, may
be called at any time by the Managers or by the holders of not less than twenty
percent (20%) of the Common Units then outstanding.  Written notice of each
meeting, signed by the Managers or by such other person as the Managers shall
designate, shall be given to each Member entitled to vote at the meeting, either
personally or by mail or other means of written communication, charges prepaid,
addressed to such Member at the address for such Member appearing on the books
of the Company or given by such Member to the Company for the purpose of
notice.  If a Member gives no address, notice shall be deemed to have been given
to the Member if sent by mail or other means of written communication addressed
to the Member at the principal offices of the Company.  All such notices shall
be sent to each Member entitled thereto not less than ten (10) nor more than
thirty (30) calendar days before each meeting, and shall specify the time, date
and place of such meeting and the purpose of the meeting.
 
Quorum.  Members, either in person or represented by proxy, holding a Majority
shall constitute a quorum for the transaction of business.  Each Member shall be
entitled to vote in proportion to such Member’s Percentage Interest, provided
that if, pursuant to the NRS or the terms of this Agreement, a Member is not
entitled to vote on a specific matter, then such Member’s vote and Percentage
Interest shall not be considered for the purposes of determining whether a
quorum is present or whether the approval of the vote of the Members has been
obtained with respect to such specific matter.
 
Waiver of Notice.  Any action taken at any meeting of the Members, however
called and noticed or wherever held, shall be as valid as though had at a
meeting regularly called and noticed if:  (a) all of the Members are present at
the meeting and unanimously approve such action; or (b) a quorum of the Members
is present and unanimously approve such action, and if, in addition, either
before or after the meeting, each Member not present signs a waiver of notice or
consent to holding such meeting or an approval of the minutes thereof, which
waiver, consent or approval shall be filed with the other records of the Company
or made a part of the minutes of such meeting.
 
Record Date.  For the purpose of determining the Members entitled to vote on, or
to vote at, any meeting of the Members or any adjournment thereof, the Managers
or the Member requesting such meeting may fix, in advance, a date as the record
date for any such determination.  Such date shall not be more than thirty (30)
days nor less than ten (10) days before any such meeting.
 
Voting; Proxy.  Members may vote in person, by proxy or by telephone at any
meeting and may waive advance notice of any meeting.  Each Member may authorize
any person or persons to act on such Member’s behalf by proxy on all matters in
which a Member is entitled to participate, including, without limitation,
waiving notice of any meeting or voting or participating at a meeting.  Every
proxy must be signed by the Member or such Member’s attorney-in-fact.  No proxy
shall be valid after the expiration of eleven (11) months from the date thereof
unless otherwise provided in the proxy.  Every proxy shall be revocable at the
pleasure of the Member executing such proxy.
 
Manner of Meeting.  Each meeting of the Members may be held telephonically,
electronically or in person.  The participation at a meeting telephonically or
electronically shall constitute presence in person at such meeting and waiver of
notice for such meeting.
 
14

--------------------------------------------------------------------------------

 
Written Consent.  Notwithstanding this Section 6.3, the Members may take any
action that may be taken by the Members without a meeting if such action is
approved by the written consent of a Majority or by the holders of not less than
80% of the Common Units then outstanding, as may be applicable with respect to
such action.  The written consent may be executed in one or more counterparts
and by facsimile and each such consent so executed shall be deemed an
original.  Whenever action is taken by written consent, a meeting of the Members
need not be called or noticed.
 
Preferred Unit Holders.  Unless specifically provided in the rights, privileges
and preferences of any class of Preferred Units as set forth in an amendment to
this Agreement, Members holding only Preferred Units will not be entitled (a) to
notice of any meeting of Members, (b) to call, attend or participate in any
meeting of Members, (c) to access to any books or records of the Company or (d)
to vote on or to consent with respect to any matter subject to the vote of
consent of the Members.
 
 
Member Compensation

 
No Member shall receive any interest, salary, drawing or other form of
compensation with respect to such Member’s Capital Contribution or Capital
Account or for services rendered on behalf of the Company, or otherwise, in such
Member’s capacity as a Member except as otherwise provided in this Agreement.
 
 
Member Liability

 
Each Member’s liability shall be limited as set forth in the NRS, the Articles,
this Agreement and other applicable law.
 
 
Other Instruments

 
Each Member hereby agrees to execute and deliver to the Company, within five (5)
days after receipt of a written request therefor, such other and further
documents and instruments, statements of interest and holdings, designations,
powers of attorney and other instruments and to take such other action as the
Managers determines to be necessary, useful or appropriate to comply with any
laws, rules or regulations as may be necessary to enable the Company to fulfill
its responsibilities under this Agreement.
 
