##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


FORM 20-F

(Mark One)

o
    
    REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF

1934ORx
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2002ORo
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF

1934For the transition period from _____________________  to   _____________________


Commission file number: 000-33143

CLAXSON INTERACTIVE GROUP INC.

---

(Exact name of Registrant as specified in its charter)


CLAXSON INTERACTIVE GROUP INC.

---

(Translation of Registrants name into English)


British Virgin Islands

---

(Jurisdiction of incorporation or organization)


Avenida Melian 2752
C1430EYH Buenos Aires, Argentina

---

(Address of principal executive offices)


Securities registered or to be registered pursuant to Section 12(b) of the Act.

Title of each class
    
    Name of each exchange on which registeredNONE


Securities registered or to be registered pursuant to Section 12(g) of the Act.

Class A Common Shares, Par Value $0.01 Per Share

---

(Title of Class)


Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

None

---

(Title of Class)


The number of outstanding shares of each of the

issuers classes of
capital or common stock as of the close of the period covered by the annual
report was 18,657,634 Class A Common Shares, 2 Class C Common Shares, 7 Class F
Common Shares and 1 Class H Common Share.

Indicate by check mark whether the registrant

(1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

x  Yes       o  No

Indicate by check mark which financial statement item

the registrant has
elected to follow.

o  Item 17       xItem 18

(APPLICABLE ONLY TO ISSUERS INVOLVED IN

BANKRUPTCY PROCEEDINGS DURING THE PAST
FIVE YEARS)

Indicate by check mark whether the registrant has filed

all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.

o  Yes       o  No





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TABLE OF CONTENTS



|                                 |                                                                                       |  |  |  |  |  |  | 
|-------------------------------- | ------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|INTRODUCTION                    
|PART I                          
|                                 | Item 1.    Identity of Directors, Senior Management and Advisers                     
|                                 | Item 2.    Offer Statistics and Expected Timetable                                   
|                                 | Item 3.    Key Information                                                           
|                                 | Item 4.    Information on the Company                                                
|                                 | Item 5. Operating and Financial Review and Prospects                                 
|                                 | Item 6. Directors, Senior Management and Employees                                   
|                                 | Item 7. Major Shareholders and Related Party Transactions                            
|                                 | Item 8. Financial Information                                                        
|                                 | Item 9. The Offer and Listing                                                        
|                                 | Item 10.Additional Information                                                       
|                                 | Item 11. Quantitative and Qualitative Disclosures About Market Risk                  
|                                 | Item 12. Description of Securities Other than Equity Securities                      
|PART II                         
|                                 | Item 13. Defaults, Dividend Arrearages and Delinquencies                             
|                                 | Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
|                                 | Item 15. Controls and Procedures                                                     
|                                 | Item 16A                      Audit Committee Financial Expert                       
|                                 | Item 16B Code of Ethics                                                              
|                                 | Item 16C Principal Accountant Fees and Services                                      
|PART III                        
|                                 | Item 17. Financial Statements                                                        
|                                 | Item 18. Financial Statements                                                        
|                                 | Item 19. Exhibits                                                                    
|Signatures                      
|CERTIFICATIONS                  
|INDEX TO FINANCIAL STATEMENTS   
|EX-2.5 Indenture                
|EX-3.1 Agreement                
|EX-4.7 Letter Agreement         
|EX-8.1 Subsidiaries             
|EX-12.1 Certification of the CEO
|EX-12.2 Certification of the CFO



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##### Table of Contents



CLAXSON INTERACTIVE GROUP INC.

FORM 20-F
ANNUAL REPORT FOR FISCAL YEAR ENDED DECEMBER 31, 2002

INDEX

INTRODUCTION
    
    
    1PART IItem

1.
    
    Identity of Directors, Senior Management and

Advisers
    
    
    2Item 2.
    
    Offer Statistics and Expected

Timetable
    
    
    2Item 3.
    
    Key Information
    
    
    2Item 4.
    
    Information on the Company
    
    
    10Item 5.
    
    Operating and Financial Review and

Prospects
    
    
    26Item 6.
    
    Directors, Senior Management and

Employees
    
    
    39Item 7.
    
    Major Shareholders and Related Party

Transactions
    
    
    48Item 8.
    
    Financial Information
    
    
    56Item 9.
    
    The Offer and Listing
    
    
    59Item 10.
    
    Additional Information
    
    
    60Item 11.
    
    Quantitative and Qualitative Disclosures About Market

Risk
    
    
    69Item

12.
    
    Description of Securities Other than Equity

Securities
    
    
    70PART IIItem 13.
    
    Defaults, Dividend Arrearages and

Delinquencies
    
    
    71Item 14.
    
    Material Modifications to the Rights of Security Holders

and Use of Proceeds
    
    
    71Item 15.
    
    Controls and Procedures
    
    
    71Item

16A
    
    Audit Committee Financial Expert
    
    
    71Item

16B
    
    Code of Ethics
    
    
    71Item

16C
    
    Principal Accountant Fees and

Services
    
    
    71PART IIIItem 17.
    
    Financial Statements (Not

Applicable)
    
    
    72Item 18.
    
    Financial Statements
    
    
    72Item 19.
    
    Exhibits
    
    
    72INDEX TO FINANCIAL STATEMENTS
    
    
    F-1


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INTRODUCTION

This annual report on Form 20-F for the year ended

December 31, 2002 also
constitutes our annual report to shareholders and includes our audited
consolidated financial statements at December 31, 2001 and 2002 and for each of
the three years in the period ended December 31, 2002.

We were formed in a merger transaction which combined

media assets
contributed by Ibero-American Media Partners II, Ltd., and other media assets
contributed by members of the Cisneros Group of Companies, which we refer to as
Cisneros Group, and El Sitio, Inc.

On October 30, 2000, we entered into a

combination agreement with:



| |  |  | El Sitio, Inc., which we refer to as El Sitio;
| | - |  | ------------------------------------------------



| |  |  | 1945 Carlton Investments LLC and 1947 Carlyle Investments
LLC, which are the assignees of Newhaven Overseas Corp. and members
of the Cisneros Group, which we sometimes refer to as 1945 Carlton
and 1947 Carlyle, respectively;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Hicks, Muse, Tate & Furst Latin America Fund, L.P.; Hicks,
Muse, Tate & Furst Latin America Private Fund, L.P.; and HMLA 1-SBS
Coinvestors, L.P., which are funds affiliated with Hicks, Muse, Tate
& Furst Incorporated, which we sometimes collectively refer to as
Hicks Muse; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Ibero-American Media Partners II, Ltd. which we refer to as
Ibero-American Media Partners, which was controlled by members of
the Cisneros Group and funds affiliated with Hicks Muse.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Pursuant to the terms of the combination agreement, as amended as of June 26,
2001 and August 22, 2001, a subsidiary of Claxson was merged into El Sitio, and
all of the subsidiaries of Ibero-American Media Partners and the media
businesses of 1945 Carlton and 1947 Carlyle that were managed by Ibero-American
Media Partners were contributed to and combined with Claxson. As a result of
the merger, El Sitio became a wholly owned subsidiary of Claxson. The merger
transaction was consummated on September 21, 2001.

The Cisneros Group is a name used to describe a group

of investments,
joint ventures, strategic alliances and companies engaged in diversified
consumer businesses, including broadcast and pay television, direct-to-home
satellite television, content production and other entertainment, media and
communications enterprises, that are associated with Gustavo and Ricardo
Cisneros and trusts established by them principally for the benefit of
themselves and their families. Hicks, Muse, Tate & Furst Incorporated is an
international private investment firm with headquarters in Dallas and offices
in New York, London and Buenos Aires. Ibero-American Media Partners II, Ltd.
was a joint venture between members of the Cisneros Group and Hicks Muse. El
Sitio, Inc. is an international business company incorporated under the laws of
the British Virgin Islands.

1



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##### Table of Contents






PART I




Item 1.    Identity of Directors, Senior Management and Advisers

Not

Applicable




Item 2.    Offer Statistics and Expected Timetable

Not

Applicable




Item 3.    Key Information

A. 

          Selected Financial Data

Selected Financial Data

The following tables present our selected historical

financial data, which
have been derived from audited financial statements. Ibero-American Media
Partners was deemed to be the acquiror for accounting purposes in the
combination agreement and accordingly, the historical financial statements of
Ibero-American Media Partners are presented as the financial statements of
Claxson preceding the transaction. The term predecessor refers to the
accounts of the various entities initially contributed to Ibero-American Media
Partners on December 31, 1998 (all of which were under common ownership and
management and therefore are presented on a combined basis).

The selected financial data should be read in conjunction

with the
consolidated financial statements and Item 5. Operating and Financial Review
and Prospects. We prepare our financial statements in U.S. dollars and in
accordance with accounting principles generally accepted in the United States
of America (which is commonly called U.S. GAAP).

Consolidated Statements of Operations Data
for the Years Ended December 31:

Predecessor1998
    
    1999
    
    2000
    
    2001
    
    2002(in thousands of U.S. dollars)Total net revenues
    
    $
    49,169
    
    
    $
    67,777
    
    
    $
    107,386
    
    
    $
    106,437
    
    
    $
    74,960Operating Expenses:Product, content and

technology
    
    
    25,826
    
    
    
    28,004
    
    
    
    43,232
    
    
    
    42,832
    
    
    
    34,710Marketing and sales
    
    
    8,225
    
    
    
    11,727
    
    
    
    18,989
    
    
    
    21,754
    
    
    
    13,090Corporate and

administration
    
    
    16,395
    
    
    
    15,636
    
    
    
    23,376
    
    
    
    24,071
    
    
    
    17,164Depreciation and

amortization
    
    
    10,931
    
    
    
    16,333
    
    
    
    21,627
    
    
    
    27,271
    
    
    
    12,304Merger, restructuring and severance
expenses
    
    
    
    
    
    
    
    
    
    
    1,000
    
    
    
    4,868
    
    
    
    Total operating expenses
    
    
    61,377
    
    
    
    71,700
    
    
    
    108,224
    
    
    
    120,796
    
    
    
    77,268Operating Loss
    
    
    (12,208
    )
    
    
    (3,923
    )
    
    
    (838
    )
    
    
    (14,359
    )
    
    
    (2,308
    )Other income

(expense)
    
    
    (8,126
    )
    
    
    (13,079
    )
    
    
    (14,877
    )
    
    
    (47,391
    )
    
    
    (70,062
    )Gain on debt

restructuring
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,274Share of loss from unconsolidated

affiliates
    
    
    (8,875
    )
    
    
    (6,601
    )
    
    
    (4,930
    )
    
    
    (19,097
    )
    
    
    (6,746
    )Benefit (provision) for non-U.S. income
taxes
    
    
    (1,843
    )
    
    
    (480
    )
    
    
    (820
    )
    
    
    (4,166
    )
    
    
    134Minority interest
    
    
    1,659
    
    
    
    305
    
    
    
    (4
    )
    
    
    127
    
    
    
    68Change in accounting

principle
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (74,789
    )Net loss
    
    $
    (29,393
    )
    
    $
    (23,778
    )
    
    $
    (21,469
    )
    
    $
    (84,886
    )
    
    $
    (138,429
    )


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Consolidated Balance Sheet Data
As of December 31:

Predecessor1998
    
    1999
    
    2000
    
    2001
    
    2002(in thousands of U.S. dollars)Cash and cash equivalents
(including restricted
investments)(1)
    
    $
    21,548
    
    
    $
    27,144
    
    
    $
    22,849
    
    
    $
    15,211
    
    
    $
    8,822Total assets
    
    
    238,568
    
    
    
    591,833
    
    
    
    367,450
    
    
    
    278,002
    
    
    
    150,555Working capital

(deficiency)(2)
    
    
    (2,061
    )
    
    
    40,827
    
    
    
    22,877
    
    
    
    (86,172
    )
    
    
    (10,804
    )Total long-term debt
    
    
    91,938
    
    
    
    131,673
    
    
    
    125,196
    
    
    
    28,746
    
    
    
    85,146Minority interest
    
    
    5,327
    
    
    
    5,023
    
    
    
    2,053
    
    
    
    
    
    
    
    1,164Shareholders equity
    
    
    103,629
    
    
    
    410,904
    
    
    
    180,465
    
    
    
    102,753
    
    
    
    3,195




---

|(1) |  | Includes U.S.$20.4 million, U.S.$12.6 million, U.S.$4.3 million, and
U.S.$0.8 million in 1998, 1999, 2000 and 2002, respectively, of restricted
investments.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | For 2001 and 2002, includes U.S.$79.5 and U.S.$3.2 million, respectively,
of Imagens 11% Senior Notes due 2005.                                            

B.       Capitalization

and Indebtedness

Not Applicable

C.       Reasons for

the Offer and Use of Proceeds

Not Applicable

D.       Risk Factors

The following summarizes certain risks that may

materially affect our
business, financial condition or results of operations.

GENERAL RISKS

We may not be

able to continue as a going concern.

The report of the independent auditors with respect

to our consolidated
financial statements includes a going concern explanatory paragraph,
indicating that our potential inability to meet our obligations as they become
due raises substantial doubt as to our ability to continue as a going concern
for a reasonable period of time. In an effort to improve our financial
position, we have taken and continue to take certain steps, including the
restructuring of some of our subsidiaries debt. Our failure or inability to
successfully carry out these plans, or collect the net account receivable due
from DirecTV Latin America described below, could ultimately have a material
adverse effect on our financial position and our ability to meet our
obligations when due.

The bankruptcy of

DirecTV Latin America, the largest distributor of our
pay television channels, could lead to a reduction in our earnings or our
inability to collect certain accounts receivable.

On March 18, 2003, DirecTV Latin America,

the largest distributor of our
pay television channels, announced that it had filed a voluntary petition for
reorganization under Chapter 11 of the United States Bankruptcy Code. DirecTV
Latin America accounted for approximately 15% of our total revenues in each of
the years ended December 31, 2001 and December 31, 2002. As of the filing date
of its bankruptcy petition, DirecTV Latin America owed us approximately
U.S.$4.5 million for programming provided to DirecTV Latin America prior to its
voluntary petition for reorganization. On June 5, 2003 we received a payment
from DirecTV Latin America corresponding to programming provided from March 18,
2003 to March 31, 2003 and on July 2, 2003 we received payment for programming
provided during the month of April. We have not yet, however, received any
payment for amounts owed to us by DirecTV Latin America for programming
provided to DirecTV Latin America prior to its voluntary petition for
reorganization. On July 11, 2003, we signed an agreement with DirecTV Latin
America Holding, Inc., an affiliate of Hughes Electronics Corporation, to
purchase our pre-bankruptcy petition claims for amounts owed to us by DirecTV
Latin America. Due to the negotiation of this agreement, we have not provided
any allowances for doubtful accounts receivable related to these pre-bankruptcy
petition amounts owed by DirecTV

3



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##### Table of Contents



Latin America. If we are unable to collect these pre-bankruptcy petition
amounts owed to us or amounts due for programming provided to Direct TV Latin
America after April 30, 2003, or should the Bankruptcy Court require us to
repay any amounts previously paid to us by DirecTV Latin America, our future
operations could be materially adversely impacted. We may also experience a
decrease in our revenues if, due to the bankruptcy, DirecTV Latin America
chooses to reject, or renegotiate the terms of our existing contract, or is
unable to successfully reorganize its operations.

We are a highly-leveraged holding company and

depend on our subsidiaries
revenues and cash flows to meet our obligations, and the availability of funds
from these subsidiaries may be limited by contractual or statutory
restrictions.

We are highly leveraged. At December 31, 2002,

we had approximately
U.S.$70.8 million in aggregate principal amount of indebtedness plus U.S.$21.7
million of future interest payments and U.S.$3.2 million in total shareholders
equity. We conduct our operations through subsidiaries, and these subsidiaries
are our primary source of cash flow. The subsidiaries are separate and
distinct legal entities and have no obligation to pay any amounts owed to our
creditors or to make any funds available for that purpose, whether by
dividends, loans or other payments. In addition, the making of loans and
advances, and the payment of dividends, to us by our subsidiaries depend on the
earnings of those subsidiaries and may be subject to contractual or statutory
restrictions that require that dividend payments be made only out of retained
earnings.

As of March 31, 2003, we had approximately

U.S.$69.0 million in aggregate
principal amount of indebtedness, plus U.S.$21.0 million of future interest
payments. Our ability to use and distribute funds out of cash flows generated
by Imagen Satelital and Radio Chile, two of our subsidiaries that generate a
significant portion of our cash flows is restricted. Our syndicated bank
facilities also contain restrictive covenants that restrict our and our
subsidiaries ability to utilize cash and the collateralized assets of our
Chilean operations. In addition, our subsidiary, Imagen Satelital S.A., had
outstanding U.S.$3.2 million in 11% Senior Notes due 2005, which as of March
31, 2003, has been classified as current due to our default on an interest
payment in April 2002.

Additionally, the degree to which we are leveraged has

important
consequences to us, including the following:



| |  |  | Our cash flow available for use in our business is reduced.
| | - |  | -----------------------------------------------------------



| |  |  | We are vulnerable to changes in economic conditions.
| | - |  | ----------------------------------------------------



| |  |  | Our ability to obtain additional financing for working capital,
capital expenditures, acquisitions, general corporate purposes or other
purposes could be impaired.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------

We are involved in

litigation in Argentina with some of the holders of
the remaining U.S.$3.2 million principal amount of Imagen Satelitals 11%
Senior Notes due 2005.

On April 30, 2002, we announced that our

subsidiary Imagen Satelital, S.A.
would not make an interest payment on May 1, 2002 on its 11% Senior Notes due
2005. On November 8, 2002, we successfully completed an exchange offer and
consent solicitation with respect to 93.1% of the outstanding 11% Senior Notes
due 2005 (the Old Notes). Pursuant to the exchange offer, we issued
U.S.$41.3 million principal amount of our 8.75% Senior Notes due 2010 in
exchange for U.S.$74.5 million principal amount of the Old Notes. Immediately
following the exchange offer and consent solicitation U.S.$5.5 million
principal amount of the Old Notes remained outstanding. As of June 1, 2003,
all but U.S.$3.2 million of the remaining principal amount of the Old Notes has
been exchanged. The holders of some of these outstanding Old Notes have filed,
or threatened to file, various lawsuits, some with preventative injunctions, to
collect certain principal and/or interest payments for the Old Notes, including
a petition for the bankruptcy of Imagen. We are in the process of negotiating
and/or litigating these claims. Our failure to successfully negotiate or
litigate some or all of these claims may adversely affect our financial
performance.

Our businesses

have incurred losses and might not attain profitability
in the future.

Our businesses have a history of losses and may

continue to incur losses,
given the costs of servicing our debt, if we are unable to increase our
revenues and continue to incur expenses related to the economic conditions in
Latin America. Our businesses incurred total net losses of U.S.$138.4
million for the year ended December 31, 2002 and U.S.$84.9 million for the year
ended December 31, 2001.

4



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##### Table of Contents



The extent of future losses will depend, in part, on the

magnitude of
growth in our revenues. Our business plan contemplates achieving profitability
by: increasing our revenues while maintaining our operating expenses at
current levels; restructuring the U.S.$3.2 million of the principal amount of
the Old Notes that remain outstanding; and addressing the business situation in
Latin America. Our failure to significantly increase revenues or maintain our
operating expenses at their current level, or otherwise meet our business plan
objectives, may result in our failure to achieve profitability.

We depend on a

limited number of pay television system operators for a
significant portion of our revenues and the loss of any of our major pay
television system operators could significantly reduce our revenues.

Our five largest pay television system operators

accounted for
approximately 33% and 24% of our total revenues in the years ended December 31,
2001 and December 31, 2002, respectively. Our largest pay television system
operator, DirecTV Latin America, alone, accounted for approximately 15% of our
total revenues for the years ended December 31, 2001 and December 31, 2002.
The loss of any of our major existing pay television system operators, unless
replaced by other operators, could have a material adverse effect on our
financial performance.

Members of the

Cisneros Group and Hicks Muse control Claxson, which
could inhibit or cause potential changes of control of Claxson.

Members of the Cisneros Group and Hicks Muse control,

in the aggregate,
approximately 80% of the voting power on all matters submitted to our
shareholders and control the outcome of actions requiring the approval of
holders of a majority of our common shares, including a sale or a material
acquisition. In addition, through their ownership of our Class C and Class H
common shares, these shareholders are entitled to designate seven of the twelve
members of our board of directors. This control could discourage other parties
from initiating potential merger, acquisition or other change of control
transactions that might otherwise be beneficial to our shareholders. In
addition, 1945 Carlton and 1947 Carlyle and Hicks Muse could use their
ownership position to cause a transaction to occur in which either or both of
these shareholders or a third party would acquire most or all of Claxson, in
which event other shareholders could be deprived of the opportunity to remain
shareholders of Claxson.

Conflicts may arise between members of the Cisneros

Group and Hicks Muse,
on the one hand, and our other shareholders, on the other hand, whose interests
may differ with respect to, among other things, our strategic direction,
significant corporate transactions or corporate opportunities that could be
pursued by us or by either or both of our controlling shareholders.

A conflict between

members of the Cisneros Group and Hicks Muse could
result in deadlock.

Conflicts may also arise between members of the

Cisneros Group, on the one
hand, and Hicks Muse, on the other hand, with respect to matters submitted to a
shareholder vote, in which case a deadlock may occur, which could result in our
being unable to obtain shareholder approval of any matter requiring such
approval.

Hicks Muse and

members of the Cisneros Group could have interests in
other businesses which conflict with ours.

In addition to their interests in Claxson, members of the

Cisneros Group
and affiliates of Hicks Muse hold, and may in the future acquire, interests in
other media businesses in Ibero America, some of which may compete, or have
relationships with strategic partners that compete, with us. In particular,
members of the Cisneros Group own an interest in AOL Latin America and DirecTV
Latin America, and funds affiliated with Hicks Muse own interests in
CableVisión in Argentina, TV Cidade in Brazil, Intercable in Venezuela and
Digital Latin America in Latin America. DirecTV Latin America, CableVisión and
Intercable are significant pay television system operators in Latin America.

Persons serving as our directors and members of the

Cisneros Group or
Hicks Muse may have conflicting interests with respect to the above and other
matters. These conflicts could limit our effectiveness in capitalizing on
opportunities for growth.

5



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Competition in the

media industry is intense and we expect it to
increase significantly so that any failure by us to compete successfully
would adversely affect our financial performance.

We derive substantially all of our revenue from

subscriber-based fees and
advertising, for which we compete with various other media, including
newspapers, television, radio stations and other pay television channels that
offer customers information and services similar to ours. Increased
competition could result in price reductions, reduced margins or loss of market
share, any of which could have a material adverse effect on our financial
performance.

We face competition on both country and regional levels.

In addition,
each of our businesses competes with companies that deliver content through the
same platforms and with companies that operate in different media businesses.
Our competitors may develop content that is better than our content or that
achieves greater market acceptance. Some of our competitors may have better
brand recognition and significantly greater financial, technical, marketing and
other resources than we do. We will have to devote significant resources to
maintain the competitive position of our brands. Competition in our businesses
and markets may limit our ability to expand our market share and increase
revenues in these businesses and markets.

Our businesses

involve risks of liability claims for media content,
which could result in significant costs.

As a distributor of media content, we may face potential

liability for:



| |  |  | defamation;
| | - |  | -----------



| |  |  | negligence;
| | - |  | -----------



| |  |  | copyright, patent or trademark infringement; and
| | - |  | ------------------------------------------------



| |  |  | other claims based on the nature and content of the materials distributed.
| | - |  | --------------------------------------------------------------------------

These types of claims have been brought, sometimes

successfully, against
broadcasters, online services and other disseminators of media content. In
addition, we could be exposed to liability in connection with material
available through our Internet sites or for information collected from and
about our users. Although we carry general liability insurance and errors and
omissions insurance, our insurance may not cover potential claims of
defamation, negligence and similar claims, and it may or may not apply to a
particular claim or be adequate to reimburse us for all liability that may be
imposed. Any imposition of liability that is not covered by insurance or is in
excess of insurance coverage could have a material adverse effect on us.

We may not be

able to retain or obtain required licenses, permits and
approvals, which could result in increased costs and limit our ability to
achieve our strategic objectives and increase revenues.

We must maintain licenses, permits and approvals from

regulatory
authorities to conduct and expand our broadcast television and radio businesses
in Chile and Uruguay and may need to obtain additional permits and licenses.
The process for obtaining or renewing these licenses, permits and approvals is
often lengthy, complex and unpredictable and may be costly. In addition, many
of our licenses may not be transferred without regulatory approval. If we are
unable to maintain the licenses, permits and approvals that we currently hold
or to obtain those that we need to conduct and expand our businesses at a
reasonable cost and in a timely manner, our ability to achieve our strategic
objectives could be impaired. In addition, the regulatory environment in the
countries in which our businesses operate is complex and subject to change, and
adverse changes in that environment could also impose costs on, or limit the
growth of our business.

Changes in

governmental regulation could reduce our revenues, increase
our operating expenses and expose us to significant liabilities.

Our businesses are regulated by governmental authorities

in the countries
in which we operate. Regulation relates to, among other things, licensing,
access to satellite transponders, commercial advertising, foreign investment
and standards of decency/obscenity. Changes in the regulation of our
operations or changes in interpretations of existing regulations by courts or
regulators, could adversely affect us by reducing our revenues, increasing our
operating expenses and exposing us to significant liabilities for
noncompliance with such modified or reinterpreted regulations.

6



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El Sitio is a

defendant in several civil securities cases arising out
of its initial public offering, which could result in significant litigation
expense and, if not decided in its favor, damage payments to the plaintiffs.

El Sitio and some of its directors and principal executive

officers have
been named as defendants in several civil cases arising out of its initial
public offering in December 1999. The complaints primarily relate to alleged
share allocation and commission practices undertaken by the underwriters for
the offering. We believe, after consultation with counsel, that the
allegations relating to El Sitio and its directors and principal executive
officers are without merit. However, these cases could result in significant
litigation expense for us and, if not decided in El Sitios favor or
successfully settled, damage payments which would among other things adversely
affect our financial performance. See Item 8A Financial
Information-Consolidated Statements and Other Financial Information-Legal
Proceedings for more information.

RISKS RELATING TO LATIN AMERICA

Because our pay

television business is concentrated in Argentina and
our broadcast television and radio business is concentrated in Chile, our
financial performance is especially sensitive to risks associated with
political, regulatory and economic conditions in these two countries.

For the year ended December 31, 2002, our pay

television business derived
34% of revenues from our operations in Argentina. In addition, our broadcast
television and radio business derived 89% of revenues for the year ended
December 31, 2002 from our operations in Chile. As a result, changes in
Argentine or Chilean government policy affecting trade, investment, taxes,
protection of intellectual property or the media industry generally or
instability in the Argentine or Chilean currency, economy or government could
have a material adverse effect on our results of operations and financial
condition.

Argentina, in particular, has had a history of political and

economic
instability and is currently experiencing political upheaval and a severe
economic recession. These events coincided with a serious downturn in global
investor sentiment generally, marked by significant declines in international
equity markets, pronounced investor risk aversion and a decrease in investor
confidence throughout emerging markets. Some other risks of investing in a
company with operations in Argentina include:



| |  |  | the risk of expropriation, nationalization, war, revolutions,
border disputes, renegotiation or modification of existing
contracts, import, export and transportation regulations and
tariffs;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | exchange controls, currency fluctuations and other
uncertainties arising out of foreign government sovereignty over our
international operations;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | taxation policies, including royalty and tax increases and retroactive tax claims;
| | - |  | ----------------------------------------------------------------------------------



| |  |  | laws and policies of the United States affecting foreign trade, taxation and investment; and
| | - |  | --------------------------------------------------------------------------------------------



| |  |  | the possibilities of being subjected to the exclusive
jurisdiction of foreign courts in connection with legal disputes and
the inability to subject foreign persons to the jurisdiction of
courts in the United States.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Recent political and

economic instability in Argentina resulted in a severe
recession in 2002 and may result in continued economic turmoil and
recession.

On January 1, 2002, following the resignation of an

interim President only
one week after his appointment, the Argentine Legislative Assembly elected
Peronist Senator Eduardo Duhalde.

Following his appointment, President Duhalde undertook

a number of
initiatives including:



| |  |  | ratifying the suspension of payment of certain of Argentinas
sovereign debt declared by the former interim President;
| | - |  | ----------------------------------------------------------------------------------------------------------------------

7



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##### Table of Contents





| |  |  | revoking the Convertibility Law, which required that Argentine
pesos be exchanged for U.S. dollars at the rate of Ps. 1.00 per
U.S.$1.00, and relaxing the requirement that the Central Bank maintain
freely available reserves equal to 100% of the monetary base and
establishing a framework for the resulting devaluation of the Argentine
peso;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | converting most pre-existing dollar-denominated debt obligations
created under Argentine law into peso-denominated debts at a one-to-one
exchange rate, and adjusting such debt with an inflation based ratio to
be determined by the Central Bank;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | converting U.S. dollar-denominated bank deposits into Argentine
peso-denominated bank deposits at an exchange rate of Ps. 1.40 per
U.S.$1.00, and adjusting such deposits with an inflation based ratio to
be determined by the Central Bank;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | restricting the withdrawal of deposits from financial institutions
and implementing a repayment schedule for deposits in government
securities;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | restructuring of the peso converted bank deposits and continuing
restrictions on bank withdrawals and transfers abroad;
| | - |  | -----------------------------------------------------------------------------------------------------------------------



| |  |  | enacting amendments to the bankruptcy law to protect debtors;
| | - |  | -------------------------------------------------------------



| |  |  | amending the Central Banks charter to allow it to print currency
in excess of the amount of foreign reserves it holds, to make
short-term advances to the federal government and to provide financial
assistance to financial institutions with liquidity constraints or
solvency problems; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | requiring that the foreign exchange position of financial entities
may not exceed 5%of their computable net worth liabilities.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------

As a result of the economic measures initiated by the

Duhalde
administration, the Argentine peso continued to decline in value against the
U.S. dollar and the reserves maintained by the Central Bank declined
significantly in 2002. The foregoing initiatives also caused many Argentine
companies to suspend payment on their debt obligations, and our contracts in
Argentina with multi-system operators were converted into Argentine
peso-denominated contracts, including outstanding accounts receivable. Given
that most of our obligations, including all programming and licensing contracts
and Imagens 11% Senior Notes due 2005 were dollar-denominated obligations, we
successfully renegotiated the terms of our obligations with many of these
creditors in 2002. If the Argentine government were to take similar actions in
the future, we may not be able to successfully renegotiate such contracts.

The continued recession, including a significant decrease

in Argentine GDP
in 2002, high unemployment and underemployment that preceded and that has
followed the devaluation of the peso and high inflation has led to a reduction
in disposable income and has resulted in changes in consumer behavior across
all class sectors of the Argentine population. Such effects have resulted, and
may continue to result, in a decrease in the number of subscribers who
subscribe to the pay television operators who carry our television channels and
the number of advertisers and amounts such advertisers are willing to pay for
advertising. Since we derive a significant amount of our revenues from the
subscriber based fees we charge to pay television system operators and the sale
of advertising on our pay television channels in Argentina, the continuation or
worsening of the recession in Argentina could significantly affect our revenues
in the future.

On April 27, 2003, presidential elections were held

in Argentina. Néstor
Kirchner, the candidate supported by Eduardo Duhalde, was elected president.
It is unclear how the new Argentine government will address the continuing
economic crisis and the restructuring of Argentinas foreign debt, which will
ultimately determine exchange rate expectations and the timing and magnitude of
an economic recovery.

8



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RISKS RELATING TO OUR CLASS A COMMON

SHARES

Since our

Class A common shares were delisted from the Nasdaq SmallCap
Market, it may be more difficult for investors to trade in our Class A
common shares.

Our Class A common shares are currently traded

on the OTC Bulletin Board.
Compared to the NASDAQ SmallCap Market, an investor may find it more difficult
to sell our securities. Also, since we are no longer traded on the NASDAQ
SmallCap Market and the trading price of our Class A common shares remains
below $5.00 per share, trading in our Class A common shares is subject to
certain other rules of the Exchange Act. Such rules require additional
disclosure by broker-dealers in connection with certain trades involving a
stock defined as a penny stock. Penny stock is defined as any non-Nasdaq
equity security that has a market price of less than $5.00 per share, subject
to certain exceptions. Such rules require the delivery of a disclosure
schedule explaining the penny stock market and the risks associated with that
market before entering into penny stock transactions. The rules also impose
various sales practice requirements on broker-dealers who sell penny stocks to
persons other than established customers and accredited investors. For these
types of transactions, the broker-dealer must make a special suitability
determination for the purchaser and must receive the purchasers written
consent to the transaction prior to the sale. The additional burdens imposed
upon broker-dealers by such requirements could discourage broker-dealers from
effecting transactions in the securities. This could severely limit the market
liquidity of the securities and the ability to sell the securities in the
secondary market.

In 2003, the Nasdaq Stock Market proposed to phase out

the OTC Bulletin
Board and to create a new market called the Bulletin Board Exchange (BBX), with
qualitative listing standards. There can be no guarantee that the Company will
meet the BBX listing standards or that it will seek to apply for a listing. The
additional risk disclosures and documentation imposed by the Penny stock rules
together with the failure of the Company to obtain a listing on the BBX could
have an adverse effect on the market for and/or the valuation of its common
shares.

Our shareholders

may face difficulties in protecting their interests
because we are a British Virgin Islands international business company.

Our governance matters are principally determined by our

memorandum and
articles of association and the International Business Companies Act, 1984
(Cap. 291) of the British Virgin Islands. The rights of shareholders and the
fiduciary responsibilities of directors, officers and controlling shareholders
under British Virgin Islands law have not been extensively developed,
particularly when compared with statutes and judicial precedents of most states
and other jurisdictions in the United States. As a result, our shareholders
may have more difficulty in protecting their interests in the case of actions
by our directors, officers or controlling shareholders than would shareholders
of a corporation incorporated in a state or other jurisdiction in the United
States.

You may

experience difficulty in enforcing civil liabilities against
us.

We are a British Virgin Islands international business

company with a
substantial portion of our assets located outside of the United States. In
addition, many of our directors and executive officers, as well as other of our
controlling persons, reside or are located outside of the United States. As a
result, it may not be possible for investors to effect service of process
within the United States upon us or these persons or to enforce judgments
obtained against us or these persons in U.S. courts predicated solely upon the
civil liability provisions of the U.S. federal or state securities laws. We
have been advised by Conyers Dill & Pearman, our British Virgin Islands
counsel, that there is doubt as to the enforceability in the British Virgin
Islands in original actions or in actions for enforcement of judgments of U.S.
courts, of civil liabilities predicated upon the U.S. federal or state
securities laws. There is also doubt as to enforceability of judgments of this
nature in several of the jurisdictions in which we operate and our assets are
located.

We are a foreign

private issuer and you will receive less information
about us than you would for a domestic U.S. corporation.

As a foreign private issuer, we are exempt

from rules under the U.S.
Securities Exchange Act of 1934 that impose certain disclosure and procedural
requirements in connection with proxy solicitations under Section 14 of the
Exchange Act. Our directors, executive officers and principal shareholders
also are exempt from the reporting and short-swing profit recovery provisions
of Section 16 of the Exchange Act and the rules thereunder with respect to
their purchases and sales of our shares. In addition, we are not required to
file periodic reports and financial statements with the U.S. Securities and
Exchange Commission as frequently or as promptly as U.S.
companies whose securities are registered under the Exchange Act. As a
result, you may not be able to obtain some information relating to us as you
would for a domestic U.S. corporation.

9



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##### Table of Contents






Item 4.    Information on the Company

A.           History

and Development of the Company

We are an international business company incorporated

under the laws of
the British Virgin Islands, with our registered office at Romasco Place, PO Box
3140, Wickhams Cay I, Road Town, Tortola, British Virgin Islands. Our
headquarters and principal executive offices are located at Avenida Melian,
2752, C1430EYH Buenos Aires, Argentina and our telephone number is
011-54-11-4546-8000. We maintain a United States principal executive office
located at 404 Washington Avenue, 8th Floor, Miami Beach, Florida 33139, our
telephone number in Miami is (305) 894-3500.

The Merger Transaction

We were formed on September 21, 2001 in a

merger transaction which
combined media assets contributed by Ibero-American Media Partners and other
media assets contributed by members of the Cisneros Group and El Sitio.

The Parties to the Merger Transaction

Ibero-American Media Partners II, Ltd.was a

joint venture between members
of the Cisneros Group and Hicks Muse that acquired, developed and made
investments in entertainment and media content properties throughout Ibero
America in three lines of business: pay television; broadcast television and
radio; and passive investments in Internet companies. At the time of the
merger transaction, Ibero-American Media Partners pay television business
included 13 pay television channels distributed to approximately 9.3 million
pay television households in Ibero America, in addition to the Chilevisión and
Radio Chile assets. Ibero America includes Latin America, Spain and
Portugal, and Spanish-and Portuguese speaking areas of the world, including the
United States. Ibero-American Media Partners was a Cayman Islands company that
was formed in 1998 and is being dissolved as a result of the merger
transaction. Prior to the merger transaction, Ibero-American Media Partners
owned 18% of El Sitios common shares.

1945 Carlton Investments LLC and 1947 Carlyle

Investments LLCare Delaware
limited liability companies that are members of the Cisneros Group that invest
in international media and entertainment businesses. The assets contributed to
Claxson by 1945 Carlton and 1947 Carlyle included, among others, an 80.1%
interest in Playboy TV International, LLC, our former joint venture with an
affiliate of Playboy Enterprises, Inc. In December of 2002, we transferred our
interest in Playboy TV International to Playboy Enterprises Inc. in exchange
for a release from future obligations owed pursuant to this joint venture, as
well as, the renegotiation of certain terms for our remaining 81% interest in
Playboy TV Latin America, our joint venture with another affiliate of Playboy
Enterprises, Inc. See B. Business OverviewPlayboy TV Latin America Joint
Venture for more information.

El Sitio, Inc. is an Internet media company that

provided localized
interactive content through a network of websites for Spanish- and
Portuguese-speaking audiences in Latin America and the United States. At the
time of the merger transaction, El Sitio had, in addition to a global website,
country websites for Argentina, Brazil, Chile, Colombia, Mexico, the United
States, Uruguay and Venezuela. El Sitio is an international business company
incorporated under the laws of the British Virgin Islands.

Structure of the Merger Transaction

Pursuant to the terms of the combination agreement, a

subsidiary of
Claxson was merged into El Sitio, and all of the subsidiaries of Ibero-American
Media Partners and the media businesses of 1945 Carlton and 1947 Carlyle that
were managed by Ibero-American Media Partners were contributed to and combined
with Claxson. As a result of the merger, El Sitio became a wholly owned
subsidiary of Claxson.

B.    
 Business Overview

We seek to be a multimedia provider of branded

entertainment content to
Spanish and Portuguese speakers around the world. We have combined assets in
pay television, broadcast television and radio, and Internet and
broadband to create an integrated media company with a portfolio of
popular entertainment brands and multiple methods of distributing our content.

10



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##### Table of Contents



Our pay television business, currently our largest source

of revenues,
includes 14 pay television channels distributed to approximately 10.1 million
pay television households, which account for approximately 44.9 million basic
channel subscribers through cable and direct-to-home television platforms. (We
calculate the number of subscribers based on the number of channels received
per household so that if for example a household receives five channels, we
count five subscribers for such household.) Three of these pay television
channels, are owned by Playboy TV Latin America, our 81% owned joint venture
with an affiliate of Playboy Enterprises Inc.

Our broadcast television and radio business includes an

eight-station
radio network with the largest audience share in Chile, the fourth largest
broadcast television network in Chile, and two radio stations we operate in
Uruguay.

Our Internet and broadband business, which is our

newest business, is
primarily dedicated to support our media assets and the production of digital
content specifically developed for broadband.

We integrate licensed and proprietary content for pay

television,
broadcast television and radio and Internet formats. By taking advantage of the
complementary nature of our assets and the experience of our management team,
we seek to achieve revenue growth and reduce expenses through operational
synergies that we believe will lead to enhanced long-term financial performance
and better position us to take advantage of emerging trends in media
distribution.

The following tables present historical selected financial

information by
our business operations for the years and periods indicated (in thousands of
U.S. dollars):

Year Ended December 31, 2002BroadcastPay
    
    Television
    
    Internet andTelevision
    
    and Radio
    
    Broadband
    
    Corporate
    
    TotalRevenues
    
    $
    46,192
    
    
    $
    28,578
    
    
    $
    190
    
    
    $
    
    
    
    $
    74,960Operating Income (Loss)
    
    
    9,303
    
    
    
    (1,152
    )
    
    
    (7,684
    )
    
    
    (2,775
    )
    
    
    (2,308
    )Net Income (Loss)
    
    
    (116,363
    )
    
    
    (7,331
    )
    
    
    (13,549
    )
    
    
    (1,186
    )
    
    
    (138,429
    )Cash Flows from Operating

Activities
    
    
    (214
    )
    
    
    5,331
    
    
    
    929
    
    
    
    (4,075
    )
    
    
    1,971Cash Flows from Investing

Activities
    
    
    8,322
    
    
    
    (578
    )
    
    
    (3,128
    )
    
    
    (330
    )
    
    
    4,286Cash Flows from Financing

Activities
    
    
    (2,178
    )
    
    
    (5,032
    )
    
    
    (1,934
    )
    
    
    (3,881
    )
    
    
    (13,025
    )


Year Ended December 31, 2001BroadcastPay
    
    Television
    
    Internet andTelevision
    
    and Radio
    
    Broadband
    
    Corporate
    
    TotalRevenues
    
    $
    77,397
    
    
    $
    28,289
    
    
    $
    751
    
    
    $
    
    
    
    $
    106,437Operating Income (Loss)
    
    
    (3,304
    )
    
    
    (1,333
    )
    
    
    (4,807
    )
    
    
    (4,915
    )
    
    
    (14,359
    )Net Income (Loss)
    
    
    (65,390
    )
    
    
    (8,226
    )
    
    
    (6,355
    )
    
    
    (4,915
    )
    
    
    (84,886
    )Cash Flows from Operating

Activities
    
    
    12,856
    
    
    
    805
    
    
    
    (6,315
    )
    
    
    (3,850
    )
    
    
    3,496Cash Flows from Investing

Activities
    
    
    (10,221
    )
    
    
    (2,679
    )
    
    
    9,520
    
    
    
    
    
    
    
    (3,380
    )Cash Flows from Financing

Activities
    
    
    (8,713
    )
    
    
    (2,290
    )
    
    
    2,611
    
    
    
    3,850
    
    
    
    (4,542
    )


Year Ended December 31, 2000BroadcastPay
    
    Television
    
    Internet andTelevision
    
    and Radio
    
    Broadband
    
    Corporate
    
    TotalRevenues
    
    $
    72,953
    
    
    $
    34,433
    
    
    $
    
    
    
    $
    
    
    
    $
    107,386Operating Income (Loss)
    
    
    (3,254
    )
    
    
    2,416
    
    
    
    
    
    
    
    
    
    
    
    (838
    )Net Income (Loss)
    
    
    (19,947
    )
    
    
    (1,522
    )
    
    
    
    
    
    
    
    
    
    
    (21,469
    )Cash Flows from Operating

Activities
    
    
    996
    
    
    
    2,548
    
    
    
    
    
    
    
    
    
    
    
    3,544Cash Flows from Investing

Activities
    
    
    (11,333
    )
    
    
    (11,948
    )
    
    
    
    
    
    
    
    
    
    
    (23,281
    )Cash Flows from Financing

Activities
    
    
    26,644
    
    
    
    1,065
    
    
    
    
    
    
    
    
    
    
    
    27,709


11



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Business Strategy

Our vision is to provide high-quality branded content to

serve the tastes
and needs of our target audience. We believe that we will be a leader in
tailoring multi-media programming to the Ibero American market by creating
original content, as well as by dubbing and translating third-party content
into Spanish and Portuguese, while remaining sensitive to local preferences.
We seek to fill the need for a pan-regional alternative that can create,
gather, package and deliver differentiated content across multiple media
platforms. The key elements of our strategy include the following:



| |  |  | Increase Subscription Revenues from a Portfolio of Leading
Pay Television Brands. We hold a number of well-known pay
television brands under one roof. We expect to increase
subscriber-based revenues by expanding distribution of our channels
to pay television system operators that we do not reach today, and
by benefiting from anticipated growth in pay television subscribers
in Ibero America.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Create Significant Operating Benefits. We endeavor to
combine our product offerings to create operating benefits across
all of our businesses, including:
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | cross-promotion across multiple media, thereby
increasing brand awareness while driving audience growth and
reducing marketing expenditures;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | spreading the costs of content-creation and
gathering across multiple delivery systems, thus maximizing
the return on content investments; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | aggregation of management expertise in
traditional and new media to create innovative and interactive
content and to expand our brands across all media.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Develop Additional Revenue Streams. We intend to capitalize
on our diverse media assets to develop additional sources of
revenue, including, among others, the sale or license of content
through existing and new media, such as broadband, and the provision
of other services, such as dubbing, subtitling and other services.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Exploit Market Opportunities for Growth Through Strategic
Alliances. The media industry in Ibero America is fragmented and,
because of shifts in the regulatory environment, foreign ownership
of multiple media assets in some countries has become possible.
These two factors should provide us the opportunity to develop our
businesses. Our strategy includes geographic expansion of our
existing pay television business, as well as increasing penetration
in those geographic markets in which we currently operate, through
strategic alliances and opportunistic acquisitions of channels
targeting specific genres, which compliment our channel offerings.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Leverage Strategic Relationships. We believe that our
relationships with the Cisneros Group and Hicks Muse, our principal
shareholders, provide us with competitive advantages. We intend to
draw upon the relationships, regional expertise and extensive media
assets of our principal shareholders to enhance our content
offerings and facilitate access to distribution and technology
platforms.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

PAY TELEVISION BUSINESS

Our pay television business includes 14 pay television

channels
distributed throughout various Ibero American countries, with a strong presence
in Argentina and the rest of the southern portion of South America, which is
commonly called the Southern Cone.

Our channels are tailored to Spanish- and

Portuguese-speaking television
viewers throughout Ibero America and offer a diverse mix of programming,
including movies, music videos, local news, documentaries, fashion, family
series and adult entertainment on a basic, premium or pay-per-view basis.
Content for local, regional and international markets, is either originally
produced in, dubbed or subtitled into Spanish or Portuguese.

12



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In 2002, we wholly-owned nine of the channels that we

distributed: Space;
I.Sat; Uniseries; Infinito; FTV; MuchMusic; HTV; Cl@se; and Venus. At the end
of 2002, we transferred the ownership of Venus to our 81%
owned Playboy TV Latin America joint venture; and in 2003, rebranded the
Uniseries channel and launched it outside of the Southern cone as the Retro
channel; and sold our ownership interest in Cl@se. We control the programming
content of our wholly-owned channels. In addition to Venus, we also distribute
two other channels in Ibero America through our Playboy TV Latin America joint
venture, the Playboy TV channel and the Hot Network channel. We also have
exclusive distribution rights throughout certain parts of Ibero America with
respect to certain channels, including Crónica TV, a channel owned by Estrella
Satelital S.A., in the Southern Cone; Venevision Continental (solely with
respect to distribution to pay television providers other than DirecTV Latin
America), a channel owned by the Cisneros Group, in the Latin America region;
and the Locomotion Channel, a channel we sold our 50% interest in to Corus
Entertainment, Inc. on May 17, 2002, in the Latin American region. Our 31%
owned joint venture, DMX MUSIC Latin America, offers digital music channels
throughout Latin America.

Wholly Owned Basic Tier Channels

Spaceoffers 24 hours of a varied

selection of Hollywood movies and
blockbusters from the rest of the world, among a varied programming line-up for
the entire family in the Southern Cone. Programming includes thematic blocks
featuring horror movies, Italian films, Spanish productions, action movies,
major boxing events and artistic specials. With 200 different films aired every
month, Space offers its audience an important number of movies with the
majority dubbed into Spanish. Spaces live boxing events have often set
ratings records in Argentina, frequently surpassing broadcast television.

I.Satspecializes in current and

alternative entertainment designed
especially for the 18-35 year old urban market. I.Sat presents contemporary
movies, series, music, documentaries and original productions. I.Sat offers
its viewers in the Southern Cone not only recent Hollywood blockbusters, but
also independent films and movies popular with the 18-35 year old urban market.
In addition, all genres of international music are featured including videos
and specials showcasing contemporary music artists from all over the world.

Uniseries (now known as Retro)was

available in the Southern Cone until
March 2003. Its programming was composed of popular television programs and
various eccentric and cult series. The channel featured an eclectic mix of the
American and British classic and contemporary television hits for the whole
family. In March 2003, based on the success of the Uniseries channel in the
Southern Cone, we launched the Retro channel throughout the entire Latin
America region. Retros programming includes classic films and series focused
on genres such as westerns, gladiators, cult horror, and science fiction of the
50s, 60s and 70s. Retro also showcases such milestone TV series as Mission
Impossible, The Untouchables, Combat, The Fugitiveand others.

Infinitooffers programming based on

themes of the new millennium.
Infinito is dedicated to the unknown, the occult and the unexpected and
presents an alternative to traditional documentary channels. Bringing viewers
closer to the unknown, Infinito features documentaries, interviews, talk shows,
series and news. Infinito is available throughout Latin America.

FTV/Fashion TVis a global television

network entirely dedicated to the
fashion world. Since November 2001, we have controlled the distribution and
advertising sales rights for Latin America of FTV. Under an agreement with FTV
Paris, we develop original content featuring local celebrities and brands to
customize the channel to the preferences of the local markets. FTV is a
24-hour international television channel targeting fashion enthusiasts around
the world. FTVs programming highlights include Focus On...Argentina, a daily
show covering the Argentine fashion scene; Fashion Clips, Haute Couture Paris,
covering fashion events from Paris, Rome and Milan; and major fashion events
from Sao Paulo, New York and Buenos Aires.

MuchMusic Argentinais a channel that

integrates music, interactivity and
humor. MuchMusic Argentina targets the 12-24 and 25-34 age brackets and
combines live productions and localized content with local production
packaging, and international flair through a wide spectrum of styles: Rock,
Pop, Latin Music, Dance, Hard Core and other new music trends. MuchMusic also
offers original non-musical content developed under the same localist
programming philosophy. We license the MuchMusic brand and certain content
from CHUM Limited, a Canadian company and content provider. In addition, we
have the right to develop the MuchMusic television service in Latin America and
Iberio America.

HTVis a vehicle of Latin culture and

offers a diverse music mix
overcoming geographic barriers and language. Taking advantage of the
popularity for all things Latin and Latin music, HTV has established a
following in Latin America and the US Hispanic market. HTV programming covers
a spectrum of Latin American music genres, including pop, Latin rock, tropical,
hip-hop, reggae and ballads. HTV also features current popular
crossover hits, introduced by the artists themselves. HTV plays
uninterrupted Spanish and Portuguese-language music without VJs or other
non-musical programming.

13



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##### Table of Contents



Cl@sewas launched in

April 1999. Cl@se includes programming that is
committed to supporting education in Latin America by offering an entertaining
educational vehicle to facilitate learning by children and teenagers.
Effective January 2003, Claxson sold the Cl@se channel to the Cisneros Group as
DirecTV Latin America, our principal distributor, was unwilling to continue to
carry the channel at fees acceptable to us. The Cisneros Group will continue
to operate the channel and we will continue to provide a number of services,
including playback, satellite, and back office services and serve as the
exclusive distributor of the Cl@se channel to cable operators throughout Latin
America.

