<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 21, 1997
REGISTRATION NO. 333-35411
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
METRO-GOLDWYN-MAYER INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
---------------
<TABLE>
<S> <C> <C>
DELAWARE 6712 95-4605850
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
2500 BROADWAY STREET
SANTA MONICA, CALIFORNIA 90404
(310) 449-3000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
DAVID G. JOHNSON, ESQ.
SENIOR EXECUTIVE VICE PRESIDENT
AND GENERAL COUNSEL
METRO-GOLDWYN-MAYER INC.
2500 BROADWAY STREET
SANTA MONICA, CALIFORNIA 90404
(310) 449-3000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
WITH A COPY TO:
<TABLE>
<S> <C>
BRUCE D. MEYER, ESQ. KENDALL R. BISHOP, ESQ.
GIBSON, DUNN & CRUTCHER LLP O'MELVENY & MYERS LLP
333 SOUTH GRAND AVENUE 1999 AVENUE OF THE STARS, 7TH FLOOR
LOS ANGELES, CALIFORNIA 90071 LOS ANGELES, CALIFORNIA 90067
(213) 229-7000 (310) 553-6700
</TABLE>
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this registration statement becomes effective.
---------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PROPOSED AMOUNT OF
MAXIMUM ADDITIONAL
TITLE OF EACH CLASS OF AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED OFFERING PRICE(1) FEE(2)
- -------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, par value $.01 per
share............................ $322,000,000 $21,820
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 based on an estimate of the maximum offering price.
(2) In connection with the original filing of the Registration Statement on
September 11, 1997, the Company paid $75,758 in registration fees. The
amount above reflects the balance of the registration fee due based on the
revised maximum offering price.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES
AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED OCTOBER 21, 1997
PROSPECTUS
12,500,000 SHARES
[LOGO OF METRO-GOLDWYN-MAYER INC.]
COMMON STOCK
----------
All of the shares of the common stock, $.01 par value per share (the "Common
Stock"), offered hereby are being sold by Metro-Goldwyn-Mayer Inc. ("MGM" or
the "Company"). Of the 12,500,000 shares offered by the Underwriters,
10,000,000 shares will be offered initially in the United States and Canada
(the "U.S. Offering") by the U.S. Underwriters and 2,500,000 shares will be
offered initially outside the United States and Canada (the "International
Offering" and, collectively, with the U.S. Offering, the "Offering") by the
International Underwriters (collectively, with the U.S. Underwriters, the
"Underwriters"). The Company has granted the U.S. Underwriters and the
International Underwriters options to purchase up to an additional 1,200,000
and 300,000 shares, respectively, to cover over-allotments, if any. The public
offering price and the underwriting discount per share will be identical for
the U.S. Offering and the International Offering. See "Underwriting."
Prior to the Offering, there has been no public market for the Common Stock.
It is currently estimated that the initial offering price per share will be
between $20 and $23. See "Underwriting" for a discussion of the factors
considered in determining the initial public offering price. All information in
this Prospectus gives effect to a recapitalization of the Company occurring
concurrent with the closing of the Offering and consisting of (i) the
conversion of each share of the Company's Series A Cumulative Convertible
Preferred Stock (the "Series A Preferred Stock") into one share of the Common
Stock (the "Series A Preferred Stock Conversion") and (ii) a subsequent 41.667
for 1 stock split of the Common Stock (the "Stock Split").
Application will be made to list the Common Stock on the New York Stock
Exchange (the "NYSE") under the symbol "MGM."
Following the Offering, Tracinda Corporation, Seven Network Limited, the
directors and officers of the Company and affiliates thereof will beneficially
own approximately 81.2% of the Common Stock and, therefore, will be able to
control all actions requiring a vote of the stockholders, including the
election of directors. The Company does not expect to be profitable for at
least several years.
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK.
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNDERWRITING PROCEEDS TO
PRICE TO PUBLIC DISCOUNT(1) COMPANY(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share.............................. $ $ $
- --------------------------------------------------------------------------------
Total(3)............................... $ $ $
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). See "Underwriting."
(2) Before deducting expenses estimated at $ payable by the Company.
(3) The Company has granted the U.S. Underwriters and the International
Underwriters options, exercisable within 30 days after the date of this
Prospectus, to purchase up to an additional 1,200,000 and 300,000 shares of
Common Stock, respectively, solely to cover over-allotments, if any. If
such options are exercised in full, the total Price to Public, Underwriting
Discount and Proceeds to Company will be $ , $ and
$ , respectively.
----------
Merrill Lynch & Co. is acting as book running lead manager for the Offering.
Merrill Lynch & Co. and J.P. Morgan & Co. are acting as joint lead managers.
The shares of the Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if delivered to and accepted by the Underwriters,
subject to approval of certain legal matters by counsel for the Underwriters
and certain other conditions. The Underwriters reserve the right to withdraw,
cancel or modify such offer and to reject orders in whole or in part. It is
expected that the delivery of the shares will be made in New York, New York on
or about , 1997.
----------
MERRILL LYNCH & CO. J.P. MORGAN & CO.
Joint Lead Managers
----------
BEAR, STEARNS & CO. INC. FURMAN SELZ
----------
The date of this Prospectus is , 1997.
<PAGE>
Information in this Prospectus contains forward-looking statements which can
be identified by the use of forward-looking terminology such as "may," "will,"
"should," "expect," "intend," "estimate" or "continue" or the negative thereof
or comparable terminology. The matters set forth under the caption "Risk
Factors" in the Prospectus constitute cautionary statements identifying
important factors with respect to such forward-looking statements, including
certain risks and uncertainties, that could cause actual results to differ
materially from those in such forward-looking statements.
The Company intends to furnish to its stockholders annual reports containing
consolidated financial statements audited by an independent public accounting
firm and quarterly reports for the first three quarters of each fiscal year
containing interim unaudited financial information.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING TRANSACTIONS EFFECTED ON THE NYSE, IN THE OVER-THE-COUNTER MARKET OR
OTHERWISE. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
----------------
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN AS CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY THE COMMON STOCK OFFERED HEREBY BY ANY PERSON IN ANY JURISDICTION
IN WHICH IT IS UNLAWFUL FOR SUCH PERSON TO MAKE ANY SUCH OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL UNDER ANY CIRCUMSTANCES IMPLY THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
<PAGE>
SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the historical and pro forma financial statements of the
Company, including the notes thereto, appearing elsewhere in this Prospectus.
Throughout this Prospectus, except where the context otherwise requires, the
"Company" refers collectively to Metro-Goldwyn-Mayer Inc. and its direct and
indirect subsidiaries. Unless otherwise indicated, all information in this
Prospectus gives effect to the recapitalization of the Company occurring
concurrent with the closing of the Offering and consisting of (i) the Series A
Preferred Stock Conversion and (ii) the Stock Split. Unless otherwise
indicated, all information in this Prospectus assumes no exercise of (i) stock
options outstanding as of September 30, 1997 to purchase 5,518,204 shares of
the Common Stock or (ii) the Underwriters' over-allotment options for 1,500,000
shares.
THE COMPANY
COMPANY OVERVIEW
The Company is engaged primarily in the development, production and worldwide
distribution of theatrical motion pictures and television programs. The
Company, including Metro-Goldwyn-Mayer Studios Inc. (formerly known as Metro-
Goldwyn-Mayer Inc.) ("MGM Studios"), United Artists Corporation ("UA"), Orion
Pictures Corporation ("Orion"), Goldwyn Films Inc. ("Goldwyn") and its other
subsidiaries, is one of only seven major film and television studios worldwide.
With approximately 4,000 film titles and over 8,200 episodes of television
programming, the Company's library (the "Library") constitutes the largest
collection of post-1948 feature films in the world. Motion pictures in the
Library have won over 185 Academy Awards, including Best Picture Awards for
Annie Hall, The Apartment, The Best Years of Our Lives, Dances With Wolves, The
Deer Hunter, Hamlet, In the Heat of the Night, Marty, Midnight Cowboy, Platoon,
Rain Man, Rocky, Silence of the Lambs, Tom Jones and West Side Story. The
Library also includes 17 titles in the James Bond film franchise, five titles
in the Rocky film franchise and nine titles in the Pink Panther film franchise.