 
ACCOUNTING, BOOKS AND RECORDS

 
 
Accounting, Books and Records

 
General.  The Managers, or such other person as the Managers may designate
(which person may include persons who are Affiliates of the Manager), from time
to time, shall be responsible for causing the preparation of financial reports
of the Company and the coordination of financial matters of the Company with the
Company’s accountants.
 
Books and Records.  Any Member or such Member’s designated representative has
the right to have reasonable access to and inspect and copy the contents of the
Company’s books or records and shall also have reasonable access during normal
business hours to additional financial information, documents, books and
records.  The rights granted to a Member pursuant to this Section 7.1 are
expressly subject to compliance by such Member with the safety, security and
confidentiality procedures and guidelines of the Company, as such procedures and
guidelines may be reasonably established from time to time by the Managers.  The
Company shall keep on site at its principal place of business each of the
records required pursuant to Section 86.521 of the NRS.
 
Accounting Method.  The Company shall maintain its books in accordance with
generally accepted accounting principals, applied on a consistent basis, and
shall prepare and distribute to the Members within sixty (60) days of the end of
each calendar year end, audited financial statements and partnership federal,
state and local tax returns for the Company.  The auditors of the Company will
be as designated from time to time by the Managers.
 
15

--------------------------------------------------------------------------------

 
 
Tax Matters

 
Tax Elections.  The Managers shall, without any further consent of the Members
being required (except as specifically required herein), make any and all
elections, and revocations thereof, for federal, state, local and foreign tax
purposes.
 
1.3.1.  Tax Matters Manager.  The Managers are specifically authorized to act as
the “Tax Matters Manager” under the Code and in any similar capacity under
state, local or foreign law.
 
1.4.  Reports
 
At the request of any Member, the Manager shall provide such Member as soon as
practicable, but in any event within forty-five (45) days after the end of the
first three quarters of each fiscal quarter of each fiscal year of the Company,
an unaudited profit or loss statement, schedule as to the sources and
application of funds for such calendar month or quarter, as applicable, and an
unaudited balance sheet and a statement of stockholder’s equity as of the end of
such calendar month or fiscal quarter, as applicable.  In addition, the books
and records of the Company shall be reasonably available for inspection at the
Manager’s principal place of business by any Member during regular business
hours.
 
 
WITHDRAWAL AND TRANSFERS

 
 
Restrictions on Withdrawals

 
No Member shall have any right to retire, resign or withdraw from the Company or
to commit an act that constitutes an Event of Default (defined below).  Any act
of a Member that constitutes a retiring, resignation, withdrawal or Event of
Default by the Member from the Company shall constitute a material breach of
this Agreement, and the Company and the other Members shall be entitled to
collect damages for such breach.  Such damages shall offset any cash or other
property that would otherwise be distributable to such Member by the Company.
 
 
Restrictions on Transfers

 
Restrictions on Transfer.  Any Transfer or purported Transfer of all or any
portion of a Member’s Units or an unadmitted assignee’s rights to receive
allocations and distributions with respect to transferred Units (such Units or
rights being collectively and without differentiation referred to herein as
“Interests”) shall be null and void; provided; however, a Member or an
unadmitted assignee of transferred Interests may Transfer all or any portion of
such Member’s or unadmitted assignee’s Interests only to the extent that such
Transfer is either permitted pursuant to the terms of this Agreement or by the
express written consent of the Managers (a “Permitted Transfer”).  
 
Effect of Unauthorized Transfer; Restrictions After Transfer.  Any Transfer that
is in violation of this Agreement and shall be null and void and of no force or
effect whatsoever.  To the extent that the Company is required to recognize a
Transfer, the unadmitted transferee of such Interests shall have no rights under
this Agreement except for the right to receive allocations and distributions as
provided by this Agreement with respect to such Interests, which allocations and
distributions may be applied (without limiting any other legal or equitable
rights of the Company) to satisfy any debts, obligations or liabilities for
damages that the transferor or transferee of such Interests may have to the
Company and the other Members.  Each transferee and any subsequent transferee of
all or any portion of any Interests, regardless of whether or not such Person
signs this Agreement, or such Transfer is approved by the Managers and the
Members, shall, unless this Agreement expressly provides otherwise, hold such
Interests subject to all of the provisions of this Agreement and make no further
transfer.
 
16

--------------------------------------------------------------------------------

 
Indemnification.  In the case of a Transfer or attempted Transfer of Units that
is in violation of this Agreement, the parties engaging or attempting to engage
in such transfer shall be liable to indemnify and hold harmless the Company and
the other Members from all cost, liability and damage that any of such
indemnified Members may incur (including, without limitation, incremental tax
liabilities, lawyers’ fees and expenses) as a result of such transfer or
attempted transfer and efforts to enforce the indemnity granted hereby.
 