Partially Owned Channels

Playboy TV Network and The Hot Networkare owned, operated and distributed
throughout Latin America, Spain and Portugal by Playboy TV Latin America.
Playboy TV Latin America is a joint venture that was created in 1996 between a
member of the Cisneros Group and an affiliate of Playboy Enterprises, Inc.
Today, a subsidiary of Claxson owns 81% of Playboy TV Latin America, while an
affiliate of Playboy Enterprises, Inc. owns the remaining 19%. Playboy TV
Latin America offers high quality adult entertainment, which generally can be
purchased monthly as a premium channel or on a pay-per-view basis. A portion
of Playboy TV Latin Americas programming is tailored to the Ibero American
market and is customized according to regional preferences.

Venusis a premium and pay per view

adult content channel that we launched
in 1994 and targeted specifically to the Latin American audience. Venus offers
themed features, specials and weekly shows to demanding subscribers. Venus
brings a wide variety of adult genres and high quality programming, including
original productions and a sophisticated on-air look. Venus was transferred to
the Playboy TV Latin America joint venture, as part of the overall
restructuring of the relationship with Playboy Enterprises, Inc.

Distributed Channels

Crónica TVis owned and produced

by Estrella Satelital S.A. We are the
exclusive sales agent for Crónica TV programming in the Southern Cone. Crónica
TV is a 24-hour live news channel, delivering local and international news
coverage that is popular, in large part, for its live coverage of events in
Argentina. Crónica TV is one of the leading news channels in Argentina.

The Locomotion Channelwas a 50/50

partnership between a subsidiary of
Claxson and an affiliate of The Hearst Corporation that was created in November
1996. Locomotion is distributed in Ibero America and features international
animation programming created specifically for teens and young adults. On May
17, 2002, we sold our 50% participation in Locomotion to Corus Entertainment
Inc., a Canadian media and entertainment company and are currently discussing
with them the possibility of transferring the affiliate sales services, and the
post-production and technical services to one of their affiliates at the
expiration of the contract.

Venevision Continental, which is owned

by the Cisneros Group, is a general
entertainment channel with family programming that integrates highly rated
shows from the main Spanish-speaking television broadcasters. Venevision
Continentals programming includes soap operas, magazine and talk shows,
variety shows, comedy, childrens programming, beauty contests and news.
Venevision Continental was launched in August 2000 and is distributed
pan-regionally. We represent Venevision Continental for sales to cable
operators throughout Latin America.

Production Operations

The Kitchen, Inc.commenced

operations in the first quarter of 2001,
offering language dubbing and subtitling, network playout and post production
services. The language dubbing process utilizes specialized computer systems
and software and employs versatile acting talent from Miami, Latin America and
Europe. The Kitchen can dub into Spanish, Portuguese, English, French and
Italian. In network playout, The Kitchen is equipped with a tapeless
environment with daily programming supplied from computer servers. The Kitchen
offers broadcast services to our owned and partially-owned channels, and
recently to customers around the world. The Kitchen is open twenty-four hours
a day, seven days a week. The Kitchen also provides subtitling services in
various languages, playback services for television networks in the Miami area
and general post-production services.

14



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##### Table of Contents



In Jauscommenced operations in 2002

as part of our strategy to obtain
third party clients for the services that we already produce for our own
channels. In Jausis our creative division in charge of broadcast design (both
video and audio) as well as the production services for commercial shoots,
feature films and made for TV movies, and documentaries or video clips (through
In Jaus Films). The original production of documentaries and other programs is
also managed by In Jaus, as well as the distribution and sale of these programs
and all proprietary programs and television formats to third parties. During
the year 2002, In Jaus provided services to external clients, including Grupo
Clarin, Arcor, Radio Disney and Verizon, generating revenues of $0.2 million.

Pay Television Distribution

As of December 31, 2002, our channels were

distributed in 23 countries in
Ibero America and reached approximately 44.9 million basic channel subscribers
in over 10.1 million pay television households. We believe that our ability to
provide a diversified package of branded channels to pay television operators
is a favorable alternative to individual channels that offer a more limited
menu of programming choices. We have distribution agreements with pay
television operators that distribute our channels in each of our markets.

We intend to increase the penetration of our channels in

the markets in
which they are currently distributed and expand into new markets. The
following table identifies the number of subscribers for each of our basic
channels as of December 31, 2000, 2001 and 2002. The total number of
subscribers for each channel in 2002 is strongly affected by a decrease of
approximately 25% in the total subscribers in Argentina as a result of the
economic situation during 2002.

Total Number of SubscribersDecember 31,2000
    
    2001
    
    2002(In thousands)Basic

PackageSpace
    
    
    5,743
    
    
    
    5,881
    
    
    
    4,805I.Sat
    
    
    5,445
    
    
    
    5,675
    
    
    
    4,674Uniseries/Retro(1)
    
    
    4,415
    
    
    
    4,557
    
    
    
    3,555Infinito
    
    
    7,071
    
    
    
    9,251
    
    
    
    8,229Júpiter/FTV(2)
    
    
    1,699
    
    
    
    2,595
    
    
    
    3,576MuchMusic
    
    
    5,088
    
    
    
    5,185
    
    
    
    4,494HTV
    
    
    4,348
    
    
    
    5,431
    
    
    
    5,061Cl@se(3)(4)
    
    
    1,179
    
    
    
    1,549
    
    
    
    1,718Locomotion(4)
    
    
    4,188
    
    
    
    5,711
    
    
    
    5,330Crónica

TV(4)
    
    
    4,942
    
    
    
    5,330
    
    
    
    3,997Venevision

Continental(5)
    
    
    
    
    
    
    587
    
    
    
    998Total Basic Channel

Subscribers
    
    
    44,118
    
    
    
    51,752
    
    
    
    46,437




---

|(1) |  | Uniseries was replaced by Retro in March 2003.                                                    
|--- |  | --------------------------------------------------------------------------------------------------
|   
|(2) |  | Jupiter was replaced by FTV in December 2001.                                                     
|   
|(3) |  | We sold Cl@se in January 2003.                                                                    
|   
|(4) |  | Represented channel.                                                                              
|   
|(5) |  | Represents cable subscribers only. We began distributing Venevision
Continental in September 2001.

Pay Television Revenue Sources

Like most providers of pay television content, we derive

substantially all
of our pay television revenues from subscriber-based fees and advertising
revenue. Subscriber-based revenues currently are the primary source of revenue
for our pay television business, accounting for 68% of total pay television net
revenue in the year ended December 31, 2002 and 78% in the year ended December
31, 2001. Advertising accounted for 5% of total pay television net revenue in
the year ended December 31, 2002 and 11% in the year ended December 31, 2001.
In addition, we derived 27% of total pay television net revenue in the year
ended December 31, 2002 and 11% in the year ended December 31, 2001 from other
sources, including production services, management and other fees for services
we provide to our partially owned channels and to third parties.

15



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##### Table of Contents



Subscriber-Based Fees.We charge pay

television operators either a flat
or per-subscriber fee for the right to broadcast our channels through their
networks. Pricing for basic channels typically involves a lump sum monthly
payment per channel or package of channels or fixed price per subscriber.
Generally, we enter into long-term distribution agreements with an average term
of approximately three years. For premium and other pay-per-view channels, we
determine a retail price in each market and receive a percentage of the
revenues generated from subscribers of those channels.

Our channels are distributed by more than 1,100 pay

television operators
in Ibero America. These operators include, among others, DirecTV Latin
America, CableVisión (Argentina), Multicanal (Argentina), Via Digital (Spain),
Sky Latin America, Net Brasil (Brazil), Cablevisión (Mexico), VTR (Chile) and
Intercable (Venezuela). Our five largest pay television distributors accounted
for 24% of total pay television net revenue for the year ended December 31,
2002, and DirecTV Latin America, our largest pay television distributor,
accounted for 15% of total pay television revenues for the year ended December
31, 2002. On March 18, 2003, DirecTV Latin America announced that it had filed
a voluntary petition for reorganization under Chapter 11 of the United States
Bankruptcy Code. Although we believe that we have a good relationship with
DirecTV Latin America, as well as with all of our other distributors, we may
experience a decrease in our pay television net revenues if DirecTV Latin
America terminates its agreement with us or is unable to successfully
reorganize its operations. See Item 3.D. Risk FactorsGeneral RisksThe
bankruptcy of DirecTV Latin America, the largest distributor of our pay
television channels, could lead to a reduction in our earnings or our inability
to collect certain accounts receivable.

At least one of our channels is currently distributed to

44% of the pay
television households in Ibero America, excluding the U.S. Hispanic market. We
plan to continue to expand the penetration of our package of channels
throughout Ibero America.

Advertising Revenue.We derive revenues

from the sale of advertising on
our pay television channels to advertisers and agencies. We believe that our
geographic reach will enable us to pursue local, pan-regional and global
advertising budgets. We offer advertisers pan-regional reach, local focus and
the opportunity to incorporate direct marketing and promotional events to
create multimedia campaigns. We believe that our channels spectrum of
highly-rated programming appeals to advertisers that want to target audiences
in specific demographic and other focused groups. We seek to offer advertisers
maximum value for their advertising expenditures and have implemented a
strategy that provides customized options, including the following: on-air
spots; program sponsorships; on-air promotions; product integration; customized
commercials; special events; and interactive elements.

For the year ended December 31, 2002, our

channels sold advertising to 191
advertisers. In the year ended December 31, 2002, our top ten advertisers
accounted for approximately 54% of our pay television advertising revenues.
Our strongest advertising sales were made for the Space channel, which
accounted for 37% of pay television advertising revenue in the year ended
December 31, 2002.

On October 22, 2001 we acquired a 51% equity

interest in StarTV Brazil
Ltda., a Brazilian limited liability company. StarTV is an advertising firm in
Brazil that provides advertising sales and marketing services to pay television
channels and Internet businesses. StarTV is the advertising sales
representative in Brazil for all of our media properties.

Other Revenue Sources.We derive other

revenues from services that we
provide to pay television businesses we partially own, such as Playboy TV Latin
America and DMX MUSIC Latin America and to certain third parties. These
revenues include playback, library, satellite space, dubbing, subtitling,
creative services, and programming from our partner channels as well as from
independent third parties and fees for back office and other services provided
to these joint ventures. We expect these revenues to increase as we provide
additional services to third parties.

Marketing

We focus our marketing efforts on increasing pay

television operator
interest, subscriber levels and brand awareness, maintaining and improving the
ratings of our channels, and creating promotional opportunities that are
attractive to our target audiences, distributors and advertisers. We conduct
multimedia marketing campaigns designed to promote audience loyalty and support
the programming of our channels. These campaigns generally combine on-air and
off-air events with traditional print, radio and billboard advertising targeted
to current and potential viewers. Our channels also have promotional websites
that allow our subscribers to learn more about our
programming and off-air events, while providing sponsors and advertisers
with another medium for interacting with subscribers.

16



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##### Table of Contents



Our marketing staff works closely with our other

departments, including
advertising sales, affiliates sales, creative, programming and communications,
to coordinate and implement activities that achieve its marketing goals. For
example, our marketing, affiliate and advertising sales departments work
closely together to create marketing concepts and off-air promotional events
that appeal to its advertisers and system operators and reinforce a brands key
elements. In addition, our marketing staff works with the programming and
creative departments to develop strategic programming concepts that strengthen
the uniqueness of a channels identity, increase viewership and create
sponsorship opportunities. We believe that our marketing initiatives achieve
their primary goals of growing our brands, retaining viewer loyalty, increasing
the distribution of our channels, creating innovative promotional opportunities
for its advertisers and affiliates and maintaining or improving its ratings.

Programming Sources

Our programming library includes licensed programming,

owned films,
original productions and other programming totaling approximately 16,000 hours.
Of these total hours of programming, approximately 15,500 hours are currently
in our possession and 500 hours are to be delivered pursuant to contracts with
suppliers as of March 31, 2003.

We tailor our pay television programming for the Ibero

American audience
and air most of our programming in Spanish or Portuguese. Our purchased
programming is dubbed or subtitled into Spanish and/or Portuguese in our own
studios through our subsidiary, The Kitchen. We believe that our library of
customized Spanish-and Portuguese-language programming represents a valuable
asset, because many of our competitors air significantly more of their
programming with subtitles, which we believe is less popular with television
audiences in Ibero America. The availability of an extensive, edited and
ready-to-air programming library permits us to schedule movies and other
programming quickly for inclusion in theme-oriented programming blocks in
response to current events.

Licensed Programming.We have

exhibition rights from third-party
programmers totaling approximately 15,000 hours of programming. These rights
include approximately 3,300 films, representing approximately 7,000 hours of
programming, which allows channels such as Space and I.Sat to air programming
with less repetition than many of their competitors. The remaining 8,000 hours
of programming consist of approximately 10,000 television series episodes and
documentaries, allowing Retro and Infinito not to repeat its episodes of any
series or documentary for up to one year. Our exhibition rights also include
sports and music entertainment events.

Our program license agreements generally provide for the

non-exclusive
right to exhibit programming within a specified period of time by means of
basic pay television in the Southern Cone, and sometimes provide for options to
extend these rights on a pan-regional basis throughout Latin America. In the
case of each of Infinito, FTV and Retro, our pan-regional channels, we obtain
exhibition rights on a pan-regional basis throughout Latin America.

We have entered into programming agreements with key

providers of
high-quality programming, including Paramount Pictures Corp., MGM International
Television, CHUM Limited, and FTV Paris.

We believe that our relationships with pay television

programming
suppliers are good.

Owned Programming.We own

approximately 535 classic Argentine films,
totaling approximately 700 programming hours, including the San Miguel film
library and films from the Lumiton film library that we purchased. Many of
these films date from the golden age of Argentine filmmaking in the 1940s and
1950s.

We own a substantial amount of programming originally

produced for the
channels, including approximately 1,000 hours of original programming recently
produced for Infinito, as well as boxing and film commentaries produced to air
on Space and concert and film commentaries produced for MuchMusic Argentina and
I.Sat. We also own certain brief lead-in programming that we produce relating
to much of our film library and other interstitial programming material.

In addition to owned and licensed programs, we have a

limited amount of
first-run rights relating to boxing matches and other special events, such as
music concerts, exclusive interviews and specials featuring music artists.

17



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##### Table of Contents



Playboy TV Latin America Joint Venture

Restructuring of the relationship with Playboy

Enterprises, Inc.

In 1996, a member of the Cisneros Group and an affiliate

of Playboy
Enterprises, Inc. entered into a joint venture, Playboy TV  Latin America,
LLC. Currently, a subsidiary of Claxson owns 81% of Playboy TV Latin America
while an affiliate of Playboy Enterprises, Inc., owns the remaining 19%.
Playboy TV Latin America owns, operates and distributes Playboy TV Network, the
Hot Network and the Venus channel throughout Latin America, Spain, and
Portugal. In 1999, an affiliate of Playboy Enterprises, Inc. and an affiliate
of the Cisneros Group created Playboy TV International LLC, a joint venture to
own and operate Playboy TV networks outside of the United States and Canada.
The affiliate of Playboy Enterprises, Inc. owned 19.9% (with an option to buy
up to 50%) of Playboy TV International and the affiliate of the Cisneros Group
owned 80.1% which interest was contributed to Claxson as part of the merger
transactions. In January 2002, we began negotiating a possible restructuring
of the Playboy TV International joint venture based on our belief that the
structure made it a nonviable business and there was a justification for
adjusting the fixed cost structure and obligations owed to Playboy Enterprises,
Inc. as a result of Playboy TV Internationals lower than anticipated actual
revenues. If we had not restructured the Playboy TV International joint
venture, we would have been responsible for making additional mandatory capital
contributions of up to U.S.$21.4 million. In addition, as part of the
formation and the acquisition of certain international television rights,
Playboy TV International was obligated to pay an affiliate of Playboy
Enterprises, Inc. U.S.$57.5 million, payable in several lump sum payments prior
to September 2004. On December 23, 2002, we and our affiliates, along with
Playboy Enterprises, Inc. and its respective affiliates, completed a
restructuring of our Playboy TV International joint venture.

Pursuant to the restructuring, we (i) transferred our

80.1% interest in
Playboy TV International (outside of Latin America, Spain and Portugal) to
Playboy Enterprises, Inc., (ii) contributed the Venus channel to Playboy TV
Latin America, and (iii) transferred 728,112 preferred shares of Playboy.com,
Inc. to Playboy Enterprises, Inc. In exchange, we were released from our
capital commitments to this venture, and we revised the terms for our continued
relationship in Latin America, Spain and Portugal. Claxson through a
wholly-owned subsidiary retained an 81% interest in Playboy TV Latin America
and now controls the management of this joint venture. As a result, we
consolidate the Playboy TV Latin America operations into our pay television
division for financial reporting purposes, as of December 2002. Consequently,
we now operate all adult content operations (which includes the Playboy TV, Hot
Net and Venus channels) under the Playboy TV Latin America joint venture. An
affiliate of Playboy Enterprises, Inc. will distribute the Playboy TV Latin
America programs in the U.S. Hispanic market for a 20% distribution fee to our
joint venture.

As part of the restructuring, an affiliate of Playboy

Enterprises, Inc
agreed to exclusively license to Playboy TV Latin America its entire Playboy TV
television programming library which was in existence as of March 31, 2002.
The library consisted of approximately 12,500 hours of Playboy original
programming, licensed movies, and other shows. The program supply agreement
also requires an affiliate of Playboy Enterprises, Inc. to license exclusively
all new programs produced to Playboy TV Latin America each year, subject to a
certain minimum number of program hours. In exchange for these rights, Playboy
TV Latin America must pay an affiliate of Playboy Enterprises, Inc. 17.5% of
the net revenues from the distribution of these programs, with a guaranteed
annual minimum.

DMX MUSIC Latin America

AEI Collingham Holdings Co. Ltd., which operated the

AEI Music Latin
America joint venture, was a 50/50 joint venture formed in 1999 by a member of
the Cisneros Group and an affiliate of AEI Music Network Inc. Upon the
formation of the joint venture, it developed and delivered 20 digital music
channels through DirecTV in Latin America. AEI Music Networks merged with DMX
MUSIC during 2001. In May 2002, we completed a business combination
transaction with DMX MUSIC whereby DMX MUSIC contributed to the joint venture
all its existing affiliation agreements with cable and DTH operators in Latin
America and the U.S. Hispanic market and cash in the amount of U.S.$0.7
million, in exchange for an additional 19% of the equity interests in the joint
venture. After the business combination, AEI Music Latin America re-branded
its services as DMX MUSIC Latin America and expanded its channel offerings. We
now own 31% of DMX MUSIC Latin America. DMX MUSIC Latin America also intends
to develop and deliver music services to retail and commercial establishments
in Latin America.

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BROADCAST TELEVISION AND RADIO

BUSINESSES

We wholly own and operate two integrated broadcast

businesses:
Iberoamerican Radio Holdings Uno S.A., which we refer to herein as Radio
Chile; and Red de Television Chilevisión S.A., which we refer to as
Chilevisión. Radio Chile is the radio network with the largest audience in
Chile and Chilevisión is the fourth largest television broadcaster in Chile
(based on ratings). Our broadcast businesses in Chile allow us to:



| |  |  | cross-sell television and radio advertising; and
| | - |  | ------------------------------------------------



| |  |  | expand the multi-media package available to advertisers from
radio and broadcast television to also include pay television.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------

We also operate two radio stations owned by Sarandi

Communications, S.A.
in Uruguay: AM 690 (Sarandi) and FM 91.9 (Music One).

Market Overview

Our broadcast business is presently concentrated in

Chile. The
advertising market in Chile is seasonal, with advertising expenditures
increasing throughout the year and peaking in the fourth quarter when consumer
expenditures reach their peak.

Radio Chileowns and/or operates eight

centrally programmed radio
networks, namely Pudahuel FM, Rock & Pop, Corazón, FM Dos, Concierto, Futuro,
FM Hit, and Imagina, five of which were among the top ten ranked radio networks
during 2002 in Santiago, which represents 39% of the national population and
58% of Chiles purchasing power. The Radio Chile networks deploy a variety of
programming formats designed to increase Radio Chiles market share and to
present a wide range of options to advertisers. We believe that our variety of
programming formats makes Radio Chile less susceptible to changes in listening
preferences than networks focused on a single segment.

The following table identifies the formats and target

audiences of the
radio networks.

Radio Network
    
    FormatPudahuel FM
    
    News, Latin music and talk show formats targeted to women 25 to 59 years old.Corazón
    
    Interactive, tropical music format targeted to listeners 25 to 59 years old.Rock & Pop
    
    Rock music and talk show format targeted to listeners 15 to 24 years old.FM Dos
    
    Romantic music format in Spanish (70%) and English (30%) targeted to women
20 to 34 years old.FM Hit
    
    Top 40 music format targeted to listeners 15 to 24 years old.Futuro
    
    Classic rock format targeting men 25 to 49 years old.
Futurocomplements
Conciertoin Santiago, where the two stations occupy the number one and two
spots in their segment.Imagina
    
    Romantic music format targeted to women 25 to 59 years old.Concierto
    
    Adult contemporary music format in English (70%) and Spanish (30%),
targeting men and women 25 to 49 years old.


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##### Table of Contents



Radio Chiles eight radio networks had a combined

33.9% audience share in
the Santiago market for the period from January through December 2002. The
following table presents the rank and audience share in Santiago for each Radio
Chile radio network for the periods indicated.

2002
    
    Rank
    
    2001
    
    RankPudahuel FM
    
    
    5.9
    %
    
    
    1
    
    
    
    6.1
    %
    
    
    2Corazón
    
    
    5.6
    
    
    
    2
    
    
    
    5.7
    
    
    
    3FM Dos
    
    
    5.0
    
    
    
    3
    
    
    
    4.9
    
    
    
    7Rock &

Pop
    
    
    4.9
    
    
    
    5
    
    
    
    5.2
    
    
    
    5FM Hit
    
    
    4.2
    
    
    
    10
    
    
    
    4.9
    
    
    
    6Futuro
    
    
    3.7
    
    
    
    11
    
    
    
    4.4
    
    
    
    9Concierto
    
    
    2.6
    
    
    
    16
    
    
    
    2.5
    
    
    
    16Aurora/Imagina(1)
    
    
    2.2
    
    
    
    19
    
    
    
    2.8
    
    
    
    13Total audience share
    
    
    33.9
    %
    
    
    
    
    
    
    36.3
    %




---

|(1) |  | In September 2002 Aurora
changed its target audience and became Imagina.Source: Search Marketing Reports
|--- |  | --------------------------------------------------------------------------------------------------------

Radio Chile is a distant leader in audience share in

Santiago, compared to
the other radio groups that operate more than one network. The Garcia Reyes
Group captures a 6% audience share with the operation of two networks; the
Caracol Group obtains 8% audience share operating four networks; and the
Bezanilla Group has an 8% audience share operating three networks.

Radio Chiles networks reach over 99% of

Chiles population in 36 cities
through 142 FM concessions. Our three largest networks reach over 90% of the
total population, two reach over 70% of the total population, and the rest
reach between 40% and 70% of the total population. Radio Chile had U.S.$13.7
and U.S.$12.6 million in revenue in 2001 and 2002, respectively, which
accounted for an estimated 28% and 31% of the Chilean radio advertising market
in 2001 and 2002, respectively.

Chilevisióncurrently is, according

to Time Mediaand Asociación Chilena
de Agencias de Publicidad, Chiles fourth largest television network in terms
of ratings and revenues. Chilevisión broadcasts a mix of syndicated
programming (68%) and proprietary programming (32%) that targets a family
audience. Chilevisión reaches 35 cities that account for 98% of the Chilean
population, and is one of the five television networks with national coverage.

Chilevisión Revenue Sources

We derive all of our broadcast television revenues from

the sale of
advertising on our television network to advertisers and agencies. Our
geographic reach enables us to pursue national advertising budgets as we give
advertisers access to the entire Chilean market. We believe that our networks
mix of licensed and proprietary programming appeals to advertisers that want to
target audiences in specific demographic and other focused groups. We seek to
offer advertisers maximum value for their advertising expenditures and have
implemented a strategy that provides customized options, including on-air
spots; program sponsorships; on-air promotions; product integration; customized
commercials; special events; and interactive elements. For the year, ended
December 31, 2001 and 2002, Chilevisión sold advertising to 294 and 284
advertisers, respectively. In the year ended December 31, 2001, and 2002 our
top five advertisers accounted for approximately 22% and 16%, respectively, of
our broadcast television advertising revenues.

In May of 2002 a new Executive Director for

Chilevisión was appointed. As
part of a restructuring of the network we reduced the number of employees and
the programming grid was changed to increase news coverage, make the
programming more attractive to a female audience, reinforce its approach, and
strengthen prime time programming. In addition, the image of the network was
repositioned through a new logo, slogan and on-air elements.

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Marketing

We focus our marketing efforts on maintaining, increasing

and improving
the ratings of our network, and creating promotional opportunities that are
attractive to our target audiences and advertisers. We conduct multimedia
marketing campaigns designed to promote audience loyalty and support our
network programming. These campaigns generally combine on-air and off-air
events with traditional print, radio and billboard advertising targeted to
current and potential viewers. Our network also has a promotional website that
allows our viewers to learn more about our programming and off-air events,
while providing sponsors and advertisers with another medium for interacting
with viewers. We believe that our marketing initiatives achieve their primary
goals of retaining viewer loyalty and creating innovative promotional
opportunities for its advertisers and maintaining or improving its ratings.

Programming Sources

We broadcast a mix of licensed programming (59%),

proprietary programming
(32%) and third party productions (9%).

One of the strengths of Chilevisións

productions is our press department
that produces three daily news programs. The press department also produces
opinion programs and journalist and investigative programs with discussion of
the current events in politics and economics. In the third quarter of 2003,
Chilevisión started simulcasting a morning news show with Radio Futuro.

Original productions are also designed to localize

licensed programs while
targeting specific genre or demographic, such as children, women, teens and
young adults. These programs offer a mix of licensed programs together with
local insertions, such as a childrens local program that creates games and
activities to compliment licensed programs.

We have exhibition rights from third-party programmers

totaling
approximately 1,100 hours of programming. These rights include approximately
460 films, 800 television series episodes, documentaries, variety shows and
entertainment programming, which allows Chilevisión to vary programming during
different times of the day. Our principal programming suppliers include
Alliance Atlantis, Telefilms and Beta Films. We believe that our relationships
with television programming suppliers are good.

Chilevisións management has focused on

improving the networks audience
share, which has grown from 13.2% in 2001 to 13.9% in 2002, according to Time
Media. Chilevisións growth strategy is to align its advertising market share,
estimated by management to have been approximately 7.1% in 2002 (as compared to
6.9% in 2001), with the networks higher audience share by increasing prices
per advertising spot as a result of improved programming offerings and the
appreciation of the new Chilevisión brand.

Radio Sarandi

On September 21, 2001, our Uruguayan subsidiary

executed a five-year lease
and co-management agreement for the operation of three radio stations owned by
Sarandi Communications, S.A: AM 690 (Sarandi),AM 890 (Sport),and FM 91.9
(Music One). Under the terms of the lease and co-management agreement, we pay
Sarandi U.S.$65,000 per month during the lease term. We coordinate the
programming and marketing strategy and manage the advertising sales and other
operational matters of the AM Sarandi and Music One stations, while we
sub-lease the AM Sport station to a third party.

Prior to the execution of the lease and co-management

agreement, in July
2001, Sarandi preliminarily agreed to grant us an option to extend the term of
the operating lease to 30 years. The exercise price of the option will vary
depending on the year of exercise and will range from approximately U.S.$4.6
million (if the option is exercised in the first year of the lease) to U.S.$7.6
million if the option is exercised in the fifth year of the lease. The
exercise price of the option may be paid, at our election, in cash and/or our
Class A common shares, which will be valued at the market price of the shares
at the time of exercise. Both Sarandi and we believe, based upon the advice of
Uruguayan counsel, that the proposed structure for the lease transaction
complies with Uruguayan laws and regulations that prohibit foreign (i.e.,
non-Uruguayan) ownership of broadcasting transmission licenses. However, no
Uruguay regulatory authority has approved the terms and conditions of this
preliminary agreement.

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El Metropolitano

Due to the weakness in the advertising sales market for

print media in
Chile, we terminated the operation of our Chilean subsidiarys local daily
newspaper known as El Metropolitanoas of June 12, 2002.

Internet Business

At the time of the merger transaction, our Internet

business was composed
of the El Sitio network of websites, which consisted of country websites for
Argentina, Brazil, Chile, Colombia, Mexico, the United States, Uruguay and
Venezuela, as well as a global website bringing together global interactive
features and local content that afforded our users the dual advantages of the
size and resources of a regional network and the local community features and
interactive tools most useful to them. We also had marketing and sales teams
in Argentina, Brazil, Chile, Mexico, the United States and Uruguay.

In December 2001, we embarked on a significant

restructuring of our
Internet operation with the objective of maintaining the technical
functionality to support our traditional media assets, while being able to
create and market broadband content. The local offices of our Internet
operations were closed, and the production of content for Internet was
centralized together with broadband operations at our Buenos Aires offices in
March 2002. As of May 1, 2002, our Internet operations had 26 employees
compared with 79 employees as of December 31, 2001. Our network of websites
continues to offer interactive functions such as chat rooms and CupidoNet.

We also created and launched El Sitio Digital Channelin the fourth
quarter of 2001, with a broadband operator in Argentina, one of the first
concrete efforts in Latin America toward digital-age content production
specifically developed for broadband. El Sitio Digital Channeloffers features
organized along three axes: video and audio streaming and pay per view; 2D and
3D multiplayer games; and a community engine that allows users to personalize
their content. These three axes operate over one singular interphase where six
late-generation technologies converge providing it with substantial power and
versatility. This interphase was specially designed to run in broadband
platforms such as cable modem, ADSL, wireless and satellite (DirectPC). In
addition, the user has the option to acquire content through a pay per view
system, downloading content for a limited time through a modern e-license
system.

El Sitio Digital Channelsoffering includes a

basic package with eight
channels (adult, music, games, new age, Your Studio, Radio Deseo, documentaries
and help), and two pay per view channels, featuring a wide range of content
tailored to the interests of its target audience. El Sitio Digital Channel
includes more than 700 digitized videos  in AVH and DVD quality  Venus and
Playboy TV clips for adults, Infinito documentaries, current events and
information, MuchMusic music, its own radio, channels to upload personal videos
and audio files, video tutorials and 2D community tools.

In addition to the broadband operation, the Internet

business unit based
in Buenos Aires groups all of our on-line content and marketing tools including
El Sitio.com and CupidoNet; Pay TVs vertical websites including Infinito,
Space, Uniseries, I.Sat, Venus and FTV, as well as their interactive formats
and the broadcast television and radio websites.

Intellectual Property and Proprietary Rights

Some companies, including other participants in the

media industry, use
and/or may use trademarks or service marks in English or other languages which,
when translated, are similar to certain of our core marks. This usage may
hinder our ability to build a unique brand identity and may lead to trademark
disputes. If we lose the right to use a trademark or service mark, we may be
forced to adopt a new mark which would result in the loss of substantial
resources and brand identity. In any event, even if successful, litigating a
trademark dispute would result in expenditures and diversion of executives
time. Any inability to protect, enforce or use our trademarks, service marks
or other intellectual property may have a material adverse effect on us.

We also depend upon technology licensed from third

parties for chat,
homepage, search and related web services. Any dispute with a licensor of the
technology may result in El Sitios inability to continue to use that
technology. Additionally, there may be patents issued or pending that are held
by third parties and that cover significant parts of the technology, products,
business methods or services used to conduct our business. We cannot be
certain that its technology, products, business methods or services do not or
will not infringe upon valid patents or other intellectual property rights held
by third parties. If a third party alleges infringement, we may be forced to
take a license, which we may not be able to obtain on commercially
reasonable terms. We may also incur substantial expenses in defending against
third-party infringement claims, regardless of the merit of those claims.

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Regulation

Regulation of the Pay Television Industry in Latin

America

In general, many of the Latin American markets in which

we operate do not
have specific pay television laws. As a result, many of the old broadcast laws
are applied to the pay television industry. The scope of broadcast regulation
varies from country to country, although in many significant respects a similar
approach is taken across all of the markets in which we operate. For example,
broadcast regulations in most of our markets require cable and direct-to-home
system operators to obtain licenses or concessions from the applicable domestic
authority. In addition, most countries have regulations which set certain
minimum standards regarding programming content, prescribe minimum standards
for the content and scheduling of television advertisements and provide that a
certain portion of the programming carried by the operators be produced
domestically.

The content regulations concerning programming in the

countries in which
we operate often prohibit material which contains excessive violence and
pornography and usually provide a restricted exhibition schedule for
adult-rated content and other material that is deemed inappropriate for
children or the population at large. The general scheme of regulations
governing the content of television advertising focuses on prohibiting
fraudulent and misleading advertising. The promotion of illegal goods and
services is universally prohibited and many countries also restrict television
advertising of alcohol and tobacco products. Generally, the domestic
broadcasting licensing authorities have the responsibility for monitoring and
enforcing compliance with broadcasting and programming content regulations;
however, the level of enforcement varies widely among the different countries
in which we operate.

With the exception of Argentina, we are a foreign

programmer of pay
television channels in every market in which our pay television channels
operate. As a foreign programmer, we are not directly subject to the
broadcasting and content laws of the foreign countries where we operate.
However, the local cable and direct-to-home system operators that distribute
foreign programming, including our pay television channels, are subject to
local broadcasting and content regulations and are therefore responsible for
complying with any local programming requirements and advertising laws.
Consequently, many of our contracts with our cable and direct-to-home
distributors require that our programming comply with domestic programming
content and advertising regulations.

Several Latin American countries began the process of

deregulation of
their telecommunications industries during 2001. Argentina, Chile, Colombia,
Ecuador and Mexico are all opening their telecommunications markets to private
competition. While deregulation will not immediately and directly affect the
pay television industry, the effects of deregulation, including increased
competition, lowered telephone tariffs and connection rates and increased
investments in new technologies, could lead to increased opportunities for
content distribution and higher Internet and multi-channel penetration rates.

Regulation of the Brazilian Pay Television

Industry

During 2002 the Brazilian government enacted and

amended various
regulations affecting the movie theater, home video and pay television
industries. With respect to the Brazilian pay television industry, the new
regulations require cable and other pay television operators in Brazil to
withhold 11% of the payments made to foreign programming providers, unless the
programming providers elect to reinvest 3% of the revenues generated in Brazil
in local productions. The programming provider must register before the
National Film Agency (ANCINE) and the local cable operator must deposit such 3%
in a bank account in Banco do Brazil. The foreign programming provider has 270
days to utilize such deposited funds for local production projects after which
time any unused funds may be utilized by ANCINE.

We have recently finalized the registration with ANCINE

and the opening of
the bank account in Banco do Brazil. When the regulations were first enacted,
most Brazilian pay television operators refused to pay us amounts due pending
the outcome of our registration with ANCINE. We have since been able to
negotiate with some Brazilian pay television operators to pay us amounts due
subject only to a 3% withholding. Since its inception in early 2002, these
regulations have undergone many modifications and further modifications in the
future remain possible. If we are unable to complete the registration process,
or if the regulations are further modified, it may affect our business.

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Regulation of the Chilean Broadcast Television and

Radio Industry

The radio broadcast industry in Chile is regulated by the

Subsecretariat
of Telecommunications, which is known as SUBTEL, which is overseen by the
Ministry of Public Works, Transport and Telecommunications. The broadcast
television industry is regulated by the National Television Council or CNT.
Legislation regarding radio in Chile is contained in the 1982 General
Telecommunications Law, as amended. In addition, the CNT Law of 1989, as
amended, contains regulations that apply to the broadcast television industry.
Broadcast television and radio licenses are currently awarded for 25-year
terms.

Broadcast television content and programming are

closely regulated in
Chile. All broadcast entities must air at least one hour of educational
content per week of programming during the primetime hours between 6:00 p.m.
and 11:00 p.m. At least 40% of programming aired on Chilean broadcast
television must be of Chilean origin. Although content is regulated to comply
with educational and moral standards, the restrictions are more lenient on
content aired between 10:00 p.m. and 6:00 a.m. The content of advertising
aired on broadcast television in Chile is also regulated.

A new Chilean law, published on June 4, 2001,

includes provisions that may
be relevant to the ongoing operations of our Chilean broadcast businesses. The
new law provides that any change in ownership or control of a radio and
broadcast television business concession is subject to approval of the Chilean
authorities who must issue a report regarding the impact on the media market of
the change in control. If this report is not issued within 30 days from the
filing of the application it will be deemed that the authorities have no
objections. This law also provides that radio broadcasting concessions may
only be granted or transferred to entities that have more than 10% non-Chilean
ownership if in the country of origin of the foreign nationals, Chilean
nationals are granted similar rights. This provision may affect the manner in
which Claxson and its affiliates conduct its broadcast business in Chile,
including the renewal of the existing concession or acquisition of new ones.

Competition

The media and entertainment business is highly

competitive. Each of our
pay television, broadcast television and radio businesses competes against
companies operating in these and other media segments. For example, our pay
television business faces competition from other pay television operators as
well as Internet companies, broadcast networks, print media and other forms of
entertainment.

Within the pay television industry, our channels compete

with programming
from AOL Time Warner, Viacom, Liberty Media, Disney, Globo and Televisa, among
others. We compete with their channels for carriage on cable and satellite
systems that have limited capacity. We also compete with these channels for
viewers and advertising dollars based upon quality of programming, number of
subscribers, ratings and subscriber demographics.

Our broadcast television and radio business in Chile

competes with
national and regional broadcasters for audience share and advertising revenues
primarily on the basis of program content that appeals to a particular target
demographic audience. Radio Chiles main competitors are the Garcia Reyes
Group, the Caracol Group and the Bezanilla Group, each of which have
established significant audience share. Chilevisión competes primarily with
six broadcast television networks, owned by the University of Valparaiso, the
Chilean Government, Cristalerias de Chile S.A., the Catholic Church, Compañia
Chilena de Comunicaciones S.A., and Angel Gonzalez, a broadcast television
entrepreneur.

Many companies provide websites and services targeted

to Spanish- and
Portuguese-speaking audiences. All of these companies compete with our websites
for user traffic and advertising dollars. Competition for users and
advertisers is intense and there are no substantial barriers to entry in this
market. We also compete with providers of content and services over the
Internet, including web directories, portals, search engines, content sites,
Internet service providers and sites maintained by government and educational
institutions.

C.    
 Organizational Structure

The following chart presents our current operational

structure. The chart
omits certain intermediate holding companies. For purposes of this chart,
names in italics are brand names.

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(ORGANIZATIONAL CHART)

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D.    
 Property, Plant and Equipment

Properties

A description of the location and use and of our principal

offices and
facilities is set forth below.

Pay Television Facilities

Our U.S. headquarters are located at 404 Washington

Avenue, Miami Beach,
Florida, in approximately 17,000 square feet, under a lease that expires in
December 2003. We have completed construction and installation of a modern
production and technical operations center in Miami owned and operated by The
Kitchen, Inc., one of our subsidiaries which provides network origination,
language dubbing and subtitling, video editing and graphic services. This
facility, which became operational in February 2001, occupies approximately
25,600 square feet of leased space. Upon the expiration of the lease for our
Miami Beach headquarters, we plan to move our headquarters to The Kitchen
offices, where we will integrate all of our Miami-based operations.

Our principal executive offices in Buenos Aires, Argentina

are located at
Av. Melian 2752/54 in a 60,000 square foot building that we own, containing
both administrative and production functions, including two television studios.
We also own two additional offices that are located at Av. Manuel Ugarte
3612/18 and Av. Melian 2760/62. We also lease approximately 8,000 square feet
of warehouse space in Buenos Aires and approximately 20,000 square feet of
office and production space with a street front television studio for our Much
Music channel.

In addition, we lease office space in Mexico, the

Bahamas, Brazil and
Spain to support sales efforts to cable and direct-to-home operators in certain
markets.

Broadcast Television and Radio Facilities

Radio Chiles principal offices are located in

Santiago, Chile, where we
own an office building containing approximately 1,600 square meters of office
space. Radio Chile owns additional office space of 400 square meters in
Santiago, Chile and either owns or leases a number of radio transmission towers
throughout Chile.

Chilevisión owns a property occupying

approximately 10,000 square meters
in Santiago where its headquarters, production studios and offices are located.
Chilevisión also owns 3 transmission towers and leases 25 other properties and
transmission towers throughout Chile under long-term leases.

Radio Sarandi leases office space of approximately 600

square meters in
Montevideo, Uruguay.

Internet Facilities

On June 4, 2002, El Sitios 1,600 square

meters of corporate offices were
relocated to our principal executive offices at Avenida Melian in Buenos Aires.

El Sitio also leased office space in Bogotá,

Caracas, Mexico City, Miami,
Montevideo, Santiago and Sao Paulo. As a result of our restructuring of
Internet operations, as of June 1, 2002, all offices have been closed or
subleased except for the office in Sao Paulo.




Item 5. Operating and Financial Review and Prospects

SPECIAL NOTE REGARDING

FORWARD-LOOKING STATEMENTS

This annual report contains forward-looking statements

that involve risks
and uncertainties. These forward-looking statements appear throughout this
annual report, including, without limitation, under Item 3. Key Information 
Risk Factors, Item 4. Information on the Company and Item 5. Operating and
Financial Review and Prospects. These forward-looking statements relate to,
among other things, our business model, strategy, plans and timing for the
introduction or enhancement of our services and products, proposed
dispositions, and other expectations, intentions and plans contained in this
annual report that are not historical fact.

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When used in this annual report, the words

expects, anticipates,
intends, plans, may, believes, seeks, estimates

and similar
expressions generally identify forward-looking statements. These statements
reflect our current expectations. They are subject to a number of risks and
uncertainties, including but not limited to, those set forth under Item 3.
Key Information  Risk Factors. In light of the many risks and
uncertainties surrounding our business, results of operations, financial
condition and prospects, you should understand that we cannot assure you that
the forward-looking statements contained in this annual report will be
realized.

The accompanying consolidated financial statements

have been prepared on a
going concern basis, which assumes continuity of operations and realization of
assets and satisfaction of liabilities in the ordinary course of business. See
Item 3.D. Key InformationRisk FactorsWe may not be able to continue as a
going concern and Note 1 of our consolidated financial statements.

Critical Accounting Policies

Our consolidated financial statements have been

prepared in accordance
with accounting principles generally accepted in the United States of America.
The preparation of financial statements in conformity with generally accepted
accounting principles requires estimates and assumptions that affect the
reported amounts of assets and liabilities, revenues and expenses, and related
disclosures of contingent assets and liabilities in the consolidated financial
statements. A summary of our significant accounting policies and judgments can
be found in Note 2 to our consolidated financial statements. The SEC has
defined a companys most critical accounting policies as those that are most
important to the portrayal of the companys financial condition and results of
operations that require managements most difficult, subjective or complex
judgments, often as a result of the need to make estimates of matters that are
inherently uncertain. These judgments and estimates often involve future
events. Although we believe our estimates and assumptions are reasonable, they
are based upon information available at the time of the valuations. Actual
results may differ significantly from estimates under different assumptions or
conditions. The following is a summary of critical accounting judgments and
estimates and is based on our accounting practices in effect during 2002.

Goodwill, Intangibles and Other Assets In accordance with SFAS No. 142,
we discontinued the amortization of goodwill effective January 1, 2002, and
measured fair value based on an evaluation of estimated future discounted cash
flows, market comparisons, recent comparable transactions or a combination
thereof. This evaluation considered several earnings scenarios and the
likelihood of possible outcomes, and utilized the best information available at
the time the valuation was performed. Separable intangible assets that have
finite useful lives, primarily consisting of broadcast and television licenses,
will continue to be amortized over their respective useful lives ranging from 5
to 30 years. The carrying value of intangible assets is periodically reviewed
by management and impairments, if any, are recognized when the expected future
undiscounted cash flows related to such intangible assets is less than their
carrying value.

Allowance for Doubtful Accounts Receivable We carry accounts receivable
at the amount we deem to be collectible. Accordingly, we provide allowances
for accounts receivable deemed to be uncollectible based on our managements
best estimates. As a result of the agreement with DirecTV Latin America
Holdings mentioned in Note 11 to our consolidated financial statements, we have
not provided any allowances for doubtful accounts receivable or written off any
account receivable from DirecTV Latin America. Recoveries are recognized in the
period they are received. The ultimate amount of accounts receivable that
become uncollectible could differ from the estimated amount.

Revenue Recognition We

entered into distribution agreements with cable
and direct-to-home distributors pursuant to which we receive monthly
subscriber-based fees. The subscriber-based fee is recognized as revenue as we
provide the television services to the distributor. Advertising revenue is
recognized at the time the advertisement is aired. Revenue from the licensing
of programming rights are recognized ratably over the license period when a
contractual obligation exists. Other revenue consists primarily of fees for
playback, library, satellite, dubbing, subtitling and back office services
which are recognized as the services are performed.

Recent Accounting Pronouncements

In April 2002, the FASB issued SFAS

No. 145, Rescission of SFAS No. 4,
44, and 64, Amendment of SFAS No. 13, and Technical Corrections. SFAS No. 145
rescinds SFAS No. 4, Reporting Gains and Losses from Extinguishment of Debt,
and an amendment of that Statement, and SFAS No. 64, Extinguishments of Debt
Made to Satisfy Sinking-Fund Requirements. SFAS No. 145 also rescinds SFAS No.
44, Accounting for Leases, to
eliminate an inconsistency between the required accounting for
sale-leaseback transactions and the required accounting for certain lease
modifications that have economic effects that are similar to sale-leaseback
transactions.

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SFAS No. 145 also amends other existing authoritative
pronouncements to make various technical corrections, clarify meanings, or
describe their applicability under changed conditions. Adoption on SFAS 145
precluded the gain on the exchange offer from being reflected as an
extraordinary item.

In June 2002, the FASB issued SFAS

No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. SFAS 146 requires companies to
recognize the costs associated with exit or disposal activities when they are
incurred. Currently these types of costs are recognized at the time management
commits the company to the exit/disposal plan in accordance with EITF Issue No.
94-3, Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring). SFAS 146 is effective for exit or disposal activities that are
initiated subsequent to December 31, 2002. We do not expect that the
application of the provisions of SFAS 146 will have a material impact on our
consolidated financial statements.

In November 2002, the EITF reached a consensus

on EITF No. 00-21, Revenue
Arrangements with Multiple Deliverables. EITF 00-21 provides guidance on how
to account for arrangements that involve the deliver or performance of multiple
products, services and/or rights to use assets. The provisions of EITF 00-21
will apply to revenue arrangements entered into in fiscal periods beginning
after June 15, 2003. We do not believe EITF 00-21 provisions will have a
material effect on our consolidated financial statements.

In November 2002, the FASB issued FASB

Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others. FIN 45 requires that a liability be
recorded in the guarantors balance sheet upon issuance of a guarantee. In
addition, FIN 45 requires disclosures about the guarantees that an entity has
issued, including a reconciliation of changes in the entitys product warranty
liabilities. The initial recognition and initial measurement provisions of FIN
45 are applicable on a prospective basis to guarantees issued or modified after
December 31, 2002, irrespective of the guarantors fiscal year-end. The
disclosure requirements of FIN 45 are effective for financial statements of
interim or annual periods ending after December 15, 2002. We do not believe
FIN 45 will have a material effect on our consolidated financial statements.

In December 2002, the FASB issued SFAS

No. 148, Accounting for Stock
Based Compensation-Transition and Disclosure. SFAS No. 148 amends SFAS No.
123, Accounting for Stock Based Compensation to provide alternative methods
of transition for a voluntary change from the intrinsic-value-based method of
recognizing stock compensation expense under APB Opinion No. 25, Accounting
for Stock Issued to Employees, to the SFAS No. 123 fair-value-based method of
accounting for stock-based employee compensation. Under the fair value method,
the fair value of the stock options granted to employees is recognized as
compensation expense over the service period (usually the vesting period).
Under the intrinsic value method, compensation expense is recognized for
options that are -in-the-money, thereby having intrinsic value, at the date of
grant. The transition guidance and annual disclosure provisions of SFAS 148 are
effective for fiscal years ended after December 15, 2002. The adoption of the
disclosure provisions of SFAS 148 did not have a material effect on our
consolidated financial statements.

In January 2003, the FASB issued FASB

Interpretation No. 46,
Consolidation of Variable Interest Entitiesan Interpretation of ARB No. 51.
FIN 46 addresses consolidation by business enterprises of variable interest
entities (formerly special purpose entities or SPEs). In general, a variable
interest entity is a corporation, partnership, trust, or any other legal
structure used for business purposes that either (a) does not have equity
investors with voting rights or (b) has equity investors that do not provide
sufficient financial resources for the entity to support its activities. The
objective of FIN 46 is not to restrict the use of variable interest entities
but to improve financial reporting by companies involved with variable interest
entities. FIN 46 requires a variable interest entity to be consolidated by a
company if that company is subject to a majority of the risk of loss from the
variable interest entitys activities or entitled to receive a majority of the
entitys residual returns or both. We are required to adopt the provisions of
FIN 46 immediately for variable interests in variable interest entities created
after January 31, 2003, and in the quarter ending September 30, 2003 for
variable interests in variable interest entities created before February 1,
2003. However, certain of the disclosure requirements apply to financial
statements issued after January 31, 2003, regardless of when the variable
interest entity was established. We do not have any variable interest entities
as defined in FIN 46. Accordingly, we have determined that it is not reasonably
likely that we will be required to consolidate or disclose information about a
variable interest entity upon the adoption of FIN 46.

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Contractual Obligations and Commercial Commitments

During the first quarter of year 2003,

U.S.$2.3 million of unexchanged
principal amount of Imagen Satelital 11% Senior Notes due 2005 were exchanged
for new Imagen Satelital 6.25% Senior Notes due 2013. After adjusting for
these changes, the following table illustrates our contractual obligations and
commercial commitments as of December 31, 2002:

Less than
    
    13
    
    45
    
    More than1 Year
    
    Years
    
    Years
    
    5 Years11% Senior Notes due 2005
    
    $
    3,217
    
    
    $
    
    
    
    $
    
    
    
    $
    8.75% Senior Notes due 2010 (excluding

interest)
    
    
    
    
    
    
    
    
    
    
    8,265
    
    
    
    33,0606.25% Senior Notes due 2013
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,300Syndicated bank facilities (excluding

interest)
    
    
    5,023
    
    
    
    10,044
    
    
    
    2,511
    
    
    
    Other (excluding interest)
    
    
    1,602
    
    
    
    2,523
    
    
    
    1,562
    
    
    
    Operating leases
    
    
    5,544
    
    
    
    8,508
    
    
    
    6,956
    
    
    
    2,892


Introduction to Operating Results

We have presented certain historical financial information

of ours,
including certain historical information of our predecessor, Ibero-American
Media Partners.

Net Revenues

We derive our revenues from subscriber-based fees

charged to pay
television system operators that distribute our branded television channels,
from advertising on our pay television channels and broadcast media assets and
from advertising on our network of websites. We also generate revenues through
production services, sales commissions, management fees and other services
provided to the unconsolidated joint ventures as well as from third parties.