Tracinda Corporation ("Tracinda"), Seven Network Limited ("Seven") and senior
management of MGM Studios formed the Company to acquire all of the outstanding
capital stock of MGM Studios and its subsidiaries, including UA, in October
1996 for an aggregate consideration of $1.3 billion (the "MGM Acquisition").
Tracinda is wholly-owned by Kirk Kerkorian. Seven is one of the largest
television broadcast networks in Australia with stations in five major
Australian metropolitan areas and one regional television station. Frank G.
Mancuso, Chairman and Chief Executive Officer of MGM Studios since July 1993
and of the Company since its formation, has approximately 35 years of
entertainment industry experience.
In July 1997 the Company acquired all of the outstanding capital stock of
Orion and its subsidiaries, including Goldwyn (the "Orion Companies"), from
Metromedia International Group, Inc. (the "Orion Acquisition"). In connection
with the Orion Acquisition, the Company obtained the film and television
libraries of the Orion Companies consisting of approximately 1,900 film titles
and 3,000 television episodes, nearly doubling the size of the Library to its
current size of approximately 4,000 film titles and over 8,200 episodes of
television programming. The Company also acquired 12 substantially completed
theatrical motion pictures and five direct-to-video features. The Goldwyn
cinema operations were excluded from the Orion Acquisition. See "Background of
the Company."
BUSINESS STRATEGY
The Company's goal is to enhance its position as a premier global
entertainment content company by maximizing the value of its assets, including
the Library and its film and television production units, under the direction
of its experienced management team. To achieve this goal, the Company intends
to:
Build and Leverage the Library. The Company believes that the Library is its
most powerful asset and that the Library will continue to generate relatively
stable cash flows through the worldwide distribution of its titles.
3
<PAGE>
Management intends to maximize the value of the Library by (i) producing new
motion pictures and television programs that will not only be successful on
their own, but will also increase the depth and breadth of the Library, (ii)
aggressively marketing and repackaging the Library's titles, (iii) developing
new distribution channels for delivering MGM branded programming, (iv)
capitalizing on developments in technology and (v) further penetrating
international markets as they grow. As opportunities arise, the Company may
pursue strategic acquisitions, including acquisitions of additional titles or
of new distribution channels for the Library. Additionally, the Company expects
to benefit as certain rights to the Library that have been previously licensed
to others revert to the Company over time. See "Business--Distribution."
Develop, Produce and Distribute Theatrical Motion Pictures. Through Metro-
Goldwyn-Mayer Pictures Inc. ("MGM Pictures") and United Artists Pictures Inc.
("UA Pictures"), the Company plans to produce or co-produce and distribute
approximately ten to 12 motion pictures annually across a variety of genres.
The Company intends to (i) actively manage its production and release schedules
to maximize overall performance of those motion pictures, (ii) tightly control
development and production expenditures while maintaining the artistic
integrity required to develop and produce successful feature films and (iii)
utilize the Library as an inexpensive source for sequels and remakes and the
expansion of certain well-tested, familiar film franchises. Additionally, the
Company plans to produce or acquire and release approximately four to six
specialty motion pictures annually through Goldwyn. The Company also plans to
distribute annually approximately four to six motion pictures produced by
others.
Develop, Produce and Distribute Television Programming. The Company intends
to focus primarily on the development and production of series for pay
television and the first-run syndication business by using its extensive
Library as a source of ideas. Under its television programming strategy, the
Company has generally been able to recover substantially all production costs
for a series shortly following completion of production by obtaining up-front
financial commitments from domestic pay television broadcasters for production
of multiple episodes of the series and concurrently licensing the series in
international markets. The Company also develops programs such as two-hour
television movies and mini-series. The Company intends to allocate a portion of
its future television production budget to producing series for network
television.
Leverage the MGM Brand Name. The Company believes that the MGM name and its
lion logo are among the most recognized in the world. The Company intends to
capitalize on the value inherent in its name and logo through the distribution
of branded programming and the selective development of high-quality consumer
products.
AMENDED CREDIT FACILITY
In October 1997 the Company and its principal lenders amended and restated
the Company's principal credit facilities into a single credit facility (the
"Amended Credit Facility"). The Amended Credit Facility consists of a $400
million six year revolving facility, increasing to $600 million upon receipt by
the Company of gross proceeds of at least $250 million from the issuance and
sale of the Common Stock, including in connection with the Offering, a
$400 million seven and one-half year term loan and a $300 million eight and
one-half year term loan. See "Financing Arrangements."
The principal executive offices of the Company are located at 2500 Broadway
Street, Santa Monica, California 90404, and the Company's telephone number is
(310) 449-3000. Metro-Goldwyn-Mayer, MGM, United Artists, UA and Orion, among
others, are registered trademarks of the Company.
4
<PAGE>
THE OFFERING
Of the 12,500,000 shares of Common Stock being offered hereby by the Company,
10,000,000 shares are being offered initially in the United States and Canada
by the U.S. Underwriters and 2,500,000 shares are being offered initially
outside the United States and Canada by the International Underwriters. See
"Underwriting."
Common Stock offered(1):
U.S. Offering............. 10,000,000 shares
International Offering.... 2,500,000 shares
Total................... 12,500,000 shares
Common Stock to be
outstanding after the
Offering................... 65,211,921 shares (1)(2)
Use of proceeds............. It is currently anticipated that substantially
all of the net proceeds to the Company from the
Offering will be used to reduce indebtedness of
the Company under the revolving portion of the
Amended Credit Facility. As of October 15, 1997,
the outstanding balance under the revolving
portion of the Amended Credit Facility was
$290 million. Remaining net proceeds, if any,
will be used by the Company for general corporate
purposes, including the payment of motion picture
and television development, production and
distribution costs. Any amounts repaid under the
Amended Credit Facility out of the net proceeds
may be reborrowed by the Company. The Company is
currently considering the acquisition of a film
library consisting of approximately 1,000 titles
and, if the Company completes such acquisition,
it would likely reborrow a significant portion of
the amounts so repaid in order to initially
finance such acquisition. In such case, the
Company would expect to refinance such borrowings
with one or more other sources. See "Risk
Factors--Risks Relating to the Orion Acquisition
and Integration of Operations; Future
Acquisitions" and "--Risks Relating to Liquidity
and Financing Requirements." Although the Company
does not currently intend to use a substantial
portion of the net proceeds from the Offering to
finance such acquisition, it reserves the right
to do so, depending on, among other things, the
timing of the acquisition. See "Use of Proceeds."
Proposed NYSE symbol........ Application will be made to list the Common Stock
on the NYSE under the symbol "MGM."
- --------
(1) Does not include up to 1,200,000 and 300,000 shares subject to over-
allotment options granted by the Company to the U.S. Underwriters and
International Underwriters respectively.
(2) Excludes 5,205,702 shares of the Common Stock issuable upon exercise of
employee stock options outstanding as of September 30, 1997 (1,020,031 of
which are vested and exercisable or will vest and become exercisable within
60 days) and 2,919,363 shares issuable upon exercise of the stock options
available for future grant under the Company's stock option plans. See
"Management--Incentive and Bonus Plans--1996 Incentive Plan." Also excludes
an aggregate of 312,502 shares of the Common Stock issuable upon the
exercise of currently exercisable stock options held by Tracinda and Celsus
Financial Corp. ("Celsus"). See "Ownership of Voting Securities" and
"Certain Transactions."
RISK FACTORS
See "Risk Factors" for a description of certain risks to be considered before
making an investment in the Common Stock.