 
Admission of Additional and Substituted Members

 
Unadmitted Transferees.  A person who acquires an Interest but who is not
admitted as an additional or substitute Member pursuant to this Section 8.3and
NRS 86.351 (a “Substituted Member”) shall be entitled only to allocations and
distributions with respect to such Interest in accordance with this Agreement,
and shall have no right to any information or accounting of the affairs of the
Company, shall not be entitled to inspect the books or records of the Company,
and shall not have any of the rights of a Member under the NRS, the Articles or
this Agreement.
 
Admission.  Subject to the other provisions of this Section 8, a transferee of
Interests may be admitted to the Company as a Substituted Member only upon the
consent of the Managers.
 
 
Right of First Refusal

 
General.  Subject to the conditions and restrictions set forth in this Section 8
and other than a Permitted Transfer, a Member or an unadmitted assignee of
transferred Interests (either a “Transferring Party”) is prohibited from
Transferring all or any portion of such Transferring Party’s Interests unless
such Transferring Party first offers to sell such Interests pursuant to the
terms of this Section 8.4; provided, however, no Transfer may be made under this
Section 8.4 unless the Transferring Party has received a bona fide written offer
(the “Bona Fide Offer”) from a person (the “Proposed Transferee”) to purchase
Interests for a purchase price (the “Bona Fide Offer Purchase Price”)
denominated and payable in United States dollars in currently available funds at
closing signed by the Proposed Transferee and shall be irrevocable for a period
ending no sooner than the ninetieth (90th) day following the end of the Offer
Period, as hereinafter defined.  
 
Offer Notice.  Prior to making any Transfer that is subject to the terms of this
Section 8.4, the Transferring Party shall give to the Company and to each other
Member (the “Offerees” ) written notice of the Bona Fide Offer (the “Offer
Notice”), which shall include a copy of the Bona Fide Offer and an offer to sell
the relevant Interests (the “Offered Interests” )to the Company and other
Members for the Bona Fide Offer Purchase Price, payable according to the same
terms as (or more favorable terms than) those contained in the Bona Fide Offer
(the “Offer” ); provided, however, that the ability of the Company and the other
Members to purchase the Offered Interests shall be made without regard to the
requirement of any earnest money or similar deposit required of the Proposed
Transferee prior to closing.
 
Exercise of Right. At any time during the fifteen (15) days following the
receipt of the Offer Notice (the “Offer Period”), the Offerees may accept the
Offer and exercise their respective rights to purchase all or any portion of the
Offered Interests (the “Purchasers”), by giving written notice of such
acceptance to the Transferring Party and each other Offeree, which notice shall
indicate the maximum number or quantity of Offered Interests that such Offeree
is willing to purchase (the “Accepting Notice”).  
 
8.4.3.1.                      In the event that there is more than one Purchaser
that accepts the Offer with respect to all of the Offered Interests, the Offer
shall be deemed to be accepted and each Purchaser shall be deemed to have
accepted the Offer as to that portion of the Offered Interests that corresponds
to the ratio of the number of Offered Interests that such Purchaser indicated a
willingness to purchase to the aggregate number of Offered Interests all
Purchasers indicated a willingness to purchase, provided that each such
Purchaser will be entitled to purchase not less than number or quantity of
Interests equal to a fraction, the numerator of which is the number of Common
 
17

--------------------------------------------------------------------------------

 
Units held by such Purchaser and the denominator of which is the total number of
Common Units then outstanding.
 
8.4.3.2.                      If the Purchasers do not accept the Offer as to
all of the Offered Interests during the Offer Period, the Transferor shall sell
such portion of the Offered Interests to the Purchasers according to their
respective elections and the Company may elect to purchase the balance of the
Offered Interests within fifteen (15) days following the last day of the Offer
Period.  If the Company does not elect to purchase the balance of the Offered
Interests during the proscribed time frame, the Offer shall be deemed to be
rejected as to all of the Offered Interests.
 
Closing of Purchase Pursuant to the Offer.  In the event that the Offer is
accepted, the closing of the sale of the Offered Units shall take place within
thirty (30) days after the Offer is accepted, provided that in the event that
the 30th day of such period falls upon a day when the banks in Los Angeles,
California are generally not opened for business, than the 30th day of such
period will be deemed to be the first day thereafter on which the banks in Los
Angeles, California are generally open for business.  The Transferor and all
Purchasers shall execute such documents and instruments as may be necessary or
appropriate to complete the sale of the Offered Interests pursuant to the terms
of the Offer and this Section 8.4.  The Transferor and all Purchasers shall bear
their own costs of such transfer and closing, including, without limitation,
attorneys’ fees and filing fees.
 