Subscriber-Based Fees

To date, we have derived a majority of our revenues from

subscriber-based
fees we charge to pay television system operators that distribute our branded
television channels. We charge pay television system operators either a flat or
per-subscriber fee for the right to broadcast our branded television channels
through their cable or direct-to-home distribution systems. Pricing for basic
channels typically involves either a monthly lump sum payment per channel or
package of channels or a fixed price per subscriber. For premium and
pay-per-view channels, we receive a percentage of the revenues generated from
the subscribers to these channels.

We typically enter into long-term distribution agreements

with pay
television system operators with an average term of approximately three years.
We recognize revenues on long-term agreements on a monthly basis as the branded
television channels are provided to the pay television system operators.
Revenues from exclusivity arrangements are recognized ratably over the term of
the related agreement. Payment for exclusivity received in advance are
recorded as unearned revenues.

We also derive subscriber-based fees in the form of sales

commissions that
we charge to the channels that we represent for acting as their sales agents.

Advertising Revenues

We derive revenues from the sale of advertising on our

pay television
channels, our broadcast media assets and our websites. Our multiple sales
offices enable us to solicit local, pan-regional and global advertising
accounts from advertisers and agencies directly. We derive advertising revenues
principally from:



| |  |  | advertising arrangements under which we receive fees for
advertising spots placed on our pay television channels and
broadcast stations for specified periods of time;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | sponsorship arrangements that allow advertisers to sponsor a
program on one or more of our pay television channels, broadcast
stations or networks in exchange for fixed payments;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |  |  | advertising arrangements under which we receive fixed fees
for banners placed on our websites for specified periods of time;
and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------



| |  |  | reciprocal services arrangements, under which we exchange
advertising space on our media assets for advertising or services
from other parties.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------

We generally recognize advertising revenues as

advertising spots are
aired. In the case of certain advertising spots placed on our broadcast
television channel and radio stations, we guarantee minimum viewership ratings
to the advertiser. In those cases, we do not recognize the corresponding
revenues until we achieve the guaranteed ratings. Payments received before an
advertisement spot is displayed are recorded as unearned revenues. Revenues
from sponsorship arrangements are recognized ratably. The terms of our
contracts with advertisers and advertising agencies range from one to twelve
months.

With respect to Internet advertising, we recognize

advertising revenues
ratably in the period in which the advertisement is displayed, so long as no
significant obligations remain and collection of the resulting receivable is
probable. When minimum impression levels are guaranteed, we do not recognize
the corresponding revenues until we achieve guaranteed levels.

Production Services

In 2001, we expanded our services through the creation of

The Kitchen,
Inc. to include playback program origination, dubbing, subtitling and
post-production services to our joint ventures as well as to third parties. We
recognize production services revenues as work is performed.

Other Revenues

We also derive revenues from management fees and

other services provided
to pay television channels and other businesses that we partially own or are
affiliated with, as well as from third parties. These services include
technical, satellite space, back office support and other services. We also
derive revenues from the licensing of programming rights to third parties.
Revenue from the licensing of programming rights is recognized when the license
period begins and a contractual obligation exists.

Operating Expenses

Our operating expenses consist of:



| |  |  | product, content and technology;
| | - |  | --------------------------------



| |  |  | marketing and sales;
| | - |  | --------------------



| |  |  | corporate and administration;
| | - |  | -----------------------------



| |  |  | depreciation and amortization; and
| | - |  | ----------------------------------



| |  |  | merger, restructuring and severance expenses.
| | - |  | ---------------------------------------------

Product, Content and Technology Expenses.Product, content and technology
expenses consist primarily of the amortization of rights to broadcast acquired
or licensed television content and related rights, the cost of satellite space
used in delivering our pay television channels, and personnel and related costs
associated with programming, purchase and production of content,
post-production, dubbing, playback, and the up-link of our pay television
channels or transmission of our broadcast television and radio stations. The
cost of broadcast and license rights is amortized over the term of licenses and
based on the anticipated usage of the program.

Product, content and technology expenses also consist

of personnel costs
associated with development, testing and upgrading of our network of websites
and systems, purchases of content and specific technology, particularly
software, and telecommunications links and access charges. Except for hardware
(which is depreciated), we expense product, content and technology expenses and
telecommunications infrastructure costs as they are incurred.

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Marketing and Sales Expenses.Our

marketing and sales expenses consist
primarily of salaries and expenses of marketing and sales personnel,
commissions, withholding taxes and other marketing-related expenses, including
expenses related to our branding and advertising activities and to the
provision for uncollectible accounts receivable.

Corporate and Administration Expenses.Corporate and administration
expenses consist primarily of costs related to corporate personnel, occupancy
costs, general operating costs and professional fees, such as accounting, legal
and consulting fees. Corporate and administration expenses also include
monitoring fees paid to our principal shareholders, as well as fee and expenses
related to our Board of Directors.

Depreciation and Amortization.Depreciation and amortization expenses
consist primarily of depreciation and amortization of production,
post-production and other equipment, servers and other computer equipment,
buildings, office furniture and leasehold improvements. Investments in
property and equipment, other than leasehold improvements, are depreciated
using the straight-line method over the estimated useful lives of the
respective assets. Leasehold improvements are amortized over the lesser of the
term of the lease or the useful life of the improvement. Property and
equipment is being depreciated and amortized, as the case may be as follows:



| |  |  | buildings 20  50 years;
| | - |  | ------------------------



| |  |  | computers, software and other equipment 3  10 years;
| | - |  | -----------------------------------------------------



| |  |  | leasehold improvements 5  7 years; and
| | - |  | ---------------------------------------



| |  |  | furniture, fixtures and other fixed assets 5-10 years.
| | - |  | ------------------------------------------------------

We have historically incurred significant amortization

expense as a result
of goodwill. Additionally, we incur amortization expense related to the
amortization of broadcast television and radio licenses. The implementation of
SFAS 142 on January 1, 2002 has reduced total depreciation and amortization as
a result of the cessation of amortization of goodwill.

Merger, Restructuring and Severance

Expenses.Merger, restructuring and
severance expenses consist primarily of severance cost related to the
rationalization of the different business units and the corporate and
administration areas of Claxson as a result of the merger transaction during
the year 2000 and 2001.

Other Income (Expense).Other

income (expense) consists primarily of
interest expense, net of interest earned, on Imagens U.S.$80 million 11%
Senior Notes due 2005, and the outstanding Radio Chile syndicated bank
facilities, as well as other miscellaneous income and expense items. Other
income (expense) also includes the foreign exchange income (loss) resulting
from the effect of changes in the Argentine peso and Chilean peso exchange
rates per U.S. dollar on our Argentine- and Chilean-based assets and
liabilities denominated in U.S. dollars.

Share of Loss from Unconsolidated

Affiliates.Share of loss from
unconsolidated affiliates represents our proportionate share of the net income
or loss of Playboy TV Latin America, LLC, The Locomotion Channel, and certain
other companies in which we have investments. In addition, as of the merger
transaction, it represents our share of the net income or loss of Playboy TV
International and DMX Music Latin America. Share of loss from unconsolidated
affiliates also includes gains or losses resulting from the divestiture of
certain of these investments.

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Year Ended December 31, 2002 Compared to Year Ended December 31, 2001

The following table sets forth, for the periods indicated, selected
financial information for our pay television, broadcast television and radio
and Internet and broadband businesses, and our corporate department. The
results of operations for the Internet and broadband business correspond to the
period after the merger transaction, commencing on September 22, 2001 and
ending December 31, 2001. The results of operations of pay television in the
following chart are affected by a 68% devaluation of the Argentine Peso in
2002, and a 9% devaluation of the Chilean Peso in 2002, against the U.S.
dollar.

|                        |                                     |   |                         |        |            |   |           |        |           |   |        |       |            |   |           |       |           |   |                                |         |              |   |           |        |  |   |        |        |  |   |        |       |   |   |        |        |   |   |        |        | 
|----------------------- | ----------------------------------- | - | ----------------------- | ------ | ---------- | - | --------- | ------ | --------- | - | ------ | ----- | ---------- | - | --------- | ----- | --------- | - | ------------------------------ | ------- | ------------ | - | --------- | ------ |  | - | ------ | ------ |  | - | ------ | ----- | - | - | ------ | ------ | - | - | ------ | ------ | 
|                        |                                     |   | Year Ended December 31,
|                        |                                     |   |                        
|                        |                                     |   | 2001                    |        | 2002      
|                        |                                     |   |                         |        |           
|                        |                                     |   |                         |        |            |   | Broadcast |        | Internet  |   |        |       |            |   |           |       |           |   |                                |         |              |   | Broadcast |        |  |   |        |        |  |   |        |       |   |   |       
|                        |                                     |   | Pay                     |        | Television |   | and       |        |           |   |        |       |            |   |           |       | Pay       |   | Television                     |         | Internet and |   |           |        |  |   |        |        | 
|                        |                                     |   | Television              |        | and Radio  |   | Broadband |        | Corporate |   | Total  |       | Television |   | and Radio |       | Broadband |   | Corporate                      |         | Total       
|                        |                                     |   |                         |        |            |   |           |        |           |   |        |       |            |   |           |       |           |   |                                |         |             
|                        |                                     |   |                         |        |            |   |           |        |           |   |        |       |            |   |           |       |           |   | (in thousands of U.S. dollars) |         |              |   |           |        |  |   |        |        |  |   |       
|Net revenues:           |                                     |   |                         |        |            |   |           |        |           |   |        |       |            |   |           |       |           |   |                                |         |              |   |           |        |  |   |        |        |  |   |        |       |   |   |        |        |   |   |        |       
|                        | Subscriber-based fees               |   | $                       | 60,173 |            |   | $         |       |           |   | $      | 20    |            |   | $         |      |           |   | $                              | 60,193  |              |   | $         | 31,493 |  |   | $      |       |  |   | $      | 73    |   |   | $      |       |   |   | $      | 31,566 | 
|                        | Advertising                         |   |                         | 8,264  |            |   |           | 28,289 |           |   |        | 731   |            |   |           |      |           |   |                                | 37,284  |              |   |           | 2,260  |  |   |        | 28,166 |  |   |        | 121   |   |   |        |       |   |   |        | 30,547 | 
|                        | Production services                 |   |                         | 2,516  |            |   |           |       |           |   |        |      |            |   |           |      |           |   |                                | 2,516   |              |   |           | 7,081  |  |   |        |       |  |   |        |      |   |   |        |       |   |   |        | 7,081  | 
|                        | Other                               |   |                         | 6,444  |            |   |           |       |           |   |        |      |            |   |           |      |           |   |                                | 6,444   |              |   |           | 5,358  |  |   |        | 412    |  |   |        | (4    | ) |   |        |       |   |   |        | 5,766  | 
|                        |                                     |   |                         |        |            |   |           |        |           |   |        |       |            |   |           |       |           |   |                                |         |              |   |           |        |  |   |        |        |  |   |        |       |   |   |        |        |   |   |        |        | 
|                        | Total net revenues                  |   |                         | 77,397 |            |   |           | 28,289 |           |   |        | 751   |            |   |           |      |           |   |                                | 106,437 |              |   |           | 46,192 |  |   |        | 28,578 |  |   |        | 190   |   |   |        |       |   |   |        | 74,960 | 
|Operating expenses:     |                                     |   |                         |        |            |   |           |        |           |   |        |       |            |   |           |       |           |   |                                |         |              |   |           |        |  |   |        |        |  |   |        |       |   |   |        |        |   |   |        |       
|                        | Product, content
and technology     |   |                         | 27,692 |            |   |           | 13,304 |           |   |        | 1,836 |            |   |           |      |           |   |                                | 42,832  |              |   |           | 16,142 |  |   |        | 16,722 |  |   |        | 1,846 |   |   |        |       |   |   |        | 34,710 | 
|                        | Marketing and sales                 |   |                         | 15,731 |            |   |           | 5,036  |           |   |        | 987   |            |   |           |      |           |   |                                | 21,754  |              |   |           | 7,434  |  |   |        | 4,655  |  |   |        | 1,001 |   |   |        |       |   |   |        | 13,090 | 
|                        | Corporate and
administration        |   |                         | 13,178 |            |   |           | 4,281  |           |   |        | 1,697 |            |   |           | 4,915 |           |   |                                | 24,071  |              |   |           | 8,016  |  |   |        | 3,582  |  |   |        | 1,554 |   |   |        | 4,012  |   |   |        | 17,164 | 
|                        | Depreciation and
amortization       |   |                         | 20,548 |            |   |           | 6,135  |           |   |        | 588   |            |   |           |      |           |   |                                | 27,271  |              |   |           | 5,297  |  |   |        | 4,771  |  |   |        | 3,473 |   |   |        | (1,237 | ) |   |        | 12,304 | 
|                        | Merger,
restructuring and
severance |   |                         | 3,552  |            |   |           | 866    |           |   |        | 450   |            |   |           |      |           |   |                                | 4,868   |              |   |           |       |  |   |        |       |  |   |        |      |   |   |        |       |   |   |        |       | 
|                        |                                     |   |                         |        |            |   |           |        |           |   |        |       |            |   |           |       |           |   |                                |         |              |   |           |        |  |   |        |        |  |   |        |       |   |   |        |        |   |   |        |        | 
|Operating income (loss) |                                     | $ | (3,304                  | )      |            | $ | (1,333    | )      |           | $ | (4,807 | )     |            | $ | (4,915    | )     |           | $ | (14,359                        | )       |              | $ | 9,303     |        |  | $ | (1,152 | )      |  | $ | (7,684 | )     |   | $ | (2,775 | )      |   | $ | (2,308 | )     
|                        |                                     |   |                         |        |            |   |           |        |           |   |        |       |            |   |           |       |           |   |                                |         |              |   |           |        |  |   |        |        |  |   |        |       |   |   |        |        |   |   |        |        | 

Net Revenues

Net revenues decreased U.S.$31.5 million, or 30%, to U.S.$75.0 million in
2002 from U.S.$106.4 million in 2001. This decrease was primarily due to the
decrease in pay television revenues of U.S.$31.2 million, or 40%, to U.S.$46.2
million in 2002 from U.S.$77.4 million in 2001. Approximately 42% of net
revenues in 2002 was comprised of subscriber-based revenues compared to 57% in
2001.

Subscriber-Based Fees

Subscriber-based fees decreased U.S.$28.6 million, or 48%, to U.S.$31.6
million in 2002 from U.S.$60.2 million in 2001.

Pay television subscriber-based fees decreased U.S.$28.7 million, or 48%,
to U.S.$31.5 million in 2002 from U.S.$60.2 million in 2001. This decrease was
due primarily to the impact of the devaluation of the Argentine Peso during
2002 of approximately U.S.$27.4 million, and a decrease in demand for
pay-per-view and premium services in the region. The average monthly fee per
subscriber decreased to U.S.$0.055 per subscriber in 2002 from U.S.$0.106 per
subscriber in 2001. The decrease in the average monthly fee per subscriber
resulted primarily from the effects of the devaluation of the Argentine Peso.

For 2001 and 2002, 67% and 44%, respectively, of pay television
subscriber-based revenues were earned in Argentina. The decrease is a result
of the impact of the devaluation of the Argentine Peso compared to the U.S.
dollar.

Advertising

Advertising revenues decreased U.S.$6.7 million, or 18%, to U.S.$30.5
million in 2002 from U.S.$37.3 million in 2001. Approximately 89% and 75% of
advertising revenues were earned in Chile in 2002 and 2001, respectively.

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Pay television advertising revenues decreased U.S.$6.0 million, or 73%, to
U.S.$2.3 million in 2002, from U.S.$8.3 million in 2001. This decrease resulted
from the effect of the devaluation of the Argentine Peso compared to the U.S.
dollar, as well as a reduction in the Peso advertising spending as a result of
the economic crisis, uncertainty and recession in Argentina during the year
2002, which represents our primary market of pay television advertising.

Broadcast television and radio advertising revenues decreased U.S.$0.1
million, or 1%, to U.S.$28.2 million in 2002, from U.S.$28.3 million in 2001.
The decrease is primarily due to a decrease in Radio Chiles revenues of $1.5
million as a result of a 9% decrease in the advertising spending in radio in
Chile, partially offset by an increase of U.S.$ 0.9 million in television
advertising as a result of the increase in television advertising as a
percentage of total advertising and U.S.$0.6 million from the new operations of
Sarandi.

The decrease in Internet and Broadband advertising revenues of U.S.$0.6
million was attributable to the reduction of the Internet and broadband
operations and the general downturn of internet advertising.

Production Services

Production services revenues increased U.S.$4.6 million to U.S.$7.1
million in 2002, from U.S.$2.5 million in 2001. The increase is principally
attributable to the first full year of operations of The Kitchen, Inc during
2002, compared to a start-up year in 2001.

Other Revenues

Other revenues decreased U.S.$0.7 million, or 11%, to U.S.$5.8 million in
2002, from U.S.$6.4 million in 2001. The decrease is principally attributable
to reduced services provided to The Locomotion Channel.

Operating Expenses

Product, Content and Technology Expenses

Product, content and technology expenses decreased U.S.$8.1 million, or
19%, to U.S.$34.7 million in 2002 from U.S.$42.8 million in 2001. Product,
content and technology expenses as a percentage of revenues increased to 46% in
2002 from 40% in 2001.

Product, content and technology expenses for pay television decreased
U.S.$11.6 million, or 42%, to U.S.$16.1 million in 2002 from U.S.$27.7 million
in 2001. Product, content and technology expenses for pay television as a
percentage of pay television revenues decreased from 36% in 2001 to 35% in
2002. The decrease in these expenses is primarily due to approximately
U.S.$7.1 million effect of the devaluation of the Argentine Peso, and U.S.$4.4
million in reduced amortization of programming as a result of the renegotiation
with programmers, and a reduction in new purchases.

Product, content and technology expenses for broadcast television and
radio increased U.S.$3.4 million, or 20%, to U.S.$16.7 million in 2002, from
U.S.$13.3 million in 2001. Product, content and technology expenses for
broadcast television and radio increased as a percentage of broadcast
television and radio revenues from 47% in 2001 to 59% in 2002. The increase is
primarily attributable to a U.S.$0.7 million increase in the amortization of
programming and U.S.$1.3 million increased expenses related to increased
production, and U.S.$0.4 million from the addition of the operations of Radio
Sarandi in Uruguay.

Product, content and technology expenses for Internet and broadband
represented U.S.$1.8 million for 2002, which reflects the reduction of expenses
in the Internet and broadband division from 2001 expense of U.S.$1.8 million
for the period from September 22, 2001 to December 31, 2001.

Marketing and Sales Expenses

Marketing and sales expenses decreased U.S.$8.7 million, or 40%, to
U.S.$13.1 million in 2002 from U.S.$21.8 million in 2001. Marketing and sales
expenses as a percentage of net revenues decreased to 17% in 2002, from 20% in
2001.

Pay television marketing and sales expenses decreased U.S.$8.3 million, or
53%, to U.S.$7.4 million in 2002, from U.S.$15.7 million in 2001. Marketing and
sales expenses for pay television as a percentage of pay

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television revenues decreased from 20% in 2001 to 16% in 2002. The
overall decrease was primarily due to approximately U.S.$7.2 million effect of
the devaluation of the Argentine Peso, and the reduction in marketing
expenditures as a result of the lower sales volume and the general need of the
company to conserve its cash resources.

Marketing and sales expenses for broadcast television and radio decreased
U.S.$0.4 million, or 8%, to U.S.$4.7 million in 2002, from U.S.$5.1 million in
2001. Marketing and sales expenses for broadcast television and radio as a
percentage of broadcast television and radio revenues decreased to 16% in 2002
compared to 18% in 2001. The decrease is attributable to the effect of the
devaluation of the Chilean Peso, partially offset by a U.S.$0.6 million
increase as a result of the incorporation of the operations of Radio Sarandi.

Marketing and sales expenses for Internet and broadband represented
U.S.$1.0 million, for 2002, which reflect the reduction of expenses in the
Internet and broadband division from 2001 expense of U.S.$1.0 million for the
period from September 22, 2001 to year end 2001.

Corporate and Administration Expenses

Corporate and administration expenses decreased U.S.$6.9 million, or 29%,
to U.S.$17.1 million in 2002 from U.S.$24.1 million in 2001. Corporate and
administration expenses as a percentage of net revenues remained unchanged at
23%.

Corporate and administrative expense for pay television decreased U.S.$5.2
million, or 39%, to U.S.$8.0 million in 2002 from U.S.$13.2 million in 2001.
Corporate and administration expenses for pay television as a percentage of pay
television revenues remained unchanged at 17%. The year-to-year decrease in
corporate and administration expenses for pay television was primarily
attributable to approximately U.S.$3.5 million as a result of the devaluation
of the Argentine Peso, and the continued efforts of management in reducing
administration expenses.

Corporate and administrative expenses for broadcast television and radio
decreased U.S.$0.7 million, or 16%, to U.S.$3.6 million in 2002 from U.S.$4.3
million in 2001. Corporate and administration expenses for broadcast
television and radio as a percentage of broadcast television and radio net
revenues decreased to 13% in 2002 from 15% in 2001. The decrease is primarily
attributable to the consolidation of the administrative and corporate
departments of our radio and television operations and elimination of
duplicative costs, partially offset by the incorporation of the operations of
Radio Sarandi.

Corporate and administrative expenses for Internet and broadband decreased
U.S.$0.1 million, or 8%, to U.S.$1.6 million in 2002 from U.S.$1.7 million in
2001. The year-to-year decrease in corporate and administration expenses for
Internet and broadband was primarily attributable to the restructuring of the
Internet and broadband divisions.

Finally, expenses at the corporate department of Claxson decreased
U.S.$0.9 million to U.S.$4.0 million in 2002 from U.S.$4.9 million in 2001. The
decrease is primarily attributable to the full year effect of the corporate
expenses in 2002, offset by a decrease of U.S.$3.8 million due to the exercise
of certain options as a result of the merger transaction in 2001.

Depreciation and Amortization

Depreciation and amortization expenses decreased U.S.$15.0 million, or
55%, to U.S.$12.3 million in 2002 from U.S.$27.3 million in 2001. Depreciation
and amortization expenses as a percentage of net revenues decreased to 16% in
2002 from 26% in 2001. This decrease is due to a decrease of U.S.$8.9 million
as a result of the elimination of the amortization of goodwill pursuant to FASB
142, as well as U.S.$8.5 million due to the devaluation of the Argentine Peso
on our Argentine assets, partially offset by increased depreciation expenses as
a result of the combination transaction with El Sitio.

Other Income (Expense)

Other income (expense), excluding share of loss from unconsolidated
affiliates, which principally consists of interest expense, interest income,
gain on debt restructuring, other miscellaneous income (expenses) and foreign
currency exchange loss, consisted of net expenses of U.S.$54.8 million in 2002
compared with net expenses of

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U.S.$47.4 million in 2001. This increase in other expenses resulted
primarily from a foreign currency exchange loss of U.S.$61.3 million in 2002
compared to U.S.$29.6 million in 2001, due primarily to foreign exchange loss
on certain U.S. dollar-denominated debt held by our Argentine subsidiary as a
result of the Argentine currency devaluation, partially offset by a U.S.$15.3
million gain on debt restructuring during 2002 as a result of the exchange
offer and consent solicitation, and U.S.$3.7 million in other income primarily
as a result of a U.S.$3.4 million credit for certain tax credits related to the
acquisition of assets in Argentina.

Share of Loss from Unconsolidated Affiliates

Share of loss from unconsolidated affiliates represents our proportionate
share of the net income or loss of Playboy TV International, Playboy TV Latin
America, The Locomotion Channel, DMX MUSIC Latin America and other companies in
which we had investments during 2002. Share of loss from unconsolidated
affiliates decreased U.S.$12.4 million to U.S.$6.7 million in 2002 from
U.S.$19.1 million in 2001. The decrease is due primarily due to (a) the
renegotiation with Playboy Enterprises, Inc which resulted in a net loss of
U.S.$9.3 million in 2002, compared to our share of the net loss of Playboy TV
International and Playboy TV Latin America in 2001 of $16.4 million, and (b)
the sale of our share of The Locomotion Channel which generated a net gain of
U.S.$1.6 million in 2002 compared to a net loss of U.S.$2.5 million in the year
2001.

Year Ended December 31, 2001 Compared to Year Ended December 31, 2000

The following table sets forth, for the periods indicated, selected
financial information for our pay television and broadcast television and radio
businesses. The results of operations for the Internet and broadband business
correspond to the period after the merger transaction, commencing on September
22, 2001 and ending December 31, 2001.

|                        |                                     |   |                         |        |            |   |           |        |            |   |           |         |            |                                |           |        |           |   |          |        |  |   |        |       |  |   |        |       |  |   |         |         | 
|----------------------- | ----------------------------------- | - | ----------------------- | ------ | ---------- | - | --------- | ------ | ---------- | - | --------- | ------- | ---------- | ------------------------------ | --------- | ------ | --------- | - | -------- | ------ |  | - | ------ | ----- |  | - | ------ | ----- |  | - | ------- | ------- | 
|                        |                                     |   | Year Ended December 31,
|                        |                                     |   |                        
|                        |                                     |   | 2000                    |        | 2001      
|                        |                                     |   |                         |        |           
|                        |                                     |   |                         |        |            |   | Broadcast |        |            |   |           |         |            |                                |           |        | Broadcast |   | Internet |        |  |   |        |       |  |   |       
|                        |                                     |   | Pay                     |        | Television |   |           |        |            |   | Pay       |         | Television |                                | and       |        |           |   |          |        |  |   |       
|                        |                                     |   | Television              |        | and Radio  |   | Total     |        | Television |   | and Radio |         | Broadband  |                                | Corporate |        | Total    
|                        |                                     |   |                         |        |            |   |           |        |            |   |           |         |            |                                |           |        |          
|                        |                                     |   |                         |        |            |   |           |        |            |   |           |         |            | (in thousands of U.S. dollars) |           |        |           |   |          |        |  |  
|Net revenues            |                                     |   |                         |        |            |   |           |        |            |   |           |         |            |                                |           |        |           |   |          |        |  |   |        |       |  |   |        |       |  |   |         |        
|                        | Subscriber-based fees               |   | $                       | 58,096 |            |   | $         |       |            |   | $         | 58,096  |            |                                | $         | 60,173 |           |   | $        |       |  |   | $      | 20    |  |   | $      |      |  |   | $       | 60,193  | 
|                        | Advertising                         |   |                         | 9,464  |            |   |           | 34,433 |            |   |           | 43,897  |            |                                |           | 8,264  |           |   |          | 28,289 |  |   |        | 731   |  |   |        |      |  |   |         | 37,284  | 
|                        | Production services                 |   |                         |       |            |   |           |       |            |   |           |        |            |                                |           | 2,516  |           |   |          |       |  |   |        |      |  |   |        |      |  |   |         | 2,516   | 
|                        | Other                               |   |                         | 5,393  |            |   |           |       |            |   |           | 5,393   |            |                                |           | 6,444  |           |   |          |       |  |   |        |      |  |   |        |      |  |   |         | 6,444   | 
|                        |                                     |   |                         |        |            |   |           |        |            |   |           |         |            |                                |           |        |           |   |          |        |  |   |        |       |  |   |        |       |  |   |         |         | 
|                        | Total net revenues                  |   |                         | 72,953 |            |   |           | 34,433 |            |   |           | 107,386 |            |                                |           | 77,397 |           |   |          | 28,289 |  |   |        | 751   |  |   |        |      |  |   |         | 106,437 | 
|Operating expenses:     |                                     |   |                         |        |            |   |           |        |            |   |           |         |            |                                |           |        |           |   |          |        |  |   |        |       |  |   |        |       |  |   |         |        
|                        | Product, content and
technology     |   |                         | 27,705 |            |   |           | 15,527 |            |   |           | 43,232  |            |                                |           | 27,692 |           |   |          | 13,304 |  |   |        | 1,836 |  |   |        |      |  |   |         | 42,832  | 
|                        | Marketing and sales                 |   |                         | 15,260 |            |   |           | 3,729  |            |   |           | 18,989  |            |                                |           | 15,731 |           |   |          | 5,036  |  |   |        | 987   |  |   |        |      |  |   |         | 21,754  | 
|                        | Corporate and administration        |   |                         | 17,154 |            |   |           | 6,222  |            |   |           | 23,376  |            |                                |           | 13,178 |           |   |          | 4,281  |  |   |        | 1,697 |  |   |        | 4,915 |  |   |         | 24,071  | 
|                        | Depreciation and
amortization       |   |                         | 15,088 |            |   |           | 6,539  |            |   |           | 21,627  |            |                                |           | 20,548 |           |   |          | 6,135  |  |   |        | 588   |  |   |        |      |  |   |         | 27,271  | 
|                        | Merger, restructuring and
severance |   |                         | 1,000  |            |   |           |       |            |   |           | 1,000   |            |                                |           | 3,552  |           |   |          | 866    |  |   |        | 450   |  |   |        |      |  |   |         | 4,868   | 
|                        |                                     |   |                         |        |            |   |           |        |            |   |           |         |            |                                |           |        |           |   |          |        |  |   |        |       |  |   |        |       |  |   |         |         | 
|Operating income (loss) |                                     | $ | (3,254                  | )      |            | $ | 2,416     |        |            | $ | (838      | )       |            | $                              | (3,304    | )      |           | $ | (1,333   | )      |  | $ | (4,807 | )     |  | $ | (4,915 | )     |  | $ | (14,359 | )      
|                        |                                     |   |                         |        |            |   |           |        |            |   |           |         |            |                                |           |        |           |   |          |        |  |   |        |       |  |   |        |       |  |   |         |         | 

Net Revenues

Net revenues decreased U.S.$1.0 million, or 1%, to U.S.$106.4 million in
2001 from U.S.$107.4 million in 2000. This decrease was primarily attributable
to a decrease in broadcast television and radio revenues of U.S.$6.1 million or
18%, to U.S.$28.3 million in 2001 compared to U.S.$34.4 million in 2000,
partially offset by an increase in pay television revenues of U.S.$4.4 million,
or 6%, to U.S.$77.4 million in 2001 from U.S.$73.0 million in 2000.
Approximately 57% of net revenues in 2001 was comprised of subscriber-based
revenues compared to 54% in 2000. For 2000 and 2001, 47% and 46% of net
revenues were earned in Argentina.

Subscriber-Based Fees

Subscriber based fees increased U.S.$2.1 million, or 4%, to U.S.$60.2
million in 2001 from U.S.$58.1 million in 2000.

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Pay television subscriber-based fees increased U.S.$2.1 million, or 4%, to
U.S.$60.2 million in 2001 from U.S.$58.1 million in 2000. This increase was
due primarily to a U.S.$6.1 million increase in subscriber-based fees resulting
from launches of channels in new markets and expanded distribution in existing
markets, partially offset by a U.S.$4.0 million decrease in the average monthly
fee per subscriber. The average monthly fee per subscriber decreased to
U.S.$0.106 per subscriber in 2001 from U.S.$0.113 per subscriber in 2000. The
decrease in the average monthly fee per subscriber resulted primarily from new
sales with lower fees per subscriber, and from a shift in the sales mix to
channels with lower fees per subscriber.

For 2000 and 2001, 72% and 67% of pay television subscriber-based revenues
were earned in Argentina. The decrease is a result of the continued efforts to
geographically diversify our revenue sources.

Advertising

Advertising revenues decreased U.S.$6.6 million, or 15%, to U.S.$37.3
million in 2001 from U.S.$43.9 million in 2000.

Pay television advertising revenues decreased U.S.$1.2 million, or 13%, to
U.S.$8.3 million in 2001, from U.S.$9.5 million in 2000. This decrease resulted
from a decrease in advertising in the fourth quarter due to the economic
recession in Argentina, which represents our primary market for pay television
advertising.

Broadcast television and radio advertising revenues decreased U.S.$6.1
million, or 18%, to U.S.$28.3 million in 2001, from U.S.$34.4 million in 2000.
The decrease is primarily due to a decrease in revenues of $6.4 million as a
result of an 18% devaluation of the Chilean peso during 2001 and a reduction of
approximately 10% in advertising expenditure in the Chilean market for 2001
compared to 2000. This was partially offset by U.S.$.04 million increase in
revenues from the new operations of Sarandi in the fourth quarter of 2001.

The increase in Internet and Broadband advertising revenues of U.S.$0.7
million was attributable to the merger transaction with El Sitio in September
2001.

Production Services

Production services revenues of U.S.$2.5 million are attributable to the
commencement of operations of The Kitchen Inc.

Other Revenues

Other revenues increased U.S.$1.0 million, or 19%, to U.S.$6.4 million in
2001, from U.S.$5.4 million in 2000. The increase is principally attributable
to increased services provided to our joint ventures.

Operating Expenses

Product, Content and Technology Expenses

Product, content and technology expenses decreased U.S.$0.4 million, or
1%, to U.S.$42.8 million in 2001 from U.S.$43.2 million in 2000. Product,
content and technology expenses as a percentage of revenues remained unchanged
at 40%.

Product, content and technology expenses for pay television remained
unchanged at U.S.$27.7 million. Product, content and technology expenses for
pay television as a percentage of pay television revenues decreased from 38% in
2000 to 36% in 2001. The decrease in these expenses resulted from U.S.$1.6
million in decreased expense of programming rights, offset by an increase of
U.S.$1.7 million as a result of the commencement of operations of The Kitchen,
Inc.

Product, content and technology expenses for broadcast television and
radio decreased U.S.$2.2 million, or 14%, to U.S.$13.3 million in 2001, from
U.S.$15.5 million in 2000. Product, content and technology expenses for
broadcast television and radio increased as a percentage of broadcast
television and radio revenues from 45% in 2000 to 47% in 2001. The decrease in
expenses is primarily attributable to the effect of the devaluation of the
Chilean peso of approximately U.S.$2.7 million.

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Product, content and technology expenses for Internet and broadband
represented U.S.$1.8 million, as a result of the combination transaction with
El Sitio.

Marketing and Sales Expenses

Marketing and sales expenses increased U.S.$2.8 million, or 15%, to
U.S.$21.8 million in 2001 from U.S.$19.0 million in 2000. Marketing and sales
expenses as a percentage of net revenues increased to 20% in 2001, from 18% in
2000.

Pay television marketing and sales expenses increased U.S.$0.5 million, or
3%, to U.S.$15.7 million in 2001, from U.S.$15.3 million in 2000. Marketing and
sales expenses for pay television as a percentage of pay television revenues
decreased from 21% in 2000 to 20% in 2001. The overall increase was primarily
due to increased marketing and sales expenses as a result of higher sales
volume.

Marketing and sales expenses for broadcast television and radio increased
U.S.$1.3 million, or 35%, to U.S.$5.0 million in 2001, from U.S.$3.7 million in
2000. The increase is attributable to a U.S.$0.5 million increase in marketing
and sales personnel expenses, a U.S.$0.8 million increase in uncollectible
accounts receivable, and U.S.$0.2 million attributable to Sarandi new
operations partially offset by a decrease in expenses of U.S.$0.7 million as a
result of the devaluation of the Chilean peso.

Marketing and sales expenses for Internet and broadband represented
U.S.$1.0 million, as a result of the combination transaction with El Sitio.

Corporate and Administration Expenses

Corporate and administration expenses increased U.S.$0.7 million, or 3%,
to U.S.$24.1 million in 2001 from U.S.$23.4 million in 2000. Corporate and
administration expenses as a percentage of net revenues increased to 23% in
2001 from 22% in 2000.

Corporate and administrative expense for pay television decreased U.S.$4.0
million, or 23%, to U.S.$13.2 million in 2001 from U.S.$17.2 million in 2000.
Corporate and administration expenses for pay television as a percentage of pay
television revenues decreased to 17% in 2001 from 24% in 2000. The
year-to-year decrease in corporate and administration expenses for pay
television was primarily attributable to the decrease in corporate and
administration expenses as a result of the merger transaction and the
consolidation of corporate and administration departments. The decrease was
offset by an increase of U.S.$1.1 million of infrastructure and related costs
of the new operations of The Kitchen, Inc..

Corporate and administrative expenses for broadcast television and radio
decreased U.S.$1.9 million to U.S.$4.3 million in 2001 from U.S.$6.2 million in
2000. Corporate and administrative expenses for broadcast television and radio
as a percentage of broadcast television and radio revenue increased from 18% in
2000 to 15% in 2001.

The decrease in expenses is due to the consolidation of the radio and
television corporate and administrative departments and the elimination of
duplicative costs.

In addition, U.S.$1.7 million of the increase in corporate and
administration expenses consisted of Internet and broadband expenses related to
the merger transaction in September of 2001, which partially offset the
decrease of pay television corporate and administration expenses.

Finally, U.S.$4.9 million of the increase was primarily attributable to an
expense of U.S.$3.8 million due to the exercise of certain options as a result
of the merger transaction.

Depreciation and Amortization

Depreciation and amortization expenses increased U.S.$5.7 million, or 26%,
to U.S.$27.3 million in 2001 from U.S.$21.6 million in 2000. Depreciation and
amortization expenses as a percentage of net revenues increased to 26% in 2001
from 20% in 2000. This increase in depreciation and amortization expenses was
principally due to a U.S.$3.0 million increase in amortization of certain
goodwill related to our Argentine subsidiaries, U.S.$1.3 million as a result of
the completion of The Kitchen, Inc. and the commencement of depreciation of the
equipment, and

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U.S.$1.0 million as a result of the accelerated depreciation of certain
accounting and information systems that will not be used in the future as a
result of systems integrations.

Other Income (Expense)

Other income (expense), excluding share of loss from unconsolidated
affiliates which principally consists of interest expense, interest income,
other miscellaneous income (expenses) and foreign currency exchange loss, net,
consisted of net expenses of U.S.$47.4 million in 2001 compared with net
expenses of U.S.$14.9 million in 2000. This change resulted primarily from a
foreign currency exchange loss of U.S.$29.6 million due to foreign exchange
loss on certain U.S. dollar-denominated debt held by our Argentine subsidiary
as a result of the Argentine currency devaluation which, for accounting
purposes, was effective as of December 31, 2001.

Share of Loss from Unconsolidated Affiliates

Share of loss from unconsolidated affiliates represents our proportionate
share of the net income or loss of Playboy TV Latin America, The Locomotion
Channel and other companies in which we have investments, as well as Playboy TV
International and DMX MUSIC Latin America as a result of the combination
transaction. Share of loss from unconsolidated affiliates increased to
U.S.$19.1 million in 2001 from U.S.$4.9 million in 2000. The increase is due
primarily to our share of the net loss of Playboy TV International which
amounted to $13.4 million.

Effects of Inflation

Our assets are not significantly affected by inflation. However, the rate
of inflation affects our expenses, such as employee compensation, office space
leasing costs and communications charges, which may not be readily recoverable
in the prices of products and services offered by us.

Liquidity and Capital Resources

The accompanying consolidated financial statements have been prepared on a
going concern basis, which assumes continuity of operations and realization of
assets and satisfaction of liabilities in the ordinary course of business. See
Item 3D. Key Information  Risk Factors  We may not be able to continue as a
going concern and Note 1 of our consolidated financial statements.

Our principal sources of liquidity and capital resources consist of our
balance of cash, cash equivalents and investments, cash from operations and, to
lesser degree, debt financing.

At December 31, 2002, we had total cash and cash equivalents of U.S.$8.1
million, as compared to U.S.$15.2 million at December 31, 2001.

As of December 31, 2002, we had approximately U.S.$80.8 million in
long-term debt and U.S.$11.7 million in short-term debt, as compared to
U.S.$22.3 million in long-term debt and U.S.$92.1 million in short-term debt,
at December 31, 2001. Our debt obligations include U.S.$63.0 million under
Claxsons 8.75% Senior Notes due 2010, which notes were issued in exchange for
U.S.$74.5 million principal amount of Imagens 11% Senior Notes due 2005.
Under applicable accounting rules, our future interest payments on the notes
exchanged must be included as a liability on our balance sheet. The U.S.$63.0
million in debt under Claxsons 8.75% Senior Notes due 2010 therefore includes
U.S.$21.6 million in future interest payments. Our debt also includes
U.S.$17.6 million under a syndicated bank facility payable through 2006. Since
year-end 2002 we were able to exchange U.S.$2.3 million of Imagen 11% Senior
Notes due 2005 into new 6.25% Senior Notes due 2013 of Imagen Satelital. The
remaining U.S.$3.2 million Imagen 11% Senior Notes due 2005 that are
outstanding continue to be in default and are classified as short-term. Among
other things, the indenture for the 8.75% Senior Notes and the syndicated bank
debt agreement restrict the ability of Claxson and some operating subsidiaries
to incur additional indebtedness and pay dividends.

Cash flow provided by operating activities was U.S.$1.9 million in the
twelve months ended December 31, 2002 compared to U.S.$3.5 million in 2001.

Capital expenditures of U.S.$1.6 million were made in the twelve months
ended December 31, 2002 primarily in connection with general equipment
maintenance and upgrades compared to U.S.$6.3 million in 2001 primarily in
connection with the completion of The Kitchen, Inc.. Cash provided by
investing activities during the

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twelve months ended December 31, 2002 included U.S.$8.4 million from the
sale of our share of an unconsolidated affiliate. Investments made during the
year 2002 included U.S.$2.2 million in the partial payment of the purchase of a
minority stake in our Chilean operations, and U.S.$1.0 million for the payment
of certain capitalizable transaction costs related to the merger transaction.

Cash used in financing activities during the year 2002 was U.S.$13.0
million as compared to cash used in financing activities of U.S.$4.5 million
for the year 2001. During the year 2002 we paid U.S.$7.5 million on principal
payments under Radio Chiles syndicated credit facilities, as well as other
miscellaneous debt. In addition, during the year 2002 we made payments of
U.S.$3.9 million related to the Exchange Offer and consent solicitation of the
8.75% Senior Notes due 2010 composed of consent payment and fees and expenses
related to the offer. Our principal liquidity and capital resources
requirements will include the debt service on outstanding debt, which will
require principal and interest payments of approximately U.S.$8.5 million in
2003, and the payment of U.S.$4.5 million in obligations under payment
agreements related to the cancellation of merger related expenses with
investment bankers and lawyers involved in the transaction.

While we believe that our cash, cash equivalents and investments, and
other working capital resources will be sufficient to meet our capital
resources and liquidity requirements through calendar year 2003, failure to
significantly increase revenues or maintain our operating expenses at their current level, or
otherwise meet our business plan objectives, would result in Claxsons failure
to achieve profitability and consequently, a failure to improve our liquidity
position. See Item 3.D. Key Information  Risk Factors  We may not be able to
continue as a going concern and Note 1 of our consolidated financial
statements.

Research and Development, Patents and Licenses, etc.

Not Applicable

Trend Information

For a description of the trends affecting our business see Item 3D Risk
Factors and Item 5 Operating and Financial Review and Prospects.




Item 6. Directors, Senior Management and Employees

A.     Directors and Senior Management

The following table presents the names of our members of the board of
directors as of June 1, 2003, their ages, the date each member accepted office
and the date of expiration of their current term:

|                      |  |     |    |            |  |                    |  |      |      | 
|--------------------- |  | --- | -- | ---------- |  | ------------------ |  | ---- | ---- | 
|                      |  |     |    |            |  | Current Position   |  | Term
|Name                  |  | Age |    | Held Since |  | Expiration        
|                      |  |     |    |            |  |                   
|Roberto Vivo-Chaneton |  |     | 50 |            |  | September 21, 2001 |  |      | 2003 | 
|Carlos Bardasano      |  |     | 58 |            |  | September 21, 2001 |  |      | 2003 | 
|Eric C. Neuman        |  |     | 57 |            |  | September 21, 2001 |  |      | 2003 | 
|Ana Teresa Arismendi  |  |     | 37 |            |  | April 30, 2002     |  |      | 2003 | 
|Frank Feather         |  |     | 60 |            |  | September 21, 2001 |  |      | 2003 | 
|John A. Gavin         |  |     | 71 |            |  | September 21, 2001 |  |      | 2003 | 
|Gabriel Montoya       |  |     | 34 |            |  | April 30, 2002     |  |      | 2003 | 
|José Antonio Rìos     |  |     | 56 |            |  | September 21, 2001 |  |      | 2003 | 
|Emilio Romano         |  |     | 38 |            |  | November 12, 2001  |  |      | 2003 | 
|Marcos Clutterbuck    |  |     | 32 |            |  | August 23, 2002    |  |      | 2003 | 
|Ricardo Verdaguer     |  |     | 52 |            |  | September 21, 2001 |  |      | 2003 | 
|Luis Villanueva       |  |     | 46 |            |  | April 30, 2002     |  |      | 2003 | 

Mr. Vivo-Chaneton is the chairman of the board of directors and Messrs.
Bardasano and Neuman are vice chairmen of the board of directors.

Each member of the board of directors serves for a period ending at each
annual meeting of our shareholders, which generally will be held in December of
each year.

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Executive Officers

The following table sets forth the names of each of our and our
subsidiaries executive officers as of June 1, 2003, their ages, the position
they hold in Claxson and the date of employment in said position:

|                       |  |     |    |          |  |                                                   |  |                   
|---------------------- |  | --- | -- | -------- |  | ------------------------------------------------- |  | ------------------
|                       |  |     |    |          |  |                                                   |  | Current Position  
|Name                   |  | Age |    | Position |  | Held Since                                       
|                       |  |     |    |          |  |                                                  
|Roberto Vivo-Chaneton  |  |     | 50 |          |  | Chairman of the Board and Chief Executive Officer |  | September 21, 2001
|Ralph Haiek            |  |     | 46 |          |  | Chief Operating
Officer  Pay Television          |  | September 21, 2001
|José Antonio Ituarte   |  |     | 43 |          |  | Chief Financial Officer                           |  | January 1, 2002   
|Roberto Cibrian-Campoy |  |     | 44 |          |  | Executive Vice
President  Broadband and Internet |  | September 21, 2001
|Amaya Ariztoy          |  |     | 35 |          |  | General Counsel                                   |  | September 21, 2001
|Mariano Varela         |  |     | 35 |          |  | Senior Vice
President  Sales and Marketing       |  | January 1, 2003   
|Jaime de Aguirre Hoffa |  |     | 51 |          |  | Executive Director  Chilevisión                  |  | April 15, 2002    
|Marcelo Zuñiga         |  |     | 53 |          |  | Executive Director  Ibero American Radio Chile   |  | August 30, 2002   

Executive officers are appointed by, and serve at the discretion of, our
board of directors.

Biographical Information

Directors

Roberto Vivo-Chanetonis our chairman of the board and chief executive
officer. Mr. Vivo-Chaneton was El Sitios co-founder and served as chairman of
El Sitios board of directors from inception. Mr. Vivo-Chaneton was one of the
founders of, and since 1988 has served as a director and deputy chief executive
officer of, IMPSAT Fiber Networks, Inc., a provider of private networks of
integrated data and voice communications systems in a number of countries in
Latin America. Mr. Vivo-Chaneton holds degrees in Business Administration from
Universidad Argentina de la Empresa and Macroeconomics from Instituto Torcuato
di Tella, both in Buenos Aires, Argentina.

Carlos Bardasanois director and vice chairman of our board of directors.
Mr. Bardasano joined the Cisneros Group of Companies 37 years ago. Mr.
Bardasano is a vice president of the Cisneros Group of Companies, and president
and chief executive officer of Venevision Continental LLC. Mr. Bardasano
served as president of the Venevision Television Network from 1993 through
1999. Mr. Bardasano began his career in the television industry as general
manager of the Venevision Television Network and later became president and
chief executive officer of Venevision International. Mr. Bardasano is also a
member of the board of directors of Caracol TV Network, a television network in
Colombia, and a permanent executive member of the programming committee of
Caracol TV. Mr. Bardasano holds a Bachelor of Science degree in Production
Engineering and a Masters of Business Administration degree from Universidad
Central de Venezuela.

Eric C. Neumanis director and vice chairman of our board of directors.
Mr. Neuman has been a partner of Hicks Muse since January, 2001 and principal
of Hicks Muse from April, 1999 to December, 2000. Between June, 1998 and
March, 1999, Mr. Neuman served as senior vice president and chief strategic
officer of Chancellor Media, a company that was founded by and whose largest
shareholder was Hicks Muse. From 1993 to 1998, Mr. Neuman was an officer with
Hicks Muse. Mr. Neuman is chairman of Fox Pan American Sports Network and
Cablevision and serves on the boards of directors of Digital Latin America,
Media Capital and Grupo Multivision. He previously was a director of
Chancellor Media, Capstar Broadcasting Partners and Sunrise Television
Corporation. Mr. Neuman holds a Bachelor of Arts degree from the University of
South Florida and a Masters of Business Administration degree (with
distinction) from the J.L. Kellogg Graduate School of Management, Northwestern
University.

Ana Teresa Arismendiis currently managing director of the Chairmans
Office of the Cisneros Group of Companies. Previously, she was senior vice
president of finance and administration at Playboy TV International. In 1996,
Ms. Arismendi joined the Cisneros Television Group as finance director. Prior
to joining the Cisneros Television Group, Ms. Arismendi was administration
manager at Televen, a Cisneros Group television channel, and financial analysis
manager of the communications division at the Organización Cisneros, both in
Caracas, Venezuela. Ms. Arismendi holds a Bachelor of Arts degree in Business
Administration from the Universidad Metropolitana in Caracas, Venezuela.

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Marcos Clutterbuckis a Principle of Hicks, Muse, Tate & Furst
Incorporated . He has been with Hicks Muse since 1998 and is currently based in
the Buenos Aires office. Prior to joining Hicks Muse, Mr. Clutterbuck worked
with R. Arriazu & Associates in Buenos Aires and with Mercer Management
Consulting in Boston. He was also an assistant professor of Economics at the
Universidad Católica Argentina. Mr. Clutterbuck also serves on the boards of
several corporations, including Cablevisión S.A., International Outdoor
Advertising and Editorial Atlántida S.A. Mr. Clutterbuck received a Licentiate
in Economics from the Universidad Católica Argentina and his Masters of
Business Administration degree from Stanford University, where he was
designated an Arjay Miller Scholar, distinction awarded to the top 10% of the
class.

Frank Featheris a consulting business futurist and author. Until 1981,
Mr. Feather was a senior international banking executive with Barclays Bank,
Toronto Dominion Bank and Canadian Imperial Bank of Commerce. In 1981, Mr.
Feather began consulting national governments and global corporations on future
trends. Mr. Feather has written several books, the most recent of which is
Future Consumer.Com: The Webolution of Shopping to 2010. He hosts the
Furture-Trends.com website. Mr. Feather holds an Honors Bachelor of Arts
degree in Business Administration from York University in Toronto, Canada.

John A. Gavinserved more than five years as U.S. Ambassador to Mexico
during the administration of President Ronald Reagan. Thereafter, he was vice
president of Atlantic Richfield Company and president of Univisa Satellite
Communications, a division of a Spanish-speaking broadcast network. He is the
founder and chairman of Gamma Holdings, an international capital and consulting
firm. He also serves on the boards of Apex Mortgage Capital, International
Wire Holdings, The Hotchkis & Wiley Funds, The TCW Galileo Funds, and Causeway
Capital Management. He is also a member of the Latin America Strategy Board of
Hicks, Muse, Tate & Furst Incorporated. Ambassador Gavin holds a Bachelor of
Arts degree in Economic History of Latin America from Stanford University.