5
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR PREDECESSOR SUCCESSOR
-------------------------------------- ------------- ----------- -----------
PRO FORMA PRO FORMA
YEAR ENDED FISCAL YEAR SIX MONTHS SIX MONTHS SIX MONTHS
DECEMBER 31, OCTOBER 11 TO ENDED ENDED ENDED ENDED
-------------------- JANUARY 1 TO DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30, JUNE 30,
1994 1995 OCTOBER 10, 1996 1996 1996(2) 1996 1997 1997(3)
--------- --------- ---------------- ------------- ------------ ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Revenues.......... $ 597,121 $ 860,971 $ 912,706 $ 228,686 $1,315,128 $595,132 $ 351,014 $ 413,131
Expenses.......... 732,706 973,331 1,589,275 215,112 1,913,870 644,942 356,873 436,698
Operating income
(loss)........... (135,585) (112,360) (676,569) 13,574 (598,742) (49,810) (5,859) (23,567)
Interest expense
and other income,
net.............. (31,790) (56,014) (68,196) (9,062) (46,768) (44,212) (19,211) (23,980)
Income (loss)
before income
taxes............ (167,375) (168,374) (744,765) 4,512 (645,510) (94,022) (25,070) (47,547)
Net income (loss). (171,252) (169,309) (745,038) 166 (654,365) (103,552) (29,005) (55,529)
Net income (loss)
per share........ $ 0.00 $ (10.06) $ (0.77) $ (0.85)
Pro forma number
of shares used in
computation of
net income (loss)
per share........ 37,567,634 65,067,754 37,643,426 65,143,546
OTHER DATA:
Cash flow from
operating
activities....... $ 216,289 $ 371,657 $ 343,137 $ 61,328 $ $328,811 $ 160,056 $
Cash flow from
investing
activities....... (464,031) (710,812) (380,142) (1,390,861) (277,904) (280,604)
Cash flow from
financing
activities....... 239,965 328,029 44,852 1,345,394 (54,988) 124,678
EBITDA(1)......... (103,499) (81,588) (87,289) 16,709 (3,536) (33,565) 1,192 (11,938)
Capital
expenditures..... 9,099 9,376 6,901 2,079 10,057 5,291 5,294 6,606
Depreciation...... 5,335 4,021 4,645 1,418 6,935 2,871 3,230 4,019
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
------------------------------------
PRO FORMA AS
ACTUAL PRO FORMA(4) ADJUSTED(5)
---------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA (UNAUDITED):
Cash and cash equivalents.................................................. $ 20,255 $ 34,492 $ 200,242
Film and television costs, net............................................. 1,263,073 1,669,510 1,669,510
Total assets............................................................... 1,806,574 2,586,037 2,751,787
Bank and other debt ....................................................... 566,258 796,004 711,754
Stockholders' equity....................................................... 876,708 1,236,708 1,486,708
</TABLE>
- -------
(1) "EBITDA" is defined as earnings before interest, taxes, depreciation and
non-film amortization. While many in the financial community consider
EBITDA to be an important measure of comparative operating performance, it
should not be construed as an alternative to operating income or cash flows
from operating activities (as determined in accordance with generally
accepted accounting principles ("GAAP")). EBITDA does not reflect cash
necessary or available to fund cash requirements, and the items excluded
from EBITDA, such as depreciation and non-film amortization, are
significant components in assessing the Company's financial performance.
Other significant uses of cash flows are required before cash will be
available to the Company, including debt service, taxes and cash
expenditures for various long-term assets. The Company's calculation of
EBITDA may be different from the calculation used by other companies and,
therefore, comparability may be limited. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
(2) Reflects the effect of the MGM Acquisition Transactions, the Orion
Acquisition Transactions (as such terms are defined below--see "Background
of the Company") and the Offering as if they had occurred at the
beginning of the period presented.
(3) Reflects the effect of the Orion Acquisition Transactions and the Offering
as if they had occurred at the beginning of the period presented.
(4) Reflects the effect of the Orion Acquisition Transactions and the
refinancing under the Amended Credit Facility as if they had occurred as of
June 30, 1997.
(5) Gives effect to the application of the estimated net proceeds from the
Offering of approximately $250 million and the repayment of $84.3 million,
which represents the pro forma outstanding balance, of the revolving
portion of the Amended Credit Facility, as if the foregoing had been
completed as of June 30, 1997. The Company has incurred additional debt
under the revolving portion of its credit facilities since June 30, 1997
and, accordingly, expects that substantially all of the net proceeds of the
Offering will be used to reduce such debt. Does not assume exercise of the
Underwriters' over-allotment options.
6
<PAGE>
RISK FACTORS
The Common Stock offered hereby is speculative in nature and involves a high
degree of risk. In addition to the other information set forth elsewhere in
this Prospectus, prospective investors should carefully consider the following
risk factors prior to investing in the Common Stock offered hereby.
SIGNIFICANT OPERATING AND NET LOSSES; FUTURE LOSSES ANTICIPATED
The Company (including its predecessors) has not reported an operating
profit for any fiscal year since 1988, and while controlled by former
management (see "Background of the Company"), MGM Studios was the subject of
an involuntary bankruptcy petition that was filed in 1991. For 1994 and 1995
and for the period January 1, 1996 through October 10, 1996, the Company
reported an operating loss of $135.6 million, $112.4 million and
$676.6 million (including a $563.8 million provision for impairment of
intangible assets), respectively. In addition, the Company reported
significant net losses for each such period. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations." The Company does
not expect to be profitable for at least several years. There can be no
assurance that there will not be significant or increasing operating and net
losses in the future or that the Company will become profitable.
CURTAILMENT OF CERTAIN OPERATIONS DUE TO SALE OF THE COMPANY
In October 1996 MGM Studios was acquired by the Company from Consortium de
Realisation ("CDR"), a wholly-owned subsidiary of Credit Lyonnais S.A. ("CL").
See "Background of the Company." During the ten month period from CDR's
announcement in January 1996 of its intention to sell MGM Studios to the
consummation of the sale (the "Sale Period"), the uncertainty surrounding
future management affected the Company's ability to enter into new projects
with top artistic and creative talent. As a consequence, the Company did not
commence production of any new motion pictures during the Sale Period and
released only nine motion pictures (most of which were produced by others)
between August 1, 1996 and August 1, 1997. This curtailment of operations has
adversely affected revenues and results of operations, and given the extended
period over which motion picture revenues are typically received, will
continue to do so for at least the next three years. See "Management's
Discussion and Analysis of Financial Conditions and Results of Operations."
Although the Company has established a complete release schedule for the rest
of 1997 and the first half of 1998, such schedule includes only six films
produced by MGM Pictures or UA Pictures, with the remainder having been
acquired either in the Orion Acquisition or through negative pick-up or other
distribution agreements. This slate contains a smaller number and percentage
of Company-produced motion pictures than the Company intends to release in
future years. There can be no assurance that the Company will not experience
problems or delays in its return to more normal operations. The lack of
production during the Sale Period may have adversely affected the Company's
relationship with major domestic exhibitors, as such relationships (and a
studio's negotiated share of the box office receipts) typically depend, in
part, on a studio's track record of delivering publicly appealing films.
NEW CHIEF PRODUCTION EXECUTIVES
Since the MGM Acquisition in October 1996, management has taken steps to
return operations to a higher level, and in connection therewith, the Company
has hired experienced chief production executives for MGM Pictures and UA
Pictures. The Company has not yet released any motion pictures that were
completely developed and produced under these new production executives. There
can be no assurance that such motion pictures, if and when released, will be
successful.
FLUCTUATION OF OPERATING RESULTS; EFFECT OF ENTERTAINMENT ACCOUNTING POLICIES
The Company's revenues and results of operations are significantly dependent
upon the timing of its releases and the commercial success of the motion
pictures and television programming it distributes, none of which can be
predicted with certainty. Accordingly, the Company's revenues and results of
operations may fluctuate significantly from period to period, and the results
of any one period may not be indicative of the results for any future periods.
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In accordance with generally accepted accounting principles and industry
practice, the Company amortizes film and television programming costs using
the individual-film-forecast method under which such costs are amortized for
each film or television program in the ratio that revenue earned in the
current period for such title bears to management's estimate of the total
revenues to be realized from all media and markets for such title. Management
regularly reviews, and revises when necessary, its total revenue estimates on
a title-by-title basis, which may result in a change in the rate of
amortization and/or a write-down of the film or television asset to net
realizable value. Results of operations in future years are dependent upon the
Company's amortization of its film and television costs and may be
significantly affected by periodic adjustments in amortization rates. The
likelihood of the Company's reporting of losses is increased because the
industry's accounting method requires the immediate recognition of the entire
loss in instances where it is expected that a motion picture or television
program will not recover the Company's investment. On the other hand, the
profit of a successful motion picture or television program must be deferred
and recognized over the entire revenue stream generated by the individual
picture or television program. As a result of the lack of movie production
during the Sale Period and the subsequent reduction of distribution, the
Company expects to experience lower revenues for at least the next three
years, and thus the fluctuations caused by this accounting method may have a
greater impact, than otherwise might be the case. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Motion Picture
Industry Accounting Standards."