8.4.4.1.                      Payment.  At the option of the Purchasers, the
purchase of the Offered Units shall be in exchange for a promissory note or
notes in the principal amount of the purchase price all due an payable in 12
months, and bearing with interest, payable monthly, at the prime rate of
interest charged by Bank of America Nevada, or its successor in interest, on the
closing date plus two percent (2%) per annum, but in any event not in excess of
the maximum rate of interest then permitted by applicable law.
 
8.4.4.2.                      Delivery by the Transferor.  In exchange for the
consideration to be paid by the Purchasers, the Transferor shall deliver to the
Purchasers good title, free and clear of any liens or encumbrances (other than
those created by this Agreement) to the Interests thus purchased.
 
Sale Pursuant to the Bona Fide Offer if the Offer is Rejected.  If the Offer is
not accepted in the manner hereinabove provided, the Transferring Party may
Transfer the Offered Interests to the Proposed Transferee on the date of closing
set forth in the Bona Fide Offer; provided, however, such Transfer shall be made
on terms no more favorable to the Purchasers than the terms contained in the
Bona Fide Offer and complies with the other terms, conditions, and restrictions
of this Agreement.  In the event that the Offered Interests are not Transferred
in accordance with the terms of the preceding sentence, such Interests shall
again become subject to all of the conditions and restrictions of this
Section 8.4.
 
Change of Control.  In the case of any Member that is an entity, any direct or
indirect change of control of such entity, other than the change of control of
an entity that is a publicly traded entity whose shares are registered with the
Securities and Exchange Commission, or any successor to such Commission, will be
deemed to be a Transfer for purposes of this Agreement.
 
1.4.1.1.  
To the extent that the entity has assets other than Units, then any such
transfer shall give rise to an option (exercisable within six (6) months of the
later of the date of such change of control transaction or the date on which the
Company receives written notice from the applicable Member of such change of
control transaction), to acquire such Units at their fair market value.

 
1.4.1.2.  
In the event that the Company and such Member are not able to agree within sixty
(60) days as to such fair market value, then the matter will be determined, upon
the written election of either party, by appraisal, by an appraiser mutually
agreeable to the parties or, in the absence of agreement,

 
18

--------------------------------------------------------------------------------

 
 
an appraiser appointed  by the Presiding Judge for the Los Angeles County
Superior Court.

 
8.5.  Permitted Transfers

 Notwithstanding the above, no approval will be required with respect to and no
right of first refusal will apply to any of the following Transfers:

8.5.1.  Any transfer by a Member to any wholly owned subsidiary or parent of the
Member (so long as such transferee continues as a wholly owned subsidiary of the
Member or of the Member’s parent); and

8.5.2. In the case of SH Capital, any Transfer to (a) James J. Cotter, Michael
Forman, and/or any one or more of their heirs, (b) any corporation, partnership,
or company wholly owned, directly or indirectly, by any one or more of the
persons specified in clause (a) above, or (c) to any trust of which any one or
more of the persons specified in clause (a) may be beneficiaries.

8.5.3. In the case of Reading International, Inc., or any of its Affiliates, to
any person, provided that such transferee has provided to the other Members in
writing the right to Transfer their Units for the same consideration and on the
same terms as the transferee has committed to Transfer its Units and a period of
not less than sixty (60) days in which to make such election.

 
DISSOLUTION AND WINDING UP

 
 
Dissolution Events

 
The Company shall dissolve and shall commence winding up and liquidating upon
the first to occur of any of the following (each a “Dissolution Event”):
 
The vote or consent of the holders of not less than a majority of the
outstanding Common Units  to dissolve, wind up, and liquidate the Company; or
 
A judicial determination that an event has occurred that makes it unlawful,
impossible or impractical to carry on the Company’s business.
 
 
Winding Up

 
Upon the occurrence of either a Dissolution Event or the determination by a
court of competent jurisdiction that the Company has dissolved prior to the
occurrence of a Dissolution Event, the Company shall continue solely for the
purposes of winding up its affairs in an orderly manner, liquidating its assets,
and satisfying the claims of its creditors and Members, and no Member shall take
any action that is inconsistent with, or not necessary to or appropriate for,
the winding up of the Company’s business; provided, however, that all covenants
and obligations provided for in this Agreement shall continue to be fully
binding upon the Members until such time as the Property has been distributed
pursuant to this Section 9.2 and the Company has been dissolved pursuant to the
NRS.  The Managers shall be responsible for overseeing the winding up and
dissolution of the Company, which winding up and dissolution shall be completed
within ninety (90) days of the occurrence of the Dissolution Event.  The
Liquidator shall take full account of the Company’s liabilities and Property and
shall cause the Property or the proceeds from the sale thereof, to the extent
sufficient therefor, to be applied and distributed, to the maximum extent
permitted by law, in the following order:
 