Gabriel Montoyais managing director, assistant to the President of the
Cisneros Group of Companies. Prior to his current position, Mr. Montoya was
director of new business development at the Cisneros Television Group.
Previously, Mr. Montoya was corporate finance manager at the Cisneros Group of
Companies in Caracas, Venezuela. Before joining the Cisneros Group of
Companies, he was a financial advisor at Fondo de Garantía de Depósitos y
Protección Bancaria (FOGADE) and a project manager at Coca-Cola de Venezuela.
Mr. Montoya has a Bachelor of Science degree in Systems Engineering from
Universidad Metropolitana in Caracas, Venezuela and a Masters of Business
Administration degree from the Instituto de Estudios Superiores de
Administración (IESA) in Caracas, Venezuela. Mr. Montoya was also associate
professor of Valuation and Financial Investments at IESA, Caracas, Venezuela
and professor of the Finance for Lawyers seminar at Universidad Católica
Andres Bello, Caracas, Venezuela.

José Antonio Rìosis Chief Administrative Officer of Global Crossing Ltd.,
and also serves as President of the companys international operation covering
the Americas, Europe and Asia. Mr. Rìos also serves as Chairman of the Board of
Global Marine Systems Ltd., a unit of Global Crossing. Prior to joining Global
Crossing, Mr. Rìos served as president and chief executive officer of
Telefónica Media. Additionally, Mr. Rìos was one of seven members of the
corporate executive committee of Telefónica S.A. and a corporate general
director. He also has served on the boards of over 30 companies within the
Telefónica group. Mr. Rìos is the former chairman of the supervisory board of
Endemol Entertainment, a television production company based in Holland.
Earlier in his career, Mr. Rìos was the founding president and chief executive
officer of Galaxy Latin America, where he was responsible for the planning,
development and launch of DIRECTV. Mr. Rìos previously served as chief
operating officer and corporate vice president of the Cisneros Group of
Companies. Mr. Rìos holds a Bachelor of Science degree in Industrial
Engineering from the Andres Bello Catholic University in Caracas, Venezuela.

Emilio Romanois an entrepreneur in the field of Spanish media. In 2001,
he co-founded Border Group, LLC. He serves as an advisor to several
entertainment and media companies. Mr. Romano is also a partner at the law
firm of Calvo, Gonzalez Luna, Moreno, Revilla y Romano, S.C., a legal advisory
firm in Mexico. Mr. Romano co-founded SportsYA Media Group, a sports media and
marketing company for the Spanish-speaking world. Mr. Romano served as its
chief executive officer from 1999 to 2001. Between 1995 and 1998, he worked at
Grupo Televisa as director of mergers & acquisitions and later as
vice-president of international operations. While at Televisa, Mr. Romano was
a director of Univision Communications (NYSE:UVN) where he was responsible for
Televisas operations outside Mexico, as well as co-managing Cablevisión, the
largest cable network in Mexico. From 1989 to 1994, Mr. Romano served in many
roles within the Mexican Ministry of Finance, including General

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Director of Revenue Policy and Federal Fiscal Attorney. Mr. Romano holds
a law degree from the Escuela Libre de Derecho in Mexico City and was a
graduate student at the City of London Polytechnic.

Ricardo Verdaguerhas served as the president and chief executive officer
of IMPSAT Fiber Networks, Inc. since 1988. In 1988, as a senior executive of
Corporación IMPSA S.A., an Argentina-based multinational company with holdings
in manufacturing, transportation and telecommunications, Mr. Verdaguer was
involved in the founding of IMPSAT Fiber Networks, Inc. From 1976 to 1988, Mr.
Verdaguer occupied various operational positions at Industrias Metalurgicas
Pescarmona as an electromechanical engineer. He holds a Bachelor of Science
degree in Engineering from Universidad Juan Agustin Mazza in Mendoza,
Argentina.

Luis Villanuevais the President and CEO of Venevision International LLC,
a leading Spanish language programming distribution and production company
owned by the Cisneros Group. Since joining the Cisneros Group in 1982, Mr.
Villanueva has held several key positions within the organization, including
Vice-President of Venevision Television Network in Venezuela, Executive
Vice-President of Corporate Finance and Development of the Cisneros Group, and
President of Venevision de Chile. Mr. Villanueva is also a director of Union de
Cervecerias Peruanas Backus & Johnston, Perus leading beer company. Mr.
Villanueva holds a Bachelor of Arts degree in Economics and a Masters of
Business Administration degree from Andres Bello Catholic University, Caracas,
Venezuela.

Executive Officers

Ralph Haiekis our chief operating officer-pay television. Previously,
Mr. Haiek was chief operating officer of the Cisneros Television Group (CTG)
and, prior to that, senior vice president and general manager of CTG Music.
Before joining CTG, Mr. Haiek founded MuchMusic Argentina, one of the leading
music channels in Latin America. Mr. Haiek is a founding member of Promax
Latin America and a member of the Latin Academy of Recording Arts and Sciences.
He holds a Bachelors degree in Economics from Universidad de Buenos Aires and a
Masters of Business Administration from Instituto de Altos Estudios
Empresariales (Universidad Austral) in Argentina. Mr. Haiek was recently given
the 2003 Pay TV President of the Year Award at the INTE Awards held in Miami,
FL, an industry event that recognizes the best of the Spanish-speaking
television industry.

José Antonio Ituarteis our chief financial officer. Prior to this
position, Mr. Ituarte had served as Claxsons chief staff officer, chief
operating officer and general manager and chief financial officer at Ibero
American Media Holdings Chile, one of our current subsidiaries. Before joining
Ibero American, Mr. Ituarte spent almost a decade at Radio Pudahuel FM as
strategic consultant and information technology specialist. Prior to that, he
acted as consulting director for KPMG Peat Marwick. Additionally, Mr. Ituarte
is a founding partner of ITC Consultores, a consulting firm that provides
services to financial institutions, public service enterprises, and educational
institutions. Mr. Ituarte holds a Bachelors degree in Computer Engineering
with a Masters of Business Administration from Universidad Adolfo Ibañez in
Chile.

Roberto Cibrian-Campoyis our executive vice president  broadband and
Internet. Mr. Cibrian-Campoy was El Sitios co-founder and served as the chief
executive officer, president and a director of El Sitio from inception. In
1992, Mr. Cibrian-Campoy founded and served as president of Cibrian-Campoy
Creativos, S.A., a producer of computer animation and developer of multimedia
projects. From 1989 to 1992, Mr. Cibrian-Campoy served as advisor to the
Minister of Culture and Education of Argentina. From 1982 to 1989, Mr.
Cibrian-Campoy was an architect at his own firm and a designer with a leading
Buenos Aires architecture firm. Mr. Cibrian-Campoy holds a degree in
Architecture from the Universidad de Belgrano in Buenos Aires, Argentina.

Jaime De Aguirre Hoffais Chilevisións Executive Director. An
experienced Chilean television executive, prior to joining Chilevisión, de
Aguirre was Programming Director for 11 years at Television Nacional de Chile
(TVN), where during the 90s he was responsible for developing the successful
programming strategy that made TVN the undisputed leader in the market. De
Aguirre joined TVN under the management of Jorge Navarrete replacing Eduardo
Tironi. After Navarrete left TVN, de Aguirre maintained his responsibilities
through several Executive Directors at the station, including the current Pablo
Pinera. Prior to TVN, de Aguirre was founding partner of the independent
production firm Filmocentro. De Aguirre holds studies in Law and is a Sound
Engineer.

Marcelo Zuñigais Executive Director of Ibero American Radio Chile (IARC).
Under his tenure, IARC has grown to become the largest radio holding in Chile
with eight of the most successful radio stations, each one of them a leader in
its segment and six of them among the top ten. His extensive radio and
television career includes a tenure as Director of Radio Cooperativa at
Compañía Chilena de Comunicaciones (CCC), position he held for 18

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years and where he lead Cooperativa to become the most important radio
station in Chile. While at CCC he also gave life to Rock & Pop, a project
that revolutionized the Chilean radio market in the 90s, and to Radio Corazón,
a station that since its inception has ranked among the top five radio stations
in Chile. He joined IARCs founding team in 1998 as Operations Manager,
leading the music and sales strategy of the holding to make it today the
undisputed leader in the Chilean market with close to 40% of the national
audience share.

Amaya Ariztoyis our general counsel. Ms. Ariztoy has served as vice
president of legal and business affairs for Cisneros Television Group since
1998. Ms. Ariztoy also manages and oversees corporate legal matters with
channel partners, affiliates and advertisers. Ms. Ariztoy has worked in
several areas within the Cisneros Group of Companies, including the
Venezuelan-based broadcast television station, Venevision, and
DirecTV/Venezuela. Ms. Ariztoy holds a law degree from the School of Law of
Universidad Católica Andres Bello in Caracas, Venezuela.

Mariano Varelais our senior vice president of sales and marketing.
Before taking this position, Mr. Varela was Claxsons vice president of
corporate marketing, after the merger transaction. Previously, Mr. Varela held
the position of vice president of marketing at El Sitio, where he developed
strategic marketing initiatives, including the creation of a global brand
identity of El Sitio as a provider of content for Portuguese and
Spanish-speaking users. Before joining El Sitio, Mr. Varela was Client
Services Director & Regional Account Director at Leo Burnett. Mr. Varela has
also worked as an account manager for Young & Rubicam and as an account
executive for Marcet, Dreyfus y Asociados. Mr. Varela holds a degree in
Communications Sciences from Universidad del Salvador, Argentina.

B.     Compensation

Directors who also are full-time employees do not receive additional
compensation for their service as directors. Each non-employee director
receives annual compensation for service on our board of directors in the
amount of $40,000 payable quarterly plus reimbursement of out-of-pocket
expenses incurred in connection with our board of director meetings. Each
independent director who serves on the audit committee also receives an
additional $20,000 per year. In 2002, each current non-employee director on
the board of directors also received a one time grant of 5,000 stock options
exercisable for five years from the date of grant, 50% vesting on the first
anniversary of the grant date and the other 50% vesting on the second
anniversary of the grant date.

The aggregate amount of compensation paid to our eight executive officers
as a group was approximately U.S.$2,691,477. The year ended December 31, 2002.
We did not set aside or accrue any amounts for pension, retirement or similar
benefits, as we did not provide such benefits for our executive officers. The
above amount does not include share options issued to these executive officers
under any of our share option plans.

Options to Purchase Securities from Registrant or Subsidiaries

2001 Share Incentive Plan

We have adopted the 2001 Share Incentive Plan, which is referred to herein
as the 2001 share incentive plan or plan. The plan is intended to remain
in effect until 2011. The following description summarizes the material terms
of the plan, but is qualified in its entirety by reference to the full text of
the plan.

Administration

The 2001 share incentive plan is administered by our compensation
committee. The plan provides for the grant of both non-qualified and incentive
share options and for the grant of restricted shares. Incentive share options
are share options that satisfy the requirements of Section 422 of the U.S.
Internal Revenue Code of 1986. Non-qualified share options are share options
that do not satisfy the requirements of Section 422 of the U.S. Internal
Revenue Code. Share options will be granted by the compensation committee.
Restricted shares will be granted by our board of directors.

Some grants of share options and restricted shares may be made by a
subcommittee of the compensation committee in order to satisfy certain tax
requirements that must be complied with in order for us to avoid the loss of
any U.S. federal income tax deduction.

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Shares Subject to Plan

The 2001 share incentive plan provides that the maximum number of Class A
common shares available for grant under the plan is 930,000. The 2001 plan
provides that no single participant may be granted share options covering in
excess of 85,000 Class A common shares in any fiscal year, except that Roberto
Vivo-Chaneton, our chairman of the board and chief executive officer, has
received an initial grant of share options covering 185,338 Class A common
shares. The number of Class A common shares subject to these limits, as well
as the number and kind of shares subject to outstanding awards, may be adjusted
by the compensation committee or by our board of directors in the event of any
change in corporate capitalization.

Share Options

All share options granted under the 2001 share incentive plan must be
evidenced by, and subject to the terms of, a written award agreement. Unless
otherwise provided by the compensation committee in an award agreement, the
term of share options granted under the plan will be ten years. Unless
otherwise provided by the compensation committee in the applicable award
agreement, share options will vest in three annual installments of 30%, 30% and
40%. Share options will have an exercise price per Class A common share equal
to the fair market value of each share on the date of grant.

Under the 2001 share incentive plan, unvested share options held by a
participant will generally expire upon termination of that participants
employment. If termination is due to death, the optionees estate will have
one year to exercise vested share options, unless the compensation committee
provides otherwise in the applicable award agreement. If termination results
from retirement or disability, the optionee will have two years to exercise
vested share options, unless the compensation committee provides otherwise in
the applicable award agreement. If termination is for cause, no share options
will thereafter be exercisable, unless the compensation committee provides
otherwise in the applicable award agreement. Upon termination for a reason
other than death, disability, retirement or cause, vested share options will
remain exercisable for six months, unless the compensation committee provides
otherwise in the applicable award agreement. Unless the compensation committee
provides otherwise in the applicable award agreement, if a participant dies
during, and within one year immediately preceding the conclusion of, a
post-termination exercise period, the participants estate will be permitted to
exercise share options until the earlier of the first anniversary of the date
of death or the expiration of the stated term of the share option, even if such
date is later than the end of the initial post-termination exercise period.

A participant exercising a share option may pay the exercise price in cash
or, if approved by the compensation committee, with previously acquired Class A
common shares or in a combination of cash and Class A common shares. However,
Class A common shares may be used for this purpose only if they have been held
by the participant for at least six months prior to the time of exercise or if
they were purchased by the participant on the open market. The compensation
committee, in its discretion, may allow the cashless exercise of share options
or may permit the exercise price to be satisfied through the withholding of
Class A common shares subject to the portion of the share option being
exercised. Upon receipt of a notice of exercise of a share option, the
compensation committee may, in its discretion, choose to cash out such share
option by providing the participant with cash or with Class A common shares
equal in value to the product of (1) the difference in value between the fair
market value of a Class A common share and the exercise price of such share
option times (2) the number of shares for which the share option would have
been exercised.

Unless otherwise provided by the board of directors, share options will be
nontransferable other than by will or the laws of descent and distribution.

The compensation committee may establish procedures pursuant to which
participants may defer the receipt of the Class A common shares subject to a
share option exercise.

Restricted Shares

Restricted shares may be granted under the 2001 share incentive plan
subject to performance goals or service requirements. Prior to the lapse of
restrictions, a participant may not sell, assign, transfer, pledge or otherwise
encumber restricted shares, although a participant may pledge restricted shares
as security for a loan, the sole purpose of which is to provide funds for the
purchase of share options under the plan. Prior to the lapse of restrictions,
any certificate issued with respect to restricted shares must contain a legend
noting that the shares are restricted. Generally, all restricted shares will
be forfeited if a participant terminates employment prior to the lapse

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of restrictions. However, our board of directors shall have the
discretion to waive the restrictions with respect to a participant who is
terminating employment.

Participants will be entitled to vote their restricted shares and to
receive dividends upon their restricted shares. However, our board of
directors may provide in an award agreement that any such dividends will
themselves be invested in restricted shares.

All restricted shares granted under the plan must be evidenced by, and
subject to the terms of, a written award agreement.

Change in Control

If a change in control occurs, any option that is not then exercisable and
vested will become fully exercisable and vested and restrictions on all
restricted shares will lapse. In addition, the board of directors will have
the power to make any additional adjustments to outstanding awards that it
deems appropriate, including, without limitation, the power to make cash
payments in cancellation of outstanding awards, and the power to issue a
substitute award in place of outstanding awards. A change in control will
occur generally upon any of the following events:



| |  |  | any acquisition by a person, other than a member or affiliate
of the Cisneros Group, an affiliate of Hicks Muse or an affiliate of
the El Sitio founders, of more than 50% of our outstanding share
capital or voting securities, in each case subject to specified
exceptions;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | a change in the majority of the members of the board of
directors, unless approved by the incumbent directors;                                                                                                                                                                 
|
| |  |  | the consummation of certain mergers or restructurings, or
certain sales of all or substantially all of our assets; or                                                                                                                                                          
|
| |  |  | approval by our shareholders of a liquidation, dissolution or
sale of substantially all of our assets.                                                                                                                                                                         

Amendments

The board of directors may at any time amend or terminate the 2001 share
incentive plan and may amend the terms of any outstanding option or other
award, except that no termination or amendment may materially and adversely
impair the rights of participants as they relate to outstanding options or
awards. However, no amendment to the plan will be made without the approval of
our shareholders to the extent approval is required by applicable law or rule
of any stock exchange on which the Class A common shares may be listed or
traded.

Grant of Stock Options

The chart below lists options held under the 2001 Share Incentive Plan by
our executive officers and certain consultants, as follows:

|                                                                          |  |           |  |               |         | 
|------------------------------------------------------------------------- |  | --------- |  | ------------- | ------- | 
|Manager                                                                   |  | Business  |  | Stock Options
|                                                                          |  |           |  |              
|Roberto Vivo                                                              |  | Corporate |  |               | 185,338 | 
|Ralph Haiek                                                               |  | Pay TV    |  |               | 85,000  | 
|Roberto Cibrian Campoy                                                    |  | Broadband |  |               | 27,800  | 
|José Antonio Ituarte                                                      |  | Corporate |  |               | 60,000  | 
|Mariano Varela                                                            |  | Pay TV    |  |               | 9,500   | 
|José Maria Bustamante                                                     |  | Corporate |  |               | 9,500   | 
|Amaya Ariztoy                                                             |  | Corporate |  |               | 9,500   | 
|Alfredo Richard                                                           |  | Corporate |  |               | 4,600   | 
|Leandro Feliz Añon*                                                       |  |           |  |               | 27,800  | 
|Benjamin Moody*                                                           |  |           |  |               | 19,511  | 
|*  As per employment separation and post employment consulting agreement.

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The exercise price is the average of the closing price for the five-day
trading period beginning on January 17, 2002, the date of grant which was
U.S.$0.738. Except for the options granted to Leandro Añon and Benjamin Moody
which are fully vested, the options vest in two tranches, 60% on the second
anniversary of grant and 40% on the third anniversary. Except for Roberto
Vivos options which are exercisable for 10 years from the date of grant, the
options are exercisable for five years from the date of grant.

Grant of Restricted Shares to Cisneros Television Group Employees

On January 17, 2001, we granted approximately 50,000 restricted Class A
common shares to employees of the Cisneros Television Group and its affiliates,
50% of which vested upon the consummation of the merger transaction with the
remaining 50% vesting on March 2002. These shares were issued in connection
with the consummation of the merger transaction.

C.     Board Practices

Directors

See Item 6, Section A Directors and Senior Management.

Members of Management Body

See Item 6, Section A Directors and Senior Management.

Benefits Upon Termination of Employment

Except for an employment agreement with Roberto Vivo-Chaneton (as detailed
below) no other director has an employment or service agreement with us or any
of our subsidiaries.

Mr. Vivo-Chaneton, our chief executive officer, is based in Argentina.
Under the terms of the employment agreement with Claxson, upon termination of
employment without cause or by Mr. Vivo-Chaneton with good reason, Mr.
Vivo-Chaneton will receive all earned, but unpaid, salary, bonus, including the
greater of a pro rated target bonus or the guaranteed minimum bonus for the
year of termination, and continued benefits. In addition, Mr. Vivo-Chaneton
will receive a cash severance package equal to his base salary and target bonus
for the balance of the employment term plus one years base salary and target
bonus, not to exceed 200% of annual base salary and annual target bonus. Mr.
Vivo- Chaneton will also receive accelerated vesting of one-half of his
unvested options, with all his vested options being exercisable for one year
following such termination.

Upon termination of employment due to the non-renewal of the employment
agreement by us, Mr. Vivo-Chaneton will receive a lump sum amount in cash equal
to one years base salary plus a target bonus of 100% of the base salary, with
vested share options remaining exercisable for a period of one year following
such non-renewal. While employed and for a period of one year thereafter, Mr.
Vivo-Chaneton will not compete with us or our subsidiaries. In the event of a
future change in control, Mr. Vivo-Chanetons share options will become
immediately vested and fully exercisable for the balance of the ten-year term
of these options, except that if company performance targets have not been met
at the time of the change in control, the options will be exercisable for a
period of one year following the change in control, or such longer period as
Mr. Vivo-Chaneton and the board of directors may agree.

Committees of the Board of Directors

Our board of directors has standing audit, compensation and executive
committees.

Executive Committee

The executive committee consists of Roberto Vivo-Chaneton, Carlos
Bardasano and Eric C. Neuman. The executive committee serves at the pleasure of
the board of directors and has such powers, authority and duties as the board
of directors may designate. Meetings of the executive committee are the forum
in which our chairman of the board and chief executive officer share, discuss
and review with the members of the committee, among other things, the
following:



| |  |  | strategic initiatives;
| | - |  | ----------------------

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| |  |  | material transactions and matters; and                                                                                                                        
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | matters to be presented to the full board of directors and
board committees; and such other matters as the board of directors
may determine from time to time.

The executive committee consist of three members as follows: (i) the chairman
of the board and chief executive officer, (ii) one member appointed by Class C
directors (directors elected by holders of the Class C common shares) and (iii)
one member appointed by the Class H directors (directors elected by holders of
the Class H common shares). All matters submitted to the executive committee
must be decided by a unanimous vote of the members of the committee. In the
event that a unanimous vote is not reached with respect to a material matter,
then two of the members of the executive committee, acting jointly, may refer
such matter to the board of directors.

Audit Committee

The audit committee consists of Frank Feather, José Antonio Ríos and
Emilio Romano, all of whom are independent as that term is defined in
relevant Securities and Exchange Committee rules. The audit committee:



| |  |  | is responsible for selecting and overseeing the engagement of
our independent certified public accountants;
| | - |  | -----------------------------------------------------------------------------------------------------------
|
| |  |  | reviews the results and scope of the audit and other services
provided by our independent auditors;        
|
| |  |  | reviews our financial statements;                                                                          
|
| |  |  | reviews and evaluates our internal control functions and financial reporting process; and                  
|
| |  |  | review and approve all related party transactions.                                                         

The members of the committee are elected by our board of directors following
each annual meeting of shareholders and will serve until their successors are
duly elected and qualified or until their earlier resignation or removal.

Compensation Committee

We have appointed a compensation committee with a majority of the members
being independent directors. The members of the compensation committee consist
of Messrs. Feather, Rìos and Romano, the three independent directors, and
Messrs. Bardasano and Neuman. The compensation committee makes recommendations
to the board of directors regarding the following matters:



| |  |  | executive compensation;                                                   
| | - |  | --------------------------------------------------------------------------
|
| |  |  | salaries and incentive compensation for our employees and consultants; and
|
| |  |  | the administration of our share option plans.                             

The members of the committee are elected by the board of directors following
each annual meeting of shareholders and will serve until their successors are
duly elected and qualified or until their earlier resignation or removal. The
committee will be comprised of at least two independent directors. All matters
submitted to the compensation committee must be decided by a majority of the
members of the committee present at a duly held and convened meeting.

D.     Employees

As of December 31, 2002, our consolidated businesses had an aggregate of
900 full-time employees. Our wholly owned pay television businesses had 390
full-time employees, of whom 75 worked in our Miami offices, 297 in our Buenos
Aires offices, and 18 employees in our Mexico, Spain, Bahamas and Brazil
offices. Our broadcast business had 481 full-time employees as of the same
date, of whom 242 worked for Radio Chile, 219 worked for Chilevisión, and 20
worked for the Sarandi Radio Group. Of the 481 employees of our broadcast
radio and television businesses, 461 worked in our Chile offices and 20 worked
in our Uruguay offices.

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At December 31, 2002, our Internet and broadband business had 23 full-time
employees. Of these employees, 15 were employed in the Internet business, and
8 in the broadband business.

As of December 31, 2002, our joint ventures had an aggregate of 13
full-time employees, of whom 5 worked at DMX Music Latin America, and 8 at
Playboy TV Latin America.

At December 31, 2002, our executive offices, comprised of the office of
the chairman of the board and chief executive officer and the chief financial
officer, had 6 full-time employees.

Our employees work in a variety of departments, including programming and
production, sales and marketing, creative, engineering and operations, and
finance and administration. From time to time, we employ independent
contractors to support our production, creative, talent and technical
departments.

Chilevisión is party to a collective bargaining agreement with two unions:
the Sindicato de Empresa Chilevisión, S.A. and the Sindicato Nacional de
Trabajadores No. 2 de los Departamentos de Prensa y Administración RTU.
Approximately 165 of Chilevisións employees are represented by these unions
and a total of 193 employees are covered by the collective bargaining
agreement. The employees covered by the collective bargaining agreement are
at-will employees and occupy non-managerial positions in various areas of
Chilevisión. The collective agreement with the Chilean unions will expire on
August 31, 2004.

Our subsidiary, Canal Joven S.A., which operates the MuchMusic channel in
Argentina, is party to a statutory collective bargaining agreement, the terms
of which are set forth in the National Collective Bargaining Agreement No.
131/75 (Convención Colectiva de Trabajo Nacional No. 131/75). Approximately 48
of Canal Jovens employees are represented by the Argentine Television Union
(Sindicato Argentino de Television) and are covered by the statutory collective
bargaining agreement. Since the agreement is statutory, it will continue to be
in effect until either Canal Joven or the union decide to terminate it, in
which case the parties would need to negotiate a private collective bargaining
agreement.

Imagen, the operator of the Space, I.Sat, FTV, and Infinito channels, has
entered into a private collective bargaining agreement with the union
representing its employees rather than adopt the terms of the statutory
collective bargaining agreement set by Argentine law. The Imagen collective
bargaining agreement will expire on November 1, 2005.

We believe that our relations with our employees are generally good.

E.     Share Ownership

See Item 6, Section B Compensation and Item 7, Section A Major Shareholders.




Item 7. Major Shareholders and Related Party Transactions

A.     Major Shareholders

Ownership of Major Shareholders

The following table presents, as of June 1, 2003, the beneficial ownership
of our Class A common shares and Series A preferred shares by:



| |  |  | each person or entity which, to our knowledge, owns
beneficially more than 5% of the outstanding shares;
| | - |  | --------------------------------------------------------------------------------------------------------
|
| |  |  | each of our directors and executive officers; and                                                       
|
| |  |  | all of our directors and executive officers as a group.                                                 

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Unless otherwise indicated, to our knowledge, all persons listed below
have sole voting and investment power with respect to their Class A common
shares, except to the extent applicable law gives spouses shared authority.

|                                                             |  |           |           |            |  |            |      |             |  |           |           |           |  |           |      |  |  |  |   |  |  |  |   |  |  |  |   | 
|------------------------------------------------------------ |  | --------- | --------- | ---------- |  | ---------- | ---- | ----------- |  | --------- | --------- | --------- |  | --------- | ---- |  |  |  | - |  |  |  | - |  |  |  | - | 
|                                                             |  |           |           |            |  | Percentage |      |             |  |           |           |           |  |           |      |  |  |  |   |  |  |  |   |  |  | 
|                                                             |  | Number of |           | of Class A |  | Number of  |      | Percentage  |  | Number of |           | Number of |  | Number of
|                                                             |  | Class A   |           | common     |  | Series A   |      | of Series A |  | Class C   |           | Class F   |  | Class H  
|                                                             |  | common    |           | shares     |  | Preferred  |      | Preferred   |  | Common    |           | Common    |  | Common   
|Beneficial Owner                                             |  | shares    |           | (%)(1)     |  | Shares     |      | Shares (%)  |  | Shares    |           | Shares    |  | Shares   
|                                                             |  |           |           |            |  |            |      |             |  |           |           |           |  |          
|1945 Carlton Investments LLC(2)(21)                          |  |           | 4,499,769 |            |  |            | 24.1 |             |  |           | 4,200,000 |           |  |           | 28.0 |  |  |  | 1 |  |  |  |   |  |  |  |   | 
|1947 Carlyle Investments LLC(3)(21)                          |  |           | 4,499,769 |            |  |            | 24.1 |             |  |           | 4,200,000 |           |  |           | 28.0 |  |  |  | 1 |  |  |  |   |  |  |  |   | 
|Ricardo J. Cisneros(4)(21)                                   |  |           | 4,499,769 |            |  |            | 24.1 |             |  |           | 4,200,000 |           |  |           | 28.0 |  |  |  |   |  |  |  |   |  |  |  |   | 
|Gustavo A. Cisneros(5)(21)                                   |  |           | 4,499,769 |            |  |            | 24.1 |             |  |           | 4,200,000 |           |  |           | 28.0 |  |  |  |   |  |  |  |   |  |  |  |   | 
|Hicks, Muse(6)(21)                                           |  |           | 6,600,449 |            |  |            | 35.4 |             |  |           | 6,600,000 |           |  |           | 44.0 |  |  |  |   |  |  |  |   |  |  |  | 1 | 
|Thomas O. Hicks(6)                                           |  |           | 6,600,449 |            |  |            | 35.4 |             |  |           | 6,600,000 |           |  |           | 44.0 |  |  |  |   |  |  |  |   |  |  |  |   | 
|IMPSAT Fiber Networks, Inc(21)(22)                           |  |           | 614,123   |            |  |            | 3.2  |             |  |           |           |           |  |           |      |  |  |  |   |  |  |  | 1 |  |  |  |   | 
|Militello Limited(21)(22)                                    |  |           |           |            |  |            | *    |             |  |           |           |           |  |           |      |  |  |  |   |  |  |  | 1 |  |  |  |   | 
|RC Limited(21)(22)                                           |  |           | 79,236    |            |  |            | *    |             |  |           |           |           |  |           |      |  |  |  |   |  |  |  | 1 |  |  |  |   | 
|SLI.com, Inc.(21)(22)                                        |  |           | 489,417   |            |  |            | 2.6  |             |  |           |           |           |  |           |      |  |  |  |   |  |  |  | 1 |  |  |  |   | 
|Tower Plus International(21)(22)                             |  |           | 133,538   |            |  |            | *    |             |  |           |           |           |  |           |      |  |  |  |   |  |  |  | 1 |  |  |  |   | 
|Roberto Vivo-Chaneton(7)(21)(22)                             |  |           | 479,941   |            |  |            | 2.6  |             |  |           |           |           |  |           |      |  |  |  |   |  |  |  | 1 |  |  |  |   | 
|Carlos Bardasano (8)                                         |  |           | 2,500     |            |  |            | *    |             |  |           |           |           |  |           |      |  |  |  |   |  |  |  |   |  |  |  |   | 
|Eric C. Neuman(9)                                            |  |           | 17,532    |            |  |            | *    |             |  |           |           |           |  |           |      |  |  |  |   |  |  |  |   |  |  |  |   | 
|Ana Teresa Arismendi (10)                                    |  |           | 2,965     |            |  |            | *    |             |  |           |           |           |  |           |      |  |  |  |   |  |  |  |   |  |  |  |   | 
|Gabriel Montoya (11)                                         |  |           | 3,450     |            |  |            | *    |             |  |           |           |           |  |           |      |  |  |  |   |  |  |  |   |  |  |  |   | 
|John A. Gavin (12)                                           |  |           | 2,500     |            |  |            | *    |             |  |           |           |           |  |           |      |  |  |  |   |  |  |  |   |  |  |  |   | 
|Ricardo Verdaguerv(13)                                       |  |           | 750,161   |            |  |            | 4.0  |             |  |           |           |           |  |           |      |  |  |  |   |  |  |  |   |  |  |  |   | 
|Frank Feather (14)                                           |  |           | 2,500     |            |  |            | *    |             |  |           |           |           |  |           |      |  |  |  |   |  |  |  |   |  |  |  |   | 
|José Antonio Rìos (15)                                       |  |           | 2,500     |            |  |            | *    |             |  |           |           |           |  |           |      |  |  |  |   |  |  |  |   |  |  |  |   | 
|Emilio Romano (16)                                           |  |           | 2,500     |            |  |            | *    |             |  |           |           |           |  |           |      |  |  |  |   |  |  |  |   |  |  |  |   | 
|Luis Villanueva (17)                                         |  |           | 2,500     |            |  |            | *    |             |  |           |           |           |  |           |      |  |  |  |   |  |  |  |   |  |  |  |   | 
|Marcos Clutterbuck (18)                                      |  |           | 2,500     |            |  |            | *    |             |  |           |           |           |  |           |      |  |  |  |   |  |  |  |   |  |  |  |   | 
|Ralph Haiek(19)                                              |  |           | 7,400     |            |  |            | *    |             |  |           |           |           |  |           |      |  |  |  |   |  |  |  |   |  |  |  |   | 
|José Antonio Ituarte                                         |  |           |          |            |  |            | *    |             |  |           |           |           |  |           |      |  |  |  |   |  |  |  |   |  |  |  |   | 
|Roberto Cibrian Campoy(20)(21)(22)                           |  |           | 79,236    |            |  |            | *    |             |  |           |           |           |  |           |      |  |  |  |   |  |  |  | 1 |  |  |  |   | 
|Amaya Ariztoy                                                |  |           | 865       |            |  |            | *    |             |  |           |           |           |  |           |      |  |  |  |   |  |  |  |   |  |  |  |   | 
|Mariano Julian Varela                                        |  |           | 2,433     |            |  |            | *    |             |  |           |           |           |  |           |      |  |  |  |   |  |  |  |   |  |  |  |   | 
|Marcelo Zuniga                                               |  |           |          |            |  |            | *    |             |  |           |           |           |  |           |      |  |  |  |   |  |  |  |   |  |  |  |   | 
|Jaime de Aguirre                                             |  |           |          |            |  |            | *    |             |  |           |           |           |  |           |      |  |  |  |   |  |  |  |   |  |  |  |   | 
|All directors and executive
officers as a group (19 persons) |  |           | 1,358,983 |            |  |            | 7.3  |             |  |           |           |           |  |           |      |  |  |  |   |  |  |  |   |  |  |  |   | 



---

|*   |  | indicates less than 1%                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(1) |  | Calculated according to Rule 13d-3(d) of the Securities Exchange
Act of 1934. Under Rule 13d-3(d), shares not outstanding which are
subject to options, warrants, rights or conversion privileges
exercisable within 60 days are deemed outstanding for the purpose of
calculating the number and percentage owned by the holder of the
options, warrants, rights or conversion privileges but not deemed
outstanding for the purpose of calculating the percentage owned by any
other person listed.                                                                                                                                                                           
|   
|(2) |  | Excludes 4,499,769 Class A common shares and 4,200,000 Series A
Preferred Shares owned by 1947 Carlyle Investments LLC, of which 1945
Carlton Investments LLC disclaims beneficial ownership. Includes
710,134 Class A common shares owned by Carlos E. Cisneros, who has
granted 1945 Carlton Investments LLC and 1947 Carlyle Investments LLC
the right to vote the 710,134 Class A common shares pursuant to an
Irrevocable Proxy and Right of First Offer Agreement. 1945 Carlton
Investments LLC is indirectly owned by a trust established by Gustavo
A. Cisneros primarily for the benefit of himself and members of his
family. Gustavo A. Cisneros disclaims beneficial

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|    |  | ownership of the shares owned by 1947 Carlyle Investments LLC. Both 1945
Carlton Investments LLC and 1947 Carlyle Investments LLC are members of
the Cisneros Group of Companies.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(3) |  | Excludes 4,499,769 Class A common shares and 4,200,000 Series A
Preferred Shares owned by 1945 Carlton Investments LLC, of which 1947
Carlyle Investments LLC disclaims beneficial ownership. Includes
710,134 Class A common shares owned by Carlos E. Cisneros, who has
granted 1947 Carlyle Investments LLC and 1945 Carlton Investments LLC
the right to vote the 710,134 Class A common shares pursuant to an
Irrevocable Proxy and Right of First Offer Agreement. 1947 Carlyle
Investments LLC is indirectly owned by a trust established by Ricardo
J. Cisneros primarily for the benefit of himself and members of his
family. Ricardo J. Cisneros disclaims beneficial ownership of the
shares to be owned by 1945 Carlton Investments LLC. Both 1947 Carlyle
Investments LLC and 1945 Carlton Investments LLC are members of the
Cisneros Group of Companies.
|   
|(4) |  | Includes 4,499,769 Class A common shares and 4,200,000 Series A
Preferred Shares owned by 1947 Carlyle Investments LLC. Includes
710,134 Class A common shares owned by Carlos E. Cisneros, who has
granted 1945 Carlton Investments LLC and 1947 Carlyle Investments LLC
the right to vote the 710,134 Class A common shares pursuant to an
Irrevocable Proxy and Right of First Offer Agreement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|(5) |  | Includes 4,499,769 Class A common shares and 4,200,000 Series A
Preferred Shares owned by 1945 Carlton Investments LLC. Includes
710,134 Class A common shares owned by Carlos E. Cisneros, who has
granted 1945 Carlton Investments LLC and 1947 Carlyle Investments LLC
the right to vote the 710,134 Class A common shares pursuant to an
Irrevocable Proxy and Right of First Offer Agreement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|(6) |  | Includes:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               



| |  |  | 5,319,131 Class A common shares, 5,407,872 Series A
Preferred Shares and 1 Class H Common Shares, held of record by
Hicks, Muse, Tate & Furst Latin America Fund, L.P.;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | 965,721 Class A common shares, and 981,832 Series A
Preferred Shares, held of record by Hicks, Muse, Tate & Furst
Latin America Private Fund, L.P.;                    
|
| |  |  | 206,845 Class A common shares, and 210,296 Series A
Preferred Shares, held of record by HMLA 1-SBS Coinvestors, L.P.;                                                  
|
| |  |  | 107,945 Class A common shares held of record by HMTF Holdings; and                                                                                                     
|
| |  |  | 807 Class A common shares held of record by Mr. Hicks.                                                                                                                 



|    |  | Mr. Hicks is the sole shareholder, director and an executive officer of
Hicks, Muse, Latin America Fund I Incorporated, which is the ultimate
general partner of Hicks, Muse Tate & Furst Latin America Fund, L.P.;
Hicks, Muse Tate & Furst Latin America Private Fund, L.P. and HMLA 1-SBS
Coinvestors, L.P. Accordingly, Mr. Hicks may be deemed to be the
beneficial owner of Class A common shares and Series A Preferred Shares
held by Hicks, Muse, Tate & Furst Latin America Fund, L.P.; Hicks, Muse,
Tate & Furst Latin America Private Fund, L.P.; and HMLA 1  SBS
Coinvestors, L.P. John R. Muse, Andrew S. Rosen, Joe Colonnetta, Jack D.
Furst, Dan H. Blanks, Eric C. Neuman, Peter Brodsky and Lyndon Lea are
also executive officers of Hicks, Muse, Latin America Fund I Incorporated
and as such may be deemed to share with Mr. Hicks the power to vote or
dispose of the Class A common shares and Series A Preferred Shares held
by Hicks, Muse, Tate & Furst Latin America Fund, L.P.; Hicks, Muse, Tate
& Furst Latin America Private Fund, L.P.; HMLA 1-SBS Coinvestors, L.P.;
and HMTF Holdings. Each of Messrs. Hicks, Muse, Rosen, Colonnetta, Furst,
Blanks, Neuman, Brodsky and Lea disclaims the existence of a group and
disclaims beneficial ownership of Class A common shares and Series A
Preferred Shares not owned of record by him.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(7) |  | Includes 473,691 Class A common shares which Militello Limited, an
entity wholly owned by Roberto Vivo-Chaneton, transferred to Mr.
Vivo-Chaneton on December 30, 2002. In addition, it includes 6,250
Class A common shares issued to Sarandi Comunicaciones S.A., which is
also an affiliate of Mr. Vivo-Chaneton. Mr. Vivo-Chaneton disclaims
beneficial ownership of all shares owned by Sarandi Comunicaciones S.A.
Mr. Vivo ceased to be a director of IMPSAT Fiber Networks Inc. on March
25, 2003, therefore the shares held by IMPSAT Fiber Networks Inc. are
not longer attributable to Mr. Vivo on the beneficial ownership chart.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|(8) |  | Consists of options to acquire 2,500 shares in the Company granted
to Mr. Bardasano under the Claxson 2001 Share Incentive Plan which are
currently exercisable.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|(9) |  | Consists of 15,032 Class A common shares held directly by Mr.
Neuman. Includes options to acquire 2,500 shares in the Company granted
to Mr. Neuman under the Claxson 2001 Share Incentive which are
currently exercisable. Mr. Neuman is an executive officer of Hicks,
Muse, Latin America Fund I Incorporated, and accordingly may be deemed
to be the beneficial owner of Class A common shares and Series A
Preferred Shares held by Hicks, Muse, Tate & Furst Latin America Fund,
L.P.; Hicks, Muse, Tate & Furst Latin America Private Fund, L.P., HMLA
1-SBS Coinvestors, L.P., and HMTF Holdings. Mr. Neuman disclaims the
existence of a group and disclaims beneficial ownership of Class A
common shares and Series A Preferred Shares not owned of record by him.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

50



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|(10) |  | Includes options to acquire 2,500 shares in the Company granted to
Mrs. Arismendi under the Claxson 2001 Share Incentive Plan which are
currently exercisable.                                                                                                                                                                                                                                                                                                                                                                                                                               
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|(11) |  | Includes options to acquire 2,500 shares in the Company granted to
Mr. Montoya under the Claxson 2001 Share Incentive Plan which are
currently exercisable.                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    
|(12) |  | Consists of options to acquire 2,500 shares in the Company granted
to Mr. Gavin under the Claxson 2001 Share Incentive Plan which are
currently exercisable.                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    
|(13) |  | Includes beneficial ownership of 133,538 Class A common shares
attributable to Ricardo Verdaguer as a result of his controlling
interest in Tower Plus International and options to acquire 2,500
shares in the Company granted to Mr. Verdaguer under the Claxson 2001
Share Incentive Plan which are currently exercisable. Also includes
614,123 shares owned by IMPSAT Fiber Networks, Inc. attributable to Mr.
Verdaguer as a result of his affiliation with IMPSAT Fiber Networks,
Inc. Mr. Verdaguer disclaims beneficial ownership of all shares owned
by IMPSAT Fiber Networks, Inc.
|    
|(14) |  | Consists of options to acquire 2,500 shares in the Company granted
to Mr. Feather under the Claxson 2001 Share Incentive Plan which are
currently exercisable.                                                                                                                                                                                                                                                                                                                                                                                                                               
|    
|(15) |  | Consists of options to acquire 2,500 shares in the Company granted
to Mr. Rios under the Claxson 2001 Share Incentive Plan which are
currently exercisable.                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    
|(16) |  | Consist of options to acquire 2,500 shares in the Company granted
to Mr. Romano under the Claxson 2001 Share Incentive Plan which are
currently exercisable.                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    
|(17) |  | Consist of options to acquire 2,500 shares in the Company granted
to Mr. Villanueva under the Claxson 2001 Share Incentive Plan which are
currently exercisable.                                                                                                                                                                                                                                                                                                                                                                                                                             
|    
|(18) |  | Consist of options to acquire 2,500 shares in the Company granted
to Mr. Clutterbuck under the Claxson 2001 Share Incentive Plan which
are exercisable within 60 days.                                                                                                                                                                                                                                                                                                                                                                                                                       
|    
|(19) |  | Excludes 20,000 Class A common shares owned by Mr. Haieks spouse.
Mr. Haiek disclaims beneficial ownership of all Class A common shares
held by Mr. Haieks spouse.                                                                                                                                                                                                                                                                                                                                                                                                                         
|    
|(20) |  | Includes 79,236 Class A common shares held through RC Limited,
which is wholly owned by Roberto Cibrian Campoy and his wife.                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    
|(21) |  | Certain shareholders entered into an agreement dated as of
September 21, 2001 (the Holdco Agreement). Pursuant to Section 2.1
of the Holdco Agreement, the Company will not propose and the Board of
Directors of the Company will not approve or recommend, any amendment
of the Amended and Restated Memorandum of Association or Amended and
Restated Articles of Association of the Company which materially
adversely affects the rights of the shareholder under the Holdco
Agreement, without the prior written consent of the shareholder.                                         
|    
|(22) |  | Each holder of Class F Common Shares, which is a party to the
Holdco Agreement, must consult with, and take into account the views of
Luis H. Moreno, III in exercising the voting rights of those shares.                                                                                                                                                                                                                                                                                                                                                                                   

Voting

See Item 10, Section B Memorandum and Articles of Association.

B.     Related Party Transactions

The following discussion presents related party transactions involving
Claxson, 1945 Carlton/1947 Carlyle (Cisneros Group), Hicks Muse and/or El
Sitio, including their respective affiliates and executives/employees and
directors.

In September 1999, Claxsons predecessor, Ibero-American Media Partners,
entered into several affiliation agreements with DirecTV Latin America for
channel distribution in Latin America. Members of the Cisneros Group of
Companies own approximately 21% of DirecTV Latin America. The channels
currently distributed by DirecTV Latin America on a pan-regional basis are:
Locomotion, Playboy TV, The Hot Network (formerly known as Spice and
Adultvision), Venus, Infinito, MuchMusic, the DMX MUSIC Latin America channels,
Retro, FTV, Cl@se and HTV. DirecTV Latin America also distributed the
following channels exclusively in Argentina until December 2002: Space, I.Sat,
Uniseries (now Retro), Jupiter (now FTV) and Crónica TV.

In June 2002, we extended the term of the Playboy TV and The Hot Network
distribution agreements (which also now covers the Venus channel) with DirecTV
Latin America until December 31, 2004. As part of the renegotiations, we
agreed to reduce our percentage of DirecTV Latin America subscriber revenues to
market levels.

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In November 2002, we renegotiated our distribution agreements with DirecTV
Latin America for the rest of our channels. At the time, DirecTV Latin America
had stopped and/or delayed all payments due with respect to these agreements.
As part of the renegotiations, we agreed to retroactively as of January 2002
convert amounts due for programming provided in Argentina from U.S. dollars to
Argentine pesos and provided DirecTV Latin America with certain other
devaluation relief for programming provided in Brazil and Venezuela during
2002. We also entered into new distribution agreements with DirecTV Latin
America for the period from January 2003 through December 2005 providing for
reduced license fees at prices based on local currencies for Argentina, Brazil,
Mexico, Venezuela and Colombia subject to certain mandatory inflation and other
price adjustments. In exchange for these concessions, DirecTV Latin America
agreed to launch our Retro channel pan regionally.

On March 18, 2003 DirecTV Latin America filed a voluntary petition for
reorganization under Chapter 11 of the United States Bankruptcy Court. See
Item 3D  Risk Factors  General Risks  The bankruptcy of DirecTV Latin America,
the largest distributor of our pay television channels, could lead to a
reduction in our earnings or our inability to collect certain accounts
receivables.

A subsidiary of Claxson is the exclusive affiliate sales representative of
Venevision Continental, a pay television channel that is wholly owned by
members of the Cisneros Group. With the exception of DirecTV Latin America, for
which Claxson receives no commission, Claxson receives a 20% commission for
affiliate sales. In addition, Claxson sub-leases satellite space for the
carriage of Venevision Continental. A subsidiary of Claxson is also the
advertising sales representative of Venevision Continental.

On June 19, 2000, Playboy TV International entered into a program license
agreement (as amended by letters dated July 27, 2001 and October 4, 2001) with
Venevision International LLC, a member of the Cisneros Group, pursuant to which
Venevision International would distribute certain Playboy television programs
on broadcast television in Latin America, Portugal and Spain for 2001, 2002 and
2003. The license fees are as follows: (i) U.S.$400,000 for 2001, (ii)
U.S.$450,000 for 2002 and (iii) U.S.$525,000 for 2003. This Agreement was
assigned to Playboy TV Latin America as part of the Playboy TV Latin America
restructuring.

On March 30, 2001, Playboy TV International and Venevision International
Productions LLC, a member of the Cisneros Group, entered into a co-production
agreement under which Venevision would produce 52 Spanish language episodes of
a soap opera. Each episode would have two versions, one version for exhibition
on free television, and the other for exhibition on pay television. Each party
would assume 50% of the costs of production. Under this agreement, the parties
have allocated the distribution rights and territories for which each party
will be responsible and the commission that each party will receive for the
distribution of the programs. The maximum amount budgeted for the
co-production arrangement was U.S.$25,000 per episode and U.S.$1.3 million in
the aggregate. This agreement was assigned to Playboy TV Latin America as part
of the Playboy TV Latin America restructuring.

In June 2001, Playboy TV Latin America and El Sitio, Inc. entered into a
memorandum of understanding under which Playboy TV Latin America granted El
Sitio a non-exclusive license for certain photos and videos comprised of the
original produced material for the series Sesión Privadafor the purpose of
including such content as part of the El Sitio Digital Channel to be
distributed on Fibertels broadband platform of subscribers. Fibertel is an
affiliated company of CableVisión in Argentina, in which funds affiliated with
Hicks, Muse, Tate & Furst Incorporated hold an approximately 50% ownership
interest. Under the terms of the memorandum of understanding, Fibertel will
guarantee to Claxson payment of 100% of all revenue derived from the first
1,000 subscribers to Fibertels online games service. In addition, Fibertel
would pay to Claxson 50% of all revenue derived from all online games
subscribers beyond the first 1,000. On January 31, 2002, through mutual
consent, Playboy TV Latin America and El Sitio extended the term of the
memorandum of understanding for an additional year, commencing on February 1,
2002 and modified the original memorandum of understanding to include
additional territories.

On March 28, 2001, Chilevisión entered into an agreement to license to
Venevision International Corporation, a member of the Cisneros Group, rights to
broadcast and pay television distribution of certain original programming to be
produced by Chilevisión during the three year, renewable term. The
distribution rights cover the United States, Latin America, the Caribbean and
Spain. The license fee was U.S.$65,000.

On June 20, 2001, Imagen Satelital entered into a one-year agreement with
Venevision International LLC, a member of the Cisneros Group, for the
distribution by Venevision International on all forms of television (excluding
pay television for Latin America, Internet and broadcast television in Chile)
of 48 original produced

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programs of the series Infinitoin Latin America (excluding Chile). Under
the terms of this agreement, Imagen Satelital would receive 80% of the proceeds
from the distribution of Infinitoprogramming and Venevision International
would receive the remaining 20%. This agreement expired on June 20, 2002.

Imagen Satelital entered into an agreement with Venevision International
LLC, a member of the Cisneros Group, on or about May 20, 1997 for the
sub-license of various movie titles distributed by BMG Ariola Argentina, S.A.
for broadcast and pay television distribution in Argentina, Uruguay, Paraguay
and Chile. The license fee was U.S.$1.0 million. As of June 2001, Imagen
Satelital had paid only a portion of the license fees due under the program
license agreement. BMG sent Venevision International notice to cease and
desist distribution of such titles licensed to Imagen Satelital until the
outstanding dispute was resolved. BMG, Imagen Satelital and Venevision
International entered into a release and settlement agreement on July 24, 2001
under which the parties agreed to settle and resolve the outstanding disputes
relating to the titles and payment of the license fee and BMG agreed to grant
Imagen Satelital a license to use the movie titles for six years. Imagen
Satelital paid the total amount of U.S.$500,503 to BMG to settle the
outstanding disputes which cover the license fees under the original program
license agreement.

On August 16, 2001, a subsidiary of Claxson acquired a business in Brazil
and other assets known as Dgolpe, which was controlled by an affiliate of
Hicks, Muse, Tate & Furst Incorporated. Dgolpe offered an online directory of
digital music in Spanish and Portuguese, provided interactive services to
private label clients and sold branded electronic music compilations on compact
discs to music retailers. The purchase price for the transaction consisted of
118,760 Class A common unregistered shares of Claxson. As part of this
transaction, an affiliate of Hicks, Muse, Tate & Furst Incorporated provided
U.S.$500,000 worth of outdoor advertising to Claxson. Due to the slowdown of
the Internet business in the region, Claxson decided to terminate the operation
of the Dgolpe business in March 2002.