RISKS OF MOTION PICTURE AND TELEVISION PRODUCTION
General. Motion picture production and distribution is highly speculative
and inherently risky. There can be no assurance of the economic success of any
motion picture since the revenues derived from the production and distribution
of a motion picture (which do not necessarily bear a direct correlation to the
production or distribution costs incurred) depend primarily upon its
acceptance by the public, which cannot be predicted. The commercial success of
a motion picture also depends upon the quality and acceptance of other
competing films released into the marketplace at or near the same time, the
availability of alternative forms of entertainment and leisure time
activities, general economic conditions and other tangible and intangible
factors, all of which can change and cannot be predicted with certainty.
Further, the theatrical success of a motion picture is generally a key factor
in generating revenues from other distribution channels. There is a
substantial risk that some or all of the Company's motion pictures will not be
commercially successful, resulting in costs not being recouped or anticipated
profits not being realized.
Television production and distribution is also highly speculative and
inherently risky. The success of the Company's television production and
distribution business is affected by some of the same factors described above
and may also be impacted by prevailing advertising rates, which are subject to
fluctuation. Thus, there is a substantial risk that some or all of the
Company's television projects will not be commercially successful, resulting
in costs not being recouped or anticipated profits not being realized. See
"The Industry" and "Business--Production," "--Distribution" and "--
Competition."
In the ordinary course of business the Company may from time to time be
subject to claims or litigation to defend against alleged infringement of the
rights of others or to determine the scope and validity of the intellectual
property rights of others. If material, such claims or litigation could be
costly and divert management's attention. Adverse determinations in such
litigation could result in the loss of the Company's proprietary rights,
subject the Company to significant liabilities, or require the Company to seek
licenses from third parties, any one of which could have a material adverse
effect on the Company's business and results of operations. Except for the
possible effect of the matter discussed in the second paragraph of "--Risks
Associated with the James Bond Films and Third Party Relationships," the
Company does not believe that any such claims or litigation that are currently
pending or threatened will have a material adverse effect on the Company's
business or results of operations.
Substantial Production and Marketing Costs. The production and marketing of
theatrical motion pictures requires substantial capital. The costs of
producing and marketing motion pictures have generally increased in recent
years. According to the Motion Picture Association of America ("MPAA"), the
average direct negative cost (which includes all costs associated with
creating a motion picture, including pre-production, production, and post-
production, but excluding capitalized overhead and interest, marketing and
distribution costs) of a
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motion picture produced by one of the major studios has grown from
$19.4 million in 1989 to $34.1 million in 1996, an increase of 76 percent, and
the average domestic marketing cost per picture has grown from $9.2 million in
1989 to $19.8 million in 1996, an increase of 115 percent. These costs may
continue to increase in the future, thereby increasing the costs to the
Company of its motion pictures. Production costs and releasing costs are
rising at a faster rate than increases in either domestic admissions to movie
theaters or admission ticket prices, leaving the Company more dependent on
other media, such as home video and television, and foreign markets. The
direct negative costs of the motion pictures produced by the Company (other
than its specialty motion pictures) scheduled for release in 1997 and the
first six months of 1998 are estimated to range between $12 million and $107
million, with an average of $47 million. The direct negative costs of the
specialty motion pictures scheduled for release in 1997 and the first six
months of 1998 are estimated to range between $300,000 and $9 million, with an
average of $3 million. The Company (like most major motion picture studios)
generally does not obtain "completion bonds" from outside insurers to protect
itself against budget overruns and completion delays. There can be no
assurance that the Company will not incur cost overruns or suffer delays in
the production of its motion pictures. See "Business--Production--Motion
Picture Production."
Generally, television programs are produced under contracts that provide for
license fees which may cover only a portion of the anticipated production
costs. The "gap" or production deficit between these fees and production costs
can be substantial for series produced for the networks where production costs
are higher and the license fees for domestic first run programming are
becoming a smaller percentage of the program's costs. The recoverability of
the production deficit and the realization of profits, if any, are generally
dependent upon the ability to distribute the programs in subsequent domestic
television syndication and through foreign television licenses, additional
licenses and other uses. Therefore, the ability to recover the production
deficit and realize profits on any such network television series generally
requires the production and successful sale into syndication or to a cable
network of three to four years of new series episodes. There is increasing
competition among sellers of, and a decreasing number of independent
television stations buying, off-network programs available for syndication.
The Company intends to allocate a portion of its television production budget
to producing series for the networks. There can be no assurance that the
Company can recover the production deficit or realize profits on any
television series. See "Business--Production--Television Production."
Certain Elements of the Company's Motion Picture Production Strategy. Based
on the Company's current business plan for the next five years, its annual
release slates may be comprised of proportionately fewer large budget "event"
motion pictures than the current release slates of the other major studios.
The other major studios often pre-sell foreign rights to certain event motion
pictures to help offset production costs and mitigate box office performance
risks. The Company does not currently intend to pre-sell the foreign rights to
its event motion pictures to the same degree as it believes that certain of
its competitors have traditionally done. In addition, to improve access to top
talent and sought-after projects, the other major studios generally have a
number of "first look" or "housekeeping" agreements with successful producers
whereby the studio will have the first opportunity to acquire a motion picture
project from a producer in exchange for paying some or all of such producer's
annual overhead costs and agreeing in advance upon the production and other
fees to be paid for each project. The Company's current business strategy is
not focused on entering into a large number of such agreements. There can be
no assurance that these elements of the Company's strategic approach will
enable it to achieve its goal of producing commercially successful motion
pictures.
Possible Inability to Achieve Production Goals and Meet Production
Schedule. In August 1997 the Company announced that it had re-established a
full schedule of motion picture releases for the rest of 1997 and the first
half of 1998. See "--Curtailment of Certain Operations Due to Sale of
Company." However, no assurances can be given that the Company's production
and release goals will be met in such, or any future, period. In particular,
there can be no assurance that any of the pictures scheduled for release in
the rest of 1997 or thereafter will be completed or that completion will occur
in accordance with the anticipated schedule or budget, as the production,
completion and distribution of motion pictures are subject to numerous
uncertainties, including financing requirements, personnel availability and
the release schedule of competitive motion pictures. The Company's ability to
meet its production and release goals will also depend in part on its ability
to identify and obtain sufficient amounts of quality material. See "Business--
Production--Motion Picture Production."
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CERTAIN LIMITATIONS ON THE EXPLOITATION OF THE LIBRARY
The Company has differing types of rights to the various titles in the
Library. In some cases, the Company owns the title outright, with the right to
exploit the title in all media and territories for an unlimited time. In other
cases, the title may be owned by a third party and the Company may have
obtained the right to distribute the title in certain media and territories
for a limited term. The Company owns outright, or has been granted rights in
perpetuity to, approximately 50 percent of the titles in the Library. The
Company's rights in the other titles are limited in time and, pursuant to the
terms of the existing arrangements, the rights granted to the Company expire
with respect to approximately 15 percent of the Library over the next five
years (i.e. through the year 2002), with respect to another approximately 17
percent over the five years thereafter (from 2002 to 2007), and with respect
to another approximately 15 percent over the ten years thereafter (from 2007
to 2017). The Company has generally been able to renew such rights on
favorable terms, however no assurances can be made that it will continue to be
able to do so in the future. In accordance with industry practice, for
purposes of calculating the size of the Library, the Company includes any
title that the Company has the right to distribute in any territory in any
media for any term. The only material exception to the foregoing practice is
that, even though the Company has home video distribution rights through 2001
with respect to approximately 2,950 titles owned by Turner Broadcasting
System, Inc. ("Turner"), the Company does not include such titles in
calculating the number of titles in the Library.