First, to creditors (including Members and Managers who are creditors) in
satisfaction of all of the Company’s debts, obligations and other liabilities,
including, without limitation, any claims and obligations as required by NRS
86.521 (whether by payment or the making of reasonable provision for payment
thereof),
 
19

--------------------------------------------------------------------------------

 
other than liabilities for which reasonable provision for payment has been made
and liabilities for interim distributions to the Members or distributions to
resigning Members; and then
 
The balance, if any, to the Members in accordance with the positive balance in
their Capital Accounts, after giving effect to all contributions, distributions
and allocations for all periods.
 
 
Applicable Law

 
The Managers shall comply with any requirements of applicable law pertaining to
the winding up of the affairs of the Company and the final distribution of its
assets.
 
 
Termination

 
Upon completion of the distributions as provided in this Section 9, the Company
shall be terminated, and the Managers shall cause the filing of the articles of
dissolution pursuant to NRS 86.541 and shall take all such other actions as may
be necessary to terminate the Company.
 
 
INDEMNIFICATION

 
The Company shall indemnify and advance expenses to any Manager, and any person
serving as an officer or senior manager of the Company, to the extent that such
Manager or person acted on behalf of the Company, to the fullest extent
permitted under the Articles or the NRS.  The Managers are authorized, in their
sole discretion, to purchase at the cost of the Company insurance for the
benefit of the Managers and/or such persons and to enter into separate indemnity
agreements for the benefit of the Managers and/or such persons, without any vote
or consent of the Members.
 
11.           SINGLE PURPOSE ENTITY
 
11.1.Certain Defined Terms
 
As used in this Section 11, the following terms shall have the following
meanings:
 
a.  “Affiliate” means any person controlling, under common control with, or
controlled by the person in question;
 
b.  “Company” means this limited liability company;
 
c.  “Control” means the possession, directly or indirectly, of the power to
direct or cause the direction of management, policies or activities of a person
or entity, whether through ownership of voting securities, by contract or
otherwise;
 
d.  “Governing Board” means the Manager of the Company;
 
e.  “Governing Law” means the Limited Liability Company Act of the State of
Nevada.
 
f.  “Lender” means Eurohypo AG, New York Branch together with its successors and
assigns with respect to the Loan;
 
g.  “Limitations of Authority” means the provisions set forth in Section 11.4
below;
 
h.  “Loan” means the mortgage loan made by Lender to the Company with respect to
the Property in the principal amount of $15,000,000.00;
 
i.  “Loan Documents” means the Note, Mortgage, Loan Agreement and other
instruments and agreements executed by the Company in connection with the Loan.
 
20

--------------------------------------------------------------------------------

 
j.  “Organizational Documents” shall mean this operating agreement, and the
certificate of formation of the Company;
 
k.  “Person” means an entity or natural person;
 
l.  “Property” shall mean that certain parcel of real property, together with
all improvements located at 1001-1007 Third Avenue, in the City of New York,
State of New York;
 
m.  “Restrictions on Purpose” shall mean the provisions set forth in Section
11.3 below;
 
n.  “Separateness Covenants” shall mean the covenants set forth in Section 11.5
below;
 
o.  “SPE Article” shall mean this Section 11.
 
11.2.Conflicts
 
In the event of any of any conflict between the terms of this SPE Article and
any other provisions set forth in the Organizational Documents, the terms set
forth in this SPE Article shall prevail.
 
11.3.Restrictions on Purpose
 
Notwithstanding any provision hereof or of any other Organizational Documents to
the contrary, so long as the Loan or any portion thereof remains unpaid, the
nature of the business and of the purposes to be conducted and promoted by the
Company, is to engage solely in the following activities:
 
a.  To acquire the Property;
 
b.  To own, hold, sell, assign, transfer, develop, operate, lease, mortgage to
Lender, pledge to Lender and otherwise deal with the Property;
 
c.  To borrow the Loan from Lender and to issue notes and other documents to
evidence and secure the Loan;
 
d.  Subject to the Separateness Covenants, to exercise all powers enumerated in
the Governing Law necessary or convenient to the conduct, promotion or
attainment of the business or purposes otherwise set forth herein.
 