Imagen Satelital and CableVisión S.A., one of the largest cable operators
in Argentina, entered into an affiliation agreement effective as of January 1,
2001 through December 31, 2003. Funds affiliated with Hicks, Muse, Tate &
Furst Incorporated own approximately 50% of CableVisión. The affiliation
agreement provides for the distribution of the following channels: Space;
I.Sat; Uniseries; Infinito; Locomotion; FTV; MuchMusic and Crónica for the
basic tier; and Venus as a premium channel and pay-per-view service.
CableVisión also agreed to use its best efforts to carry any other signal
distributed by Imagen Satelital on any system it converts from analog to
digital.

Between July and September 2000, Imagen Satelital instituted a series of
mediation and legal proceedings against CableVisión, seeking payment of certain
disputed license fees pursuant to the then-existing carriage agreements between
the parties. The proceedings also involved disputes relating to the
distribution of the Venus channel by CableVisión. On November 29, 2000, Imagen
Satelital and CableVisión entered into a settlement agreement and new
affiliation agreement to resolve all outstanding mediation and legal
proceedings between the parties. CableVisión, however, failed to pay the fees
agreed upon in the new affiliation agreement during the first-half of 2001. As
a consequence of the devaluation and economic situation in Argentina, new
regulations have been imposed whereby any agreement entered into by an
Argentine entity or governed by Argentine law and which had economic terms
based on the U.S. dollar had to convert its economic terms to the Argentine
peso at an exchange rate of Ps. 1.00 per U.S.$1.00. As a result of these new
regulations, Imagen Satelital and CableVisión negotiated a payment schedule for
the outstanding payments of Argentine Ps. 4.0 million owed by CableVisión as of
January 30, 2002. CableVisión paid this amount in 10 installments through
2002. In October 2002 Imagen and CableVisión entered into an amendment with
respect to certain modifications of the license fees to be based on a
per-subscriber fee instead of a flat fee. In addition the parties agreed on
the inclusion of FTV on the CableVisión channel line-up.

In Venezuela, a number of Claxsons pay television channels are
distributed pursuant to an affiliation agreement between a subsidiary of
Claxson and Corporación Telemic S.A., which is also known as Intercable. A
fund affiliated with Hicks, Muse, Tate & Furst Incorporated has a significant
equity interest in Intercable. Due to the currency devaluation and foreign
currency control system imposed in Venezuela, the parties renegotiated the
agreement to provide that the license fees be paid in local currency.

For the year ended December 31, 2002, we realized approximately U.S.$17.0
million in aggregate revenues from our affiliation agreements with DirecTV
Latin America, CableVisión and Intercable.

On October 29, 2000, Ibero-American Media Partners, the predecessor of
Claxson, and AOL Latin America, Inc. signed an agreement for the sharing of
media content, television advertising and online promotions.

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Pursuant to the agreement, we provide localized content from our Cl@se and
Infinito channels. In a related letter agreement, Ibero America Media Partners
agreed to use its reasonable best efforts to cause its joint venture channels
to enter into similar arrangements with AOL Latin America. Members of the
Cisneros Group own a significant equity interest in AOL Latin America. The
parties have not exercised or complied with the rights and obligations under
this contract.

In February 2000, El Sitio entered into a strategic alliance with Sarandi
Comunicaciones S.A., which owns and operates a network of radio stations in
Uruguay under the Sarandi name. El Sitio received an exclusive royalty-free
license to use proprietary content broadcast on radio stations owned by
Sarandi. Sarandi agreed to provide a fixed amount of advertising time on its
radio stations to El Sitio, valued at U.S $450,000 and to guarantee a minimum
amount of advertising for El Sitios website in Uruguay. In exchange for
Sarandis obligations, El Sitio would design, host and maintain websites for
Sarandis radio stations. On September 21, 2001, the parties terminated this
strategic alliance agreement effective as of September 30, 2001. Our chairman
of the board and chief executive officer, Roberto Vivo-Chaneton, has a 25%
equity interest in Sarandi, and Guillermo Liberman, a shareholder of Claxson,
has a 25% beneficial ownership in Sarandi.

On September 21, 2001, our Uruguayan subsidiary executed a five-year lease
and co-management agreement for the operation of three radio stations owned by
Sarandi Communications, S.A.: AM 690 (Sarandi),AM 890 (Sport),and FM 91.9
(Music One). Under the terms of the lease and co-management agreement, El
Sitio Uruguay would pay Sarandi U.S.$65,000 per month. El Sitio Uruguay
coordinates the programming and marketing strategy of each station, manages the
stations advertising sales, as well as other operational matters of the
stations. Prior to the execution of the lease and co-management agreement, in
July 2001, Sarandi and El Sitio Uruguay preliminarily agreed to grant to us an
option to extend the term of the operating lease to 30 years. The exercise
price of the option would vary depending on the year of exercise and will range
from approximately U.S.$4.6 million (if the option is exercised in the first
year of the lease) to U.S.$7.6 million if the option is exercised in the fifth
year of the lease. The exercise price of the option may be paid, at our
election, in cash and/or Class A common shares of Claxson. Class A common
shares of Claxson will be valued at the market price of the shares at the time
of exercise. Both Sarandi and Claxson believe, based upon the advice of
Uruguayan counsel, that the proposed structure for the lease transaction
complies with Uruguayan laws and regulations that prohibit foreign (i.e.,
non-Uruguayan) ownership of broadcasting transmission licenses. However, no
Uruguay regulatory authority has approved the terms and conditions of this
preliminary agreement.

On November 14, 2001 El Sitio and Sarandi executed the option agreement
based on the terms set forth in the term sheet. The parties also agreed that
in case that Uruguayan regulations do not permit foreign entities to operate
media companies, the parties will execute a management agreement for 30 years
and El Sitio Uruguay will have the right to acquire all the operating assets of
Sarandi Radios.

On November 14, 2001 the parties also executed a first amendment to the
co-management and lease agreement reducing the monthly fee from U.S.$65,000 to
U.S.$60,000. On August 31, 2002 the Parties executed a second amendment to the
co-management and lease agreement reducing the monthly fee from US$60,000 to
US$30,000 for the period from September 2002 through December 2002. El Sitio
is currently renegotiating the monthly fee with Sarandi in order to maintain,
effective as of January 2003, a similar level of license fees as per such
second amendment.

During October 1999, November 1999 and April 2000, El Sitio, a subsidiary
of Claxson, acquired the retail dial-up access customers of IMPSAT Fiber
Networks in Brazil, Argentina and Colombia, respectively. In connection with
the acquisitions, El Sitio entered into service agreements with subsidiaries of
IMPSAT whereby IMPSAT would provide El Sitio with the telecommunications
infrastructure necessary to provide connectivity services to the acquired
customers. IMPSAT also provided El Sitio with links to the Internet in
exchange for advertising on El Sitios network. On December 7, 2001, Imagen
Satelital signed a letter of intent with Impsat Argentina S.A. that provided
for connectivity services for nine connections among Claxsons different
locations and the Internet. Roberto Vivo-Chaneton, our chairman of the board
and chief executive officer, used to be a director of IMPSAT. Ricardo
Verdaguer, a director of Claxson, is the president and chief executive officer
of IMPSAT.

Claxson has agreed to pay certain advisory fees to 1945 Carlton/1947
Carlyle, Hicks Muse and the El Sitio founders in connection with the merger
transaction. Claxson is required to pay to each of 1945 Carlton/1947 Carlyle
and Hicks Muse U.S.$150,000 per year. Claxson also is required to pay to the
El Sitio founders, as a group, U.S.$50,000 per year. The advisory fees are
payable for a period of three years following the merger transaction.

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On December 21, 1998, CTG Inversora, S.A., a subsidiary of Claxson,
purchased Canal Joven, S.A. an Argentine company that operates the pay
television MuchMusic franchise in Argentina. Ralph Haiek, our chief operating
officer-pay television, was one of the sellers who owned certain shares of
Canal Joven, S.A.

On September 7, 2001, Claxson purchased from Promoción de Eventos
Limitada, a Chilean limited liability company, 722,656 shares of Ibero America
Media Holdings, S.A., a subsidiary of Claxson, for a purchase price of
U.S.$3,713,500 representing less than a 3% equity interest in Ibero America
Media Holdings. The purchase price was secured by a promissory note accruing
interest at an annual rate of 10%, with a maturity date of September 21, 2002.
Jaime Vega de Kuyper, former chief operating officer-broadcast, is the
beneficial owner of Promoción de Eventos Limitada. Claxson entered into an
amendment to the purchase agreement, whereby the payment of the purchase price
would be extended as follows: (i) 50% of the purchase price plus accrued
interest paid on September 21, 2002; (ii) 25% of the purchase price plus
accrued interest paid on March 21, 2003 and (iii) 25% of the purchase price
plus accrued interest paid on June 21, 2003.

On September 7, 2001, Claxson purchased from Ituarte y Compañia Limitada,
a Chilean limited liability company, 36,123 shares of Ibero America Media
Holdings, S.A., a subsidiary of Claxson, for a purchase price of U.S.$185,675.
Jóse Antonio Ituarte, our chief financial officer, is the beneficial owner of
Ituarte y Compañia Limitada.

In December 2001, Jaime Vega de Kuyper, former chief operating
officer-broadcast loaned U.S.$450,000 to Ibero American Media Holdings, S.A., a
subsidiary of Claxson, at an interest rate of LIBOR plus 3%, which was paid by
Ibero America Media Holdings in three equal installments in August, September
and October of 2002.

In connection with the consummation of the merger transaction, Claxson
agreed to assume the payment obligation for the fees of Violy, Byorum &
Partners, the investment advisors to the Cisneros Group. The Cisneros Group
made payments in the amount of U.S.$0.7 million to Violy, Byorum & Partners.

On June 5, 2003, our subsidiary, El Sitio Management S.A., and America On
Line Latin America, a company in which the Cisneros Group has an equity
interest, entered into a strategic alliance agreement covering the following:



| |  |  | the joint provision of a paid, personal listing and
matchmaking service under the brand Cupido VIP;                                                                                                                                                                 
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | El Sitios operation of virtual, web-based interactive chat
rooms to be used by America On Line Latin Americas subscribers and
general Internet users under the AOL and El Sitio brands; and                                                                       
|
| |  |  | the launch of a new web-based personal listing service,
provided to general Internet users for a monthly fee, on a
subscription basis, leveraging the brand Cupido, and combining the
databases of Amor and Cupido existing services to create a new joint
database.

The revenues generated will be distributed based on a 50/50 sharing formula
minus certain costs incurred by the parties.

Effective January 1, 2003, Claxson sold the Cl@se channel to the Cisneros
Group for U.S.$208,000. As part of the transaction, Claxson will continue to
provide services to Cl@se, including:



| |  |  | affiliate sales services for the representation of the Cl@se
channel in sales to cable operators in Latin America in exchange for
a 20% sales commission;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | creative services for on- and off-air promotions for an annual fee;                                                                                      
|
| |  |  | certain management services for an annual fee; and                                                                                                       
|
| |  |  | program origination, playback, signal distribution, satellite
transponder, uplink and other technical services for an annual fee.                        

Simultaneously with the closing of this transaction, the parties entered into
various agreements in order to set off and cancel the outstanding liabilities
between Claxson and its subsidiaries on the one hand and the Cisneros Group and
its affiliates on the other, which resulted in the Cisneros Group having a
total credit balance with Claxson of

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US$1,118,429. The parties also agreed that Cisneros Group and/or Cl@se are
entitled to offset any fees, costs or expenses payable in connection with the
services to be rendered by Claxson described above against an equal amount of
such Cisneros Group credit balance.

C.     Interests of Experts and Counsel

Not Applicable




Item 8. Financial Information

A.     Consolidated Statements and Other Financial Information

The consolidated statements and other financial information required by
Regulation S-X are included in this Annual Report on Form 20-F commencing on
page F-1.

Legal Proceedings

Except as described below, Claxson is not involved in any material legal
proceedings.

Four civil complaints have been filed in the U.S. District Court for the
Southern District of New York against El Sitio, certain of its directors and
principal executive officers, and the underwriters which led El Sitios initial
public offering in December 1999. The complaints, which request that the cases
be certified as class actions, are: Howard M. Lasker, on behalf of himself and
all others similarly situated, vs. El Sitio, Inc., et. al (filed on June 8,
2001 in the U.S. District Court for the Southern District of New York); Bais
Kahana, on behalf of himself and all others similarly situated, vs. El Sitio,
Inc., et. al. (filed on June 12, 2001 in the U.S. District Court for the
Southern District of New York); Shapaour Yavari, on behalf of himself and all
others similarly situated, vs. El Sitio, Inc., et. al. (filed on June 22, 2001
in the U.S. District Court for the Southern District of New York); and Warren
and Frances Foster and Larry Walls, on behalf of themselves and all others
similarly situated, vs. El Sitio, Inc., et al. (filed on July 11, 2001 in the
U.S. District Court for the Southern District of New York). The complaints
allege, among other things, that the prospectus and registration statement for
the initial public offering were materially misleading because they did not
disclose the following alleged actions on the part of the underwriters: (1) the
underwriters solicited and received additional and excessive commissions from
certain investors in exchange for special allocations of common shares in the
initial public offering; and (2) the underwriters entered into agreements with
these investors whereby such investors agreed to purchase additional common
shares of El Sitio in the aftermarket at pre-determined prices, thereby
artificially supporting or inflating the market price of El Sitios common
shares. The claims are alleged under both the U.S. Securities Act of 1933 and
the U.S. Securities Exchange Act of 1934. The complaints seek unspecified
money damages.

In August, 2001, the Court ordered that these cases be consolidated for
all pre-trial purposes in In re Initial Public Offering Securities Litigation,
21 MC 92, an intra-district proceeding involving approximately 900 lawsuits
relating to the initial public offerings of approximately 310 companies. In
April 2002, the Court appointed Lead Plaintiffs, and the Lead Plaintiffs filed
a Consolidated Amended Class Action Complaint. In July 2002, we and the other
defendants in the class action filed a motion to dismiss. In November 2002,
the plaintiffs dismissed their claims against our current and former officers
and directors without prejudice. Our motion to dismiss, as well as those of
most of the other defendants in the class action, were denied in February 2003.

In April 2003, we were advised that the global settlement discussions
between the Lead Plaintiffs and our insurer (on El Sitios behalf) to resolve
all of the plaintiffs claims against the 310 issuer defendants in the
consolidated proceeding had reached an advanced stage. On May 16, 2003, the
independent directors on our board of directors authorized our management to
allow El Sitio to participate in the discussions related to a proposed
settlement. Among other things, the proposed settlement would result in a
broad release of claims against El Sitio, its officers and directors, and other
issuers, and their officers and directors without a direct financial
contribution by El Sitio. The proposed settlement would require El Sitio to
assign to the plaintiffs certain claims it potentially could bring against its
underwriters arising from its initial public offering, and to release or waive
certain other legal rights it may have, including recovery of attorneys fess
spent to date. The proposed settlement would not release claims that El
Sitios underwriters could bring against El Sitio or its officers, directors,
or agents. The settlement is subject to court approval, and satisfactory
finalization of the settlement papers.

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Notwithstanding a possible settlement, Claxson believes that the
allegations in the complaint relating to El Sitio and its directors and
principal executive officers are without merit, and have retained counsel to
vigorously defend El Sitio and its directors and principal executive officers
in these cases if necessary.

On April 30, 2001, the Brazilian tax authorities (Municipalidade do Sao
Paulo) appealed before the Special Jurisdiction Appellate Court of the State of
Sao Paulo the lower tax court decision that held in favor of our subsidiary,
Osite Informatica Ltda., in a suit for taxes alleged to be due by O Site
Entertenimentos Ltda. in the amount of 1.1 million reals (approximately
U.S.$473,000). Based on preliminary assessments of our Brazilian tax advisors,
we anticipate that this appeal will be dismissed and that the lower court
ruling will be upheld.

On September 15, 2000, New Yetem, S.A. filed a petition, technically
called beneficio de litigar sin gastos requesting a waiver of the mandatory
litigation fee (3% of the amount of the lawsuit) and the right to bring forth a
claim without prior payment of the litigation fee. Such petition was granted
on November 15, 2001. A favorable response to such petition bears no relation
to the outcome of the potential claim that could subsequently be filed. On
November 2, 2000, in light of the press coverage regarding the announcement of
the merger transaction, New Yetem requested that the judge compel legal
representatives of El Sitio Argentina, S.A., our subsidiary, to provide details
on the transaction since a merger could jeopardize New Yetems ability to
collect from El Sitio Argentina in the event of a final court decision. The
judge rejected this petition, and New Yetem appealed five days later. The
Camara Nacional de Apelaciones en lo Comercialupheld the lower courts
decision in favor of El Sitio Argentina on February 7, 2001. On June 25, 2002,
Claxson was formally served with the summons and complaint in our executive
offices in Buenos Aires, claiming U.S.$14 million in damages. We responded to
the claim on August 2002 by requesting the judge to reject such claim. We
believe New Yetems claims are without merit. Nonetheless, in the unlikely
event New Yetem should prevail, we believe the actual damages are likely to be
significantly lower than the U.S.$14 million claimed. On June 17, 2003, Imagen
Satelital, received a police search order issued by a lower Criminal Court in
Buenos Aires to seek information as part of a criminal accusation by New
Yetems president. Imagen provided the requested information. The initial
phase of a criminal investigation is confidential and therefore we have no
further information about the alleged charges or merits thereof and against
whom such alleged charges are made.

The Chilean Antitrust General Attorney is conducting a confidential,
general investigation regarding the level of concentration in the radio
broadcasting industry in Chile. On June 27, 2001, the Commission asked Radio
Chile to provide certain information regarding its business and operations.
Radio Chile complied with this request and submitted the requested information
on September 11, 2001. No further petition or notice has been received by
Radio Chile.

If the Chilean Antitrust Commission were to continue its investigation and
find an unacceptable level of concentration in the radio broadcasting industry,
it may order a variety of relief measures, including one or more of the
following:



| |  |  | request that the Chilean Antitrust General Attorney monitor
the relevant market to prevent anti-competitive practices;
| | - |  | ----------------------------------------------------------------------------------------------------------------------
|
| |  |  | order the dominant players to seek prior approval for further
mergers, acquisitions or changes in control;            
|
| |  |  | order the dominant players to discontinue or avoid activities which raise antitrust concerns;                         
|
| |  |  | order the divestiture of certain assets; and                                                                          
|
| |  |  | impose fines in Chilean currency up to the equivalent of approximately U.S.$480,000.                                  

Claxson cannot predict the outcome of this investigation or whether the
investigation has been closed or is still active and will lead to further
information requests or other actions by the Commission that might affect Radio
Chile.

On April 23, 2002, SUBTEL, the Chilean telecommunications regulatory
agency, filed an administrative complaint against Radio Chile alleging that
Radio Chile had illegally broadcast its signal in Rengo, Chile, without a
permit. The possible penalties for such a violation include either the
imposition of a fine (US$ 5,000) or the loss of the concession to broadcast in
that specific location. Both penalties are appealable before the Chilean
Supreme

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Court. Although Claxson cannot predict the outcome of this complaint,
Claxson does not believe that this allegation has any merit.

On April 30, 2002, we announced that our subsidiary Imagen Satelital, S.A.
would not make an interest payment on May 1, 2002 on its 11% Senior Notes due
2005. On November 8, 2002, we successfully completed an exchange offer and
consent solicitation with respect to 93.1% of the outstanding 11% Senior Notes
due 2005 (the Old Notes). Pursuant to the exchange offer, we issued
U.S.$41.3 million principal amount of our 8.75% Senior Notes due 2010 in
exchange for U.S.$74.5 million principal amount of the Old Notes. Immediately
following the exchange offer and consent solicitation U.S.$5.5 million
principal amount of the Old Notes remained outstanding. As of June 1, 2003,
all but U.S.$3.2 million of the remaining principal amount of the Old Notes has
been exchanged for 6.25% Senior Notes due 2013 of Imagen Satelital. The
holders of some of these outstanding Old Notes have filed, or threatened to
file, various lawsuits, some with preventative injunctions, to collect certain
principal and/or interest payments for the Old Notes, including a petition for
the bankruptcy of Imagen. We are in the process of negotiating and/or
litigating these claims. Our failure to successfully negotiate or litigate
some or all of these claims may adversely affect our financial performance.

Dividend Policy

Subject to the prior rights of any series of shares that may be issued in
the future, holders of Class A common shares are entitled to receive, ratably,
dividends that are declared by our board of directors from funds legally
available therefor and are entitled to share, ratably, in all our assets
available for distribution to holders of our Class A common shares upon the
liquidation, dissolution or winding up of our affairs.

B.     Significant Changes

No significant change, other than as otherwise described in this Form
20-F, has occurred in our operations since the date of our Form 6-K filed with
the Securities and Exchange Commission on May 27, 2003.

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Item 9. The Offer and Listing

A.     Listing Details

The following table sets forth, for the periods indicated, the reported
high and low closing prices for our Class A common shares, as reported by
Nasdaq for the Nasdaq National Market prior to June 12, 2001, by Nasdaq for the
Nasdaq SmallCap Market from June 12, 2001 until December 17, 2002 and the OTC
Bulletin Board thereafter.

|                               |  |              |             |     |  |  |             | 
|------------------------------ |  | ------------ | ----------- | --- |  |  | ----------- | 
|                               |  | Sales Prices
|                               |  |             
|Fiscal Year Ended December 31, |  | High         |             | Low
|                               |  |              |             |    
|2001                           |  |              | U.S.$3.2344 |     |  |  | U.S.$1.4219 | 
|2002                           |  |              | 1.400       |     |  |  | 0.0600      | 

|               |  |              |             |     |  |  |             | 
|-------------- |  | ------------ | ----------- | --- |  |  | ----------- | 
|               |  | Sales Prices
|               |  |             
|               |  | High         |             | Low
|               |  |              |             |    
|2001           |  |              |             |     |  |  |             | 
|Third Quarter  |  |              | U.S.$2.7969 |     |  |  | U.S.$2.5938 | 
|Fourth Quarter |  |              | 3.2344      |     |  |  | 1.4219      | 
|2002           |  |              |             |     |  |  |             | 
|First Quarter  |  |              | 1.4063      |     |  |  | 0.3125      | 
|Second Quarter |  |              | 0.4400      |     |  |  | 0.0600      | 
|Third Quarter  |  |              | 0.3600      |     |  |  | 0.0700      | 
|Fourth Quarter |  |              | 0.4900      |     |  |  | 0.0600      | 
|2003           |  |              |             |     |  |  |             | 
|First Quarter  |  |              | 0.4500      |     |  |  | 0.1600      | 
|Second Quarter |  |              | 0.2700      |     |  |  | 0.2300      | 

The following table sets forth, for the most recent six months, the high
and low closing prices for the Class A common shares, as recorded by the Nasdaq
for the Nasdaq SmallCap Market prior to December 18, 2002 and the OTC Bulletin
Board thereafter.

|              |  |             |             |     |  |  |             | 
|------------- |  | ----------- | ----------- | --- |  |  | ----------- | 
|              |  | Sale Prices
|              |  |            
|              |  | High        |             | Low
|              |  |             |             |    
|May 2003      |  |             | U.S.$0.4000 |     |  |  | U.S.$0.1600 | 
|April 2003    |  |             | 0.2600      |     |  |  | 0.1600      | 
|March 2003    |  |             | 0.2690      |     |  |  | 0.2300      | 
|February 2003 |  |             | 0.2500      |     |  |  | 0.2400      | 
|January 2003  |  |             | 0.2700      |     |  |  | 0.2400      | 
|December 2002 |  |             | 0.3400      |     |  |  | 0.100       | 

B.     Plan of Distribution

Not Applicable

C.     Markets

Our Class A common shares are currently quoted and traded on the OTC
Bulletin Board (ticker symbol: XSON). Our Class A common shares were first
listed and began trading on The Nasdaq National Market on September 21, 2001
immediately following the consummation of the merger transaction. On June 12,
2002, our Class A common shares were transferred to The Nasdaq SmallCap Market
and on December 18, 2002 our Class A common shares were transferred to the OTC
Bulletin Board.

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D.     Selling Shareholders

Not Applicable

E.     Dilution

Not Applicable

F.     Expense of the Issue

Not Applicable




Item 10. Additional Information

A.     Share Capital

Not Applicable

B.     Memorandum and Articles of Association

Register

Claxson is registered with the Registrar of Companies of the British
Virgin Islands IBC No. 412275. Our registered office is located at Romasco
Place, P.O. Box 3140, Wickhams Cay I, Road Town, Tortola, British Virgin
Islands.

Corporate Object and Purpose

Section 4 of our amended and restated memorandum of association states
that our object is to engage in any act or activity that is not prohibited
under any laws of the British Virgin Islands. To that end, Claxson has all
such powers permitted by the laws of the British Virgin Islands to perform all
acts and engage in all activities necessary or conducive to the conduct,
promotion or attainment of the object of the company.

Board of Directors

Our board of directors is made up of 12 directors. Our amended and
restated articles of association require that the board consists of a minimum
of 11 directors and a maximum of 12 directors. Members of the board of
directors are appointed at the annual general meeting of shareholders and are
elected for a period of one fiscal year, at the end of which they may be
re-elected or replaced in accordance with the amended and restated articles of
association. The amended and restated articles of association do not establish
any requirements or provisions regarding age limits for directors retirement,
nor do they require a number of shares a director must own to qualify for the
position.

Our amended and restated articles of association further provide that our
board of directors has all the power of the company to borrow money and to
mortgage or charge its undertakings and property thereof, to issue debentures,
debenture stock and other securities whenever money is borrowed or as security
for any debt, liability or obligation of Claxson or any third party. A
director who has an interest in a particular business to be considered at a
meeting of the board of directors, may be present at the respective meeting
that approves the agreement or transaction, and may vote for that purpose, if
the material facts of each director interest in the agreement or transaction
are disclosed in good faith.

Our amend and restated articles of association do not establish the
compensation to be paid to the members of the board of directors and the
executive officers. The compensation of all officers are to be determined by
the compensation committee. The compensation committee has full power and
authority to establish compensation for our officers and recommend compensation
levels for the directors, employees and consultants of Claxson.

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Rights, Preferences and Restrictions Attaching to Each Class of Shares

Dividends

Subject to the prior rights of any series of shares that may be issued in
the future, holders of Class A common shares are entitled to receive, ratably,
dividends that are declared by the board of directors from funds legally
available thereof. The holders of the Class C, Class F and Class H common
shares are also entitled to receive such dividends as the board of directors
may from time to time declare pari passu on the respective shares. The Series
A Preferred Shares do not have dividend rights.

Voting Rights

The holders of Class A common shares are entitled to one vote for each
share held of record on all matters submitted to a vote of our shareholders.
Cumulative voting is not permitted. The holders of Class C, Class F and Class H
common shares are entitled to special rights with respect to the designation of
directors as follows:



| |  |  | four directors to be designated by 1945 Carlton/1947 Carlyle,
as the holders of the Class C common shares (Class C Group);
| | - |  | --------------------------------------------------------------------------------------------------------------------------
|
| |  |  | one director designated by the El Sitio founders, as the
holders of the Class F common shares (Class F Group);            
|
| |  |  | three directors to be designated by Hicks Muse, as the holder
of the Class H common share (Class H Group); and            
|
| |  |  | one director elected by a resolution of directors who shall
also be the chief executive officer of the company.           

Any of our designed group of shareholders that has a right to designate
directors to serve on the board of directors will retain or lose those rights
affected as follows:



| |  |  | when the shareholder owns less than 25% of the outstanding
common shares (including all classes of common shares and, on an
as-converted basis, Series A Preferred Shares), the shareholder
would be able to designate two directors;                              
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | when the shareholder owns less than 15% of outstanding common
shares (including all classes of common shares and, on an
as-converted basis, Series A Preferred Shares), the shareholder
could designate one director; and                                          
|
| |  |  | if the shareholder owns less than 3% of the outstanding
common shares (including all classes of common shares and, on an
as-converted basis, Series A Preferred Shares), the shareholder
would not have any right to designate directors to our board of
directors.

Prior to the a groups reduction in ownership percentage and lose of the
right to elect directors attributable to the applicable group, the Class C
Group, Class H Group and Class F Group will be able to remove any director
elected by such group, and, in the event of such removal, will have the right
to appoint a replacement director. Prior to an ownership percentage of less
than 3%, directors of the Class C Group, Class F Group and Class H Group may
only be removed by the respective group which elected them to board.

Any transaction involving Claxson and having in excess of U.S.$250,000 in
which a group (or any affiliate of, or person related to, a member of a group)
has an interest requires the approval of the majority of directors who were not
elected solely by such group.

Rights to Share in Profits

As noted above, the holders of common shares have the right to participate
in our profits. Claxson may declare and pay dividends, but the dividends may
only be declared and paid out of the surplus. The directors may, before
declaring any dividend, set aside out of the profits such sum as they deem
proper as a reserve fund and may invest the sum set aside as a reserve.

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Redemption and Liquidation Rights

Class A common shares are subject to redemption with the consent of the
shareholders whose shares are to be redeemed for a fair value, except that
Class A common shares owned by an entity for which more than 50% of the voting
shares of such entity are owned by Claxson will be for any price at our option
and without consent of the holders thereof. On the date on which the holder of
the Class C, Class F and Class H common shares ceases to own less than 3% of
our outstanding common shares (including all classes of common shares and, on
an as-converted basis, Series A Preferred Shares), the Class C, Class F and
Class H common shares are subject to redemption, purchase or acquisition for
par value at our option. Series A Preferred Shares are subject to redemption,
however, the holders of the Series A Preferred Shares are entitled to receive
at least 30 days advance notice of any redemption and will be given an
opportunity to convert their Series A Preferred Shares pursuant to the terms
set forth in the amended and restated memorandum of association, immediately
prior to any such redemption.

Each of the classes of common share will be entitled, pari passu, to share
pro rate in the surplus assets, in the event of a winding-up or dissolution of
Claxson, whether voluntary or involuntary. The holders of the Series A
Preferred Shares will be entitled to receive, for each Series A Preferred Share
held, an amount of cash equal to the par value of one Series A Preferred Share,
in the event of any voluntary or involuntary dissolution or winding-up. The
holders of the Series A Preferred Shares are entitled to receive at least 30
days advance notice of any dissolution and will be given an opportunity to
convert their Series A Preferred Shares pursuant to the terms set forth in the
amended and restated memorandum of association, immediately prior to any such
dissolution.

Procedures to Change the Rights of Shareholders

The rights attached to any class or series (unless otherwise provided by
the terms of issuance of the shares of that class or series) may, whether or
not Claxson is being wound up, be varied with written consent of the holders of
not less than two-thirds of the issued shares of that class or series and of
the holders of not less than two-thirds of the issued shares of any other class
or series of shares which may be affected by such variation.

Ordinary and Extraordinary Shareholders Meeting

Our amended and restated articles of association establish that a meeting
of the shareholders must be called by the board of directors or at the request
of the holders of shares representing 50% or more of the outstanding voting
shares of Claxson. There is no distinction between an ordinary meeting and an
extraordinary meeting. The meetings shall be presided by the chairman of the
board.

Any shareholder may appoint any person as its duly authorized
representative at a meeting by granting a proxy pursuant to the provisions of
the amended and restated articles of association.

Quorum for a meeting of shareholders requires that no less than 50% of the
votes of the shares or class or series of shares entitled to vote be present in
person or by proxy. If within two hours from the time appointed for the
meeting a quorum is not present, the meeting, if convened upon the requisition
of the shareholders, will be dissolved; in any other case, the meeting will
stand adjourned to the next business day as determined by the directors. If at
the adjourned meeting one-third or more of the votes of the shares or class or
series of shares entitled to vote are present in person or by proxy, those
present will constitute quorum; if less than one-third of the votes are
present, the meeting will be dissolved.

Decisions are adopted by a resolution approved at a duly convened and
constituted meeting of the shareholders by a simple majority vote of the votes
of the shares or the votes of each class or series of shares entitled to vote
thereon.

Limitations to Own Securities

Shares of Class C, Class F and Class H common shares may not be
transferred other than to a corporate affiliate of the transferee group who
agrees to be bound by the Holdco Agreement, which Holdco Agreement has been
previously filed as Annex B to our Registration Statement on Form F-4
(Registration No. 333-13062) filed with the Securities and Exchange Commission
on August 15, 2001. There are no legal limitations to own securities or
exercise voting rights by non-residents or foreign shareholders.

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Differences in Applicable Law

Enforceability of Certain Civil Liabilities

We are an international business company organized under the laws of the
British Virgin Islands. Many of our directors, officers and controlling persons
and some of the experts named in this annual report reside outside the United
States and all or a significant portion of our assets and of these persons are
located outside the United States. As a result, it may not be possible for
investors to effect service of process within the United States upon these
persons or to enforce against us or these persons in the United States any
court judgments predicated upon the civil liability provisions of the U.S.
federal securities laws. We have been advised by Conyers Dill & Pearman, our
British Virgin Islands counsel, that there is doubt as to the enforceability,
in original actions in British Virgin Islands courts, of liabilities predicated
solely on the U.S. federal securities laws and as to the enforceability in
British Virgin Islands courts of judgments of U.S. courts obtained in actions
predicated upon the civil liability provisions of the U.S. federal securities
laws. Consequently, our shareholders may be effectively precluded from
pursuing remedies under the U.S. federal securities laws against us or such
persons.

We have been informed by Conyers Dill & Pearman that the United States and
the British Virgin Islands do not have a treaty providing for reciprocal
recognition and enforcement of judgments of U.S. courts in civil and commercial
matters and that a final judgment for the payment of money rendered by any
general or state court in the United States based on civil liability, whether
or not predicated solely upon the U.S. federal securities laws, would, not be
automatically enforceable in the British Virgin Islands. We have also been
advised by Conyers Dill & Pearman that the courts of the British Virgin Islands
would recognize as a valid judgment, a final and conclusive judgment in
personam obtained in the U.S. courts against us under which a sum of money is
payable (other than a sum of money payable in respect of multiple damages,
taxes or other charges of a like nature or in respect of a fine or other
penalty) and would give a judgment based thereon provided that (i) such courts
had proper jurisdiction over the parties subject to such judgment, (ii) such
courts did not contravene the rules of natural justice of the British Virgin
Islands, (iii) such judgment was not obtained by fraud, (iv) the enforcement of
the judgment would not be contrary to the public policy of the British Virgin
Islands, (v) no new admissible evidence relevant to the action is submitted
prior to the rendering of the judgment by the courts of the British Virgin
Islands and (vi) there is due compliance with the correct procedures under the
laws of the British Virgin Islands.

A British Virgin Islands court may impose civil liability on us or our
directors or officers in a suit brought in the High Court of the British Virgin
Islands against us or these persons with respect to a violation of U.S. federal
securities laws, provided that the facts surrounding any violation constitute
or give rise to a cause of action under British Virgin Islands law.

Availability of Representative Actions

With respect to representative actions, British Virgin Islands courts
ordinarily would be expected to follow English case law precedent, which would
permit a shareholder to commence an action in the name of a company to remedy a
wrong done to a company where the act complained of is alleged to be beyond the
companys corporate power, would result in the violation of its memorandum of
association or articles of association, or is illegal. In addition, the courts
would give consideration to acts that are alleged to constitute a fraud against
the minority shareholders or where an act requires the approval of a greater
percentage of the companys shareholders then actually approved it.

C.     Material Contracts

We have not entered into any material contract, other than contracts
entered into in the ordinary course of business, or as otherwise described
herein in Item 4, Section B Business Overview, Item 7, Section B Related
Party Transactions or provided in the Exhibits to this Form 20-F.

D.     Exchange Controls

There are currently no British Virgin Islands laws or regulations
restricting the import or export of capital or affecting the payment of
dividends or other distributions to shareholders who are non-residents of the
British Virgin Islands.

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Some of our subsidiaries may be subject from time to time to exchange
control laws and regulations that may limit or restrict the payment of
dividends or distributions or other transfers of funds by those subsidiaries to
us. The existing exchange control laws and regulations affecting our
subsidiaries in Argentina and Chile have had and may continue to have a
material adverse effect on our operations. Please refer to Item 11, Section
Quantitative and Qualitative Discussion About Market Risks for further
discussion on the exchange control laws and regulations in Argentina and Chile.

E.     Taxation

U.S. Federal Income Tax Considerations for Claxson Shareholders

The following discussion is a summary of the material U.S. federal income
tax considerations of the ownership and disposition of Claxson Class A common
shares by a U.S. Holder. The discussion is based on the U.S. Internal Revenue
Code of 1986, as amended, U.S. Treasury regulations promulgated under the Code,
administrative rulings and pronouncements and judicial decisions as of the date
hereof, all of which are subject to change, possibly with retroactive effect.
Any change could alter the tax consequences discussed in this annual report.

The discussion below is for general information only and, except where
specially noted, does not address the effects of any state, local or non-U.S.
tax laws. In addition, the discussion below relates only to persons who hold
Claxson Class A common shares as capital assets. The tax treatment of a U.S.
holder may vary depending upon the holders particular situation, and some U.S.
holders may be subject to special rules not discussed below. These holders
would include, for example:



| |  |  | a dealer in securities or currencies;                                                                                               
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | a trader in securities that elects to use a mark-to-market
method of accounting for its securities holdings;                        
|
| |  |  | an insurance company;                                                                                                               
|
| |  |  | a tax-exempt organization;                                                                                                          
|
| |  |  | a financial institution;                                                                                                            
|
| |  |  | a person liable for alternative minimum tax;                                                                                        
|
| |  |  | a person holding stock as part of a hedging, integrated or
conversion transaction, constructive sale or straddle;                   
|
| |  |  | a U.S. person whose functional currency is not the U.S.
dollar;                                                                   
|
| |  |  | a person owning, either directly or directly and
constructively, 10% or more of Claxsons voting shares; or                         
|
| |  |  | a person who receives Claxson Class A common shares pursuant
to the exercise of employee share options or otherwise as
compensation.

If a partnership holds Claxson Class A common shares, the tax treatment of
a partner generally will depend on the status of the partner and the activities
of the partnership. A partner of a partnership holding Claxson Class A common
shares should consult its tax adviser.

As used in this section, a U.S. Holder means:



| |  |  | a citizen or individual resident of the United States;                                                                                                                                                  
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | a corporation or other entity treated as a corporation for
U.S. federal income tax purposes that is created or organized in or
under the laws of the United States or any political subdivision
thereof;

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| |  |  | an estate whose income is subject to U.S. federal income tax
regardless of its source; or                                                                                                                                                                                                                                                                               
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | a trust if (1) a court within the United States is able to
exercise primary supervision over the administration of the trust,
and one or more United States persons have the authority to control
all substantial decisions of the trust, or (2) the trust was in
existence on August 20, 1996 and properly elected to continue to be
treated as a United States person.

Tax Consequences of Holding Claxsons Class A Common Shares

Distributions

Distributions made to shareholders on or with respect to Claxson Class A
common shares will be treated as dividends and will be taxable as ordinary
income to the extent those distributions are made out of Claxsons current or
accumulated earnings and profits as determined for U.S. federal income tax
purposes. Subject to the passive foreign investment company rules discussed
below, if the amount of any distribution exceeds Claxsons current and
accumulated earnings and profits for a taxable year, the excess will be treated
as a tax-free return of capital to the extent of the U.S. Holders tax basis,
on a share-by-share basis, and thereafter as capital gain. U.S. Holders that
are corporations will not be entitled to a dividends received deduction with
respect to distributions from Claxson. Recently enacted U.S. federal income
tax legislation reduces the rate of U.S. federal income tax payable by
noncorporate taxpayers on dividends from certain non-U.S. corporations to 15%
(or, with respect to dividends that otherwise would be taxed at the 10% or 15%
rates, to 5%, except for taxable years beginning after December 31, 2007, for
which the tax is eliminated). The reduced rates apply for purposes of both the
regular tax and the alternative minimum tax. A dividend paid by a non-U.S.
corporation qualifies for the reduced rate of tax if the stock on which the
dividend is paid is readily tradable on an established securities market in the
United States. The new legislation does not define an established securities
market or regularly traded for this purpose. No assurance can be provided
that Claxson Class A common shares for this purpose are regularly traded on an
established securities market at this time or will be so traded in the future.
Even if the Claxson Class A common shares are so traded at the time a dividend
is paid, a shareholder must satisfy various other requirements to qualify for
the reduced tax rate on dividends, and additional tax limitations can arise as
a result of so qualifying. The new reduced tax rates on dividends apply to
taxable years beginning after December 31, 2002 and before January 1, 2009.
Claxson does not currently pay dividends on its Class A common shares and does
not anticipate paying dividends in the foreseeable future.

Distributions with respect to Claxsons Class A common shares that are
taxable as dividends generally will be treated for U.S. foreign tax credit
purposes as either (1) foreign source passive income or, in the case of some
U.S. Holders, foreign source financial services income or (2) if Claxson is a
United States-owned foreign corporation, U.S. source income, in proportion to
the percentage of Claxsons earnings and profits in the year of the
distribution that are attributable to U.S. sources (provided at least 10% of
Claxsons earnings and profits are so attributable). For this purpose, Claxson
will be treated as a United States-owned foreign corporation if 50% or more of
the voting power or value of its shares is owned, directly or indirectly, by
United States persons.

Disposition

Subject to the passive foreign investment company rules discussed below,
gain or loss realized by a U.S. Holder on the sale, exchange or other taxable
disposition of Claxson Class A common shares will be subject to U.S. federal
income taxation as capital gain or loss in an amount equal to the difference
between the amount realized on that sale, exchange or other disposition and the
U.S. Holders adjusted tax basis in the Class A common shares surrendered. The
gain or loss will be long term capital gain or loss if the U.S. Holders
holding period for the Class A common shares is more than one year. Any gain or
loss so realized generally will be U.S. source.

Recently enacted U.S. federal income tax legislation reduces the maximum
rate of U.S. federal income tax that noncorporate taxpayers pay on adjusted net
capital gain to 15% (or, with respect to adjusted net capital gain that
otherwise would be taxed at the 10% or 15% rates, to 5%, except for taxable
years beginning after December 31, 2007, for which the tax is eliminated). The
reduced rates apply for purposes of both the regular tax and the alternative
minimum tax. The lower rates of 8% and 18% for assets held more than five
years were eliminated. The new legislation applies to taxable years ending on
or after May 6, 2003 and before January 1, 2009, after which, among other
things, the maximum tax rate on adjusted net capital gain for noncorporate
taxpayers will be 20%.

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Passive Foreign Investment Company Provisions

A foreign corporation will be classified as a passive foreign investment
company for U.S. federal income tax purposes if for the taxable year 75% or
more of its gross income is passive income or 50% or more of its assets, by
value, produce or are held for the production of passive income. For this
purpose, passive income generally includes dividends, interest, royalties,
rents, annuities and gains from sales of assets that produce passive income.
However, passive income does not generally include rents and royalties derived
in the active conduct of a trade or business and not derived from a related
person. If a foreign corporation owns at least 25% by value of the stock of
another corporation, the foreign corporation is treated for purposes of the
passive foreign investment company tests as owning its proportionate share of
the assets of the other corporation and as receiving directly its proportionate
share of the other corporations income. If a foreign corporation is
classified as a passive foreign investment company in any year with respect to
which a U.S. Holder owns its stock, it generally will, with certain exceptions,
continue to be treated as a passive foreign investment company with respect to
such shareholder in all succeeding years.

Based upon its current and projected income, assets and activities in
general, Claxson does not expect that its Class A common shares should be
considered shares of a passive foreign investment company for Claxsons current
fiscal year. Claxson, however, has not undertaken any study to determine
whether it is a passive foreign investment company, and thus no assurance can
be provided that it is not. Moreover, passive foreign investment company
classification is a factual determination that is made annually and thus is
subject to change. For example, changes in the performance of Claxsons
business and/or fluctuations in the market price of the Class A common shares
could alter this conclusion.

Claxson will notify U.S. Holders if it becomes a passive foreign
investment company in any taxable year and will provide them with the
information required to make a qualified electing fund election, as described
below.

If Claxson were treated as a passive foreign investment company, then,
unless a U.S. Holder makes a timely qualified electing fund election or a
mark-to-market election, each as described below:



| |  |  | distributions made by Claxson during a taxable year with
respect to its Class A common shares that are excess distributions
must be allocated ratably to each day of the U.S. Holders holding
period. Excess distributions are defined generally as the excess
of the amount distributed on a Claxson share in any taxable year
over 125% of the average amount distributed on that share during the
shorter of the three previous years and the U.S. Holders holding
period for the share. The amounts allocated to the current taxable
year and to taxable years prior to the first year in which Claxson
was classified as a passive foreign investment company would be
included in ordinary gross income for the current year. The amount
allocated to each other prior taxable year would be taxed as
ordinary income at the highest rate in effect for the U.S. Holder in
that prior year, subject to an additional interest charge at the
rates applicable to deficiencies in income taxes; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the entire amount of any gain realized upon the sale or other
disposition of Claxson Class A common shares would be treated as an
excess distribution made in the year of sale or other disposition
and as a consequence would be treated as ordinary income and, to the
extent allocated to years prior to the year of sale or disposition,
would be subject to tax at the highest applicable rates and to the
interest charge described above. A number of transactions and
events not normally treated as dispositions are treated as
dispositions for purposes of this rule. In addition, U.S. Holders
who acquire their Claxson Class A common shares from decedents
generally will not receive a stepped-up tax basis in those Claxson
Class A common shares. Instead, the U.S. Holders will have a tax
basis equal to the lower of the fair market value of the Claxson
Class A common shares and the decedents tax basis.                                                                         

These special passive foreign investment company tax rules will not apply
if the U.S. Holder elects to have Claxson treated as a qualified electing
fund and Claxson provides certain information required for the election.
Generally that election must be timely made for the first taxable year the U.S.
Holder owns Claxson Class A common shares and Claxson is a passive foreign
investment company, although in certain circumstances an election can be made
later, generally subject to the payment of a tax at that time. If Claxson is
treated as a passive foreign

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investment company, Claxson intends to notify U.S. Holders and provide
them with such information as may be required to make the qualified electing
fund election effective.

If a U.S. Holder makes a qualified electing fund election, the U.S. Holder
will be currently taxable on his or her pro rata share of Claxsons ordinary
earnings and net capital gain at ordinary income and capital gains rates,
respectively, for each of Claxsons taxable years, regardless of whether
distributions are received. The U.S. Holders basis in Claxson Class A common
shares will be increased to reflect taxed but undistributed income.
Distributions of income that has previously been taxed will result in a
corresponding reduction in basis in the U.S. Holders Class A common shares and
will not be taxed again as distributions.

Alternatively, if Claxson Class A common shares are treated as marketable
stock, a U.S. Holder may make a mark-to-market election if Claxson were
treated as a passive foreign investment company. If this election is made, the
U.S. Holder will not be subject to the passive foreign investment company rules
described above. Instead, the U.S. Holder generally in each taxable year will
include as ordinary income, on a share-by-share basis, the excess, if any, of
the fair market value of the Class A common shares at the end of the taxable
year over the U.S. Holders adjusted basis in the shares. Likewise, the U.S.
Holder will be permitted an ordinary loss, on a share-by-share basis, in
respect of the excess, if any, of the U.S. Holders adjusted basis in the Class
A common shares over their fair market value at the end of the taxable year but
only to the extent of the net amount previously included in income as a result
of the mark-to-market election. The U.S. Holders basis in the Class A common
shares would be adjusted to reflect any such income or loss amounts. The
mark-to-market election is only available with respect to shares that are
regularly traded on certain U.S. exchanges and other exchanges designated by
the U.S. Treasury. Under current law, the mark-to-market election would not be
available to a U.S. Holder since the OTC Bulletin Board, on which Claxsons
Class A common shares trade, is not a qualified exchange within the meaning of
the Code. If a U.S. Holder is eligible to and makes a mark-to-market election,
it will be effective for the taxable year for which the election is made and
all subsequent taxable years unless Claxsons Class A common shares are no
longer regularly traded on a qualified exchange or the Internal Revenue Service
consents to the revocation of the election.

A dividend from a foreign corporation that otherwise would qualify for the
15% maximum tax rate prescribed by recently enacted U.S. federal income tax
legislation does not qualify for that rate if the foreign corporation is a
passive foreign investment company in either the taxable year of the dividend
or the preceding taxable year.

U.S. Holders that own Claxson Class A common shares during any year that
Claxson is a passive foreign investment company must file Internal Revenue
Service Form 8621. U.S. Holders are urged to consult their tax advisers
concerning the U.S. federal income tax consequences of holding Class A common
shares if Claxson is considered a passive foreign investment company.

Foreign Personal Holding Companies

If five or fewer U.S. individuals own, or are treated as owning under
certain attribution rules, in the aggregate more than 50% of the voting power
or value of the shares of a foreign corporation, and at least 60%, or 50% in
certain circumstances, of the gross income of that foreign corporation is
made up of certain types of generally passive income for a taxable year, then
that corporation will be a foreign personal holding company. Examples of
passive types of income include dividends, interest, certain rents and
royalties and gain from the sale of stock or securities.

It is possible that Claxson or one of its non-U.S. subsidiaries will meet
the income test in a given year. Claxson, however, does not expect that the
shareholder test is met at this time. Accordingly, Claxson does not expect
that it or any of its non-U.S. subsidiaries is a foreign personal holding
company at this time. However, Claxson has not undertaken any study to
determine whether it or any of its subsidiaries is a foreign personal holding
company. For that reason, and due to a number of factors, including the
foreign personal holding company stock attribution rules, possible changes in
residence by current indirect shareholders, and possible acquisition of Claxson
Class A common shares by purchase, gift or bequest by individuals related to or
partners of current indirect shareholders, Claxson cannot assure you that it is
not currently or will not become a foreign personal holding company in the
future.

If a foreign corporation is a foreign personal holding company, United
States persons that own shares in the foreign personal holding company,
directly or indirectly through foreign entities, regardless of the size of
their shareholding and regardless of whether they are individuals, will
generally be subject to current U.S. federal income

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tax on a pro rata portion of the foreign personal holding companys
undistributed foreign personal holding company income for the taxable year or
part thereof. In addition, a dividend from a foreign corporation that
otherwise would qualify for the 15% maximum tax rate prescribed by recently
enacted U.S. federal income tax legislation does not qualify for that rate if
the foreign corporation is a foreign personal holding company in either the
taxable year of the dividend or the preceding taxable year. Further, those
U.S. persons who acquire shares in a foreign personal holding company from
decedents generally will not receive a stepped-up tax basis in those shares.
Instead, those U.S. persons will have a tax basis equal to the lower of the
fair market value of the shares and the decedents tax basis. U.S. persons that
under these rules are required to include in income undistributed taxable
income for a taxable year and that own at least 5% of the value of the foreign
personal holding companys shares are required to comply with certain reporting
requirements under the Code.

Information Reporting and Backup Withholding

In general, information reporting requirements will apply to dividends in
respect of Claxson Class A common shares or the proceeds received on the sale,
exchange or redemption of the Class A common shares paid within the United
States and, in certain cases, outside the United States, to U.S. Holders other
than exempt recipients, such as corporations, and backup withholding may apply
to those amounts if the U.S. Holder fails to provide an accurate taxpayer
identification number or to report interest and dividends required to be shown
on its U.S. federal income tax returns. The amount of any backup withholding
from a payment to a U.S. Holder will be allowed as credit against the U.S.
Holders U.S. federal income tax liability or as a refund, if the U.S. Holder
has overpaid its U.S. federal income tax liability, provided the U.S. Holder
timely and properly supplies the required information to the Internal Revenue
Service.