Even if a title is owned by the Company, the Company may have granted the
rights to exploit the title in certain media and territories to others. MGM
Studios and certain of its subsidiaries are parties to an agreement with
Warner Home Video, Inc. ("WHV"), which was entered into by prior management,
under which WHV has been granted certain home video distribution rights with
respect to new motion pictures and the motion picture library of MGM Studios
and its affiliates, subject to certain exceptions, throughout the world for a
fee expressed as a percentage of home video revenues (as determined under the
WHV Agreement) and reimbursement of certain distribution expenses. MGM Studios
maintains direct control of all significant elements of distribution such as
the determination of release dates, marketing, return policies and pricing for
these home video releases. The WHV Agreement expires in 2003, but WHV's rights
with respect to any given film that is subject to the WHV Agreement do not
expire until five years after the film's availability in the U.S. home video
market. The WHV Agreement expressly provides that WHV's rights do not extend
to, among other things, motion pictures owned, produced or released by another
major studio in the event MGM Studios or any of its affiliates acquires
control of any such major studio (so long as substantially the same quality
and quantity of motion pictures are produced that are covered by the WHV
Agreement following the acquisition as prior to the acquisition) and
specifically names Orion as well as others as major studios. Despite this
provision, MGM Studios has received correspondence from WHV alleging that the
Orion Companies' future production and library is subject to the WHV
Agreement. MGM Studios has responded by referring to the express Orion
exclusion and is currently in discussions with WHV about this matter. While
the Company believes that WHV's position is without merit, there can be no
assurance as to the outcome of any claim brought by WHV. To the extent that
the future production and library product of the Orion Companies, or any
future affiliate of the MGM Studios, were determined to be subject to the WHV
Agreement, there would likely be a reduction in the revenue and profits from
the distribution of that product. See "Business--Distribution--Home Video
Distribution."
Prior management also entered into long-term, pre-paid licenses for domestic
and certain major international television markets with respect to substantial
portions of the Library (including most of its pre-1990 titles). See
"Business--Distribution--Pay and Free Television Distribution." Until these
agreements expire and the rights revert to the Company, the Company expects
contributions to earnings from these markets to continue to be below those
achieved by its competitors for similar products. There can be no assurance
that sales or profitability will increase after these agreements expire. The
existence of these agreements may make an acquisition of the Company less
attractive to a potential acquiror in the entertainment business. See
"Business--Distribution."
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RISKS RELATING TO LIQUIDITY AND FINANCING REQUIREMENTS
The Company's theatrical motion picture and television production activities
require the initial expenditure of significant funds, while revenues relating
to such films and programs are typically not generated for some period after
such expenditure and may be received over an extended period of time. Since
the Company's cash requirements generally have exceeded cash flow from
operations, the Company has been required to utilize borrowings under its
principal credit facilities to fund operations. The Company will continue to
be dependent upon the availability of its principal credit facilities to fund
its production and distribution activities for the foreseeable future.
Borrowings under such principal credit facilities are subject to the Company's
continuing performance of certain covenants and continuing satisfaction of
certain conditions. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources" and
"Financing Arrangements."
In addition to its operational needs, the Company may from time to time
pursue and complete strategic acquisitions or enter into joint ventures. The
Company has recently submitted a non-binding indication of interest for the
acquisition of a film library of approximately 1,000 titles. Based on
preliminary due diligence, the Company anticipates that the purchase price for
such acquisition, if completed, would be less than $200 million. The Company
anticipates that the purchase price would be payable in cash and would be
initially financed by the Company by borrowings under the revolving portion of
the Amended Credit Facility (e.g., by reborrowing a substantial portion of the
amounts repaid with the net proceeds of the Offering). Such acquisition (or
any other acquisition) may also be financed, or some or all of any amounts
borrowed under the revolving portion of the Amended Credit Facility to
complete such acquisition may be refinanced, (i) with funds borrowed under the
"Tranche C Facility" of the Amended Credit Facility (subject to consent of the
requisite lenders--see "Financing Arrangements"), (ii) with the proceeds of an
offering by the Company of high yield debt securities pursuant to Rule 144A
promulgated under the Securities Act, (iii) with the proceeds of loans from,
or sales of equity securities to, Tracinda and Seven or (iv) with any
combination thereof. No assurance can be given that any such acquisition,
borrowings under the Tranche C Facility, offering of high yield debt
securities or receipt of funds from Tracinda and Seven will be completed.
The Company believes that amounts available under the Amended Credit
Facility and cash flow from operations will be adequate to meet the Company's
current obligations and commitments and will enable the Company to continue to
conduct its operations in accordance with its current business plan. In
addition, the Company believes that amounts available under the Amended Credit
Facility and cash flow from operations, on their own or together with the
potential new sources described in the preceding paragraph, will be sufficient
to cover the possible library acquisition discussed above. However, no
assurance can be given in either regard. Even if the Company does not
consummate any acquisitions, in order to take advantage of opportunities in
the debt markets, the Company may from time to time seek additional financing
as discussed in the prior paragraph. There can be no assurance that the
Company will be able to obtain any additional financing that may be required
or that such financing, if available, will be on terms satisfactory to the
Company.
The Amended Credit Facility contains certain covenants which restrict the
payment of dividends by the Company. The Company does not expect to pay any
cash dividends on its Common Stock for the foreseeable future. See "Dividend
Policies" and "Financing Arrangements."
DEPENDENCE ON KEY PERSONNEL
The Company is dependent on the efforts and abilities of its senior
management, particularly those of Frank G. Mancuso. Mr. Mancuso, age 64, has
substantial experience in the entertainment industry and extensive
relationships within the motion picture and television community, including
creative talent and distributors. Mr. Mancuso is involved in various aspects
of the production process, including the selection of the creative elements of
the Company's motion pictures and television programs. Virtually all decisions
concerning the conduct of the business of the Company, including the
properties and rights to be acquired by the Company and the arrangements to be
made for the development, financing, production and distribution of the
Company's motion pictures and television programs, are made or are
significantly influenced by Mr. Mancuso. The loss of
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his services for any reason could have a material adverse effect on the
Company's business and operations and its prospects for the future. See
"Management--Executive Compensation."
RISKS ASSOCIATED WITH THE JAMES BOND FILMS AND THIRD PARTY RELATIONSHIPS
The Company has a number of important relationships with third parties. The
James Bond films are produced by Danjaq LLC (together with its predecessors,
"Danjaq") pursuant to a series of agreements with the Company dating back to
1962. The Company jointly owns the copyright to such films with Danjaq and has
the right to approve all key elements of the films, such as the script, the
director and the leading actors. Certain other rights are either controlled by
Danjaq (e.g., merchandising) or jointly by Danjaq and the Company. Although
the Company does not believe that this joint nature of the ownership and
control of the James Bond franchise will have any material adverse effect on
the Company in the future, no assurance can be given. See "Business--Film
Library" and "--Production--Motion Picture Production."
On October 13, 1997, Sony Pictures Entertainment ("Sony") issued a press
release announcing plans by its Columbia Pictures division to produce a series
of new James Bond feature films based on works created by Ian Fleming, Kevin
McClory and John Whittingham. The Company believes that no party, other than
the Company and Danjaq, has the right to produce or exploit a feature film,
television program or similar program based, in whole or in part, on the
character James Bond, with the possible exception of Mr. McClory's right to
make films of the story in Mr. Fleming's novel Thunderball (i.e., a "remake"
of the film Thunderball). If Mr. McClory, Sony or others were to attempt to
produce or exploit another remake of Thunderball or to produce or exploit any
other film, television program or other similar program based, in whole or in
part, on the character James Bond that goes beyond a remake of Thunderball,
the Company would vigorously oppose any such attempt and take all actions
necessary to protect its rights in the James Bond character and all related
rights. The Company believes that another remake of Thunderball by Mr.
McClory, Sony or others would not have a material adverse effect on the
Company's business or results of operations. However, a determination that
Mr. McClory, Sony or others have broader rights to produce or exploit other
films, television programs or other programs that are based, in whole or in
part, on the James Bond character could have a material adverse effect on the
Company's business and results of operations. See "Business--Film and
Television Library."
The Company generally distributes its motion pictures in theatrical markets
outside of the United States and Canada through United International Pictures
("UIP"), a partnership owned equally by the Company, Paramount Pictures
Corporation ("Paramount") and Universal Studios, Inc. ("Universal"). If this
partnership were terminated or otherwise ceased operations, or if one of the
other partners withdrew for any reason, the Company believes that it would be
able to find or develop satisfactory alternative methods for international
distribution. There can be no assurance, however, that such alternative
methods would not result in decreased revenues or profitability. See
"Business--Theatrical Distribution" and "--Regulation."
RISKS RELATING TO THE ORION ACQUISITION AND INTEGRATION OF OPERATIONS; FUTURE
ACQUISITIONS
On July 10, 1997 the Company acquired the Orion Companies (including two
companies which had been acquired by Orion in July 1996). In addition, the
Company expects to consider other strategic acquisitions as opportunities
arise. The Company has recently submitted a non-binding indication of interest
for the acquisition of a film library of approximately 1,000 titles. If
invited by the seller of such library, the Company may make a binding offer to
purchase prior to the end of 1997. If such offer is accepted, the Company
anticipates that completion of the acquisition would be subject to, among
other things, the successful completion of due diligence and the negotiation
and preparation of a definitive agreement on terms acceptable to the Company.