11.4.Powers and Duties
 
Notwithstanding any other provisions herein or in the other Organizational
Documents, and so long as the Loan or any portion thereof remains unpaid,
without the unanimous consent of the Governing Board, and additionally, in the
case of items (a) through (c) and (e) below, without the written consent of
Lender, except as permitted under any of the Loan Documents, the Company shall
have no authority to:
 
a.      except as hereinafter set forth, incur any indebtedness other than
(i) the Loan, (ii) unsecured trade payables and operational debt not evidenced
by a note, (iii) indebtedness incurred in the financing of equipment and other
personal property used on the Property; and (iv) obligations to Tenants under
Leases of portions of the Property; provided that any indebtedness incurred
pursuant to subclauses (ii) and (iii) shall (x) be paid within sixty (60) days
of the date incurred, or such longer period as may be acceptable to the Company
and the payee as long as such longer period will not result in a lien on the
Property (y) be incurred in the ordinary course of business, and (z) not exceed,
in the aggregate at any time outstanding, four percent (4%) of the original
principal amount of the Loan and provided further that the existing loans listed
on Schedule VIII to the Loan Agreement between the Company and Lender shall be
permitted. No indebtedness other than the Loan may be secured (subordinate or
paripassu) by the Property;
 
21

--------------------------------------------------------------------------------

 
b.      seek the dissolution or winding up, in whole or in part, of the Company;
 
c.      merge into or consolidate with any person or entity or dissolve,
terminate or liquidate, in whole or in part, transfer or otherwise dispose of
all or substantially all of its assets or change its legal structure;
 
d.      file a voluntary petition or otherwise initiate proceedings to have the
Company adjudicated bankrupt or insolvent, or consent to the institution of
bankruptcy or insolvency proceedings against the Company, or file a petition
seeking or consenting to reorganization or relief of the Company as debtor under
any applicable federal or state law relating to bankruptcy, insolvency, or other
relief for debtors with respect to the Company; or seek or consent to the
appointment of any trustee, receiver, conservator, assignee, sequestrator,
custodian, liquidator (or other similar official) of the Company or of all or
any substantial part of the properties and assets of the Company, or make any
general assignment for the benefit of creditors of the Company, or admit in
writing the inability of Company to pay its debts generally as they become due
or declare or effect a moratorium on the Company debt or take any action in
furtherance of any such action; or
 
e.      amend, modify or alter any provision of this SPE Article.
 
11.5.Separateness Covenants
 
Notwithstanding any provision hereof or of any other Organizational Documents to
the contrary, until the Loan is paid in full, except as permitted under any of
the Loan Documents, the Company shall not, except as otherwise set forth herein:
 
a.  own any asset or property other than (i) the Property, and (ii) incidental
personal property necessary for the ownership or operation of the Property;
 
b.  engage in any business other than as set forth above in Section 1.2;
 
c.  enter into any contract or agreement with any Affiliate of the Company,
except upon terms and conditions that are intrinsically fair and substantially
similar to those that would be available on an arms-length basis with third
parties other than any such party;
 
d.  make any loans or advances to any third party (including any Affiliate), or
acquire obligations or securities of its Affiliates;
 
e.  fail to remain solvent or fail to pay its debts and liabilities (including,
as applicable, shared personnel and overhead expenses) from its assets as the
same shall become due;
 
f.  fail to do all things necessary to observe organizational formalities and
preserve its existence, and the Company will not amend, modify or otherwise
change the articles of organization and operating agreement of the Company
without the prior consent of Lender in any manner that (i) violates the
covenants and restrictions set forth in this SPE Article, or (ii) would permit
the Company to take any action that it is prohibited from taking under the Loan
Agreement or other Loan Documents;
 
g.  fail to maintain all of its books, records, financial statements and bank
accounts separate from those of its Affiliates and any constituent party.  The
Company’s assets will not be listed as assets on the financial statement of any
other Person, provided, however, that the Company’s assets may be included in a
consolidated financial statement of its Affiliates provided that (i) appropriate
notation shall be made on such consolidated financial statements to indicate the
separateness of the Company and such Affiliates and (ii) such assets shall be
listed on the Company’s own separate balance sheet.  The Company will file its
own tax returns (to the extent the Company is required to file any such tax
returns) and will not file a consolidated federal income tax return with any
other Person, provided
 