British Virgin Islands Tax Considerations

Claxson is exempt from all provisions of the Income Tax Act of the British
Virgin Islands with respect to all dividends, interests, rents, royalties,
compensation and other amounts payable by it to persons who are not persons
resident in the British Virgin Islands. Persons who are not persons resident
in the British Virgin Islands are also exempt from any capital gains realized
with respect to any of Claxsons shares, debt obligations or other securities,
including its Class A common shares. No estate, inheritance, succession or
gift tax, rate, duty, levy or other charge is payable by persons who are not
persons resident in the British Virgin Islands with respect to any of Claxsons
shares, debt obligations or other securities, including its Class A common
shares. There is no reciprocal tax treaty in force between the British Virgin
Islands and the United States.

Holders of common shares of El Sitio who are not persons resident in the
British Virgin Islands will not be subject to income, capital gain or any other
tax in the British Virgin Islands in connection with the El Sitio merger.

F.     Dividends and Paying Agents

Not Applicable

G.     Statement by Experts

Not Applicable

H.     Documents on Display

We are subject to the informational requirements of the Securities
Exchange Act of 1934, as amended. In accordance with these requirements, we
file reports and other information with the Securities and Exchange Commission.
These materials, including this annual report and the accompanying exhibits,
may be inspected and copied at the public reference facilities maintained by
the Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 and
at the Commissions Regional Offices at 7 World Trade Center, Suite 1300, New
York, New York 10048 and 500 West Madison Street, Suite 1400, Northwestern
Atrium Center, Chicago, Illinois 60661. You may obtain information on the
operation of the public reference room by calling 1(800)-SEC-0330, and you may
obtain copies at prescribed rates from the Public Reference Section of the
commission at its principal office in Washington, D.C. 20549. In addition,
documents referred to in this annual report may be inspected at the Companys
principal executive offices at Avenida Melian 2752, C1430EYH, Buenos Aires,
Argentina.

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##### Table of Contents



I.     Subsidiary Information

Not Applicable




Item 11. Quantitative and Qualitative Disclosures About Market Risk

Market Risks

Market risk represents the risk of loss that may impact our consolidated
financial position, results of operations or cash flows due to adverse changes
in financial and commodity and market prices and interest rates. We are
exposed to market risk in the areas of interest rates and foreign currency
exchange rates. This section contains forward-looking statements that are
subject to risks and uncertainties. Actual results could vary materially as a
result of a number of factors. Uncertainties that are either non-financial or
non-quantifiable, such a political, economic, tax, other regulatory or credit
risks, are not included in the following assessment or our market risks.

Interest Rate Sensitivity

As of December 31, 2002, we had U.S.$92.5 million in total debt, U.S.$63.0
million due under our 8.75% senior notes due 2010 (U.S.$21.6 million of which
represented future interest payments), U.S.$17.6 million under a subsidiarys
senior secured credit facility payable through 2006, U.S.$3.6 million due under
Imagens 11% senior notes due 2005, and U.S.$2.6 million under Imagens 6.25%
senior notes due 2013. The senior notes have a fixed interest rate and are
denominated in U.S. dollars and the senior secured credit facility has a
floating interest rate equal to the Chilean tasa activa bancaria, which is a
published Chilean prime rate, plus 275 basis points. The senior secured credit
facility is denominated in unidades de fomento, which is equivalent to the
inflation adjusted Chilean Peso.

We are exposed to changes in interest rates primarily as a result of our
borrowing activities. We have interest rate exposure because of the credit
facility debt balance. The indebtedness is at a variable rate without
corresponding variable rate assets and therefore a material increase in
interest rates would significantly increase interest expense without offsetting
interest income. Our actual interest rate risk is not quantifiable or
predictable because of the variability of future interest rates and business
financing requirements. However, we do not believe such risk is material. We
do not customarily use derivative instruments to adjust interest rate risk.

For debt obligations, the following table presents principal cash flows
and related fixed and weighted average interest rates by expected maturity
dates. The following table presents relevant information relating to our
long-term debt interest rate risk:

|                              |  |                                                            |       |      |  |      |       |      |  |      |       |      |  |      |       |      |  |      |       |      |  |      |        |       |  |       |        |   |  |  |        |   |  |  |   |  |  |  |       |   |  |  |       |   |  |  |        |  |  |      |        | 
|----------------------------- |  | ---------------------------------------------------------- | ----- | ---- |  | ---- | ----- | ---- |  | ---- | ----- | ---- |  | ---- | ----- | ---- |  | ---- | ----- | ---- |  | ---- | ------ | ----- |  | ----- | ------ | - |  |  | ------ | - |  |  | - |  |  |  | ----- | - |  |  | ----- | - |  |  | ------ |  |  | ---- | ------ | 
|Twelve Months Ended           |  |                                                            |       |      |  |      |       |      |  |      |       |      |  |      |       |      |  |      |       |      |  |      |        |       |  |       |        |   |  |  |        |   |  |  |   |  |  |  |       |   |  |  |       |   |  |  |        |  |  | Fair
|December 31,                  |  | 2003                                                       |       | 2004 |  | 2005 |       | 2006 |  | 2007 |       | 2008 |  | 2009 |       | 2010 |  | 2011 |       | 2012 |  | 2013 |        | Total |  | Value
|                              |  |                                                            |       |      |  |      |       |      |  |      |       |      |  |      |       |      |  |      |       |      |  |      |        |       |  |      
|                              |  | (In thousands of U.S. dollars, except for the percentages)
|Long-Term
Debt:               |  |                                                            |       |      |  |      |       |      |  |      |       |      |  |      |       |      |  |      |       |      |  |      |        |       |  |       |        |   |  |  |        |   |  |  |   |  |  |  |       |   |  |  |       |   |  |  |        |  |  |      |        | 
|11% Senior Notes due 2005     |  |                                                            | 3,217 |      |  |      |      |      |  |      |      |      |  |      |      |      |  |      |      |      |  |      |       |       |  |       |       |   |  |  |       |   |  |  |  |  |  |  |      |   |  |  |      |   |  |  | 3,217  |  |  |      | 480    | 
|Fixed U.S. Rate               |  |                                                            | 11    | %    |  |      |      |      |  |      |      |      |  |      |      |      |  |      |      |      |  |      |       |       |  |       |       |   |  |  |       |   |  |  |  |  |  |  |      |   |  |  |      |   |  |  |        |  |  |      |        | 
|6.25% Senior Notes due 2013   |  |                                                            |      |      |  |      |      |      |  |      |      |      |  |      |      |      |  |      |      |      |  |      |       |       |  |       |       |   |  |  |       |   |  |  |  |  |  |  | 1,150 |   |  |  | 1,150 |   |  |  | 2,300  |  |  |      | 2,300  | 
|Fixed U.S. Rate               |  |                                                            |      |      |  |      |      |      |  |      |      |      |  |      |      |      |  |      |      |      |  |      |       |       |  |       |       |   |  |  |       |   |  |  |  |  |  |  | 6.25  | % |  |  | 6.25  | % |  |  |        |  |  |      |        | 
|8.75% Senior Notes due 2010   |  |                                                            |      |      |  |      |      |      |  |      |      |      |  |      | 2,066 |      |  |      | 6,199 |      |  |      | 10,331 |       |  |       | 10,331 |   |  |  | 12,398 |   |  |  |  |  |  |  |      |   |  |  |      |   |  |  | 41,325 |  |  |      | 12,398 | 
|Fixed U.S. Rate               |  |                                                            |      |      |  |      |      |      |  |      | 8.75  | %    |  |      | 8.75  | %    |  |      | 8.75  | %    |  |      | 8.75   | %     |  |       | 8.75   | % |  |  | 8.75   | % |  |  |  |  |  |  |      |   |  |  |      |   |  |  |        |  |  |      |        | 
|Syndicated Bank Facility      |  |                                                            | 5,023 |      |  |      | 5,022 |      |  |      | 5,022 |      |  |      | 2,511 |      |  |      |      |      |  |      |       |       |  |       |       |   |  |  |       |   |  |  |  |  |  |  |      |   |  |  |      |   |  |  | 17,578 |  |  |      | N/A    | 
|Average interest rate         |  |                                                            | 6     | %    |  |      | 6     | %    |  |      | 6     | %    |  |      | 6     | %    |  |      |      |      |  |      |       |       |  |       |       |   |  |  |       |   |  |  |  |  |  |  |      |   |  |  |      |   |  |  |        |  |  |      |        | 
|Other                         |  |                                                            | 1,602 |      |  |      | 1,308 |      |  |      | 1,215 |      |  |      | 833   |      |  |      | 729   |      |  |      |       |       |  |       |       |   |  |  |       |   |  |  |  |  |  |  |      |   |  |  |      |   |  |  | 5,603  |  |  |      | N/A    | 
|Average interest rate (range) |  |                                                            | 4-10  | %    |  |      | 10    | %    |  |      | 10    | %    |  |      | 8.56  | %    |  |      | 8.56  | %    |  |      |        |       |  |       |        |   |  |  |        |   |  |  |   |  |  |  |       |   |  |  |       |   |  |  |        |  |  |      |        | 

Exchange Rate Sensitivity

Our principal foreign currency exposure is related to our asset base,
which consists principally of monetary assets and liabilities, in the countries
in which we operate, specifically in Argentina and Chile. We use the

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Argentine
peso as the functional currency for our Argentine subsidiaries and the Chilean
peso as the functional currency for our Chilean subsidiaries. Because our
assets and liabilities, as well as interest earned or paid on our assets and
liabilities are affected by changes in the value of the Argentine peso and
Chilean peso, our reported income is affected by exchange fluctuation in these
countries. The Argentine government and Chilean governments economic policies
and any future changes in the value of the Argentine peso and Chilean peso
against the U.S. dollar could adversely affect the financial condition and
results of our operations.

Until January 2002, the Convertibility Law No. 23,928 was in effect in
Argentina. The Convertibility Law established a fixed exchange rate, under
which the Central Bank was obligated to sell U.S. dollars to any person at a
fixed rate of Ps1.00 per U.S.$1.00. Accordingly, the foregoing currency
fluctuations were reduced to a minimum level during this period. In January
2002, the Argentine government announced the devaluation of the Argentine peso
and repealed the Ps. 1.00 per U.S.$1.00 exchange rate that was set forth under
the Convertibility Law.

Decree No. 71/02 established a temporary dual exchange rate system
comprised of : (i) a fixed rate export and certain import transactions at a
rate of Ps. 1.40 per U.S.$1.00 and (ii) a floating rate to be freely determined
by the market for all other transactions. On February 8, 2002, the executive
branch of Argentina, however, issued Decree No. 260/02 providing for the
elimination of the dual exchange rate in favor of a single floating rate for
all transactions. As a result of the foregoing initiatives, our local
agreements in Argentina have been converted into peso-denominated obligations.
In addition, many Argentine companies have suspended payment of their debt
obligations. It is unclear how the Argentine government will address the
continuing economic crises. Foreign currency exchange restrictions hereafter
imposed by the Argentine government could prevent or restrict our access to
U.S. dollars, affecting our ability to service our U.S. dollar liabilities.

In Chile, the Chilean peso has been subject to large devaluation in the
past, including a decrease of 11% in 1999, 9% in 2000, 17% in 2001, and 9% in
2002, and may be subject to significant fluctuations in the future. Our
operations may be affected by the continuing fluctuations in exchange rates
between the Chilean peso and the U.S. dollar.

The following table summarizes our monetary assets and liability exposure
in foreign jurisdictions, including without limitation, Argentina, Chile,
Brazil and Uruguay:

|                                         |  |          |        |             |  |          |        |  |  |   |        |  
|---------------------------------------- |  | -------- | ------ | ----------- |  | -------- | ------ |  |  | - | ------ | -
|Monetary Assets and Liabilities Exposure |  |          |        |            
|As of December 31, 2002                  |  |          |        |             |  |          |        | 
|                                        
|(In thousands of U.S. dollars)          
|                                         |  | Monetary |        | Monetary    |  | Net     
|Country                                  |  | Assets   |        | Liabilities |  | Exposure
|                                         |  |          |        |             |  |         
|Argentina                                |  | $        | 8,317  |             |  | $        | 9,756  |  |  | $ | (1,439 | )
|Chile                                    |  |          | 4,308  |             |  |          | 6,685  |  |  |   | (2,377 | )
|Other(1)                                 |  |          | 1,149  |             |  |          | 787    |  |  |   | 362    |  
|                                         |  |          |        |             |  |          |        |  |  |   |        |  
|Total                                    |  | $        | 13,774 |             |  | $        | 17,228 |  |  | $ | (3,454 | )
|                                         |  |          |        |             |  |          |        |  |  |   |        |  



---

|(1) |  | Primarily represents Brazil and Uruguay.
|--- |  | ----------------------------------------

We do not currently hedge against currency exchange transaction risks, nor
do we use derivative financial instruments for speculative trading purposes.
We could, however, in the future engage in hedging activities against specific
foreign exchange transaction risks.

Foreign exchange net losses during fiscal year 2002 was U.S.$61.3 million.
At December 31, 2002, we had the equivalent of approximately U.S.$6.0 million
in Argentine peso-denominated receivables and investments and U.S.$28.3 million
in dollar-denominated receivables and investments.




Item 12. Description of Securities Other than Equity Securities

Not Applicable

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PART II




|         |  |                                                
|-------- |  | -----------------------------------------------
|Item 13. |  | Defaults, Dividend Arrearages and Delinquencies

On April 30, 2002, we announced that our subsidiary Imagen Satelital, S.A.
would not make an interest payment on May 1, 2002 on its 11% Senior Notes due
2005. On November 8, 2002, we successfully completed an exchange offer and
consent solicitation with respect to 93.1% of the outstanding 11% Senior Notes
due 2005 (the Old Notes). Pursuant to the exchange offer, we issued
U.S.$41.3 million principal amount of our 8.75% Senior Notes due 2010 in
exchange for U.S.$74.5 million principal amount of the Old Notes. As of June
1, 2003, all but US$3.2 million of the principal amount of the Old Notes has
been exchanged. The Holders of some of these outstanding Old Notes have filed,
or threatened to file, various lawsuits to collect certain principal and/or
interest payments for the Old Notes. See Item 3.D. Key
Information Risk
Factors  We are involved in litigation in Argentine with some of the holders of
the remaining U.S.$3.2 million principal amount of Imagen Satelitals 11%
Senior Notes due 2005.




|         |  |                                                                             
|-------- |  | ----------------------------------------------------------------------------
|Item 14. |  | Material Modifications to the Rights of Security Holders and Use of Proceeds

Not Applicable




|         |  |                        
|-------- |  | -----------------------
|Item 15. |  | Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Within the 90-day period prior to the date of this Form 20-F, we carried
out an evaluation, under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief Financial Officer,
of the effectiveness of the design and operation of our disclosure controls and
procedures as defined in Rule 13a-14(c) and 15d-14(c) of the Securities
Exchange Act of 1934. Based on this evaluation, the Companys Chief Executive
Officer and Chief Financial Officer concluded that our disclosure controls and
procedures are effective to ensure that information required to be disclosed in
our filings and submissions under the Exchange Act is recorded, processed,
summarized, and reported within the time periods specified in the SECs rules
and forms.

Our management, including the Chief Executive Officer and Chief Financial
Officer, does not expect that our disclosure controls and procedures will
prevent all error and all fraud. Because of inherent limitations in any systems
of disclosure controls and procedures, no evaluation of controls can provide
absolute assurance that all instances of error or fraud, if any, within the
Company may be detected.

Changes in Internal Controls

There were no significant changes in the Companys internal controls or
other factors that could significantly affect these controls subsequent to the
date of their evaluation. There were no significant deficiencies or material
weaknesses, and therefore there were no corrective actions taken.




|         |  |                                 
|-------- |  | --------------------------------
|Item 16A |  | Audit Committee Financial Expert

Not Applicable.




|         |  |               
|-------- |  | --------------
|Item 16B |  | Code of Ethics

Not Applicable.




|         |  |                                       
|-------- |  | --------------------------------------
|Item 16C |  | Principal Accountant Fees and Services

Not Applicable.

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PART III




|         |  |                     
|-------- |  | --------------------
|Item 17. |  | Financial Statements

Not Applicable




|         |  |                     
|-------- |  | --------------------
|Item 18. |  | Financial Statements

The consolidated statements and other financial information required by
Regulation S-X are included in this Annual Report on Form 20-F commencing on
page F-1.




|         |  |         
|-------- |  | --------
|Item 19. |  | Exhibits



| | (a) |  | Index to Financial Statements.                                                
| | --- |  | ------------------------------------------------------------------------------
|
| |     |  | Report of Deloitte & Touche LLP for Claxson Interactive
Group and Subsidiaries
|
| | (b) |  | List of Exhibits                                                              

|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|-------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description of Documents                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|1.1            |  | Amended and Restated Memorandum of Association of Claxson Interactive Group Inc. (incorporated herein by reference to the Registration Statement on Form F-4/A (No. 333-13062) filed with the Commission on August 15, 2001).                                                                                                                                                                                                                                                                                                                                                                                                            
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|1.2            |  | Amended and Restated Articles of Association of Claxson Interactive Group Inc. (incorporated herein
by reference to the Registration Statement on Form F-4/A (No. 333-13062) filed with the Commission on August 15, 2001).                                                                                                                                                                                                                                                                                                                                                                                                              
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|2.1            |  | Combination Agreement, dated as of October 30, 2000, by and among Claxson Interactive Group Inc. (formerly, New Site Inc.), Newhaven Overseas Corp., Hicks, Muse, Tate & Furst Latin America Fund, L.P., Hicks, Muse, Tate and Furst Latin America Private Fund, L.P.; HMLA 1-SBS Coinvestors, L.P., and El Sitio,Inc. (included as Annex A-1 to the proxy statement/prospectus forming a part of the Registration Statement on Form F-4 (No. 333-13062) filed with the Commission on
August 17, 2001 which is incorporated herein by reference).                                                                                        
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|2.2            |  | Amendment No. 1 to Combination Agreement, dated as of
June 26, 2001,
by and among Claxson Interactive Group Inc., formerly known as New Site Inc., Carlyle Investments
LLC and Carlton Investments LLC, Ibero-American Media Partners II Ltd., Hicks,Muse, Tate &
Furst Latin America Fund, L.P., Hicks, Muse, Tate&
Furst Latin America Private Fund, L.P., HMLA 1-SBS Coinvestors, L.P. and El Sitio, Inc.
(included as Annex A-2 to the proxy statement/prospectus forming a part of the Registration
Statement on Form F-4 (No. 333-13062) filed with the Commission on August 17, 2001
which is incorporated herein by reference).  
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|2.3            |  | Amendment No. 2 to Combination Agreement, dated as of
August 7, 2001, by and among Claxson Interactive Group Inc., formerly known as New Site Inc.,
Carlyle Investments LLC and Carlton Investments LLC, Ibero-American
Media Partners II Ltd., Hicks, Muse, Tate & Furst Latin America Fund, L.P., Hicks,
Muse, Tate& Furst Latin America Private Fund, L.P., HMLA 1-SBS Coinvestors, L.P. and El Sitio, Inc.
(included as Annex A-3 to the proxy statement/prospectus forming a part of the Registration
Statement on Form F-4 (No. 333-13062)
filed with the Commission on August 17, 2001 which is incorporated herein by reference).

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|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|-------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description of Documents                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|2.4            |  | Indenture, dated as
of April 4, 1998, among IMASAC S.A. and Imagen Satelital, S.A.
(as guarantor), The Bank of New York, Banco Río de la Plata S.A. and Banque International a Luxembourg (incorporated herein by reference
to the Registration Statement on Form F-4/A (No. 333-13062)
as filed with the Commission on February 26, 2001).                                                                                                                                                                                                                                                                                                                                                                            
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|2.5            |  | Indenture, dated as
of November 7, 2002, among Claxson Interactive Group, Inc.,
Imagen Satelital, S.A. (as guarantor), The Bank of New York and Banco Río de la Plata S.A.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|2.6            |  | U.S.$35,000,000
Syndicated Credit Facility, dated as of April 26, 2000, among
Iberoamerican Radio Holdings Uno Chile S.A., Blaya y Vega S.A. and
others, Banco de A. Edwards, Corpbanca, Banco Sud Americano,
BankBoston, N.A. and Bankers Trust Company (English translation) (incorporated herein by reference to the Registration Statement on Form F-4/A (No. 333-13062) as filed with the Commission on April 26, 2001).                                                                                                                                                                                                                                                                                          
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|2.7            |  | Amendment to the Syndicated Credit Facility Agreement, dated December 12, 2002, by and among Iberoamerican Radio Holdings Uno Chile S.A.,
 Blaya y Vega S.A. and others, Banco de Chile, Corpbanca, Scotiabank
Sud Americano, BankBoston, N.A. and Deutsche Bank Trust Company
Americas (incorporated herein by reference to Form 6-K (No. 000-33143) filed with the Commission on January 17, 2003).                                                                                                                                                                                                                                                                                                                  
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|3.1            |  | Holdco Agreement,
dated September 21, 2001, by and among 1947 PTVI, LLC, 1945 PTVI, LLC, Hicks, Muse, Tate & Furst Latin America Fund, L.P., Hicks, Muse, Tate & Furst Latin America Private Fund, L.P., HMLA 1-SBS Coinvestors, L.P., Certain Claxson Interactive Group, Inc. Stockholders and Claxson Interactive Group, Inc.                                                                                                                                                                                                                                                                                                                                                                                        
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|4.1            |  | Transfer Agreement, dated as of December 23, 2002, by and among Playboy Enterprises, Inc., Playboy Entertainment Group,
 Inc., Playboy Enterprises International, Inc., Claxson
Interactive Group Inc., Carlyle Investments LLC (in its own right and as
 a successor in interest to Victoria Springs Investments Ltd.),
Carlton Investments LLC (in its own right and as a successor in interest to Victoria Springs Investments Ltd.),
 Lifford International Co. Ltd. and Playboy TV International, LLC (incorporated herein by reference to Form 6-K
 (No. 035-22883) filed with the Commission on January 23,
2003). Claxson agrees to furnish supplementally any omitted schedule
to the Commission upon request.
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|4.2            |  | Full-Time Transponder Lease Agreement, dated October 22, 1997,by and between
 PanAmSat International Systems, Inc. and Cisneros Television
Services, Inc. (incorporated herein by reference to the Registration
Statement on Form F-4/A (No. 333-13062) as filed with the Commission on April 26, 2001).                                                                                                                                                                                                                                                                                                                                                                                                               
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|4.3            |  | First Amendment to
Full-Time Transponder Lease Agreement (Pre Launch), dated as of July 31, 2000, by and between PanAmSat International Systems, Inc. and Cisneros Television Services, Inc. (incorporated herein by reference to the Registration Statement on Form F-4/A (No. 333-13062) as filed with the Commission on April 26, 2001).                                                                                                                                                                                                                                                                                                                                                                            

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|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                    
|-------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description of Documents                                                                                                                                                                                                                                                                                                                                                                                           
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                    
|4.4            |  | Letter Agreement Re:
Full-Time Transponder Lease Agreement, dated as of May 1, 1998,
by and between PanAmSat International Systems, Inc. and Cisneros
Television Services, Inc. (incorporated herein by reference to the Registration Statement on Form F-4/A (No. 333-13062) as filed with the Commission on April 26, 2001).                                                                                     
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                    
|4.5            |  | First
Amendment to Full-Time Transponder Lease Agreement, dated as of
July 31, 1998, by and between PanAmSat International Systems,
Inc. and Cisneros Television Services, Inc. (incorporated herein by
reference to the Registration Statement on Form F-4/A (No. 333-13062) as filed with the Commission on April 26, 2001).                                                                                     
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                    
|4.6            |  | Letter Agreement Re:
First Amendment to the Full-Time Transponder Lease Agreement, dated
July 31, 2000, by and between PanAmSat International Systems,
Inc. and Cisneros Television Services, Inc. (incorporated herein by
reference to the Registration Statement on Form F-4/A (No. 333-13062) as
filed with the Commission on April 26, 2001).                                                                  
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                    
|4.7            |  | Letter Agreement Re: Full-Time Transponder Lease Agreement,
as amended (dated October 22, 1997), Full-Time Transfer
Lease Agreement, as amended (dated May 1, 1998) and Letter
Agreement for Retransmission Services, as amended (dated
October 17,1997), dated as of April 4, 2003, by and between
PanAmSat International Systems, Inc. and Claxson USA Inc., formerly
known as Cisneros Television Services, Inc.
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                    
|4.8            |  | Claxson Interactive
Group Inc. 2001 Share Incentive Plan (included as Annex E to the proxy
statement/prospectus forming a part of the Registration Statement on
Form F-4 (No. 333-13062 filed with the Commission on August 17, 2001 which is incorporated herein by reference).                                                                                                                                   

74



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|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                           
|-------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description of Documents                                                                                                                                                                                                                                                                                                                                                                                                  
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                           
|*4.9           |  | Second Amended and
Restated Operating Agreement for Playboy TV  Latin America, LLC, effective as of
April 1, 2002, by and between Playboy
Entertainment Group, Inc. and Lifford International Co. Ltd. (incorporated
herein by reference to Form 6-K (No. 035-22883) filed with
the Commission on January 23, 2003). Claxson agrees to furnish
supplementally any omitted schedule to the Commission upon request.       
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                           
|*4.10          |  | Playboy TV  Latin
America Program Supply and Trademark License Agreement, dated
December 23, 2002, by and between Playboy Entertainment Group,
Inc. and Playboy TV  Latin America, LLC
(incorporated herein by reference to Form 6-K (No. 035-22883)
filed with the Commission on January 23, 2003).
Claxson agrees to furnish supplementally any omitted schedule to the Commission upon request.                      
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                           
|*4.11          |  | Venus Contribution
Agreement, dated as of December 23, 2002, by and among Claxson
Interactive Group Inc., Lifford International Co.
Ltd, Playboy TV  Latin America, LLC and Playboy Entertainment
Group, Inc. (incorporated herein by reference to Form 6-K
(No. 035-22883) filed with the Commission on January 23, 2003).
Claxson agrees to furnish supplementally any omitted schedule to the
Commission upon request.
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                           
|4.12           |  | Playboy TV International
Program Supply Agreement, dated as of August 31, 1999 by and
among Playboy Entertainment Group, Inc., Playboy TV International LLC
and PTVLA U.S., LLC (incorporated herein by reference to the
Registration Statement on Form F-4/A(No. 333-13062)
as filed with the Commission on April 26, 2001).                                                                                             
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                           
|4.13           |  | Amendment No. 1 to
the Playboy TV International Program Supply Agreement,
dated as of December 22, 2002, by and
among Playboy Entertainment Group, Inc., Playboy TV International LLC
and PTVLA U.S., LLC (incorporated herein by reference to
Form 6-K (No. 035-22883) filed with the Commission on
January 23, 2003).                                                                                                   
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                           
|8.1            |  | List of Significant Subsidiaries                                                                                                                                                                                                                                                                                                                                                                                          
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                           
|12.1           |  | Certification of Claxon
Interactive Group Inc.s Chief Executive Officer with respect to
the financial statements attached as part of Item 1 hereto,
pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                           
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                           
|12.2           |  | Certification of Claxon
Interactive Group Inc.s Chief Financial Officer with respect to
the financial statements attached as part of Item 1 hereto,
pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                           



---

|* |  | Portions of this exhibit have been omitted and filed separately with the
Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended, requesting confidential treatment.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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Signatures

The registrant hereby certifies that it meets all of the requirements for
filing on Form 20-F and that it has duly caused and authorized the undersigned
to sign this annual report on its behalf.

|                    |  |        |  |                                                  
|------------------- |  | ------ |  | -------------------------------------------------
|Date: July 14, 2003 |  |        |  | /s/ Roberto Vivo-Chaneton                        
|                    |  |        |  |                                                  
|                    |  | Name:  |  | Roberto Vivo-Chaneton                            
|                    |  | Title: |  | Chief Executive Officer and Chairman of the Board
|                    |  |        |  |                                                  
|Date: July 14, 2003 |  |        |  | /s/ Jose Antonio Ituarte                         
|                    |  |        |  |                                                  
|                    |  | Name:  |  | Jose Antonio Ituarte                             
|                    |  | Title: |  | Chief Financial Officer                          

76



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##### Table of Contents






CERTIFICATIONS

I, Roberto Vivo-Chaneton, Chief Executive Officer of Claxson Interactive
Group Inc., (the Company or Registrant), certify that:



|1. |  | I have reviewed this annual report on Form 20-F of the Company;                                                                                                                                                                                                                                                         
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the Registrant as of, and for, the periods presented in this annual
report;                   
|  
|4. |  | The Registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 1 5d-14) for the Registrant and
have:                                                                                                  



| | a. |  | designed such disclosure controls and procedures to ensure
that material information relating to the Registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this annual
report is being prepared;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | evaluated the effectiveness of the Registrants disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the Evaluation Date); and                                                                                                  
|
| | c. |  | presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The Registrants other certifying officer and I have disclosed, based on
our most recent evaluation, to the Registrants auditors and the audit
committee of Registrants board of directors (or persons performing the
equivalent function):
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a. |  | all significant deficiencies in the design or operation of
internal controls which could adversely affect the Registrants
ability to record, process, summarize and report financial data and
have identified for the Registrants auditors any material
weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | any fraud, whether or not material, that involves management
or other employees who have a significant role in the Registrants
internal controls; and                                                                                                                                        



|6. |  | The Registrants other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Dated: July 14, 2003

| |                          
| | -------------------------
| | /s/ Roberto Vivo-Chaneton
| |                          
| | Roberto Vivo-Chaneton    
| | Chief Executive Officer  

77



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I, José Antonio Ituarte, Chief Financial Officer of Claxson Interactive
Group Inc., (the Company or Registrant), certify that:



|1. |  | I have reviewed this annual report on Form 20-F of the Company;                                                                                                                                                                                                                                                         
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the Registrant as of, and for, the periods presented in this annual
report;                   
|  
|4. |  | The Registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 1 3a-14 and 1 5d-14) for the Registrant and
have:                                                                                                 



| | a. |  | designed such disclosure controls and procedures to ensure
that material information relating to the Registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this annual
report is being prepared;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | evaluated the effectiveness of the Registrants disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the Evaluation Date); and                                                                                                  
|
| | c. |  | presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The Registrants other certifying officer and I have disclosed, based on
our most recent evaluation, to the Registrants auditors and the audit
committee of Registrants board of directors (or persons performing the
equivalent function):
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a. |  | all significant deficiencies in the design or operation of
internal controls which could adversely affect the Registrants
ability to record, process, summarize and report financial data and
have identified for the Registrants auditors any material
weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | any fraud, whether or not material, that involves management
or other employees who have a significant role in the Registrants
internal controls; and                                                                                                                                        



|6. |  | The Registrants other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Dated: July 14, 2003

| |                         
| | ------------------------
| | /s/ José Antonio Ituarte
| |                         
| | José Antonio Ituarte    
| | Chief Financial Officer 

78



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##### Table of Contents






INDEX TO FINANCIAL STATEMENTS

|                                                                                     |  |  |     | 
|------------------------------------------------------------------------------------ |  |  | --- | 
|Consolidated Financial Statements of Claxson Interactive Group Inc. and subsidiaries |  |  | F-3 | 

F-1



---



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[This Page Intentionally Left Blank]

F-2



---



##### Table of Contents



INDEPENDENT AUDITORS REPORT

To the Shareholders of  Claxson
Interactive Group Inc.:

We have audited the accompanying consolidated balance sheets of Claxson
Interactive Group Inc. and subsidiaries (collectively, Claxson) as of
December 31, 2001 and 2002 and the related consolidated statements of
operations and comprehensive loss, of shareholders equity and of cash flows
for each of the three years in the period ended December 31, 2002. These
financial statements are the responsibility of Claxsons management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Claxson at December 31, 2001 and
2002 and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 2002 in conformity with accounting
principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming
that Claxson will continue as a going concern. As described in Note 1 to the
consolidated financial statements, Claxsons inability to meet its obligations
when due, which has been caused, among other things, by its losses from
operations and its working capital deficiency, raises substantial doubt about
Claxsons ability to continue as a going concern. Managements plans
concerning these matters are also described in Note 1. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.

As discussed in Note 2 to the consolidated financial statements, Claxson
changed its method of accounting for goodwill to conform to Statement of
Financial Accounting Standards No. 142.

Deloitte & Touche LLP
Certified Public Accountants

Miami, Florida
March 31, 2003 (July 11, 2003 as to Note 14)

F-3



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##### Table of Contents



CLAXSON INTERACTIVE GROUP INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
As of December 31, 2001 and 2002
(In thousands of U.S. dollars)

|                                                                                                                                                |                                                          |                             |          |        |         |      |          |        |        | 
|----------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------- | --------------------------- | -------- | ------ | ------- | ---- | -------- | ------ | ------ | 
|                                                                                                                                                |                                                          |                             |          | 2001   |         | 2002
|                                                                                                                                                |                                                          |                             |          |        |         |     
|ASSETS                                                                                                                                          |                                                          |                             |          |        |         |      |          |       
|CURRENT ASSETS:                                                                                                                                 |                                                          |                             |          |        |         |      |          |       
|                                                                                                                                                | Cash and cash equivalents                                |                             | $        | 15,211 |         |      | $        | 8,072  |       
|                                                                                                                                                | Restricted investments                                   |                             |          |       |         |      |          | 750    |       
|                                                                                                                                                | Accounts receivable, net                                 |                             |          | 30,398 |         |      |          | 22,381 |       
|                                                                                                                                                | Due from related parties                                 |                             |          | 5,155  |         |      |          | 11,166 |       
|                                                                                                                                                | Other current assets                                     |                             |          | 9,567  |         |      |          | 7,877  |       
|                                                                                                                                                |                                                          |                             |          |        |         |      |          |        |       
|                                                                                                                                                |                                                          | Total current assets        |          |        | 60,331  |      |          |        | 50,246 | 
|RESTRICTED INVESTMENTS                                                                                                                          |                                                          |                             |         |        |         |      | 750      |       
|PROPERTY AND EQUIPMENT, NET                                                                                                                     |                                                          |                             | 31,696   |        |         |      | 18,573   |       
|PROGRAMMING RIGHTS, NET                                                                                                                         |                                                          |                             | 10,991   |        |         |      | 5,554    |       
|INVESTMENTS IN UNCONSOLIDATED AFFILIATES                                                                                                        |                                                          |                             | 4,591    |        |         |      | 1,025    |       
|INVESTMENTS IN DEBT AND EQUITY SECURITIES                                                                                                       |                                                          |                             | 8,290    |        |         |      | 448      |       
|BROADCAST AND TELEVISION LICENSES, NET                                                                                                          |                                                          |                             | 22,505   |        |         |      | 18,065   |       
|GOODWILL, NET                                                                                                                                   |                                                          |                             | 133,413  |        |         |      | 51,837   |       
|OTHER ASSETS, NET                                                                                                                               |                                                          |                             | 6,185    |        |         |      | 4,057    |       
|                                                                                                                                                |                                                          |                             |          |        |         |      |          |        |       
|TOTAL ASSETS                                                                                                                                    |                                                          | $                           | 278,002  |        |         | $    | 150,555  |       
|                                                                                                                                                |                                                          |                             |          |        |         |      |          |       
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                            |                                                          |                             |          |        |         |      |          |       
|CURRENT LIABILITIES:                                                                                                                            |                                                          |                             |          |        |         |      |          |       
|                                                                                                                                                | Accounts payable and accrued expenses                    |                             | $        | 21,228 |         |      | $        | 14,916 |       
|                                                                                                                                                | Due to related parties                                   |                             |          | 7,521  |         |      |          | 3,931  |       
|                                                                                                                                                | 11% Senior Notes Due 2005, including accrued interest    |                             |          | 81,012 |         |      |          | 3,647  |       
|                                                                                                                                                | 8.75 % Senior Notes Due 2010, including accrued interest |                             |          |       |         |      |          | 1,396  |       
|                                                                                                                                                | Other current liabilities                                |                             |          | 7,651  |         |      |          | 13,154 |       
|                                                                                                                                                | Current portion of programming rights obligations        |                             |          | 9,703  |         |      |          | 9,899  |       
|                                                                                                                                                | Current portion of long-term debt                        |                             |          | 11,114 |         |      |          | 6,624  |       
|                                                                                                                                                | Unearned revenue                                         |                             |          | 8,274  |         |      |          | 7,483  |       
|                                                                                                                                                |                                                          |                             |          |        |         |      |          |        |       
|                                                                                                                                                |                                                          | Total current liabilities   |          |        | 146,503 |      |          |        | 61,050 | 
|                                                                                                                                                |                                                          |                             |          |        |         |      |          |        |       
|LONG-TERM LIABILITIES:                                                                                                                          |                                                          |                             |          |        |         |      |          |       
|                                                                                                                                                | Programming rights obligations, net of current portion   |                             |          | 2,013  |         |      |          | 2,302  |       
|                                                                                                                                                | Long-term debt, net of current portion                   |                             |          | 22,335 |         |      |          | 16,640 |       
|                                                                                                                                                | 8.75 % Senior Notes Due 2010, including accrued interest |                             |          |       |         |      |          | 61,576 |       
|                                                                                                                                                | 6.25 % Senior Notes Due 2013, including accrued interest |                             |          |       |         |      |          | 2,605  |       
|                                                                                                                                                | Other long-term liabilities                              |                             |          | 4,398  |         |      |          | 2,023  |       
|                                                                                                                                                |                                                          |                             |          |        |         |      |          |        |       
|                                                                                                                                                |                                                          | Total long-term liabilities |          |        | 28,746  |      |          |        | 85,146 | 
|                                                                                                                                                |                                                          |                             |          |        |         |      |          |        |       
|MINORITY INTEREST                                                                                                                               |                                                          |                             |         |        |         |      | 1,164    |       
|                                                                                                                                                |                                                          |                             |          |        |         |      |          |        |       
|COMMITMENTS AND CONTINGENCIES (Note 11)                                                                                                         |                                                          |                             |          |        |         |      |          |       
|SHAREHOLDERS EQUITY:                                                                                                                           |                                                          |                             |          |        |         |      |          |       
|Convertible preferred share; $1.00 par value; 15,000,000
shares authorized, issued and outstanding as of December
31, 2001 and 2002             |                                                          |                             | 15,000   |        |         |      | 15,000   |       
|Class A common shares; $0.01 par value; 30,000,000 shares
authorized, 18,677,993 shares issued and outstanding as
of December 31, 2001 and 2002 |                                                          |                             | 187      |        |         |      | 187      |       
|Class C common shares; $1.00 par value; 2 shares
authorized, issued and outstanding as of December 31,
2001 and 2002                            |                                                          |                             |         |        |         |      |         |       
|Class F common shares; $1.00 par value; 7 shares
authorized, issued and outstanding as of December 31,
2001 and 2002                            |                                                          |                             |         |        |         |      |         |       
|Class H common shares; $1.00 par value; 1 share
authorized, issued and outstanding as of December 31,
2001 and 2002                             |                                                          |                             |         |        |         |      |         |       
|Additional paid-in capital                                                                                                                      |                                                          |                             | 246,456  |        |         |      | 246,592  |       
|Deferred share-based compensation                                                                                                               |                                                          |                             |         |        |         |      | (63      | )     
|Accumulated deficit                                                                                                                             |                                                          |                             | (130,133 | )      |         |      | (268,562 | )     
|Accumulated other comprehensive income (loss)                                                                                                   |                                                          |                             | (28,757  | )      |         |      | 10,041   |       
|                                                                                                                                                |                                                          |                             |          |        |         |      |          |        |       
|Total shareholders equity                                                                                                                      |                                                          |                             | 102,753  |        |         |      | 3,195    |       
|                                                                                                                                                |                                                          |                             |          |        |         |      |          |        |       
|TOTAL LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                      |                                                          | $                           | 278,002  |        |         | $    | 150,555  |       
|                                                                                                                                                |                                                          |                             |          |        |         |      |          |        |       

See notes to consolidated financial statements.

F-4



---



##### Table of Contents



CLAXSON INTERACTIVE GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
Years Ended December 31, 2000, 2001 and 2002

(In thousands of U.S. dollars)

|                                                                                                                                     |                                                                 |                     |          |          |         |      |         |         |         |   |          |         |        | 
|------------------------------------------------------------------------------------------------------------------------------------ | --------------------------------------------------------------- | ------------------- | -------- | -------- | ------- | ---- | ------- | ------- | ------- | - | -------- | ------- | ------ | 
|                                                                                                                                     |                                                                 |                     |          | 2000     |         | 2001 |         | 2002   
|                                                                                                                                     |                                                                 |                     |          |          |         |      |         |        
|REVENUES:                                                                                                                            |                                                                 |                     |          |          |         |      |         |         |         |   |          |        
|                                                                                                                                     | Subscriber-based fees                                           |                     | $        | 58,096   |         |      | $       | 60,193  |         |   | $        | 31,566  |       
|                                                                                                                                     | Advertising                                                     |                     |          | 43,897   |         |      |         | 37,284  |         |   |          | 30,547  |       
|                                                                                                                                     | Production services                                             |                     |          |         |         |      |         | 2,516   |         |   |          | 7,081   |       
|                                                                                                                                     | Other                                                           |                     |          | 5,393    |         |      |         | 6,444   |         |   |          | 5,766   |       
|                                                                                                                                     |                                                                 |                     |          |          |         |      |         |         |         |   |          |         |       
|                                                                                                                                     |                                                                 | Total revenues, net |          |          | 107,386 |      |         |         | 106,437 |   |          |         | 74,960 | 
|                                                                                                                                     |                                                                 |                     |          |          |         |      |         |         |         |   |          |         |       
|OPERATING EXPENSES:                                                                                                                  |                                                                 |                     |          |          |         |      |         |         |         |   |          |        
|                                                                                                                                     | Product, content and technology                                 |                     |          | 43,232   |         |      |         | 42,832  |         |   |          | 34,710  |       
|                                                                                                                                     | Marketing and sales                                             |                     |          | 18,989   |         |      |         | 21,754  |         |   |          | 13,090  |       
|                                                                                                                                     | Corporate and administration                                    |                     |          | 23,376   |         |      |         | 24,071  |         |   |          | 17,164  |       
|                                                                                                                                     | Depreciation and amortization                                   |                     |          | 21,627   |         |      |         | 27,271  |         |   |          | 12,304  |       
|                                                                                                                                     | Merger, restructuring and severance expenses                    |                     |          | 1,000    |         |      |         | 4,868   |         |   |          |        |       
|                                                                                                                                     |                                                                 |                     |          |          |         |      |         |         |         |   |          |         |       
|                                                                                                                                     | Total operating expenses                                        |                     |          | 108,224  |         |      |         | 120,796 |         |   |          | 77,268  |       
|                                                                                                                                     |                                                                 |                     |          |          |         |      |         |         |         |   |          |         |       
|OPERATING LOSS                                                                                                                       |                                                                 |                     | (838     | )        |         |      | (14,359 | )       |         |   | (2,308   | )      
|                                                                                                                                     |                                                                 |                     |          |          |         |      |         |         |         |   |          |         |       
|OTHER INCOME (EXPENSE):                                                                                                              |                                                                 |                     |          |          |         |      |         |         |         |   |          |        
|                                                                                                                                     | Interest expense                                                |                     |          | (15,258  | )       |      |         | (13,062 | )       |   |          | (12,422 | )     
|                                                                                                                                     | Interest income                                                 |                     |          | 1,579    |         |      |         | 554     |         |   |          | 748     |       
|                                                                                                                                     | Gain on debt restructuring                                      |                     |          |         |         |      |         |        |         |   |          | 15,274  |       
|                                                                                                                                     | Foreign currency exchange loss                                  |                     |          |         |         |      |         | (29,565 | )       |   |          | (61,349 | )     
|                                                                                                                                     | Other                                                           |                     |          | (1,198   | )       |      |         | (5,318  | )       |   |          | 2,961   |       
|                                                                                                                                     | Loss
from unconsolidated affiliates, net                        |                     |          | (4,930   | )       |      |         | (19,097 | )       |   |          | (6,746  | )     
|                                                                                                                                     |                                                                 |                     |          |          |         |      |         |         |         |   |          |         |       
|                                                                                                                                     | Other income (expense), net                                     |                     |          | (19,807  | )       |      |         | (66,488 | )       |   |          | (61,534 | )     
|                                                                                                                                     |                                                                 |                     |          |          |         |      |         |         |         |   |          |         |       
|LOSS BEFORE BENEFIT (PROVISION) FOR NON-U.S. INCOME TAXES,
MINORITY INTEREST AND CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE |                                                                 |                     | (20,645  | )        |         |      | (80,847 | )       |         |   | (63,842  | )      
|BENEFIT (PROVISION) FOR NON-U.S. INCOME TAX                                                                                          |                                                                 |                     | (820     | )        |         |      | (4,166  | )       |         |   | 134      |        
|                                                                                                                                     |                                                                 |                     |          |          |         |      |         |         |         |   |          |         |       
|LOSS BEFORE MINORITY INTEREST AND CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE                                                |                                                                 |                     | (21,465  | )        |         |      | (85,013 | )       |         |   | (63,708  | )      
|MINORITY INTEREST                                                                                                                    |                                                                 |                     | (4       | )        |         |      | 127     |         |         |   | 68       |        
|                                                                                                                                     |                                                                 |                     |          |          |         |      |         |         |         |   |          |         |       
|LOSS BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE                                                                      |                                                                 |                     | (21,469  | )        |         |      | (84,886 | )       |         |   | (63,640  | )      
|CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE                                                                                  |                                                                 |                     |         |          |         |      |        |         |         |   | (74,789  | )      
|                                                                                                                                     |                                                                 |                     |          |          |         |      |         |         |         |   |          |         |       
|NET LOSS                                                                                                                             |                                                                 |                     | (21,469  | )        |         |      | (84,886 | )       |         |   | (138,429 | )      
|                                                                                                                                     |                                                                 |                     |          |          |         |      |         |         |         |   |          |         |       
|OTHER COMPREHENSIVE INCOME (LOSS):                                                                                                   |                                                                 |                     |          |          |         |      |         |         |         |   |          |        
|                                                                                                                                     | Unrealized gain (loss) from investment in equity securities     |                     |          | (233,572 | )       |      |         | 26,196  |         |   |          | (2,400  | )     
|                                                                                                                                     | Foreign currency translation                                    |                     |          | (3,979   | )       |      |         | (26,123 | )       |   |          | 41,198  |       
|                                                                                                                                     |                                                                 |                     |          |          |         |      |         |         |         |   |          |         |       
|                                                                                                                                     | Other comprehensive income (loss), net                          |                     |          | (237,551 | )       |      |         | 73      |         |   |          | 38,798  |       
|                                                                                                                                     |                                                                 |                     |          |          |         |      |         |         |         |   |          |         |       
|COMPREHENSIVE LOSS                                                                                                                   |                                                                 | $                   | (259,020 | )        |         | $    | (84,813 | )       |         | $ | (99,631  | )      
|                                                                                                                                     |                                                                 |                     |          |          |         |      |         |         |         |   |          |         |       
|BASIC AND DILUTED NET LOSS PER COMMON SHARE:                                                                                         |                                                                 |                     |          |          |         |      |         |         |         |   |          |        
|                                                                                                                                     | Loss before cumulative effect of change in accounting
principle |                     |          | N/A      |         |      | $       | (4.58   | )       |   | $        | (3.41   | )     
|                                                                                                                                     | Cumulative effect of change in accounting principle             |                     |          | N/A      |         |      |         | N/A     |         |   | $        | (4.00   | )     
|                                                                                                                                     |                                                                 |                     |          |          |         |      |         |         |         |   |          |         |       
|                                                                                                                                     | Net loss                                                        |                     |          | N/A      |         |      | $       | (4.58   | )       |   | $        | (7.41   | )     
|                                                                                                                                     |                                                                 |                     |          |          |         |      |         |         |         |   |          |         |       
|WEIGHTED AVERAGE NUMBER OF COMMON SHARES:                                                                                            |                                                                 |                     |          |          |         |      |         |         |         |   |          |        
|                                                                                                                                     | Basic and diluted                                               |                     |          | N/A      |         |      |         | 18,539  |         |   |          | 18,678  |       
|                                                                                                                                     |                                                                 |                     |          |          |         |      |         |         |         |   |          |         |       

See notes to consolidated financial statements.