There can be no assurance that any such offer will be accepted or that the
acquisition will be completed.
Acquisitions involve numerous risks, including diversion of management's
attention away from the Company's operating activities. There can be no
assurance that the Company will not encounter unanticipated problems or
liabilities with respect to the operations of the Orion Companies or any other
acquisitions that may be completed by the Company or with the integration of
their operations with those of the Company, and there can be no assurance that
the anticipated benefits of any acquisitions completed by the Company will be
achieved.
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RISKS OF INTERNATIONAL DISTRIBUTION
The Company distributes motion picture and television productions in foreign
countries, and in recent years the Company has derived approximately 40
percent of its revenues from foreign sources. As a result, the Company's
business is subject to certain risks inherent in international trade, many of
which are beyond its control, such as changes in laws and policies affecting
trade, investment and taxes (including laws and policies relating to the
repatriation of funds and to withholding taxes), differing degrees of
protection for intellectual property and the instability of foreign economies
and governments. In addition, fluctuations in foreign exchange rates can
adversely affect the Company's business and results of operations.
COMPETITION
Motion picture and television production and distribution are highly
competitive businesses. The Company faces competition from companies within
the motion picture and television industry and alternative forms of leisure
activities. The Company competes with other film studios, independent
production companies and others for the acquisition of artistic properties,
the services of creative and technical personnel, exhibition outlets and the
public's interest in its products. Many of the Company's competitors,
particularly the other major studios, may have greater financial and other
resources than the Company, while the independent production companies may
have less overhead than the Company. Most of the other major studios are part
of large diversified corporate groups with a variety of other operations,
including television networks and cable channels which can provide both means
of distributing their products and stable sources of earnings that offset
fluctuations in the financial performance of their motion picture and
television operations. The number of films released by the Company's
competitors, particularly the other major film studios, in any given period
may create an oversupply of product in the market, and that may reduce the
Company's share of gross box office admissions and may make it more difficult
for the Company's films to succeed. In addition, television networks are now
producing more programs internally and thus may reduce such networks' demand
for programming from other parties.
The entertainment industry in general, and the motion picture industry in
particular, are continuing to undergo significant changes, primarily due to
technological developments. Due to this rapid growth of technology, shifting
consumer tastes and the popularity and availability of other forms of
entertainment, it is impossible to predict the overall effect these factors
will have on the potential revenue from and profitability of feature-length
motion pictures and television programming. See "The Industry" and "Business--
Competition."
OWNERSHIP AND CONTROL OF PRINCIPAL STOCKHOLDERS
Upon completion of the Offering, Tracinda will beneficially own
approximately 55.6 percent of the outstanding Common Stock. As a result,
Tracinda will continue to be the Company's single largest stockholder.
Additionally, Seven will beneficially own approximately 24.7 percent of the
outstanding Common Stock. In the aggregate, Tracinda, Seven, the directors and
officers of the Company and affiliates thereof will beneficially own
approximately 81.2 percent of the Common Stock. See "Ownership of Voting
Securities."
The Common Stock does not have cumulative voting rights and, since Tracinda
will own greater than 50 percent of the outstanding Common Stock after the
Offering, Tracinda will have the ability to elect the entire Board of
Directors of the Company, subject to the agreement discussed immediately
below. Each of Seven, Tracinda and Mr. Mancuso has agreed to vote all of the
shares of the Common Stock beneficially owned by such party and take any
necessary or desirable action within such party's control so that the Board of
Directors of the Company consists of eleven members (subject to the provision
discussed below), up to four of whom are nominated by Tracinda (depending on
the number of shares of the Common Stock beneficially owned by Tracinda), up
to two of whom are nominated by Seven (depending on the number of shares of
the Common Stock beneficially owned by Seven), two of whom are nominated by
the Chief Executive Officer of the Company (one of whom shall be Mr. Mancuso
so long as he serves as the Chief Executive Officer of the Company), and three
"independent directors" who are nominated by the majority of the Board of
Directors of the Company (which majority, so long as Tracinda beneficially
owns at least 16,666,800 shares of the Common Stock, must include Tracinda's
nominees on the Board of Directors of the Company) and who are not affiliated
or associated with either Tracinda or Seven and otherwise meet the
requirements of the NYSE for serving as independent directors; provided,
however, that each of Tracinda and Seven is only obligated to vote for
nominees selected by
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the Board of Directors of the Company which are acceptable to Tracinda or
Seven, as the case may be. The Board of Directors of the Company may determine
to reduce the size of the Board of Directors to ten persons, in which case the
number of independent directors will be reduced to two. The foregoing
agreement to vote will remain in effect until the fifteenth anniversary of the
Offering. See "Ownership of Voting Securities--Investors Shareholder
Agreement." In addition to electing directors, Tracinda, on its own or
together with Seven and Mr. Mancuso, will be able to determine the outcome of
other matters submitted to the stockholders of the Company, such as the
approval of significant transactions.
POSSIBLE ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER PROVISIONS
The Board of Directors of the Company is authorized, without any vote or
further action by the stockholders of the Company, to fix the rights and
preferences of and issue up to 25 million shares of preferred stock (and the
rights of the holders of the Common Stock will be subject to, and may be
adversely affected by, the issuance of any such preferred stock). The
foregoing may make it more difficult for a third party to acquire control of
the Company. See "Description of Capital Stock."
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Offering, the Company will have 65,211,921 shares
of the Common Stock outstanding. The shares sold in the Offering will be
freely transferable under the Securities Act, except for shares acquired by
"affiliates" as that term is defined under the Securities Act. Of the
remaining shares outstanding, approximately 52,711,921 shares will be
"restricted securities" within the meaning of Rule 144 ("Rule 144")
promulgated under the Securities Act. These restricted securities may not be
sold without registration under the Securities Act unless an exemption from
registration is available. Under Rule 144, resales were permitted as to
37,650,301 shares as of October 10, 1997, and will be permitted as to an
additional 15,034,245 shares in May 1998, subject in each case to Rule 144's
volume limitations. In addition, each of the Company's current stockholders
and certain holders of outstanding options have been granted certain
registration rights with respect to the shares of the Common Stock owned by
them or to be issued to them. See "Ownership of Voting Securities--
Shareholders Agreement." The Company has agreed not to offer, sell, pledge,
contract to sell, sell any option or contract to purchase, purchase any
option, right or warrant to purchase or otherwise transfer or dispose of any
shares of the Common Stock or any securities convertible into or exercisable
or exchangeable for Common Stock or enter into any swap or other arrangement
that transfers to another, in whole or in part, any of the economic
consequences of ownership of the Common Stock, for a period of 180 days from
the date of this Prospectus without the prior written consent of Merrill
Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"). Each of the
Company's current stockholders, directors, executive officers and option
holders will be bound by a similar agreement. No predictions can be made as to
the effect, if any, that public sales of shares or the availability of shares
for sale will have on the market price prevailing from time to time.
Nevertheless, sales of substantial amounts of the Common Stock in the public
market, particularly by directors and officers of the Company, or the
perception that such sales could occur, could have an adverse effect on the
market price of the Common Stock. See "Shares Eligible for Future Sale."
ABSENCE OF A PUBLIC MARKET; DETERMINATION OF OFFERING PRICE
Prior to the Offering, there has been no public market for the Common Stock.
Consequently, the initial public offering price will be determined through
negotiations between the Company and representatives of the Underwriters. See
"Underwriting" for factors to be considered in determining the initial public
offering price. There can be no assurance that a regular trading market for
the Common Stock will develop after the Offering or, if developed, that a
public trading market can be sustained. The initial public offering price will
not necessarily reflect, and may be higher than, the market price of the
Common Stock after the Offering. In recent years, the stock market in general,
and the entertainment industry in particular, have experienced extreme price
fluctuations, sometimes without regard to the operating performance of
particular companies. Factors such as variations in actual or anticipated
operating results (which motion picture production companies experience),
changes in or failure to meet earnings estimates of securities analysts,
market conditions in the industry, regulatory actions and general economic
conditions, among others, may have a significant effect on the market price of
the Common Stock.