22

--------------------------------------------------------------------------------

 
that Reading International, Inc. or its successor (collectively, “RDI”) will
file a consolidated Federal income tax return that includes the Company if
permitted by law.  The Company shall maintain its books, records, resolutions
and agreements as official records;
 
h.  except as hereinafter set forth, fail to be, or fail to hold itself out to
the public as, a legal entity separate and distinct from any other entity
(including any Affiliate of the Company), fail to correct any known
misunderstanding regarding its status as a separate entity, or fail to conduct
business in its own name, and Company shall not identify itself or any of its
Affiliates as a division or part of the other provided that the foregoing shall
not prevent Affiliates from acting as the Company’s agent for purposes of making
payments on behalf of the Company or (bb) RDI, in any of its S.E.C. or other
public filings or statements distributed to shareholders, referring to RDI and
its various subsidiaries (including, without limitation, the Company) generally
as RDI, the “Company” or words of similar import, and without differentiation as
to the Company or any other subsidiary;
 
i.  fail to maintain adequate capital for the normal obligations reasonably
foreseeable in a business of its size and character and in light of its
contemplated business operations;
 
j.  seek or effect the liquidation, dissolution, winding up, liquidation,
consolidation or merger, in whole or in part, of the Company nor permit any
constituent party of Company to do any of the foregoing with respect to the
Company;
 
k.  commingle the funds and other assets of the Company with those of any
Affiliate or any other Person, and will hold all of its assets in its own name,
provided that the foregoing shall not prevent Affiliates from acting as the
Company’s agent for purposes of making payments on behalf of the Company;
 
l.  fail to maintain its assets in such a manner that it will not be costly or
difficult to segregate, ascertain or identify its individual assets from those
of any Affiliate or any other Person;
 
m.  guarantee or become obligated for the loans of any other Person or hold
itself out to be responsible for or have its credit available to satisfy the
loans or obligations of any other Person;
 
n.  permit any independent access to its bank accounts; provided that the
foregoing shall not prevent Affiliates from acting as the Company’s agent for
purposes of making payments on behalf of the Company;
 
o.  fail to pay the salaries of its own employees (if any) from its own funds or
fail to maintain a sufficient number of employees (if any) in light of its
contemplated business operations;
 
p.  fail to compensate each of its consultants and agents from its funds for
services provided to it and pay from its own assets all obligations of any kind
incurred.
 
11.6.Indemnification Obligations
 
Any indemnification obligations of the Company are hereby fully subordinated to
the Company’s obligations to repay the Loan until such time as the Loan is paid
in full.
 
12.           MISCELLANEOUS
 
12.1.Notices
 
Any notice, payment, demand, or communication required or permitted to be given
by any provision of this Agreement shall be in writing and shall be hand
delivered, sent via facsimile, overnight delivery or registered or certified
mail, return receipt requested.  Notice shall be effective:  (a) if hand
delivered, when delivered; (b) if sent via facsimile, on the day of transmission
thereof on a proper facsimile machine with
 
23

--------------------------------------------------------------------------------

 
confirmation; (c) if sent via overnight delivery, on the day of delivery thereof
by a reputable overnight courier service, delivery charges prepaid; and (d) if
mailed, on the third business day after the deposit of such item in the mail,
postage prepaid.  Notices shall be addressed or sent as follows:  (x) if to the
Company, to the address or facsimile number of the Managers; (y) if to the
Managers, to the address or facsimile number set forth in Section 5.1 of this
Agreement; or (z) if to a Member, to the address or facsimile number set forth
on Schedule I to this Agreement.
 
12.2.Binding Effect
 
Except as otherwise provided in this Agreement, every covenant, term, and
provision of this Agreement shall be binding upon and inure to the benefit of
the Members and their respective successors, transferees, assigns, heirs and
personal representatives.
 
12.3.Construction
 
The terms of this Agreement were negotiated at arm’s length by the parties
hereto.  The covenants, terms and provisions contained herein shall not be
construed in favor of or against any party because that party or its counsel
drafted this Agreement, but shall be construed simply according to its fair
meaning as if all parties prepared this Agreement, and any rules of construction
to the contrary are hereby specifically waived.
 
12.4.Time
 
In computing any period of time pursuant to this Agreement, the day of the act,
event or default from which the designated period of time begins to run shall
not be included, but the time shall begin to run on the next succeeding
day.  The last day of the period so computed shall be included, unless it is a
Saturday, Sunday or legal holiday, in which event the period shall run until the
end of the next day that is not a Saturday, Sunday or legal holiday.
 
12.5.Headings
 
Section and other headings contained in this Agreement are for reference
purposes only and are not intended to describe, interpret, define, or limit the
scope, extent, or intent of this Agreement or any provision hereof.
 
12.6.Severability
 
Except as otherwise provided in the succeeding sentence, every provision of this
Agreement is intended to be severable, and, if any term or provision of this
Agreement is illegal or invalid for any reason whatsoever, such illegality or
invalidity shall not affect the legality or validity of the remainder of this
Agreement.  The preceding sentence of this Section 11.6 shall be of no force or
effect if the consequence of enforcing the remainder of this Agreement without
such illegal or invalid term or provision would be to cause any Member to lose
the material benefit of its economic bargain.
 