F-5



---



##### Table of Contents



CLAXSON INTERACTIVE GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
Years Ended December 31, 2000, 2001 and 2002

(In thousands of U.S. dollars)

|                           |                                                                |  |                |    |                           |   |            |    |           |  |        |        |        |   |         |        |              |  |         |        |         |   |            |     |             |   |         |         |   |  |   |      |       |   |          |          |   |   |         |          |   |  |         |          |  
|-------------------------- | -------------------------------------------------------------- |  | -------------- | -- | ------------------------- | - | ---------- | -- | --------- |  | ------ | ------ | ------ | - | ------- | ------ | ------------ |  | ------- | ------ | ------- | - | ---------- | --- | ----------- | - | ------- | ------- | - |  | - | ---- | ----- | - | -------- | -------- | - | - | ------- | -------- | - |  | ------- | -------- | -
|                           |                                                                |  |                |    |                           |   |            |    |           |  |        |        |        |   |         |        |              |  |         |        |         |   |            |     |             |   |         |         |   |  |   |      |       |   |          |          |   |   | Accumu- |          |   |  |        
|                           |                                                                |  |                |    |                           |   |            |    |           |  |        |        |        |   |         |        |              |  |         |        |         |   |            |     |             |   |         |         |   |  |   |      |       |   |          |          |   |   | lated   |          |   |  |        
|                           |                                                                |  | Ibero-American |    |                           |   |            |    |           |  |        |        |        |   |         |        |              |  |         |        |         |   |            |     |             |   |         |         |   |  |   |      | Other |   |          |          |  
|                           |                                                                |  | Media Partners |    | Claxson Interactive Group |   |            |    |           |  |        |        |        |   |         |        |              |  | Compre- |        |         |   |           
|                           |                                                                |  |                |    |                           |   | Additional |    | Deferred  |  |        |        |        |   | hensive |        |              |  |        
|                           |                                                                |  | Common         |    |                           |   |            |    | Preferred |  |        |        |        |   | Common  |        |              |  |         |        | Paid-In |   | Share-base |     | Accumulated |   | Income  |         |   |  |  
|                           |                                                                |  | Shares         |    | Amount                    |   | Shares     |    | Amount    |  | Shares |        | Amount |   | Capital |        | Compensation |  | Deficit |        | (Loss)  |   | Total     
|                           |                                                                |  |                |    |                           |   |            |    |           |  |        |        |        |   |         |        |              |  |         |        |         |   |           
|BALANCE, DECEMBER 31, 1999 |                                                                |  | 2              |    |                           | $ | 2          |    |           |  |       |        |        | $ |        |        |              |  |        |        |         | $ |           |     |             | $ | 225,959 |         |   |  |  |      |       | $ | (23,778  | )        |   | $ | 208,721 |          |   |  | 410,904 |         
|                           | Capital contributions                                          |  |                |   |                           |   |            |   |           |  |        |       |        |   |         |       |              |  |         |       |         |   |            |    |             |   |         | 17,134  |   |  |   |     |       |   |          |         |   |   |         |         |   |  |         | 17,134   |  
|                           | Capital
contributions in anticipation of preferred shares      |  |                |   |                           |   |            |   |           |  |        |       |        |   |         |       |              |  |         |       |         |   |            |    |             |   |         | 11,447  |   |  |   |     |       |   |          |         |   |   |         |         |   |  |         | 11,447   |  
|                           | Net loss                                                       |  |                |   |                           |   |            |   |           |  |        |       |        |   |         |       |              |  |         |       |         |   |            |    |             |   |         |        |   |  |   |     |       |   |          | (21,469  | ) |   |         |         |   |  |         | (21,469  | )
|                           | Unrealized loss from
investment in Equity
securities           |  |                |   |                           |   |            |   |           |  |        |       |        |   |         |       |              |  |         |       |         |   |            |    |             |   |         |        |   |  |   |     |       |   |          |         |   |   |         | (233,572 | ) |  |         | (233,572 | )
|                           | Foreign currency
translation                                   |  |                |   |                           |   |            |   |           |  |        |       |        |   |         |       |              |  |         |       |         |   |            |    |             |   |         |        |   |  |   |     |       |   |          |         |   |   |         | (3,979   | ) |  |         | (3,979   | )
|                           |                                                                |  |                |    |                           |   |            |    |           |  |        |        |        |   |         |        |              |  |         |        |         |   |            |     |             |   |         |         |   |  |   |      |       |   |          |          |   |   |         |          |   |  |         |         
|BALANCE, DECEMBER 31, 2000 |                                                                |  | 2              |    |                           |   | 2          |    |           |  |       |        |        |   |        |        |              |  |        |        |         |   |           |     |             |   | 254,540 |         |   |  |  |      |       |   | (45,247  | )        |   |   | (28,830 | )        |   |  | 180,465 |         
|                           | Capital contributions in
anticipation of
preferred shares      |  |                |   |                           |   |            |   |           |  |        |       |        |   |         |       |              |  |         |       |         |   |            |    |             |   |         | 3,553   |   |  |   |     |       |   |          |         |   |   |         |         |   |  |         | 3,553    |  
|                           | Share-based compensation                                       |  |                |   |                           |   |            |   |           |  |        |       |        |   |         |       |              |  |         |       |         |   |            |    |             |   |         | 658     |   |  |   |     |       |   |          |         |   |   |         |         |   |  |         | 658      |  
|                           | Distribution to
Predecessor
shareholders                       |  |                |   |                           |   |            |   |           |  |        |       |        |   |         |       |              |  |         |       |         |   |            |    |             |   |         | (1,210  | ) |  |   |     |       |   |          |         |   |   |         |         |   |  |         | (1,210   | )
|                           | Merger transaction                                             |  |                | (2 | )                         |   |            | (2 | )         |  |        |       |        |   |         |       |              |  |         | 18,539 |         |   |            | 185 |             |   |         | 3,566   |   |  |   |     |       |   |          |         |   |   |         |         |   |  |         | 3,749    |  
|                           | Issuance of common shares
for acquisitions                     |  |                |   |                           |   |            |   |           |  |        |       |        |   |         |       |              |  |         | 139    |         |   |            | 2   |             |   |         | 349     |   |  |   |     |       |   |          |         |   |   |         |         |   |  |         | 351      |  
|                           | Issuance of preferred
shares                                   |  |                |   |                           |   |            |   |           |  |        | 15,000 |        |   |         | 15,000 |              |  |         |       |         |   |            |    |             |   |         | (15,000 | ) |  |   |     |       |   |          |         |   |   |         |         |   |  |         |         |  
|                           | Net loss                                                       |  |                |   |                           |   |            |   |           |  |        |       |        |   |         |       |              |  |         |       |         |   |            |    |             |   |         |        |   |  |   |     |       |   |          | (84,886  | ) |   |         |         |   |  |         | (84,886  | )
|                           | Change in unrealized gain
from investment in
Equity securities |  |                |   |                           |   |            |   |           |  |        |       |        |   |         |       |              |  |         |       |         |   |            |    |             |   |         |        |   |  |   |     |       |   |          |         |   |   |         | 26,196   |   |  |         | 26,196   |  
|                           | Change in foreign
currency translation                         |  |                |   |                           |   |            |   |           |  |        |       |        |   |         |       |              |  |         |       |         |   |            |    |             |   |         |        |   |  |   |     |       |   |          |         |   |   |         | (26,123  | ) |  |         | (26,123  | )
|                           |                                                                |  |                |    |                           |   |            |    |           |  |        |        |        |   |         |        |              |  |         |        |         |   |            |     |             |   |         |         |   |  |   |      |       |   |          |          |   |   |         |          |   |  |         |         
|BALANCE, DECEMBER 31, 2001 |                                                                |  |               |    |                           |   |           |    |           |  | 15,000 |        |        |   | 15,000  |        |              |  | 18,678  |        |         |   | 187        |     |             |   | 246,456 |         |   |  |  |      |       |   | (130,133 | )        |   |   | (28,757 | )        |   |  | 102,753 |         
|                           | Capital contributions                                          |  |                |   |                           |   |            |   |           |  |        |       |        |   |         |       |              |  |         |       |         |   |            |    |             |   |         |        |   |  |   |     |       |   |          |         |   |   |         |         |   |  |         |         |  
|                           | Deferred share-base
compensation related
to share options      |  |                |   |                           |   |            |   |           |  |        |       |        |   |         |       |              |  |         |       |         |   |            |    |             |   |         | 149     |   |  |   | (149 | )     |   |          |         |   |   |         |         |   |  |         |         |  
|                           | Forfeited options                                              |  |                |   |                           |   |            |   |           |  |        |       |        |   |         |       |              |  |         |       |         |   |            |    |             |   |         | (13     | ) |  |   | 13   |       |   |          |         |   |   |         |         |   |  |         |         |  
|                           | Amortization of deferred
share-based
compensation              |  |                |   |                           |   |            |   |           |  |        |       |        |   |         |       |              |  |         |       |         |   |            |    |             |   |         |        |   |  |   | 73   |       |   |          |         |   |   |         |         |   |  |         | 73       |  
|                           | Net loss                                                       |  |                |   |                           |   |            |   |           |  |        |       |        |   |         |       |              |  |         |       |         |   |            |    |             |   |         |        |   |  |   |     |       |   |          | (138,429 | ) |   |         |         |   |  |         | (138,429 | )
|                           | Unrealized loss from
investment in Equity
securities           |  |                |   |                           |   |            |   |           |  |        |       |        |   |         |       |              |  |         |       |         |   |            |    |             |   |         |        |   |  |   |     |       |   |          |         |   |   |         | (2,400   | ) |  |         | (2,400   | )
|                           | Change in foreign
currency translation                         |  |                |   |                           |   |            |   |           |  |        |       |        |   |         |       |              |  |         |       |         |   |            |    |             |   |         |        |   |  |   |     |       |   |          |         |   |   |         | 41,198   |   |  |         | 41,198   |  
|                           |                                                                |  |                |    |                           |   |            |    |           |  |        |        |        |   |         |        |              |  |         |        |         |   |            |     |             |   |         |         |   |  |   |      |       |   |          |          |   |   |         |          |   |  |         |         
|                           | BALANCE, DECEMBER 31, 2002                                     |  |                |   |                           |   | $          |   |           |  |        | 15,000 |        |   | $       | 15,000 |              |  |         | 18,678 |         |   | $          | 187 |             |   | $       | 246,592 |   |  | $ | (63  | )     |   | $        | (268,562 | ) |   | $       | 10,041   |   |  | $       | 3,195    |  
|                           |                                                                |  |                |    |                           |   |            |    |           |  |        |        |        |   |         |        |              |  |         |        |         |   |            |     |             |   |         |         |   |  |   |      |       |   |          |          |   |   |         |          |   |  |         |         

See notes to consolidated financial statements.

F-6



---



##### Table of Contents



CLAXSON INTERACTIVE GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2000, 2001 and 2002
(In thousands of U.S. dollars)

|                                                                    |                                                                                           |                                                                       |                                                     |         |                         |         |        |         |         |        |        |          |         |         |  
|------------------------------------------------------------------- | ----------------------------------------------------------------------------------------- | --------------------------------------------------------------------- | --------------------------------------------------- | ------- | ----------------------- | ------- | ------ | ------- | ------- | ------ | ------ | -------- | ------- | ------- | -
|                                                                    |                                                                                           |                                                                       |                                                     |         | Year Ended December 31,
|                                                                    |                                                                                           |                                                                       |                                                     |         |                        
|                                                                    |                                                                                           |                                                                       |                                                     |         | 2000                    |         | 2001   |         | 2002   
|                                                                    |                                                                                           |                                                                       |                                                     |         |                         |         |        |         |        
|CASH FLOWS FROM OPERATING ACTIVITIES:                               |                                                                                           |                                                                       |                                                     |         |                         |         |        |         |         |        |        |         
|                                                                    | Net loss                                                                                  |                                                                       | $                                                   | (21,469 | )                       |         | $      | (84,886 | )       |        | $      | (138,429 | )      
|                                                                    | Adjustments to reconcile net loss to net cash (used in)
provided by operating activities: |                                                                       |                                                     |         |                         |         |        |         |         |        |        |          |        
|                                                                    |                                                                                           | Advertising time and other services in exchange for equity
securities |                                                     |         | (5,504                  | )       |        |         |        |        |        |          |        |        
|                                                                    |                                                                                           | Amortization of programming rights                                    |                                                     |         | 11,112                  |         |        |         | 8,836   |        |        |          | 4,903   |        
|                                                                    |                                                                                           | Share-based compensation                                              |                                                     |         |                        |         |        |         | 658     |        |        |          | 73      |        
|                                                                    |                                                                                           | Depreciation and amortization                                         |                                                     |         | 21,627                  |         |        |         | 27,271  |        |        |          | 12,304  |        
|                                                                    |                                                                                           | Interest income accrued on notes receivable from shareholders         |                                                     |         | (400                    | )       |        |         |        |        |        |          |        |        
|                                                                    |                                                                                           | Non cash interest expense                                             |                                                     |         |                        |         |        |         | 321     |        |        |          | 838     |        
|                                                                    |                                                                                           | Preferred dividend receivable                                         |                                                     |         |                        |         |        |         | (311    | )      |        |          | (342    | )      
|                                                                    |                                                                                           | Net loss on disposal of property and equipment and trademarks         |                                                     |         |                        |         |        |         | 2,439   |        |        |          | 567     |        
|                                                                    |                                                                                           | Gain on sale of investment in unconsolidated affiliates               |                                                     |         |                        |         |        |         | (478    | )      |        |          |        |        
|                                                                    |                                                                                           | Exchange rate losses                                                  |                                                     |         |                        |         |        |         | 29,565  |        |        |          | 61,349  |        
|                                                                    |                                                                                           | Cumulative effect of change in accounting principle                   |                                                     |         |                        |         |        |         |        |        |        |          | 74,789  |        
|                                                                    |                                                                                           | Gain on debt restructuring                                            |                                                     |         |                        |         |        |         |        |        |        |          | (15,274 | )      
|                                                                    |                                                                                           | Loss from unconsolidated affiliates                                   |                                                     |         | 4,930                   |         |        |         | 19,097  |        |        |          | 6,746   |        
|                                                                    |                                                                                           | Minority interest                                                     |                                                     |         | 4                       |         |        |         | (127    | )      |        |          | (68     | )      
|                                                                    |                                                                                           | Changes in operating assets and liabilities:                          |                                                     |         |                         |         |        |         |         |        |        |          |         |        
|                                                                    |                                                                                           |                                                                       | Accounts receivable, net                            |         |                         | (6,603  | )      |         |         | (2,839 | )      |          |         | 6,976   |  
|                                                                    |                                                                                           |                                                                       | Acquisition of programming rights                   |         |                         | (8,989  | )      |         |         | (4,741 | )      |          |         | (2,273  | )
|                                                                    |                                                                                           |                                                                       | Due from related parties and other current assets   |         |                         | (605    | )      |         |         | 3,905  |        |          |         | (6,018  | )
|                                                                    |                                                                                           |                                                                       | Other assets                                        |         |                         | 582     |        |         |         | 7,619  |        |          |         | (117    | )
|                                                                    |                                                                                           |                                                                       | Accounts payable, accrued expenses and other        |         |                         | 9,177   |        |         |         | (4,164 | )      |          |         | 28,721  |  
|                                                                    |                                                                                           |                                                                       | Due to related parties                              |         |                         | 2,147   |        |         |         | 9,707  |        |          |         | (3,591  | )
|                                                                    |                                                                                           |                                                                       | Programming rights obligations                      |         |                         | (2,470  | )      |         |         | (6,411 | )      |          |         | 570     |  
|                                                                    |                                                                                           |                                                                       | Other long-term liabilities                         |         |                         | 5       |        |         |         | (1,965 | )      |          |         | (29,753 | )
|                                                                    |                                                                                           |                                                                       |                                                     |         |                         |         |        |         |         |        |        |          |        
|                                                                    |                                                                                           | Net cash provided by operating activities                             |                                                     |         | 3,544                   |         |        |         | 3,496   |        |        |          | 1,971   |        
|                                                                    |                                                                                           |                                                                       |                                                     |         |                         |         |        |         |         |        |        |          |        
|CASH FLOWS FROM INVESTING ACTIVITIES:                               |                                                                                           |                                                                       |                                                     |         |                         |         |        |         |         |        |        |         
|                                                                    |                                                                                           | Redemption of restricted investments                                  |                                                     |         | 8,288                   |         |        |         | 4,319   |        |        |          |        |        
|                                                                    |                                                                                           | Acquisition of property and equipment                                 |                                                     |         | (14,296                 | )       |        |         | (6,288  | )      |        |          | (1,605  | )      
|                                                                    |                                                                                           | Net cash balance of newly consolidated affiliate                      |                                                     |         |                        |         |        |         |        |        |        |          | 909     |        
|                                                                    |                                                                                           | Acquisitions, net of cash acquired and transaction costs paid         |                                                     |         | (11,155                 | )       |        |         | 8,788   |        |        |          | (3,288  | )      
|                                                                    |                                                                                           | Investments in unconsolidated affiliates                              |                                                     |         | (6,118                  | )       |        |         | (10,078 | )      |        |          | (130    | )      
|                                                                    |                                                                                           | Sale of investment in unconsolidated affiliates                       |                                                     |         |                        |         |        |         | 5,014   |        |        |          | 8,400   |        
|                                                                    |                                                                                           | Investment in equity securities                                       |                                                     |         |                        |         |        |         | (5,135  | )      |        |          |        |        
|                                                                    |                                                                                           |                                                                       |                                                     |         |                         |         |        |         |         |        |        |          |        
|                                                                    |                                                                                           |                                                                       | Net cash (used in) provided by investing activities |         |                         | (23,281 | )      |         |         | (3,380 | )      |          |         | 4,286   |  
|                                                                    |                                                                                           |                                                                       |                                                     |         |                         |         |        |         |         |        |        |          |        
|CASH FLOWS FROM FINANCING ACTIVITIES:                               |                                                                                           |                                                                       |                                                     |         |                         |         |        |         |         |        |        |         
|                                                                    | Proceeds from borrowings under long-term debt                                             |                                                                       |                                                     | 32,550  |                         |         |        | 1,598   |         |        |        |         |        
|                                                                    | Repayments of long-term debt                                                              |                                                                       |                                                     | (35,522 | )                       |         |        | (9,693  | )       |        |        | (7,689   | )      
|                                                                    | Capital contributions                                                                     |                                                                       |                                                     | 28,581  |                         |         |        | 3,553   |         |        |        |         |        
|                                                                    | Payment of debt restructuring costs                                                       |                                                                       |                                                     |        |                         |         |        |        |         |        |        | (3,868   | )      
|                                                                    | Restricted cash in guarantee of Chilean syndicated loan                                   |                                                                       |                                                     |        |                         |         |        |        |         |        |        | (1,500   | )      
|                                                                    | Capital contribution from minority shareholder                                            |                                                                       |                                                     | 2,100   |                         |         |        |        |         |        |        | 32       |        
|                                                                    |                                                                                           |                                                                       |                                                     |         |                         |         |        |         |         |        |        |          |        
|                                                                    |                                                                                           | Net cash provided by (used in) financing activities                   |                                                     |         | 27,709                  |         |        |         | (4,542  | )      |        |          | (13,025 | )      
|                                                                    |                                                                                           |                                                                       |                                                     |         |                         |         |        |         |         |        |        |          |        
|EFFECT OF FOREIGN CURRENCY TRANSLATION ON CASH AND CASH EQUIVALENTS |                                                                                           |                                                                       | (3,979                                              | )       |                         |         | 1,107  |         |         |        | (371   | )       
|                                                                    |                                                                                           |                                                                       |                                                     |         |                         |         |        |         |         |        |        |          |        
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                |                                                                                           |                                                                       | 3,993                                               |         |                         |         | (3,319 | )       |         |        | (7,139 | )       
|CASH
AND CASH EQUIVALENTS, BEGINNING OF YEAR                        |                                                                                           |                                                                       | 14,537                                              |         |                         |         | 18,530 |         |         |        | 15,211 |         
|                                                                    |                                                                                           |                                                                       |                                                     |         |                         |         |        |         |         |        |        |          |        
|CASH
AND CASH EQUIVALENTS, END OF YEAR                              |                                                                                           | $                                                                     | 18,530                                              |         |                         | $       | 15,211 |         |         | $      | 8,072  |         
|                                                                    |                                                                                           |                                                                       |                                                     |         |                         |         |        |         |         |        |        |          |        
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION (See Note 13)      |                                                                                           |                                                                       |                                                     |         |                         |         |        |         |         |        |        |         

See notes to consolidated financial statements

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##### Table of Contents



CLAXSON INTERACTIVE GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2000, 2001 and 2002
(In thousands of U.S. dollars)

|   |  |                                    
|-- |  | -----------------------------------
|1. |  | GENERAL BACKGROUND AND ORGANIZATION

General Claxson Interactive Group Inc. and subsidiaries (collectively,
Claxson, or the Company), a British Virgin Islands international business
company, is a multimedia provider of branded entertainment content to Spanish
and Portuguese speakers around the world. Claxson owns and operates several
branded pay television channels, certain broadcast television and radio
stations, and certain Internet assets throughout Ibero America. Claxson has
significant operations in Argentina and Chile, and is headquartered in Buenos
Aires, Argentina and Miami Beach, Florida. Claxson derives a significant
portion of its revenues from subscriber-based fees charged to cable system and
direct-to-home operators that distribute Claxsons branded television channels
throughout Ibero America. Claxson also generates revenues from the sale of
advertising time and, to a lesser extent, management fees and other services.

Organization Claxson was incorporated as an international business
company in the British Virgin Islands on October 16, 2000. Claxson was formed
to combine the assets of Ibero-American Media Partners, El Sitio, Inc. (El
Sitio), and certain other media businesses of the Cisneros Group under the
terms of a combination agreement dated October 30, 2000, as amended on June 2,
2001 and August 22, 2001 and consummated on September 21, 2001.

As the former shareholders of Ibero-American Media Partners became the
majority shareholders in Claxson, Ibero-American Media Partners was deemed to
be the acquiror for accounting purposes. Accordingly, the contribution to
Claxson of all of the shares of the subsidiaries of Ibero-American Media
Partners was recorded in the consolidated balance sheet at historical carrying
value. As the accounting acquiror, the historical consolidated statements of
operations and comprehensive loss, of shareholders equity and of cash flows of
Ibero-American Media Partners for the year ended December 31, 2000 are
presented in the consolidated financial statements of Claxson preceding the transaction.

The merger of El Sitio into a subsidiary of Claxson and the contribution
of the shares representing interests in Rainbow Heights International, Ltd.,
208 shares of ARTISTdirect Inc. (ARTISTdirect), a 50% interest in AEI
Collingham Holdings Co. Ltd. (DMX Music Latin America), and an 80.1% interest
in Playboy TV International and PTVI US LLC (collectively Playboy TV
International) to Claxson has been recorded in accordance with the purchase
method of accounting in Claxsons consolidated balance sheet at estimated fair
value (other than the 18% of El Sitio already owned by Ibero-American Media
Partners). Fair value was determined by reference to El Sitios average share
price before and after execution and delivery of the amendments relating to the
combination agreement.

Background Ibero-American Media Partners II, Ltd. (Ibero-American Media
Partners) was incorporated as a company in the Cayman Islands on July 28, 1998
and did not have any operations prior to December 31, 1998. Ibero-American
Media Partners was a joint venture between a member of the Cisneros Group and
funds affiliated with Hicks, Muse, Tate & Furst Incorporated (Hicks Muse).
The Cisneros Group is a name used to describe a group of investments, joint
ventures, strategic alliances and companies that are engaged in diversified
consumer businesses, including broadcast and pay television, direct-to-home
satellite television, content production and other entertainment, media and
communications enterprises, and that are associated with Ricardo J. and Gustavo
A. Cisneros and trusts established by them for the benefit of themselves and
members of their families. On December 31, 1998, a member of the Cisneros
Group (the Contributing Shareholder) contributed to Ibero-American Media
Partners its ownership interest in certain entities in exchange for a 50%
ownership interest in Ibero-American Media Partners. On the same date, Hicks
Muse made a cash contribution of $78,900 in exchange for the remaining 50%
ownership interest in Ibero-American Media Partners. Concurrent with these
contributions, Ibero-American Media Partners purchased from the Contributing
Shareholder its ownership interest in certain other entities for cash amounting
to $78,900. These transactions were recorded at December 31, 1998 by carrying
over the Contributing Shareholders historical carrying value in the net assets
contributed to the extent that the Contributing Shareholder continued to have
an interest in the contributed assets (i.e., 50%). The net assets attributable
to the purchase of a 50% ownership interest by Hicks Muse have been recorded at
their estimated fair

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##### Table of Contents



CLAXSON INTERACTIVE GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2000, 2001 and 2002
(In thousands of U.S. dollars)

values. These transactions resulted in additional goodwill of $54,172
above the goodwill that had been originally recorded on the Contributing
Shareholders historical financial statements for previous acquisitions.

Going Concern The accompanying consolidated financial statements have
been prepared assuming that Claxson will continue as a going concern. Claxson
incurred net losses of $84,886 and $138,429 for the years ended December 31,
2001 and 2002, respectively, and has a working capital deficiency of $10,804 as
of December 31, 2002. Claxson has also been negatively affected by the
devaluation in Argentina and economic situation in Argentina and the rest of
Latin America, where Claxson has significant operations. Also, as discussed in
Note 11, DirecTV Latin America (DTVLA), Claxsons most significant customer,
filed for protection under Chapter 11 of the U.S. Bankruptcy Code, which could
negatively impact Claxsons revenue and liquidity position. These operational
and economic matters have had a negative impact of Claxsons revenues, its
liquidity position, and as a result, its ability to meet its obligations when
due.

The negative impact on Claxsons ability to meet its obligations when due
as a result of its liquidity position, raises substantial doubt as to Claxsons
ability to continue as a going concern. Continuation as a going concern is
primarily dependent on Claxsons ability to ultimately achieve profitability.
In an effort to achieve profitability, Claxson has taken certain steps during
2002 and 2003 including the disposition of non-strategic assets (see Note 3)
and the restructuring of its subsidiaries debt (see Note 6). Claxsons
failure to significantly increase revenues or maintain its operating expenses at their
current level, or otherwise meet its business plan objectives, would result in
Claxsons failure to achieve profitability. Although management believes
Claxson has enough liquidity to continue operations through the end of calendar
year 2003, maintaining going concern status after that date is highly dependent
on managements ability to accomplish its business plan objectives. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.

|   |  |                                           
|-- |  | ------------------------------------------
|2. |  | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation The accompanying consolidated financial statements
include the accounts of Claxson and its wholly and majority owned and
controlled subsidiaries from the date of acquisition/contribution. All
significant intercompany accounts and transactions have been eliminated in
consolidation. The following are Claxsons principal subsidiaries:



| |  |  | Imagen Satelital S.A. and subsidiaries, 100% owned;         
| | - |  | ------------------------------------------------------------
|
| |  |  | Claxson Chile S.A. and subsidiaries, 100% owned;            
|
| |  |  | Claxson USA Inc. and subsidiaries, 100% owned;              
|
| |  |  | Carson International Ltd., 100% owned;                      
|
| |  |  | El Sitio, Inc., 100% owned; and                             
|
| |  |  | Rainbow Heights International Ltd., 100% owned (see Note 14)

Claxson also has several unconsolidated operating subsidiaries. Claxson,
through several holding companies, holds a 31% interest in DMX Music Latin
America (DMX LA), a 33.34% interest in Sociedad Torre Conjunto Cerro San
Cristobal S.A. (San Cristobal) and a 50% interest in Latin America Internet
Company (ARTISTdirect). DMX LA, San Cristobal and ARTISTdirect joint
ventures are not controlled by Claxson and, therefore, are accounted for under
the equity method of accounting.

In addition, Claxson held a 50% interest in The Locomotion Channel and The
Locomotion Channel B.V. (collectively, Locomotion) until May 17, 2002 (see
Note 3), which was also accounted for under the equity method of accounting as
Claxson did not control Locomotion.

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CLAXON INTERACTIVE GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2000, 2001 and 2002
(In thousands of U.S. dollars)

Claxson also held an 80.1% interest in Playboy TV International, LLC
(PTVI) until December 23, 2002, when a new agreement was reached with Playboy
Enterprises, Inc. and its affiliates (PEI). As part of the new agreement,
Claxson transferred its 80.1% interest in PTVI, excluding the Latin America,
Spain and Portugal territories, in exchange for PEIs release of Claxson from
future capital commitments to that venture (see Note 3). Accordingly, as of
December 31, 2002, the accompanying consolidated balance sheet of Claxson does
not include any investment in PTVI.

Claxson retained its 81% interest in Playboy TV Latin America LLC
(Playboy TV Latin America or PTVLA). As part of the new agreement, Claxson
and PEI executed the Second Amended and Restated Operating Agreement for PTVLA
whose provisions provided Claxson with management control of the venture, and
therefore Claxson consolidated PTVLA as of December 23, 2002. Accordingly,
PTVLAs balance sheet is included in the consolidated balance sheet as of
December 31, 2002 but only its operations from December 24 to December 31, 2002
have been included in the consolidated financial statements. Operations of
PTVLA prior to December 24, 2002 were accounted for under the equity method of
accounting.

Prior to the renegotiation of agreements with PEI, Claxson did not control
PTVI or PTVLA and, therefore, accounted for its interest in PTVI and PTVLA
under the equity method of accounting.

Use of Estimates The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
(US GAAP) requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.

Fair Value of Financial Instruments The fair value of financial
instruments held by Claxson is based on a number of factors and assumptions and
may not necessarily be representative of the actual gains or losses that may be
realized upon settlement. The carrying amounts of cash equivalents, accounts
receivable and payable, accrued expenses, due to related parties and other
current liabilities approximates their fair value due to their short-term
nature. The carrying amount of restricted investments and investments in
equity securities approximates fair value based on current market prices and
rates. The carrying amount of long-term liabilities, other than Imagens 11%
Senior Notes due 2005, approximates fair value as determined based on rates
estimated by Claxson to be currently available from other lenders. The fair
value of Imagens 11% Senior Notes due 2005 and Claxsons 8.75% Senior Notes
due 2010, which are carried at $3,217 and $41,325 respectively, approximates
$12,878 as of December 31, 2002 as determined by quoted market prices.

Foreign Currency Translation/Foreign Currency Exchange Loss Management
has determined that the Argentine peso (ARS) is the functional currency of
the Argentine subsidiaries and the Chilean peso is the functional currency of
the Chilean subsidiaries. The financial statements of these subsidiaries have
been translated into U.S. dollars in accordance with the provisions of
Statement of Financial Accounting Standards (SFAS) No. 52, Foreign Currency
Translation. Adjustments resulting from the translation of the financial
statements from their functional currency to U.S. dollars are accumulated as
other comprehensive income (loss) within shareholders equity and are not
included in the determination of income (loss) for the relevant periods. For
the years ended December 31, 2002, 2001, and 2000, these foreign currency
translation amounts resulted in a gain of $41,198, loss of $26,123 and loss of
$3,979, respectively.

Certain assets and liabilities of these non-U.S. subsidiaries are
denominated in currencies other than the functional currency; foreign currency
exchange gains and losses on those assets and liabilities are included in the
determination of income (loss) for the relevant periods. The decision of the
Argentine Government on December 20, 2001, to preclude exchanges of ARS and
U.S. dollars created a condition of non-exchangeability, which resulted in
Claxson using the first subsequent free-floating rate (ARS 1.65 per U.S.
dollar) for which transactions could be settled to remeasure Claxsons
Argentine subsidiaries financial position and results of operations. The ARS
free market opened on January 11, 2002 and traded at 1.65 ARS to the U.S.
dollar, with peaks of 3.90 ARS to the U.S. dollar in 2002, closing at 3.37 ARS
to the U.S. dollar as of December 31, 2002. This resulted in a remeasurement
loss of approximately $29,565 and $61,349 which is reflected in net loss on
foreign

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CLAXSON INTERACTIVE GROUP INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2000, 2001 and 2002
(In thousands of U.S. dollars)

currency exchange in the accompanying consolidated statements of operations for
the years ended December 31, 2001 and 2002, respectively.

Currency Risks Beginning in December of 2001 the Argentine Government
took several measures that affected the exchange rate of the ARS, the transfer
of funds, and the denomination of contracts in currencies other than the ARS.
The Argentine Government restricted the withdrawal of funds and froze time
deposits and savings accounts for a period between six months to three years.
All contracts between Argentine private parties previously denominated in
foreign currencies were converted to ARS.

Numerous uncertainties exist surrounding the ultimate resolution of
Argentinas economic and political instability and actual results could differ
from those estimates and assumptions utilized. The Argentine economic and
political situation continues to evolve and the Argentine Government may enact
future regulations or policies that, when finalized and adopted, may adversely
and materially impact, among other items, (i) the realized revenues that
Claxson receives for services offered in Argentina; (ii) the timing of cash
flows from Argentine companies to Claxson subsidiaries; (iii) Claxsons asset
valuations; and (iv) Claxsons ARS-denominated monetary assets and liabilities.

Risk Management Claxson currently operates in countries throughout Ibero
America, and principally in Argentina and Chile. Claxsons financial
performance may be affected by inflation, exchange rates and controls, price
controls, interest rates, changes in governmental economic policy, taxation and
political, economic or other developments in or affecting the Latin American
countries in which Claxson operates. Additionally, a significant portion of
the debt has a fixed interest rate thereby limiting Claxsons interest rate
risk exposure. Accordingly, Claxson does not enter into derivative
transactions to hedge against these potential risks. As a result, the January
1, 2001 implementation of SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities, as amended by SFAS No. 138, did not have a material
impact on Claxsons consolidated financial position, results of operations, or
cash flows.

Cash and Cash Equivalents Cash and cash equivalents include cash and
interest-bearing deposits held in banks with an original maturity date of three
months or less when acquired.

Restricted Investments Restricted investments consist of funds held in
an escrow account to be used to complete any payment to the lenders of the
syndicated bank facility described in Note 6. The funds in the escrow account
will be released upon reaching certain coverage ratios.

Allowance for Doubtful Accounts Receivable Claxson carries accounts
receivable at the amount it deems to be collectible. Accordingly, Claxson
provides allowances for accounts receivable deemed to be uncollectible based on
managements best estimates. As a result of the agreement with DirecTV Latin
America Holdings, Inc. (DTV Holdings) mentioned in Note 11, the Company has
not reserved against any of the receivables with DTVLA. Recoveries are
recognized in the period they are received. The ultimate amount of accounts
receivable that become uncollectible could differ from the estimated amount.
The activity for the allowance for doubtful accounts receivable is as follows:

|                     |  |                         |        |      |  |      |        |   |  |   |        |  
|-------------------- |  | ----------------------- | ------ | ---- |  | ---- | ------ | - |  | - | ------ | -
|                     |  | Year Ended December 31,
|                     |  |                        
|                     |  | 2000                    |        | 2001 |  | 2002
|                     |  |                         |        |      |  |     
|Beginning balance    |  | $                       | 3,494  |      |  | $    | 4,460  |   |  | $ | 6,662  |  
|Acquired allowances  |  |                         |       |      |  |      | 2,631  |   |  |   |       |  
|Provision            |  |                         | 3,994  |      |  |      | 4,333  |   |  |   | 5,069  |  
|Write-offs, net      |  |                         | (3,028 | )    |  |      | (1,523 | ) |  |   | (1,327 | )
|Exchange rate effect |  |                         |       |      |  |      | (3,239 | ) |  |   | (276   | )
|                     |  |                         |        |      |  |      |        |   |  |   |        |  
|Ending balance       |  | $                       | 4,460  |      |  | $    | 6,662  |   |  | $ | 10,128 |  
|                     |  |                         |        |      |  |      |        |   |  |   |        |  

Programming Rights Programming rights consist of the right to broadcast
and distribute acquired or licensed television content and related rights.
Programming rights and the related obligations are recorded at gross contract
prices. The costs are amortized on varying bases related to the license
periods and anticipated usage of the

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CLAXSON INTERACTIVE GROUP INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2000, 2001 and 2002
(In thousands of U.S. dollars)

program. Expected amortization for the year ending December 31, 2003 is
estimated to be $3,893. In the event that an acquired program is replaced and
no longer used or the unamortized cost exceeds fair value, Claxson reduces the
carrying value of the related programming rights accordingly. Claxson believes
that these policies conform to Statement of Position No. 00-2, Accounting by
Producers or Distributors of Films.

Property and Equipment Property and equipment is stated at cost less
accumulated depreciation and amortization. Property and equipment, other than
leasehold improvements, is depreciated using the straight-line method over the
estimated useful lives of the respective assets. Leasehold improvements are
amortized over the lesser of the term of the lease or the useful life of the
respective improvement. Property and equipment is being depreciated or
amortized, as the case may be, as follows:

|                                           |  |             |  | 
|------------------------------------------ |  | ----------- |  | 
|Buildings                                  |  | 2050 years
|Equipment                                  |  | 310 years 
|Leasehold improvements                     |  | 57 years  
|Furniture, fixtures and other fixed assets |  | 5-10 years 

Investments in Debt and Equity Securities Claxson accounts for its
investments in accordance with the provisions of SFAS No. 115. Claxsons
investments in equity securities have been classified as available for sale and
accordingly are recorded at fair value. Unrealized gains or losses are
reported as a net amount in a separate component of shareholders equity until
realized. Claxsons investments in equity securities are as follows:

|                                       |  |              |         |      |  |      |       |  |  |   |       |  
|-------------------------------------- |  | ------------ | ------- | ---- |  | ---- | ----- |  |  | - | ----- | -
|                                       |  | December 31,
|                                       |  |             
|                                       |  | 2000         |         | 2001 |  | 2002
|                                       |  |              |         |      |  |     
|Investment at fair value               |  | $            | 4,337   |      |  | $    | 8,290 |  |  | $ | 448   |  
|Investment at original cost            |  |              | 28,970  |      |  |      | 6,727 |  |  |   | 1,285 |  
|                                       |  |              |         |      |  |      |       |  |  |   |       |  
|Unrealized gain (loss) from investment |  | $            | (24,633 | )    |  | $    | 1,563 |  |  | $ | (837  | )
|                                       |  |              |         |      |  |      |       |  |  |   |       |  

Claxsons investments in equity securities are subject to equity price
risk. Claxson has not taken any actions to hedge this market risk exposure.

In March 2001, Claxson invested $5,135 (including expenses) in Series A
Convertible Preferred Stock of Playboy.com, Inc. (the Series A Preferred
Stock). As part of the restructuring of the relationship with PEI, Claxson
transferred its interest in Playboy.com, Inc. to PEI. (See Note 3). As of
December 31, 2001, Claxson accounted for its investment in the Series A
Preferred Stock at cost plus accrued dividends.

Goodwill, Intangibles and Other Assets Effective January 1, 2002, the
Company adopted Statement of Financial Accounting Standards No. 142 (SFAS
142), Goodwill and Other Intangible Assets, which establishes the accounting
and financial reporting standards for acquired goodwill and other intangible
assets. SFAS 142 requires that goodwill and certain intangible assets deemed to
have an indefinite useful life no longer be amortized, but instead tested for
impairment at least annually. Separable intangible assets that have finite
useful lives will continue to be amortized over their respective useful lives.
Before performing the review for impairment, the new guidance requires that all
goodwill deemed to relate to the entity as a whole be assigned to all of the
Companys reporting units in a reasonable and supporting manner. Measurement of
any impairment loss would be based on managements estimate of fair value.
Impairment of goodwill and intangible assets deemed to have an indefinite
useful life exists if their carrying value exceeds their fair value. The
components of goodwill by segments are as follows:

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CLAXSON INTERACTIVE GROUP INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2000, 2001 and 2002
(In thousands of U.S. dollars)

|                               |  |                         |         |      |  |   |        | 
|------------------------------ |  | ----------------------- | ------- | ---- |  | - | ------ | 
|                               |  | Year Ended December 31,
|                               |  |                        
|                               |  | 2001                    |         | 2002
|                               |  |                         |         |     
|Goodwill:                      |  |                         |         |      |  |   |        | 
|Pay Television                 |  | $                       | 103,610 |      |  | $ | 27,995 | 
|Broadcast television and Radio |  |                         | 25,603  |      |  |   | 23,598 | 
|Broadband and Internet         |  |                         | 4,200   |      |  |   | 244    | 
|                               |  |                         |         |      |  |   |        | 
|Total goodwill                 |  | $                       | 133,413 |      |  | $ | 51,837 | 
|                               |  |                         |         |      |  |   |        | 

In accordance with SFAS No. 142, Claxson discontinued the amortization of
goodwill effective January 1, 2002, and measured fair value based on an
evaluation of estimated future discounted cash flows, market comparisons,
recent comparable transactions or a combination thereof. This evaluation
considered several earnings scenarios and the likelihood of possible outcomes,
and utilized the best information available at the time the valuation was
performed. As a result of this valuation, Claxson recorded a goodwill
impairment loss of $74,789 ($70,833 corresponding to the Pay Television segment
and $3,956 to the Broadband and Internet segment) which is classified as a
cumulative effect of a change in accounting principle. The remaining reduction
in goodwill is the result of fluctuations in exchange rates recognized in
consolidation.

Prior to January 1, 2001, goodwill was amortized on a straight-line method
over a 20-year period. Amortization of goodwill was $9,879 and $8,935 for the
years ended December 31, 2000 and 2001, respectively, and accumulated
amortization of goodwill as of December 31, 2001 amounted to $31,196. The
following is a reconciliation of net loss and loss per share reported in the
accompanying Consolidated Statements of Operations and Comprehensive Income
(Loss) to the pro forma amounts adjusted for the exclusion of goodwill
amortization. The pro forma results reflecting the exclusion of goodwill
amortization have been prepared only to demonstrate the impact of goodwill
amortization on net loss and loss per common share and are for comparative
purposes only.

|                                                     |  |                         |         |      |  |   |         |  
|---------------------------------------------------- |  | ----------------------- | ------- | ---- |  | - | ------- | -
|                                                     |  | Year Ended December 31,
|                                                     |  |                        
|                                                     |  | 2000                    |         | 2001
|                                                     |  |                         |         |     
|Reported net loss                                    |  | $                       | (21,469 | )    |  | $ | (84,886 | )
|Add: goodwill amortization                           |  |                         | 9,879   |      |  |   | 8,935   |  
|                                                     |  |                         |         |      |  |   |         |  
|Adjusted net loss                                    |  | $                       | (11,590 | )    |  | $ | (75,951 | )
|                                                     |  |                         |         |      |  |   |         |  
|Net loss per common share basic and diluted          |  |                         | N/A     |      |  | $ | (4.58   | )
|Add: goodwill amortization                           |  |                         | N/A     |      |  |   | 0.48    |  
|                                                     |  |                         |         |      |  |   |         |  
|Adjusted net loss per common share basic and diluted |  |                         | N/A     |      |  | $ | (4.10   | )
|                                                     |  |                         |         |      |  |   |         |  

Remaining intangible assets consist of broadcast and television licenses
that are being amortized on a straight-line method over periods ranging from 5
to 30 years. As of December 31, 2001 and 2002, accumulated amortization of
broadcast television and radio licenses amount to $8,210 and $10,283,
respectively. Amortization of these intangible assets was $3,672 in 2000,
$4,664 in 2001, and $2,978 in 2002. It is anticipated that amortization expense
will continue at approximately $3,000 for 2003 through 2007, respectively.
Other assets as of December 31, 2000 and 2001 primarily consisted of debt issue
costs, primarily resulting from the issuance of Imagens 11% Senior Notes due
2005, discussed in Note 6, and are amortized using a method that approximates
the effective interest method. The debt issue costs relating to the Notes were
written-off during 2002, as a result of the debt restructuring. As of December
31, 2001, accumulated amortization of debt issue costs amounted to $1,471. The
carrying value of intangible assets is periodically reviewed by management and
impairments, if any, are recognized when the expected future undiscounted cash
flows related to such intangible assets are less than their carrying value.

Revenue Recognition Claxson, through its subsidiaries, enters into
distribution agreements with cable and direct-to-home distributors pursuant to
which it receives monthly subscriber-based fees. The subscriber-based

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CLAXSON INTERACTIVE GROUP INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2000, 2001 and 2002
(In thousands of U.S. dollars)

fee is recognized as revenue as Claxson provides the television services
to the distributor. Advertising revenue is recognized at the time the
advertisement is aired. Revenue from the licensing of programming rights are
recognized ratably over the license period when a contractual obligation
exists. Other revenue consists primarily of fees for playback, library,
satellite, dubbing, subtitling and back office services which are recognized as
the services are performed. Claxson believes that its revenue recognition
policies conform to Staff Accounting Bulletin No. 101, Revenue Recognition in
Financial Statements.

For the years ended December 31, 2000, 2001 and 2002, customer A accounted
for 12%, 15% and 15% of net revenues, respectively. For the years ended
December 31, 2000, 2001 and 2002, customer B accounted for 9%, 8% and 4% of net
revenues, respectively. For the years ended December 31, 2000, 2001 and 2002,
customer C accounted for 10%, 6% and 3% of net revenues, respectively.

Share-based Compensation SFAS No. 123, Accounting for Stock-Based
Compensation, encourages, but does not require, companies to record
compensation cost for employees under share-based compensation plans at fair
value. Claxson has chosen to continue to account for share-based compensation
to employees using the intrinsic value method as prescribed by Accounting
Principles Board Opinion (APB) No. 25, Accounting for Stock Issued to
Employees, and related interpretations. Accordingly, compensation cost for
share options issued to employees are measured as the excess, if any, of the
fair value of Claxsons common shares at the date of grant over the amount an
employee must pay for the common shares. On January 17, 2001, certain
employees of various subsidiaries of Claxson received 50,000 restricted shares
of Claxson. The shares vested immediately and were issued at no cost to such
employees. Compensation expense of $658 was recorded at the date of grant,
based on the fair value of the shares at the date of grant.

Advertising Expenses Claxson expenses advertising costs as incurred.
Advertising expenses totaled $5,739, $4,613 and $1,741 for the years ended
December 31, 2000, 2001 and 2002, respectively.

Barter Transactions The Company enters into transactions that exchange
advertising for products and services. Such transactions are recorded at the
estimated fair value of the advertising received or given in accordance with
the provisions of the Emerging Issues Task Force (EITF) Issue No. 99-17,
Accounting for Advertising Barter Transactions. Revenue from barter
transactions is recognized when advertising is provided, and services received
are charged to expense when used. Barter transactions are not material to the
Companys consolidated statement of operations for all the periods presented.

Merger, Restructuring and Severance Expenses Merger, restructuring and
severance expenses consist primarily of severance costs related to
organizational changes undertaken to take advantage of the synergies among the
different business units and the corporate and administration areas of Claxson
as a result of the merger transaction. Claxson has recorded such costs as they
have been incurred. Severance expenses amounted to $1,694 during 2002 and were
classified in the relevant account of operating expenses as they pertain to the
ordinary course of business.

Income Taxes Claxsons subsidiaries that are subject to income taxes
account for income taxes in accordance with the provisions of SFAS No. 109,
Accounting for Income Taxes.SFAS No. 109 requires an asset and liability
approach for differences in financial accounting and income tax purposes.
Under this method, a deferred tax asset or liability is recognized with respect
to all temporary differences between the financial statement carrying amounts
and the tax bases of assets and liabilities, and the benefit from utilizing tax
loss carryforwards and asset tax credits is recognized in the year in which the
loss or credit arises (subject to a valuation allowance with respect to any tax
benefits not expected to be realized).

Net Loss Per Common Share Basic net loss per common share is computed
based on the average number of common shares outstanding and diluted net loss
per common share is computed based on the average number of common shares
outstanding and, when dilutive, potential common shares from share options and
warrants to purchase common shares using the treasury stock method and from
convertible securities using the if-converted basis. Net loss per common share
has been presented only for the years ended December 31, 2001 and
F-14Table of Contents

CLAXSON INTERACTIVE GROUP INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2000, 2001 and 2002
(In thousands of U.S. dollars)

2002 as the capital structure of the accounting acquirer is not comparable
to that of Claxson. See Note 3 for pro forma disclosure of net loss per common
share.

New Accounting Pronouncements In June 2001, the Financial Accounting
Standards Board (FASB) issued SFAS No. 141, Business Combinations. SFAS No.
141 eliminates the pooling of interest method and requires that the purchase
method of accounting be used for all business combinations initiated after June
30, 2001. SFAS No. 141 also establishes specific criteria regarding the
allocation of the purchase price between intangible assets and goodwill. The
provisions of this statement apply to all business combinations initiated after
June 30, 2001. This statement also applies to all business combinations
accounted for using the purchase method for which the date of acquisition is
July 1, 2001, or later. The adoption of SFAS No. 141 did not have a material
effect on Claxsons results of operations or financial position.

In June 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible
Assets (its requirements and the effect on Claxsons results of operations and
financial position for the year ended December 31, 2002 are explained in the
Goodwill, Intangibles and Other Assets section above).

In June 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations. SFAS No. 143 requires the recognition of legal
obligations associated with the retirement of tangible long-lived assets that
result from the acquisition, construction, development, and/or normal use of
the asset, and the associated asset retirement costs in the period in which it
is incurred if a reasonable estimate of fair value can be made. This Statement
is effective for financial statements issued for fiscal years beginning after
June 15, 2002. The adoption of SFAS No. 143 is not expected to have a material
effect on Claxsons financial position or results of operations.

In August 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. This statement supersedes SFAS
No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of and the accounting and reporting provisions of APB
Opinion No. 30, Reporting the Results of Operations  Reporting the Effects of
a Disposal of a Business and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions for the disposal of a segment of a business. This
Statement also amends ARB No. 51, Consolidated Financial Statements, to
eliminate the exception to consolidation for a subsidiary for which control is
likely to be temporary. The statement provides additional guidance on
accounting for discontinued operations and resolves other implementation issues
related to SFAS No. 142. The provisions of this Statement are effective for
financial statements issued for fiscal years beginning after December 15, 2001.
The provisions of this statement generally are to be applied prospectively.
The adoption of SFAS No. 144 did not have a material effect on Claxsons
financial position or results of operations.

In December 2001, the Accounting Standards Executive Committee issued
Statement of Position (SOP) 01-6, Accounting by Certain Entities (Including
Entities With Trade Receivables) That Lend to or Finance the Activities of
Others. The provisions of this SOP are effective for financial statements
issued for fiscal years beginning after December 15, 2001 and should be applied
prospectively. The provisions of SOP 01-6 did not have a material impact on
the Companys consolidated financial statements.

In April 2002, the FASB issued SFAS No. 145, Rescission of SFAS No. 4,
44, and 64, Amendment of SFAS No. 13, and Technical Corrections. SFAS No. 145
rescinds SFAS No. 4, Reporting Gains and Losses from Extinguishment of Debt,
and an amendment of that Statement, and SFAS No. 64, Extinguishments of Debt
Made to Satisfy Sinking-Fund Requirements. SFAS No. 145 also rescinds SFAS No.
44, Accounting for Leases, to eliminate an inconsistency between the required
accounting for sale-leaseback transactions and the required accounting for
certain lease modifications that have economic effects that are similar to
sale-leaseback transactions. SFAS No. 145 also amends other existing
authoritative pronouncements to make various technical corrections, clarify
meanings, or describe their applicability under changed conditions. Adoption on
SFAS 145 precluded the gain on the exchange offer from being reflected as an
extraordinary item.

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. SFAS 146 requires companies to
recognize the costs associated with exit or disposal activities when they are
incurred. Currently these types of costs are recognized at the time management
commits the company to the
F-15Table of Contents

CLAXSON INTERACTIVE GROUP INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2000, 2001 and 2002
(In thousands of U.S. dollars)

exit/disposal plan in accordance with EITF Issue No. 94-3, Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit
an Activity (including Certain Costs Incurred in a Restructuring). SFAS 146 is
effective for exit or disposal activities that are initiated subsequent to
December 31, 2002. Management does not expect that the application of the
provisions of SFAS 146 will have a material impact on the Companys
consolidated financial statements.

In November 2002, the EITF reached a consensus on EITF No. 00-21, Revenue
Arrangements with Multiple Deliverables. EITF 00-21 provides guidance on how
to account for arrangements that involve the deliver or performance of multiple
products, services and/or rights to use assets. The provisions of EITF 00-21
will apply to revenue arrangements entered into in fiscal periods beginning
after June 15, 2003. The Company does not believe EITF 00-21 provisions will
have a material effect on its consolidated financial statements.

In November 2002, the FASB issued FASB Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others. FIN 45 requires that a liability be
recorded in the guarantors balance sheet upon issuance of a guarantee. In
addition, FIN 45 requires disclosures about the guarantees that an entity has
issued, including a reconciliation of changes in the entitys product warranty
liabilities. The initial recognition and initial measurement provisions of FIN
45 are applicable on a prospective basis to guarantees issued or modified after
December 31, 2002, irrespective of the guarantors fiscal year-end. The
disclosure requirements of FIN 45 are effective for financial statements of
interim or annual periods ending after December 15, 2002. The Company does not
believe that FIN 45 will have a material effect on its consolidated financial
statements.

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock
Based Compensation  Transition and Disclosure. SFAS No. 148 amends SFAS No.
123, Accounting for Stock Based Compensation to provide alternative methods
of transition for a voluntary change from the intrinsic-value-based method of
recognizing stock compensation expense under APB Opinion No. 25, Accounting
for Stock Issued to Employees, to the SFAS No. 123 fair-value-based method of
accounting for stock-based employee compensation. Under the fair value method,
the fair value of the stock options granted to employees is recognized as
compensation expense over the service period (usually the vesting period).
Under the intrinsic value method, compensation expense is recognized for
options that are -in-the-money, thereby having intrinsic value, at the date of
grant. The transition guidance and annual disclosure provisions of SFAS 148 are
effective for fiscal years ended after December 15, 2002. The adoption of the
disclosure provisions of SFAS 148 did not have a material effect on the
Companys consolidated financial statements.