14
<PAGE>
BACKGROUND OF THE COMPANY
Metro-Goldwyn-Mayer ("Old MGM") was established in 1924 through the merger
of Metro Pictures, Goldwyn Pictures and Louis B. Mayer Productions. A
corporation wholly owned by Mr. Kerkorian became Old MGM's controlling
shareholder in 1969. In 1981 Old MGM acquired UA, which had been formed in
1919 when Mary Pickford, Douglas Fairbanks, D.W. Griffith and Charlie Chaplin
joined forces to release their own motion pictures, as well as motion pictures
made by independent producers. In 1986 Turner acquired the businesses of Old
MGM, and as part of that transaction, Tracinda (and certain of the former
stockholders of Old MGM) concurrently acquired UA, including the UA library,
from Old MGM. Shortly thereafter, UA reacquired the Metro-Goldwyn-Mayer name
and logo and certain other assets from Turner. UA was then renamed MGM/UA
Communications Co. ("MGM/UA"). Turner retained the film library created
through the pre-1986 operations of Old MGM (the "Old MGM Library").
In November 1990 MGM/UA was acquired by Pathe Communications Corporation
("Pathe") and was renamed MGM-Pathe Communications Co., the predecessor to MGM
Studios ("MGM-Pathe"). In May 1992 Credit Lyonnais Bank Nederland N.V.
("CLBN"), Pathe's principal lender, foreclosed on substantially all of the
stock of MGM-Pathe, following default by Pathe, and such stock was ultimately
transferred to CDR.
In July 1993 Frank G. Mancuso was appointed as Chairman and Chief Executive
Officer of MGM Studios. In January 1996 CDR announced its intention to sell
MGM Studios.
Tracinda, Seven and senior management of MGM Studios formed the Company,
then known as P&F Acquisition Corp., to acquire all of the outstanding capital
stock of MGM Studios in October 1996 for an aggregate consideration of $1.3
billion. The Company financed the MGM Acquisition through (i) the issuance of
8,333,400 shares of the Common Stock to each of Tracinda and Seven and the
issuance of 450,000 and 50,000 shares of the Series A Preferred Stock (which
will be converted into 18,750,150 and 2,083,350 shares of the Common Stock,
respectively, immediately prior to the completion of the Offering pursuant to
the Series A Preferred Stock Conversion and the Stock Split) to Tracinda and
Seven, respectively (the "First Private Placement"), for aggregate
consideration of $900 million and (ii) borrowings by MGM Studios under an
$800 million credit facility with Morgan Guaranty Trust Company of New York
("Morgan"), as agent, and certain other lenders (the "Original MGM Credit
Facility"). The MGM Acquisition and the First Private Placement are
collectively referred to as the "MGM Acquisition Transactions."
In June 1997 Seven acquired 100,000 shares of the Series A Preferred Stock
(which will be converted into 4,166,700 shares of the Common Stock immediately
prior to the completion of the Offering pursuant to the Series A Preferred
Stock Conversion and the Stock Split) from Tracinda through the exercise of an
option granted to Seven by Tracinda in October 1996.
In July 1997 the Company acquired all of the outstanding capital stock of
Orion and its subsidiaries, including Goldwyn (formerly known as Goldwyn
Entertainment Company) which had been acquired by Orion in July 1996, for an
aggregate consideration of $573 million. The Company financed the Orion
Acquisition through (i) the issuance of 13,375,107 and 1,625,013 shares of the
Common Stock to Tracinda and Seven, respectively (the "Second Private
Placement"), for aggregate consideration of $360 million and (ii) borrowings
by Orion under a $250 million credit facility with Morgan, as agent, and
certain other lenders (the "Original Orion Credit Facility" and, together with
the Original MGM Credit Facility, the "Original Credit Facilities"). The Orion
Acquisition and the Second Private Placement are collectively referred to as
the "Orion Acquisition Transactions." The Goldwyn cinema operations were
excluded from the Orion Acquisition.
15
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 12,500,000 shares
offered hereby are estimated to be approximately $250 million (approximately
$278 million if the Underwriters' over-allotment options are exercised in
full), based upon an assumed offering price of $21.50 per share and after
deducting estimated underwriting discounts and offering expenses payable by
the Company. It is currently anticipated that substantially all of the net
proceeds of the Offering will be used to reduce indebtedness of the Company
under the revolving portion of the Amended Credit Facility. See "Financing
Arrangements" for a description of the Amended Credit Facility. As of October
15, 1997, the outstanding balance under the revolving portion of the Amended
Credit Facility was $290 million. Remaining net proceeds, if any, will be used
by the Company for general corporate purposes, including the payment of motion
picture and television development, production and distribution costs. See
"Business--Production--Motion Picture Production" and "--Television
Production" for a discussion of the Company's current development and
production of motion pictures and television programs. Pending their ultimate
application, the net proceeds will be invested in interest or non-interest
bearing accounts or invested in short-term government obligations, investment-
grade securities, money market instruments or certificates of deposit.
Any amounts repaid under the Amended Credit Facility out of the net proceeds
of the Offering may be reborrowed by the Company. The Company is currently
considering the acquisition of a film library consisting of approximately
1,000 titles and, if the Company completes such acquisition, it would likely
reborrow a significant portion of the amounts so repaid in order to initially
finance such acquisition. In such case, the Company would expect to refinance
such borrowings with one or more other sources. See "Risk Factors--Risks
Relating to Liquidity and Financing Requirements." Although the Company does
not currently intend to use a substantial portion of the net proceeds from the
Offering to finance such acquisition, it reserves the right to do so,
depending on, among other things, the timing of the acquisition.
16
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of June 30, 1997, (i) on a historical basis, (ii) on a pro forma
basis to give effect to the Orion Acquisition Transactions and the Amended
Credit Facility as if they had occurred as of June 30, 1997, and (iii) on a
pro forma, as adjusted basis giving effect to the foregoing and as adjusted to
give effect to the Series A Preferred Stock Conversion, the Stock Split and
the consummation of the Offering (assuming no exercise of the Underwriters'
over-allotment options) as if the foregoing had occurred as of June 30, 1997
at an assumed initial offering price of $21.50 per share, and the application
of the estimated net proceeds therefrom as described under "Use of Proceeds."
This table should be read in conjunction with "Pro Forma Financial
Information," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the Consolidated Financial Statements and notes
thereto included elsewhere herein.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
-----------------------------------
PRO FORMA,
ACTUAL PRO FORMA AS ADJUSTED
---------- ---------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
DEBT:
Original Credit Facilities............... $ 564,250 $ -- $ --
Amended Credit Facility:
Term loans............................. -- 700,000 700,000
Revolving credit facility.............. -- 84,250 --
Other borrowings......................... 2,008 11,754 11,754
---------- ---------- ----------
Total debt............................. 566,258 796,004 711,754
---------- ---------- ----------
STOCKHOLDERS' EQUITY:
Preferred Stock, $.01 par value per
share, 25,000,000 shares authorized;
502,588 shares issued and outstanding
and pro forma issued and outstanding;
pro forma as adjusted, no shares issued
and outstanding......................... 5 5 --
Common Stock, $.01 par value per share,
50,000,000 shares authorized
(125,000,000 shares authorized pro
forma, as
adjusted); 16,753,050 shares issued and
outstanding; pro forma 31,753,170 shares
issued and outstanding; pro forma, as
adjusted, 65,197,205 shares issued and
outstanding............................. 168 318 652
Additional paid-in capital............... 904,485 1,264,335 1,514,006
Retained earnings (deficit).............. (28,839) (28,839) (28,839)
Cumulative translation adjustment........ 889 889 889
---------- ---------- ----------
Total stockholders' equity............. 876,708 1,236,708 1,486,708
---------- ---------- ----------
Total capitalization................... $1,442,966 $2,032,712 $2,198,462
========== ========== ==========
</TABLE>
17
<PAGE>
DIVIDEND POLICY
MGM Studios paid cash dividends to its prior owner in 1995 and 1996
(approximately $19.4 million in the aggregate, to service debt of MGM Studios'
parent). As the Company currently intends to retain any earnings to provide
funds for the operation and expansion of its business and for the servicing
and repayment of indebtedness, the Company does not intend to pay cash
dividends on its Common Stock for the foreseeable future. Furthermore, as a
holding company with no independent operations, the ability of the Company to
pay cash dividends will be dependent upon the receipt of dividends or other
payments from its subsidiaries. In addition, the Company's principal credit
facilities contain certain covenants which, among other things, restrict the
payment of dividends by the Company. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations Liquidity and Capital
Resources" and "Financing Arrangements." Any determination to pay cash
dividends on the Common Stock in the future will be at the sole discretion of
the Company's Board of Directors.