12.7.Variation of Terms
 
All terms and any variations thereof shall be deemed to refer to masculine,
feminine, or neuter, singular or plural, as the identity of the person or
persons may require.
 
12.8.Governing Law
 
The laws of the State of Nevada shall govern the validity of this Agreement, the
construction of its terms, and the interpretation of the rights and duties
arising hereunder.  All rights and remedies of each person under this Agreement
shall be cumulative and in addition to all other rights and remedies which may
be available to the person from time to time, whether under this Agreement, at
law, in equity or otherwise.
 
24

--------------------------------------------------------------------------------

 
12.9.Counterpart Execution
 
This Agreement may be executed in any number of counterparts with the same
effect as if all of the Members had signed the same document.  All counterparts
shall be construed together and shall constitute one agreement.
 
12.10.Attorneys’ Fees
 
The prevailing party in any dispute arising from the terms or subject matter of
this Agreement shall be entitled to payment by the other party of the prevailing
party’s costs and expenses, including, without limitation, such party’s
attorneys’ fees, incurred in connection with resolving such dispute.
 
 
[THE REMAINDER OF THIS PAGE HAS BEEN LEFT INTENTIONALLY BLANK]
 
          

25

--------------------------------------------------------------------------------

12.11.Creditors
 
None of the provisions of this Agreement shall be for the benefit of or
enforceable by any creditors of the Company, any Manager or any Member.
 
In Witness Whereof, the parties have executed and entered into this Operating
Agreement of the Company as of the day first above set forth.
 
Manager:
Citadel Cinemas, Inc.
       
By:
 /s/ S. Craig Tompkins    
S. Craig Tompkins
 
Its:
Vice Chairman

Members:
Sutton Hill Capital, LLC
       
By:
 /s/ James J. Cotter    
James J. Cotter
 
Its:
Manager

 
Citadel Cinemas, Inc.
       
By:
 /s/ S. Craig Tompkins    
S. Craig Tompkins
 
Its:
Vice Chairman

 
26

--------------------------------------------------------------------------------

SCHEDULE I – MEMBERS
 
The name, address, initial Capital Contribution, Units, Percentage Interest and
Capital Account of each Member, as of the date of this Agreement, are set forth
as follows:
 
Names and Address
 
Initial Capital Contribution
 
Units
 
Percentage Interest
 
Capital Account
                 
Citadel Cinemas, Inc.
500 Citadel Drive, Suite 300
Commerce, California 90040
 
$9,000,000*
 
7,500 Common Units
 
75.0%
 
$9,000,000*
                 
Sutton Hill Capital, LLC
500 Citadel Drive, Suite 300
Los Angeles, California 90040
 
$3,000,000**
 
2,500 Common Units
 
25.0%
 
$3,000,000**
                 

* Plus assumption of $6.75 million of the $9.00 million purchase money
installment sale note.
** Plus assumption of $2.25 of the $9.00 million purchase money installment sale
note.
 
 
APPENDIX A – INDEX OF DEFINED WORDS AND PHRASES
 
 
Accepting Notice, 17

 
Adjusted Capital Account Deficit, 5

 
Affiliate, 11

 
Agreement, 1

 
Allocation Year, 2

 
Articles, 1

 
Bona Fide Offer, 17

 
Bona Fide Offer Purchase Price, 17

 
Book Adjustments, 2

 
Capital Account, 4

 
Capital Contributions, 2

 
Code, 2

 
Company, 1

 
Company Minimum Gain, 6

 
controlling, controlled by or under common control with, 11

 
Dissolution Event, 19

 
Effective Date, 1

 
Gross Asset Value, 2

 
Interests, 16

 
Losses, 3

 
Majority, 2

 
Managers, 9

 
Member Nonrecourse Debt, 6

 
Member Nonrecourse Debt Minimum Gain, 6

 
Member Nonrecourse Deductions, 6

 
Members, 1

 
Net Cash Flow, 6

 
Nonrecourse Deductions, 6

 
Nonrecourse Liability, 6

 
NRS, 1

 
Offer, 17

 
Offer Notice, 17

 
Offer Period, 17

 
Offered Units, 18

 
Offerees, 17

 
Percentage Interest, 2

 
Permitted Transfer, 16

 
Profits, 3

 
Property, 2

 
Proposed Transferee, 17

 
Purchaser, 17

 
Regulations, 3

 
Regulatory Allocations, 8

 
Tax Matters Manager, 16

 
Tax Year, 2

 
transfer, 2

 
transferor, 4

 
Transferring Party, 17

 
Units, 2

 
27

--------------------------------------------------------------------------------