In January 2003, the FASB issued FASB Interpretation No. 46,
Consolidation of Variable Interest Entities  an Interpretation of ARB No. 51.
FIN 46 addresses consolidation by business enterprises of variable interest
entities (formerly special purpose entities or SPEs). In general, a variable
interest entity is a corporation, partnership, trust, or any other legal
structure used for business purposes that either (a) does not have equity
investors with voting rights or (b) has equity investors that do not provide
sufficient financial resources for the entity to support its activities. The
objective of FIN 46 is not to restrict the use of variable interest entities
but to improve financial reporting by companies involved with variable interest
entities. FIN 46 requires a variable interest entity to be consolidated by a
company if that company is subject to a majority of the risk of loss from the
variable interest entitys activities or entitled to receive a majority of the
entitys residual returns or both. The Company is required to adopt the
provisions of FIN 46 immediately for variable interests in variable interest
entities created after January 31, 2003, and in the quarter ending September
30, 2003 for variable interests in variable interest entities created before
February 1, 2003. However, certain of the disclosure requirements apply to
financial statements issued after January 31, 2003, regardless of when the
variable interest entity was established. The Company does not have any
variable interest entities as defined in FIN 46. Accordingly, the Company has
determined that it is not reasonably possible that it will be required to
consolidate or disclose information about a variable interest entity upon the
adoption of FIN 46.

Reclassifications Certain amounts in the consolidated financial
statements previously presented have been reclassified to conform to the
presentation for the current year.

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CLAXSON INTERACTIVE GROUP INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2000, 2001 and 2002
(In thousands of U.S. dollars)

3.     ACQUISITIONS AND DISPOSALS

As discussed in Note 1, Claxson was formed in September of 2001 through a
combination and merger of Ibero-American Media Partners, El Sitio and certain
other media assets of the Cisneros Group. The contribution of the assets of
Ibero-American Media Partners, the predecessor, was recorded at historical
carrying value. The contribution of El Sitio, Rainbow Heights International,
Ltd., and the interests in ARTISTdirect, DMX LA, and Playboy TV International
was recorded at estimated fair value. Claxson issued 5,505 shares with a fair
market value of $39,097 for the contribution of assets to Ibero-American Media
Partners. The purchase price allocation of the fair market value is as
follows:

|                                         |  |   |        |  
|---------------------------------------- |  | - | ------ | -
|Cash and cash equivalents                |  | $ | 15,793 |  
|Accounts receivable, net                 |  |   | 8,174  |  
|Other current assets                     |  |   | 4,191  |  
|Property and equipment, net              |  |   | 2,400  |  
|Investment in unconsolidated affiliates  |  |   | 12,315 |  
|Investment in debt and equity securities |  |   | 1,240  |  
|Other assets, net                        |  |   | 2,897  |  
|Assumed liabilities                      |  |   | (7,913 | )
|                                         |  |   |        |  
|Total                                    |  | $ | 39,097 |  
|                                         |  |   |        |  

The transaction was completed on September 21, 2001, and accordingly, the
accompanying consolidated financial statements include the results of
operations from the contributed assets for the period from that date to
December 31, 2001. The pro forma information below displays the statements of
operations as though the transaction had occurred as of the beginning of each
period presented. For comparative purposes, Claxson calculated net loss per
common share for each period presented using the weighted average number of
common shares as of December 31, 2001.

|                          |  |                         |          |      |  |   |          |  
|------------------------- |  | ----------------------- | -------- | ---- |  | - | -------- | -
|                          |  | Year Ended December 31,
|                          |  |                        
|                          |  | 2000                    |          | 2001
|                          |  |                         |          |     
|Revenues                  |  | $                       | 128,236  |      |  | $ | 113,796  |  
|Operating loss            |  |                         | (73,454  | )    |  |   | (60,595  | )
|Net loss                  |  |                         | (123,788 | )    |  |   | (167,046 | )
|Net loss per common share |  |                         | (6.68    | )    |  |   | (9.01    | )

In 2000, Claxson acquired the assets of two independent radio stations in
Chile for approximately $11,200 in cash and a payable to sellers amounting to
$100. These acquisitions were recorded using the purchase method of
accounting. The purchase price was primarily allocated to broadcast radio
licenses.

In 2001, Claxson acquired four entities for a total purchase price of
$3,775, consisting of $925 in cash, $350 in Claxson Stock (139 Shares) and
$2,500 in notes payable and assumption of debt. The assets of the entities
acquired consisted primarily of distribution rights for a fashion oriented pay
television channel (FTV) in Latin America and a 51% interest in an advertising
representation entity in Brazil (Star TV).

Sale of Unconsolidated Affiliates On May 11, 2001, Kedar Enterprises
Ltd., a subsidiary of Claxson, entered into an agreement with Caribbean
Communications Networks Limited (CCN) for the purchase by the CCN Group
Employees Share Ownership Plan of Kedar Enterprises entire equity stake in CCN
for a purchase price of $5,000. The transaction resulted in a gain of
approximately $600.

On May 17, 2002, CGP, and Santori N.V., subsidiaries of Claxson, entered
into an agreement with a subsidiary of Corus Entertainment Inc. (Corus) for
the sale of CGP, Inc. and Santori N.V.s entire equity stake in The Locomotion
Channel and The Locomotion Channel B.V. for a sales price of $10,500. Of that
amount $2,100 is subject to a holdback in the event of economic changes that
could impact revenue projections. Net gain on the sale of this investment
amounted to $1,900, excluding the holdback. Claxson continued to provide
certain services to the
F-17Table of ContentsCLAXSON INTERACTIVE GROUP INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2000, 2001 and 2002
(In thousands of U.S. dollars)channel including affiliate sales support in Latin America, program
origination and post-production services, among others.Dilution of Investment in Unconsolidated Affiliate On June 5, 2002,
Claxson agreed to the contribution of certain assets to DMX Music Latin America
by DMX Music, Inc.(DMX), the non-Claxson joint venture partner. The
contributed assets consisted primarily of affiliation agreements and cash of
$742. After this contribution, the joint venture changed its commercial name
to DMX Music Latin America. In consideration for these assets, DMXs equity
share in the venture was increased to 69% from 50%. Accordingly, Claxsons
share in the venture was reduced to 31%. There was no gain or loss on this
transaction.Termination of Operations of El Metropolitano On June 12, 2002, Claxson
approved a plan to terminate the operations of El Metropolitano, a daily
newspaper in Chile acquired in 2001 in exchange for advertising time. The loss
from this termination is included in other income (expense).Restructuring
of the relationship with Playboy Enterprises Inc. (PEI) 
In January, 2002, Claxson began negotiating a restructuring of PTVI joint
venture in an effort to adjust the fixed cost structure and obligations owed to
PEI by PTVI, resulting from PTVIs lower than anticipated actual revenues. If
Claxson had not restructured the PTVI joint venture agreement, Claxson would
have been responsible for making additional capital contributions of up to
$21,400 over the life of the joint venture. In addition, PTVI was obligated to
pay an affiliate of PEI, $57,500 in several lump sum payments prior to
September 2004.On December 24, 2002, Claxson, PEI, and their respective affiliates,
completed the restructuring of their existing joint venture agreement for PTVI.
Pursuant to the restructuring, Claxson transferred its 80.1% interest in PTVI
(outside of Latin America, Spain and Portugal) to PEI, contributed the Venus
channel to PTVLA and transferred its Series A Preferred Stock in Playboy.com to
PEI.In exchange, Claxson was released from its capital commitments to PTVI,
and revised the terms of the relationship with PEI in Latin America, Spain and
Portugal. As a result, the Company, through a subsidiary, retained its 81%
interest in PTVLA, and obtained management control of PTVLA. Consequently,
after the restructuring, the Company operates all adult content operations
(which include the Playboy TV, Hot Net and Venus channels) under the PTVLA
joint venture. An affiliate of PEI will distribute the PTVLA programs in the US
Hispanic market for a 20% distribution fee to the joint venture. The
restructuring of the PTVI/PTVLA joint ventures resulted in the offset of
various receivables and payables between Claxson and PEI and the removal of the
carrying values of the assets relinquished which resulted in a loss
of $2,931. Such amount is included in net loss from unconsolidated affiliates.4.     PROPERTY AND EQUIPMENTProperty and equipment consists of the following:

|                                               |       |   |              |        |      |   |         |        | 
|---------------------------------------------- | ----- | - | ------------ | ------ | ---- | - | ------- | ------ | 
|                                               |       |   | December 31,
|                                               |       |   |             
|                                               |       |   | 2001         |        | 2002
|                                               |       |   |              |        |     
|Land and buildings                             |       | $ | 11,133       |        |      | $ | 8,178   |       
|Equipment and software                         |       |   | 51,349       |        |      |   | 33,496  |       
|Leasehold improvements                         |       |   | 7,478        |        |      |   | 7,887   |       
|                                               |       |   |              |        |      |   |         |       
|                                               | Total |   |              | 69,960 |      |   |         | 49,561 | 
|Less accumulated depreciation and amortization |       |   | (38,264      | )      |      |   | (30,988 | )     
|                                               |       |   |              |        |      |   |         |       
|Property and equipment, net                    |       | $ | 31,696       |        |      | $ | 18,573  |       
|                                               |       |   |              |        |      |   |         |       

Depreciation expense for the years ended December 31, 2000, 2001, and 2002
was $7,971, $10,459 and $9,179, respectively.

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CLAXSON INTERACTIVE GROUP INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2000, 2001 and 2002
(In thousands of U.S. dollars)

5.     INVESTMENT IN UNCONSOLIDATED AFFILIATES

Combined condensed financial information of significant investees as of
December 31, 2001, and 2002 and for the years ended December 31, 2000, 2001 and
2002, is as follows:

Balance sheet information:

|                                                  |                              |   |              |        |      |   |       |       | 
|------------------------------------------------- | ---------------------------- | - | ------------ | ------ | ---- | - | ----- | ----- | 
|                                                  |                              |   | December 31,
|                                                  |                              |   |             
|                                                  |                              |   | 2001         |        | 2002
|                                                  |                              |   |              |        |     
|Current assets                                    |                              | $ | 25,975       |        |      | $ | 1,616 |      
|Non-current assets                                |                              |   | 69,357       |        |      |   | 529   |      
|                                                  |                              |   |              |        |      |   |       |      
|                                                  | Total assets                 |   | $            | 95,332 |      |   | $     | 2,145 | 
|                                                  |                              |   |              |        |      |   |       |      
|Current liabilities                               |                              | $ | 27,569       |        |      | $ | 287   |      
|Non-current liabilities                           |                              |   | 46,115       |        |      |   |      |      
|Equity                                            |                              |   | 21,648       |        |      |   | 1,858 |      
|                                                  |                              |   |              |        |      |   |       |      
|                                                  | Total liabilities and equity |   | $            | 95,332 |      |   | $     | 2,145 | 
|                                                  |                              |   |              |        |      |   |       |      
|Claxsons investment in unconsolidated affiliates |                              | $ | 4,591        |        |      | $ | 1,025 |      
|                                                  |                              |   |              |        |      |   |       |      

Statements of operations information:

|                                                       |          |   |                         |        |      |   |         |         |   |   |         |        |  
|------------------------------------------------------ | -------- | - | ----------------------- | ------ | ---- | - | ------- | ------- | - | - | ------- | ------ | -
|                                                       |          |   | Year Ended December 31,
|                                                       |          |   |                        
|                                                       |          |   | 2000                    |        | 2001 |   | 2002   
|                                                       |          |   |                         |        |      |   |        
|Revenues                                               |          | $ | 44,346                  |        |      | $ | 57,658  |         |   | $ | 51,193  |       
|Expenses                                               |          |   | (48,799                 | )      |      |   | (84,001 | )       |   |   | (54,754 | )     
|Other                                                  |          |   | (670                    | )      |      |   | (4,437  | )       |   |   | (3,566  | )     
|                                                       |          |   |                         |        |      |   |         |         |   |   |         |       
|                                                       | Net loss |   | $                       | (5,123 | )    |   | $       | (30,780 | ) |   | $       | (7,127 | )
|                                                       |          |   |                         |        |      |   |         |         |   |   |         |       
|Claxsons share of loss from unconsolidated
affiliates |          | $ | (4,930                  | )      |      | $ | (19,097 | )       |   | $ | (6,248  | )     
|                                                       |          |   |                         |        |      |   |         |         |   |   |         |       

The statement of operations includes the effect of unconsolidated
affiliates which were disposed of during the year through the date of disposal.
Loss from unconsolidated affiliates, net as of December 31, 2002 also includes
$1,900 of gain on the sale of Locomotion, and a loss of $2,931 related to the
restructuring of the PTVI/PTVLA joint ventures (see Note 3).

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CLAXSON INTERACTIVE GROUP INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2000, 2001 and 2002
(In thousands of U.S. dollars)

6.     LONG-TERM DEBT

Long-term debt consists of the following:

|                                                 |                                                                                |   |              |        |      |   |        |        | 
|------------------------------------------------ | ------------------------------------------------------------------------------ | - | ------------ | ------ | ---- | - | ------ | ------ | 
|                                                 |                                                                                |   | December 31,
|                                                 |                                                                                |   |             
|                                                 |                                                                                |   | 2001         |        | 2002
|                                                 |                                                                                |   |              |        |     
|Senior Notes                                     |                                                                                |   |              |        |      |   |        |       
|                                                 | 11% Senior Notes due 2005, including accrued interests                         |   | $            | 81,012 |      |   | $      | 3,647  | 
|                                                 | 8.75% Senior Notes due 2010 , including accrued
interests                      |   |              |       |      |   |        | 62,972 | 
|                                                 | 6.25% Senior Notes due 2013 , including accrued
interests (refinanced in 2003) |   |              |       |      |   |        | 2,605  | 
|Syndicated bank facility                         |                                                                                |   | 27,205       |        |      |   | 17,578 |       
|Other long-term debt                             |                                                                                |   | 6,244        |        |      |   | 5,686  |       
|                                                 |                                                                                |   |              |        |      |   |        |        | 
|Total                                            |                                                                                |   | 114,461      |        |      |   | 92,488 |       
|Less 11% Senior Notes due 2005                   |                                                                                |   | (81,012      | )      |      |   | (3,647 | )     
|Less 8.75% Senior Notes due 2010                 |                                                                                |   |             |        |      |   | (1,396 | )     
|Less current portion of Syndicated bank facility |                                                                                |   |             |        |      |   | (5,699 | )     
|Less current portion of long-term debt           |                                                                                |   | (11,114      | )      |      |   | (925   | )     
|                                                 |                                                                                |   |              |        |      |   |        |        | 
|Long-term debt, net of current portion           |                                                                                | $ | 22,335       |        |      | $ | 80,821 |       
|                                                 |                                                                                |   |              |        |      |   |        |        | 

Senior Notes In April 1998, Imagen issued $80,000 principal amount of
11% Senior Notes due 2005. The net proceeds (after deducting certain fees and
expenses incurred in connection with the issuance of the Notes) amounted to
approximately $79,000. Interest on the Notes is payable semiannually. On
April 30 and November 1, 2002, Imagen failed to make the interest payments of
$4,400 each on the Notes. The default accelerated the maturity of the Notes
and accordingly, the Notes were classified as current at December 31, 2001. On
November 8, 2002, the Company completed the Exchange Offer for the Imagen
Notes. Claxson offered $0.55 in principal amount of its 8.75% Senior Notes due
2010 (the New Notes) in exchange for each $1.00 principal amount of the
Notes. Claxson received valid tenders from holders representing $74,460
principal amount of the Notes, which represent 93.1% of the Notes. Pursuant to
the Exchange Offer, Claxson issued $41,325 principal amount of New Notes.

Under the terms of the New Notes, Claxson and Imagen guarantee on a senior
unsecured basis, the payment of the principal and interest on the New Notes
issued by Claxson, as well as any additional amounts, extraordinary cash
payments, or excess cash flow payments due on the New Notes, when and as they
become due and payable.

As the carrying amount of debt as of the date of restructuring (November
8, 2002), exceeded the total future cash payments specified by the new terms
(including future interest, consent, legal, advisory fees and other direct
transaction costs payments), the Company reduced the carrying amount of its
debt to the total future cash payments specified by the new terms and
recognized a gain on debt restructuring of $15,274.

On March 24, 2003, Imagen and certain Noteholders that did not participate
in the Exchange Offer, entered into agreements by which certain Noteholders
exchanged $2,300 in principal amount of the Notes for new notes in the same
principal amount, payable in two equal installments of $1,150 due July 15, 2012
and 2013, bearing interest at an annual rate of 6.25% from July 15, 2003,
payable semi-annually on January 15 and July 15 (Imagen 6.25% Senior Notes due
2013). Restructured debt of $2,300 and related accrued interest, have been
classified as long-term.

Notes in the principal amount of $3,217 that were not exchanged as of the
date of issuance of the accompanying consolidated financial statements, and
$430 of related accrued interest, have been classified as current as of
December 31, 2002. Several of these remaining Noteholders has filed, or
threatened to file, claims for the seizure of certain Company assets under the
Indenture governing the Notes.

Syndicated Bank Facility The Chilean syndicated bank facility consists
of a term loan in the amount of $35,000. The facility originally maturing
through 2005, is collateralized by Claxsons Chilean radio assets, and
guaranteed by Claxsons Chilean subsidiary. Interest is payable quarterly at
the local prime lending rate plus 2.50%,
F-20Table of ContentsCLAXSON INTERACTIVE GROUP INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2000, 2001 and 2002
(In thousands of U.S. dollars)arising to 8.36%, 6.74% and 6% as of December 31, 2000, 2001 and 2002,
respectively. The facility contains customary restrictive covenants.During 2002, Claxson was not in compliance with the coverage ratios
required under the credit facility, primarily as a result of the devaluation of
the Chilean peso against the US dollar. On December 12, 2002, Claxson completed
the renegotiation of the terms of the syndicated bank facility with the
lenders. The amended terms included: (i) the modification of financial covenant
ratios, (ii) the extension of the term of the loan by one year to mature on May
5, 2006, and (iii) the increase in the interest rate by the local prime lending
rate plus 2.75%. In addition, Claxson is required to maintain $1,500 in an
escrow account until certain ratios are met. Chilevisión, Claxsons broadcast
television operation in Chile, guaranteed the Syndicated Credit Facility. In
the event the funds in the escrow fall below $750, Claxson is obligated to
capitalize the escrow account in order to reestablish a minimum level of
$1,000.Other Long-Term Debt Other long-term debt bears interest at rates
ranging from 4% to 10% and has maturity dates ranging from 2002 through 2007.
Certain other long-term debt is issued and collateralized by the assets of The
Kitchen, Inc., one of Claxsons subsidiaries.On March 25, 2003, Imagen renegotiated a portion of its other long-term
debt and accordingly, principal of $611 was classified as long-term.Aggregate maturities of long-term debt are as follows:

|                                 |       |   |        |        | 
|-------------------------------- | ----- | - | ------ | ------ | 
|Twelve Months Ended December 31, |       |   |        |       
|2003                             |       | $ | 11,667 |       
|2004                             |       |   | 10,082 |       
|2005                             |       |   | 9,955  |       
|2006                             |       |   | 9,093  |       
|2007                             |       |   | 10,363 |       
|Thereafter                       |       |   | 41,328 |       
|                                 |       |   |        |       
|                                 | Total |   | $      | 92,488 | 
|                                 |       |   |        |       

7.     INCOME TAXES

Certain subsidiaries of Claxson are subject to income taxes in various
countries at statutory rates ranging from 15% to 35%. The benefit (provision)
for non-U.S. income taxes is as follows:

|         |                                            |   |                         |     |      |   |       |       |  |   |      |      |  
|-------- | ------------------------------------------ | - | ----------------------- | --- | ---- | - | ----- | ----- |  | - | ---- | ---- | -
|         |                                            |   | Year Ended December 31,
|         |                                            |   |                        
|         |                                            |   | 2000                    |     | 2001 |   | 2002 
|         |                                            |   |                         |     |      |   |      
|Current  |                                            | $ | 933                     |     |      | $ | 756   |       |  | $ | 652  |     
|Deferred |                                            |   | (113                    | )   |      |   | 3,410 |       |  |   | (786 | )   
|         |                                            |   |                         |     |      |   |       |       |  |   |      |     
|         | Total benefit (provision) for income taxes |   | $                       | 820 |      |   | $     | 4,166 |  |   | $    | (134 | )
|         |                                            |   |                         |     |      |   |       |       |  |   |      |     

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##### Table of Contents



CLAXSON INTERACTIVE GROUP INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2000, 2001 and 2002
(In thousands of U.S. dollars)

The following table provides a reconciliation of the statutory tax rate to
the effective tax rate. As the operations of the Argentine subsidiaries are
the most significant of Claxson, the following reconciliation has been prepared
utilizing the Argentine statutory tax rate.

|                                                             |  |                         |        |      |  |        |     |   |  |        |         |   |  |  |     |   |  |   |         |   |  |  |     |  
|------------------------------------------------------------ |  | ----------------------- | ------ | ---- |  | ------ | --- | - |  | ------ | ------- | - |  |  | --- | - |  | - | ------- | - |  |  | --- | -
|                                                             |  | Year Ended December 31,
|                                                             |  |                        
|                                                             |  | 2000                    |        | 2001 |  | 2002  
|                                                             |  |                         |        |      |  |       
|                                                             |  | Amount                  |        | %    |  | Amount |     | % |  | Amount |         | %
|                                                             |  |                         |        |      |  |        |     |   |  |        |         |  
|Expected tax benefit using statutory tax
rate                |  | $                       | (7,226 | )    |  |        | (35 | ) |  | $      | (28,296 | ) |  |  | (35 | ) |  | $ | (48,520 | ) |  |  | (35 | )
|Adjustment for operating losses in
taxable jurisdictions     |  |                         | 4,899  |      |  |        | 3   |   |  |        | 5,523   |   |  |  | 7   |   |  |   | 6,959   |   |  |  | 10  |  
|Adjustment for operating losses in
non-taxable jurisdictions |  |                         | 4,358  |      |  |        | 15  |   |  |        | 12,181  |   |  |  | 15  |   |  |   | 10,336  |   |  |  | 7   |  
|Non-deductible goodwill in Argentina                         |  |                         | 1,262  |      |  |        | 3   |   |  |        | 2,504   |   |  |  | 3   |   |  |   | 17,859  |   |  |  | 13  |  
|Utilization of prior year losses in
Argentina                |  |                         | (859   | )    |  |        | 17  |   |  |        | (2,634  | ) |  |  | (3  | ) |  |   |        |   |  |  |    |  
|Effect of differences in rates from Chile                    |  |                         | (953   | )    |  |        | 1   |   |  |        | (1,053  | ) |  |  | (1  | ) |  |   | (1,061  | ) |  |  | (1  | )
|Effects of change in valuation
allowance                     |  |                         |       |      |  |        |    |   |  |        | 16,038  |   |  |  | 19  |   |  |   | 12,227  |   |  |  | 5   |  
|Equivalent of the alternative minimum
tax in Argentina       |  |                         | (699   | )    |  |        |     |   |  |        |        |   |  |  |    |   |  |   |        |   |  |  |    |  
|Other items                                                  |  |                         | 38     |      |  |        | 1   |   |  |        | (97     | ) |  |  |    |   |  |   | 2,066   |   |  |  |    |  
|                                                             |  |                         |        |      |  |        |     |   |  |        |         |   |  |  |     |   |  |   |         |   |  |  |     |  
|Total                                                        |  | $                       | 820    |      |  |        | 5   |   |  | $      | 4,166   |   |  |  | 5   |   |  | $ | (134    | ) |  |  | (1  | )
|                                                             |  |                         |        |      |  |        |     |   |  |        |         |   |  |  |     |   |  |   |         |   |  |  |     |  

The net deferred income tax asset as of December 31, 2002 is reflected in
other current assets and the net deferred tax (liability) as of December 31,
2001 is reflected in other current liabilities in the accompanying consolidated
balance sheets and consist of the following:

|                                 |       |   |              |        |      |   |         |        | 
|-------------------------------- | ----- | - | ------------ | ------ | ---- | - | ------- | ------ | 
|                                 |       |   | December 31,
|                                 |       |   |             
|                                 |       |   | 2001         |        | 2002
|                                 |       |   |              |        |     
|Net operating loss carryforwards |       | $ | 10,403       |        |      | $ | 23,135  |       
|Intangible assets                |       |   | (557         | )      |      |   | 228     |       
|Foreign currency items           |       |   | 10,541       |        |      |   | 1,730   |       
|Property, equipment, and other   |       |   | 1,162        |        |      |   | 2,238   |       
|                                 |       |   |              |        |      |   |         |       
|                                 | Total |   |              | 21,549 |      |   |         | 27,331 | 
|Valuation allowance              |       |   | (21,743      | )      |      |   | (26,739 | )     
|                                 |       |   |              |        |      |   |         |       
|Net deferred tax asset           |       | $ | (194         | )      |      | $ | 592     |       
|                                 |       |   |              |        |      |   |         |       

Claxson has assessed the recoverability of the net deferred tax asset as
of December 31, 2002 and believes that it is more likely than not that the
deferred tax asset will be realized through future taxable income.

8.     SHARE OPTION PLAN

In late 2001, Claxson adopted the 2001 Share Incentive Plan (the Plan),
pursuant to which 930,000 common shares were reserved for issuance upon
exercise of options. Options granted under the Plan are non statutory share
options and have an exercise term of no longer than ten years from the grant
date. The Plan is designed as a means to retain and motivate key employees,
directors and consultants. The Compensation Committee of Claxsons Board of
Directors, or in the absence thereof, the full Board of Directors administers
and interprets the Plan and is authorized to grant options thereunder to all
eligible employees of Claxson, including directors (whether or not they are
employees) and executive officers of Claxson or affiliated companies. The Plan
will terminate in 2011, unless sooner terminated by the Board of Directors.

On January 17, 2002, Claxson granted share options for 513,849 and 55.000
shares at an exercise price of $0.738 per share, to its executive employees and
directors, respectively, resulting in deferred share-based compensation of
$149. Amortization of deferred share-based compensation for the year ended
December 31, 2002
F-22Table of Contents

CLAXSON INTERACTIVE GROUP INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2000, 2001 and 2002
(In thousands of U.S. dollars)

was $73. Those options have a five year term and different vesting
periods. As of December 31, 2002, 47,311 options are exercisable, and 75,300
have been forfeited during 2002.

9.     PREFERRED SHARES

In 2000 and 2001 Claxson issued an aggregate of 15,000,000 preferred
shares as follows: 8,400,000 to the Cisneros Group; and 6,600,000 to Hicks
Muse. These preferred shares are convertible, at the option of the holder,
commencing twelve months after completion of the transaction and for a period
of twelve months, into Class A common shares at a conversion ratio per share
equal to the greater of $20.00 or the fair market value of the Class A common
shares on the date of conversion. The preferred shares are automatically
convertible into Class A common shares twenty four months after completion of
the transaction. The preferred shares vote with the Class A common shares.

10.     SEGMENT INFORMATION

Claxson currently has three business segments: Pay television; Broadcast
television and radio; and Internet and broadband. These segments are
consistent with the manner in which senior management analyzes and manages
Claxsons businesses. The primary measure used by senior management in
analyzing and managing its business segments is operating income (loss).
Segment information is as follows:

|                             |                         |  |            |          |            |  |               |        |           |  |       |         |   |  |   |        |   |  |   |          |  
|---------------------------- | ----------------------- |  | ---------- | -------- | ---------- |  | ------------- | ------ | --------- |  | ----- | ------- | - |  | - | ------ | - |  | - | -------- | -
|                             |                         |  |            |          |            |  | Broadcast     |        |           |  |       |         |   |  |   |        |   |  |  
|                             |                         |  | Pay        |          | Television |  | Broadband and |        |           |  |       |         |   |  |  
|                             |                         |  | Television |          | and Radio  |  | Internet      |        | Corporate |  | Total
|                             |                         |  |            |          |            |  |               |        |           |  |      
|Year Ended December 31, 2000 |                         |  |            |          |            |  |               |        |           |  |       |         |   |  |   |        |   |  |   |         
|                             | Total net revenues      |  | $          | 72,953   |            |  | $             | 34,433 |           |  |       |        |   |  |   |       |   |  | $ | 107,386  |  
|                             | Operating income (loss) |  |            | (3,254   | )          |  |               | 2,416  |           |  |       |        |   |  |   |       |   |  |   | (838     | )
|                             | Net loss                |  |            | (19,947  | )          |  |               | (1,522 | )         |  |       |        |   |  |   |       |   |  |   | (21,469  | )
|                             | Total assets            |  |            | 268,185  |            |  |               | 99,265 |           |  |       |        |   |  |   |       |   |  |   | 367,450  |  
|Year Ended December 31, 2001 |                         |  |            |          |            |  |               |        |           |  |       |         |   |  |   |        |   |  |   |         
|                             | Total net revenues      |  | $          | 77,397   |            |  | $             | 28,289 |           |  | $     | 751     |   |  | $ |       |   |  | $ | 106,437  |  
|                             | Operating loss          |  |            | (3,304   | )          |  |               | (1,333 | )         |  |       | (4,807  | ) |  |   | (4,915 | ) |  |   | (14,359  | )
|                             | Net loss                |  |            | (65,390  | )          |  |               | (8,226 | )         |  |       | (6,355  | ) |  |   | (4,915 | ) |  |   | (84,886  | )
|                             | Total assets            |  |            | 172,130  |            |  |               | 82,379 |           |  |       | 23,493  |   |  |   |       |   |  |   | 278,002  |  
|Year Ended December 31, 2002 |                         |  |            |          |            |  |               |        |           |  |       |         |   |  |   |        |   |  |   |         
|                             | Total net revenues      |  | $          | 46,192   |            |  | $             | 28,578 |           |  | $     | 190     |   |  | $ |       |   |  | $ | 74,960   |  
|                             | Operating income (loss) |  |            | 9,303    |            |  |               | (1,152 | )         |  |       | (7,684  | ) |  |   | (2,775 | ) |  |   | (2,308   | )
|                             | Net loss                |  |            | (116,363 | )          |  |               | (7,331 | )         |  |       | (13,549 | ) |  |   | (1,186 | ) |  |   | (138,429 | )
|                             | Total assets            |  |            | 69,000   |            |  |               | 75,986 |           |  |       | 6,650   |   |  |   | (1,081 | ) |  |   | 150,555  |  

A substantial portion of Claxsons pay television and Internet and
broadband assets and operations are based in Argentina. Claxsons broadcast
television and radio assets and operations are primarily based in Chile.

11. COMMITMENTS AND CONTINGENCIES

Commitments Claxson contracts for certain services (up-linking of
signals) and leases transponder capacity on certain satellites, office and
warehouse space and equipment under agreements expiring at various dates
through 2009. For the years ended December 31, 2000, 2001 and 2002, rent
expense incurred by Claxson for these items totaled $4,663, $4,946 and $6,632,
respectively.

Aggregate future minimum payments under these noncancelable operating
leases are as follows:

F-23



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##### Table of Contents



CLAXSON INTERACTIVE GROUP INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2000, 2001 and 2002
(In thousands of U.S. dollars)

|                                 |       |   |       |        | 
|-------------------------------- | ----- | - | ----- | ------ | 
|Twelve Months Ended December 31, |       |   |       |       
|2003                             |       | $ | 5,544 |       
|2004                             |       |   | 4,767 |       
|2005                             |       |   | 3,741 |       
|2006                             |       |   | 3,611 |       
|2007                             |       |   | 3,345 |       
|Thereafter                       |       |   | 2,892 |       
|                                 |       |   |       |       
|                                 | Total |   | $     | 23,900 | 
|                                 |       |   |       |       

Legal Proceedings The Chilean Antitrust General Attorney is conducting a
general investigation regarding the level of concentration in the radio
broadcasting industry in Chile. On February 17, 2000, the Commission asked
Radio Chile to provide certain information regarding its business and
operations. On March 31, 2000, Radio Chile complied with this request and
submitted the requested information, which was submitted by Radio Chile on
September 11, 2001. Claxson cannot predict the outcome of this investigation
or whether the investigation will lead to further information requests or other
actions by the Commission that might affect Radio Chile.

Four civil complaints were filed between June and July 2001 in the U.S.
District Court for the Southern District of New York against El Sitio, certain
of its directors and principal executive officers, and the underwriters which
led El Sitios initial public offering in December 1999. The complaints, which
request that the cases be certified as class actions, allege, among other
things, that the prospectus and registration statement for the initial public
offering were materially misleading because they did not disclose certain
alleged actions on the part of the underwriters. The claims are alleged under
both the U.S. Securities Act of 1933 and the U.S. Securities Exchange Act of
1934. The complaints seek unspecified money damages. Claxson believes that
the allegations in the complaints relating to it and its directors and
principal executive officers are without merit, and intends to defend
vigorously itself and its directors and principal executive officers in these
cases. In November, 2002, the plaintiffs dismissed its claims against Companys
current and former officers and directors without prejudice. The Companys
motions to dismiss, as well as those of most of the other defendants, were
denied in February 2003.

On April 30, 2001, the Brazilian tax authorities (Municipalidade do Sao
Paulo) appealed before the Special Jurisdiction Appellate Court of the State of
Sao Paulo the lower tax court decision that held in favor of our subsidiary,
Osite Informatica Ltda., in a suit for taxes alleged to be due by O Site
Entertenimentos Ltda. in the amount of 1,100 reals (approximately $473). Based
on preliminary assessments of our Brazilian tax advisors, we anticipate that
this appeal will be dismissed and that the lower court ruling upheld.

On September 15, 2000, New Yetem, S.A. filed a petition, technically
called beneficio de litigar sin gastos requesting a waiver of the mandatory
litigation fee (3% of the amount of the lawsuit) and the right to bring forth a
claim without prior payment of the litigation fee. Such petition was granted
on November 15, 2001. A favorable response to such petition bears no relation
to the outcome of the potential claim that could subsequently be filed. On
November 2, 2000, in light of the press coverage regarding the announcement of
the merger transaction, New Yetem requested that the judge compel legal
representatives of El Sitio Argentina, S.A., a subsidiary of Claxson, to
provide details on the transaction since a merger could jeopardize New Yetems
ability to collect from El Sitio Argentina in the event of a final court
decision. The judge rejected this petition, and New Yetem appealed five days
later. The Cámara Nacional de Apelaciones en lo Comercialupheld the lower
courts decision in favor of El Sitio Argentina on February 7, 2001. As of
December 2002 New Yetem has filed a claim against El Sitio Argentina for
U.S.$14,000. Counsel has advised that they believe New Yetems claims are
without merit, and Claxson intends to defend this claim vigorously.
Nonetheless, if New Yetem should prevail, Claxson believes the actual damages
are likely to be much lower than the U.S.$14,000 claimed in damages.

On March 18, 2003, DirecTV Latin America (DTVLA) filed a voluntary
petition for relief under Chapter 11 of the US Bankruptcy Code. With respect to
the amounts owed by DTVLA to Claxson as of the date of the filing, DTV
Holdings, an affiliate of Hughes Electronics Corporation, has entered into an
agreement with Claxson entities as of March 17, 2003 pursuant to which DTV
Holdings will purchase certain claims related to the debt of DTVLA as of the
date of the filing (approximately $4,500). There can be no assurances that
DTVLA will continue business
F-24Table of ContentsCLAXSON INTERACTIVE GROUP INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2000, 2001 and 2002
(In thousands of U.S. dollars)as a going concern or that the reorganization process will not be
converted into a liquidation process under Chapter 2 or another chapter of the
US Bankruptcy Code.From time to time, Claxson is involved in certain litigation. Management
believes that the ultimate outcome of any such litigation will not be
significant to its financial position, results of operations or cash flows.12.     RELATED PARTIES TRANSACTIONSManagement Services Subsidiaries of Claxson perform management services
for certain affiliates, including: cash management; accounting and financial
reporting; facilities management and affiliated and advertising sales. For
performing these services, the respective affiliates pay Claxson a commission
fee on revenues, net of any advertising agency commission or discount or a fee
for back office services. The Kitchen Inc., a subsidiary of Claxson, provides
network playout, post-production services and language dubbing to affiliates
and third parties. For the years ended December 31, 2000, 2001 and 2002,
Claxson earned management, sales commissions and other service fees (included
in other revenues) from these affiliates amounting to $7,055, $9,566, and
$9,967, respectively. Included in due from related parties as of December 31,
2001 and 2002 are receivables from these affiliates for management and other
service fees, sales commissions and other expenses paid on behalf of these
affiliates, amounting to $3,369 and $2,705, respectively.Revenues For the years ended December 31, 2000, 2001 and 2002, Claxson
derived subscriber-based fees amounting to $22,793, $22,626 and $14,064,
respectively, from affiliated distributors. These revenues do not include
those of Clase and PTVLA, as they were not consolidated in Claxsons
consolidated statements of operations for the years ended December 31, 2001 and
2002. Included in accounts receivable as of December 31, 2001 and 2002 are
$10,245 and $8,431, respectively, due from these affiliates. During the fourth
quarter of year 2002, Claxson renegotiated its contract with DTVLA, reducing
per subscriber rates and translating prices to local currencies, in exchange
for a two year extension in the contracts maturity and the grant of an option
to launch a new channel.Expenses For the years ended December 31, 2001 and 2002, Claxson
incurred expenses amounting to $1,009 and $421, respectively, to affiliated
distributors and service providers. Included in accounts payable as of
December 31, 2001 and 2002, are $281 and $1,304, respectively, to these
affiliated entities. Claxson did not incur significant expenses to these
affiliated entities prior to 2001.Claxson has agreed to pay advisory fees to certain shareholders. Advisory
fees incurred in relation to the agreement amounted to $97 and $349 for the
years ended December 31, 2001 and 2002, respectively, of which $97 and $255,
were outstanding as of each year end.During 2001, Claxson acquired approximately 3% of the minority interest of
one of its subsidiaries from certain officers. The purchase price for such
interests was approximately $3,900 of which approximately $3,700 and $1,899 are
reflected as accounts payable as of December 31, 2001 and 2002, respectively.13.     SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATIONSupplemental Disclosure of Non-Cash Investing and Financing Activities:Acquisitions and Disposals See Note 3.Unrealized gain (loss) from investment in equity securities See Note 2.Investments in equity securities See Note 2.Supplemental Disclosure of Cash Flow Information For the years ended
December 31, 2000, 2001 and 2002 cash paid for income taxes amounted to $809,
$1,006 and $955 respectively.F-25Table of ContentsCLAXSON INTERACTIVE GROUP INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2000, 2001 and 2002
(In thousands of U.S. dollars)For the years ended December 31, 2000, 2001 and 2002, cash paid for
interest amounted to $14,138, $12,695, and $1,708, respectively.14.     SUBSEQUENT EVENTSSale of Clase On February 7, 2003 the Board of Directors of Claxson
approved the sale and transfer of Rainbow Heights International Ltd
(Rainbow), a British Virgin Islands international business company which owns
and operates the Clase television channel (Clase), to Cisneros Group. On June
11, 2003, Claxson and its subsidiaries executed agreements with affiliates of
the Cisneros Group, all effective as of January 1, 2003, to sell Rainbow at
book value. Accordingly, there was no gain or loss on the transaction. The
Company decided to sell Rainbow prior to year-end, with negotiations initiated,
and accordingly classified its net investment in other current assets and the
net income in other income (expenses).As part of the abovementioned transaction, Clase entered into certain
services agreements with Claxson: (i) Affiliate sales representation for the
sales to cable operators, (ii) Production services agreement for website
programming maintenance and hosting and creative services for on and off air
promotions, (iii) Management services agreement for accounting, legal and
communications services and (iv) Program origination and satellite services
agreement.11% Senior Notes due 2005 On July 8, 2003, Imagen and a Noteholder that
did not participate in the Exchange Offer entered into an agreement by which
Imagen exchanged $300 in principal amount of the Notes with New Notes
representing 70% of the principal amount of the Notes, payable through 2008.
These Notes bear interest at an annual rate of 5% from July 8, 2003, payable
annually together with the respective principal payment due thereon.Legal Proceedings On May 16, 2003, Claxsons board of directors
authorized El Sitios participation in a global settlement on the four civil
complaints discussed in Note 11. Under the proposed settlement, El Sitio would
be required to assign to the plaintiffs certain claims El Sitio could
potentially bring against El Sitios underwriters arising from its initial
public offering, and to release or waive certain other legal rights El Sitio
may have, including recovery of attorneys fees spent to date. The proposed
settlement would not release claims that El Sitios underwriters could bring
against El Sitio or its officers, directors, or agents. The settlement is
subject to court approval, and satisfactory finalization of the settlement
papers.With respect to the New Yetem case discussed in Note 11, on June 17, 2003,
Imagen Satelital, received a police search order issued by a lower Criminal
Court in Buenos Aires to seek information as part of a criminal accusation by
New Yetems president. Imagen provided the requested information. The initial
phase of a criminal investigation is confidential and therefore Claxson does
not have any further information about the alleged charges or merits thereof.Additionally, on July 11, 2003, Claxson signed an agreement with DTV
Holding, an affiliate of Hughes Electronics Corporation, to purchase
Claxsons pre-bankruptcy petition claims for amounts of
4.5 million owed by DTVLA (See Note 11).F-26Table of ContentsEXHIBIT INDEX

|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|-------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description of Documents                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|1.1            |  | Amended and Restated Memorandum of Association of Claxson
Interactive Group Inc. (incorporated herein by reference to the
Registration Statement on Form F-4/A (No. 333-13062) filed with
the Commission on August 15, 2001).                                                                                                                                                                                                                                                                                                                                                                                                             
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|1.2            |  | Amended and Restated Articles of Association of Claxson
Interactive Group Inc. (incorporated herein by reference to the
Registration Statement on Form F-4/A (No. 333-13062) filed with
the Commission on August 15, 2001).                                                                                                                                                                                                                                                                                                                                                                                                               
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|2.1            |  | Combination Agreement, dated as of October 30, 2000, by and
among Claxson Interactive Group Inc. (formerly, New Site Inc.),
Newhaven Overseas Corp., Hicks, Muse, Tate & Furst Latin
America Fund, L.P., Hicks, Muse, Tate and Furst Latin America
Private Fund, L.P.; HMLA 1-SBS Coinvestors, L.P., and El Sitio,
Inc. (included as Annex A-1 to the proxy statement/prospectus
forming a part of the Registration Statement on Form F-4 (No.
333-13062) filed with the Commission on August 17, 2001 which
is incorporated herein by reference).                                                                                        
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|2.2            |  | Amendment No. 1 to Combination Agreement, dated as of June 26,
2001, by and among Claxson Interactive Group Inc., formerly
known as New Site Inc., Carlyle Investments LLC and Carlton
Investments LLC, Ibero-American Media Partners II Ltd., Hicks,
Muse, Tate & Furst Latin America Fund, L.P., Hicks, Muse, Tate
& Furst Latin America Private Fund, L.P., HMLA 1-SBS
Coinvestors, L.P. and El Sitio, Inc. (included as Annex A-2 to
the proxy statement/prospectus forming a part of the
Registration Statement on Form F-4 (No. 333-13062) filed with
the Commission on August 17, 2001 which is incorporated herein
by reference). 
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|2.3            |  | Amendment No. 2 to Combination Agreement, dated as of August 7,
2001, by and among Claxson Interactive Group Inc., formerly
known as New Site Inc., Carlyle Investments LLC and Carlton
Investments LLC, Ibero-American Media Partners II Ltd., Hicks,
Muse, Tate & Furst Latin America Fund, L.P., Hicks, Muse, Tate
& Furst Latin America Private Fund, L.P., HMLA 1-SBS
Coinvestors, L.P. and El Sitio, Inc. (included as Annex A-3 to
the proxy statement/prospectus forming a part of the
Registration Statement on Form F-4 (No. 333-13062) filed with
the Commission on August 17, 2001 which is incorporated herein
by reference).
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|2.4            |  | Indenture, dated as of April 4, 1998, among IMASAC S.A. and
Imagen Satelital, S.A. (as guarantor), The Bank of New York,
Banco Rio de la Plata S.A. and Banque International a
Luxembourg (incorporated herein by reference to the
Registration Statement on Form F-4/A (No. 333-13062) as filed
with the Commission on February 26, 2001).                                                                                                                                                                                                                                                                                               
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|2.5            |  | Indenture, dated as of November 7, 2002, among Claxon
Interactive Group, Inc., Imagen Satelital, S.A. (as guarantor),
The Bank of New York and Banco Río de la Plata S.A.                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

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|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|-------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description of Documents                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|2.6            |  | U.S.$35,000,000 Syndicated Credit Facility, dated as of April
26, 2000, among Iberoamerican Radio Holdings Uno Chile S.A.,
Blaya y Vega S.A. and others, Banco de A. Edwards, Corpbanca,
Banco Sud Americano, BankBoston, N.A. and Bankers Trust Company
(English translation) (incorporated herein by reference to the
Registration Statement on FormF-4/A (No. 333-13062) as filed
with the Commission on April 26, 2001).                                                                                                                                                                                                                                                                                       
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|2.7            |  | Amendment to the Syndicated Credit Facility Agreement, dated
December 12, 2002, by and among Iberoamerican Radio Holdings
Uno Chile S.A., Blaya y Vega S.A. and others, Banco de Chile,
Corpbanca, Scotiabank Sud Americano, BankBoston, N.A. and
Deutsche Bank Trust Company Americas (incorporated herein be
reference to Form 6-K (No. 000-33143) filed with the Commission
on January 17, 2003).                                                                                                                                                                                                                                                                                                               
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|3.1            |  | Holdco Agreement, dated September 21, 2001, by and among 1947
PTVI, LLC, 1945 PTVI, LLC, Hicks, Muse, Tate & Furst Latin
America Fund, L.P., Hicks, Muse, Tate & Furst Latin America
Private Fund, L.P., HMLA 1-SBS Coinvestors, L.P., Certain
Claxson Interactive Group, Inc. Stockholders and Claxson
Interactive Group, Inc.                                                                                                                                                                                                                                                                                                                                                                                    
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|4.1            |  | Transfer Agreement, dated as of December 23, 2002, by and among
Playboy Enterprises, Inc., Playboy Entertainment Group, Inc.,
Playboy Enterprises International, Inc., Claxson Interactive
Group Inc., Carlyle Investments LLC (in its own right and as a
successor in interest to Victoria Springs Investments Ltd.),
Carlton Investments LLC (in its own right and as a successor in
interest to Victoria Springs Investments Ltd.), Lifford
International Co. Ltd. and Playboy TV International, LLC
(incorporated herein by reference to Form 6-K (No. 035-22883)
filed with the Commission on January 23, 2003). Claxson agrees
to furnish supplementally any omitted schedule to the
Commission upon request.
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|4.2            |  | Full-Time Transponder Lease Agreement, dated October 22, 1997,
by and between PanAmSat International Systems, Inc. and
Cisneros Television Services, Inc. (incorporated herein by
reference to the Registration Statement on Form F-4/A (No.
333-13062) as filed with the Commission on April 26, 2001).                                                                                                                                                                                                                                                                                                                                                                                                           
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|4.3            |  | First Amendment to Full-Time Transponder Lease Agreement (Pre
Launch), dated as of July 31, 2000, by and between PanAmSat
International Systems, Inc. and Cisneros Television Services,
Inc. (incorporated herein by reference to the Registration
Statement on Form F-4/A (No. 333-13062) as filed with the
Commission on April 26, 2001).                                                                                                                                                                                                                                                                                                                                                                        
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|4.4            |  | Letter Agreement Re: Full-Time Transponder Lease Agreement,
dated as of May 1, 1998, by and between PanAmSat International
Systems, Inc. and Cisneros Television Services, Inc.
(incorporated herein by reference to the Registration Statement
on Form F-4/A (No. 333-13062) as filed with the Commission on
April 26, 2001).                                                                                                                                                                                                                                                                                                                                                                                     

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|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                    
|-------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description of Documents                                                                                                                                                                                                                                                                                                                                                                                           
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                    
|4.5            |  | First Amendment to Full-Time Transponder Lease Agreement, dated
as of July 31, 1998, by and between PanAmSat International
Systems, Inc. and Cisneros Television Services, Inc.
(incorporated herein by reference to the Registration Statement
on Form F-4/A (No. 333-13062) as filed with the Commission on
April 26, 2001).                                                                                     
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                    
|4.6            |  | Letter Agreement Re: First Amendment to the Full-Time
Transponder Lease Agreement, dated July 31, 2000, by and
between PanAmSat International Systems, Inc. and Cisneros
Television Services, Inc. (incorporated herein by reference to
the Registration Statement on Form F-4/A (No. 333-13062) as
filed with the Commission on April 26, 2001).                                                                  
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                    
|4.7            |  | Letter Agreement Re: Full-Time Transponder Lease Agreement, as
amended (dated October 22, 1997), Full-Time Transfer Lease
Agreement, as amended (dated May 1, 1998) and Letter Agreement
for Retransmission Services, as amended (dated October 17,
1997), dated as of April 4, 2003, by and between PanAmSat
International Systems, Inc. and Claxon USA Inc., formerly known
as Cisneros Television Services, Inc.
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                    
|4.8            |  | Claxson Interactive Group Inc. 2001 Share Incentive Plan
(included as Annex E to the proxy statement/prospectus forming
a part of the Registration Statement on Form F-4 (No. 333-13062
filed with the Commission on August 17, 2001 which is
incorporated herein by reference).                                                                                                                                   

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##### Table of Contents



|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                           
|-------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description of Documents                                                                                                                                                                                                                                                                                                                                                                                                  
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                           
|*4.9           |  | Second Amended and Restated Operating Agreement for Playboy TV
 Latin America, LLC, effective as of April 1, 2002, by and
between Playboy Entertainment Group, Inc. and Lifford
International Co. Ltd. (incorporated herein by reference to
Form 6-K (No. 035-22883) filed with the Commission on January
23, 2003). Claxson agrees to furnish supplementally any
omitted schedule to the Commission upon request.       
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                           
|*4.10          |  | Playboy TV  Latin America Program Supply and Trademark License
Agreement, dated December 23, 2002, by and between Playboy
Entertainment Group, Inc. and Playboy TV  Latin America, LLC
(incorporated herein by reference to Form 6-K (No. 035-22883)
filed with the Commission on January 23, 2003). Claxson agrees
to furnish supplementally any omitted schedule to the
Commission upon request.                      
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                           
|*4.11          |  | Venus Contribution Agreement, dated as of December 23, 2002, by
and among Claxson Interactive Group Inc., Lifford International
Co. Ltd, Playboy TV  Latin America, LLC and Playboy
Entertainment Group, Inc. (incorporated herein by reference to
Form 6-K (No. 035-22883) filed with the Commission on January
23, 2003). Claxson agrees to furnish supplementally any
omitted schedule to the Commission upon request.
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                           
|4.12           |  | Playboy TV International Program Supply Agreement, dated as of
August 31, 1999 by and among Playboy Entertainment Group, Inc.,
Playboy TV International LLC and PTVLA U.S., LLC (incorporated
herein by reference to the Registration Statement on Form F-4/A
(No. 333-13062) as filed with the Commission on April 26,
2001).                                                                                            
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                           
|4.13           |  | Amendment No. 1 to the Playboy TV International Program Supply
Agreement, dated as of December 22, 2002, by and among Playboy
Entertainment Group, Inc., Playboy TV International LLC and
PTVLA U.S., LLC (incorporated herein by reference to Form 6-K
(No. 035-22883) filed with the Commission on January 23, 2003).                                                                                                   
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                           
|8.1            |  | List of Significant Subsidiaries                                                                                                                                                                                                                                                                                                                                                                                          
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                           
|12.1           |  | Certification of Claxon Interactive Group Inc.s Chief
Executive Officer with respect to the financial statements
attached as part of Item 1 hereto, pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                           
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                           
|12.2           |  | Certification of Claxon Interactive Group Inc.s Chief
Financial Officer with respect to the financial statements
attached as part of Item 1 hereto, pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                           



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|* |  | Portions of this exhibit have been omitted and filed separately with the
Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended, requesting confidential treatment.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

4