18
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data of the Company (including its
predecessor) presented below as of December 31 of each of the years 1992
through 1995, the period from January 1 to October 10, 1996 and the period
from October 11 to December 31, 1996 and each of the years or periods then
ending have been derived from the audited Consolidated Financial Statements of
the Company. The audited Consolidated Financial Statements of the Company for
the period from October 11 to December 31, 1996 and the audited Consolidated
Financial Statements of MGM Studios for the period from January 1 to October
10, 1996 were audited by Arthur Andersen LLP, independent accountants. The
audited Consolidated Financial Statements of MGM Studios for the years ended
December 31, 1995 and 1994 were audited by Price Waterhouse LLP, independent
accountants. The audited Consolidated Financial Statements of MGM Studios for
the years ended December 31, 1993 and 1992 were audited by KPMG Peat Marwick
LLP, independent accountants.
The selected consolidated financial data as of and for the six month periods
ended June 30, 1996 and 1997 have been derived from unaudited consolidated
financial statements of the Company and include all adjustments (consisting
only of normal recurring adjustments) which are, in the opinion of management,
necessary for a fair presentation of the Company's financial position at such
dates and results of operations for such periods. The results of operations
for the six months ended June 30, 1997 are not necessarily indicative of the
results for the year.
The selected consolidated financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and the related notes
thereto for the Company included elsewhere in this Prospectus.
19
<PAGE>
<TABLE>
<CAPTION>
(PREDECESSOR) (SUCCESSOR)
----------------------------------------------------------------------------- -------------------------
SIX MONTHS SIX MONTHS
YEAR ENDED DECEMBER 31, JANUARY 1 TO ENDED OCTOBER 11 TO ENDED
------------------------------------------------ OCTOBER 10, JUNE 30, DECEMBER 31, JUNE 30,
1992 1993 1994 1995 1996 1996 1996(2) 1997(2)
---------- ---------- ---------- ---------- ------------ ----------- ------------- -----------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS) (IN THOUSANDS, EXCEPT
SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA
Revenues............. $ 729,450 $ 538,887 $ 597,121 $ 860,971 $ 912,706 $ 595,132 $ 228,686 $ 351,014
Expenses:
Feature films and
television
distribution...... 784,617 700,134 668,516 894,280 953,820 607,908 195,076 317,912
General corporate
administration
expenses.......... 27,577 75,745 49,314 64,175 60,056 29,597 18,319 35,140
Goodwill
amortization...... 14,876 14,876 14,876 14,876 11,570 7,437 1,717 3,821
Provision for
impairment........ -- -- -- -- 563,829(3) -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------- ----------
827,070 790,755 732,706 973,331 1,589,275 644,942 215,112 356,873
Operating income
(loss).............. (97,620) (251,868) (135,585) (112,360) (676,569) (49,810) 13,574 (5,859)
Interest expense, net
of amounts
capitalized......... (135,640) (87,472) (33,860) (66,386) (71,375) (45,086) (9,875) (20,599)
Interest and other
income, net......... 3,505 1,020 2,070 10,372 3,179 874 813 1,388
---------- ---------- ---------- ---------- ---------- ---------- ----------- ----------
Income (loss) from
continuing
operations before
provision for income
taxes............... (229,755) (338,320) (167,375) (168,374) (744,765) (94,022) 4,512 (25,070)
Provision for income
taxes............... (11,677) (6,725) (3,877) (935) (273) (9,530) (4,346) (3,935)
---------- ---------- ---------- ---------- ---------- ---------- ----------- ----------
Income (loss) from
continuing
operations.......... $ (241,432) $ (345,045) $ (171,252) $ (169,309) $ (745,038) $ (103,552) $ 166 $ (29,005)
========== ========== ========== ========== ========== ========== =========== ==========
Pro forma earnings
(loss) per share
from continuing
operations.......... $ 0.00 $ (0.77)
=========== ==========
OTHER OPERATING DATA
(UNAUDITED)
Cash flow from
operating
activities.......... $ 54,668 $ 80,455 $ 216,289 $ 371,657 $ 343,137 $ 328,811 $ 61,328 $ 160,056
Cash flow from
investing
activities.......... (331,282) (253,371) (464,031) (710,812) (380,142) (277,904) (1,390,861) (280,604)
Cash flow from fi-
nancing activities.. 294,470 182,704 239,965 328,029 44,852 (54,988) 1,345,394 124,678
EBITDA(1)............ (67,335) (222,118) (103,499) (81,588) (87,289) (33,565) 16,709 1,192
Capital expenditures. 5,044 15,578 9,099 9,376 6,901 5,291 2,079 5,294
Depreciation expense. 3,534 2,999 5,335 4,021 4,645 2,871 1,418 3,230
<CAPTION>
(PREDECESSOR) (SUCCESSOR)
--------------------------------------------------------------- -------------------------
AS OF DECEMBER 31, AS OF AS OF AS OF
------------------------------------------------ OCTOBER 10, DECEMBER 31, JUNE 30,
1992 1993 1994 1995 1996 1996(2) 1997(2)
---------- ---------- ---------- ---------- ------------ ------------- -----------
(UNAUDITED)
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Cash and cash
equivalents......... $ 19,412 $ 36,773 $ 28,797 $ 17,128 $ 24,717 $ 16,381 $ 20,255
Film and television
costs, net.......... 1,458,680 1,343,931 1,412,607 1,565,438 1,006,402 1,099,201 1,263,073
Total assets......... 2,293,170 2,142,562 2,235,622 2,440,254 1,744,234 1,774,668 1,806,574
Bank and other debt.. 982,713 555,915 876,866 1,217,316 1,229,499 444,427 566,258
Stockholders' equity. 274,061 984,607 829,059 659,499 -- 903,122 876,708
Cash dividends....... -- -- -- 15,448 3,995 -- --
</TABLE>
- -------
(1) "EBITDA" is defined as earnings before interest, taxes, depreciation and
non-film amortization. While many in the financial community consider
EBITDA to be an important measure of comparative operating performance, it
should not be construed as an alternative to operating income or cash
flows from operating activities (as determined in accordance with
generally accepted accounting principles ("GAAP")). EBITDA does not
reflect cash necessary or available to fund cash requirements, and the
items excluded from EBITDA, such as depreciation and non-film
amortization, are significant components in assessing the Company's
financial performance. Other significant uses of cash flows are required
before cash will be available to the Company, including debt service,
taxes and cash expenditures for various long-term assets. The Company's
calculation of EBITDA may be different from the calculation used by other
companies and, therefore, comparability may be limited. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources."
(2) Financial data presented for periods subsequent to October 10, 1996
reflect the consolidated balance sheet and results of operations of the
combined entity resulting from the MGM Acquisition.
(3) The proceeds from the sale of MGM Studios were insufficient to recover the
net asset value of MGM Studios on the date of the disposition by CDR.
Accordingly, the Company recorded a provision for impairment of intangible
assets of $563.8 million.
20
<PAGE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma condensed combining statement of
operations for the year ended December 31, 1996 gives effect to (i) the MGM
Acquisition Transactions, (ii) the July 2, 1996 acquisition by Orion of
Goldwyn, (iii) the July 2, 1996 acquisition by Orion of the former Motion
Picture Corporation of America ("MPCA"), (iv) the Orion Acquisition
Transactions, (v) the Series A Preferred Stock Conversion and the Stock Split
and (vi) the consummation of the Offering (assuming no exercise of the
Underwriters' over-allotment options) and the application of the net proceeds
therefrom as if each of the foregoing had occurred on January 1, 1996. The
unaudited pro forma condensed combining statement of operations for the six
months ended June 30, 1997 gives effect to items (iv)-(vi), above, as if they
had occurred on January 1, 1997. The unaudited pro forma condensed combining
balance sheet as of June 30, 1997 gives effect to items (iv)-(vi), above, as
if they had occurred on June 30, 1997.
On October 10, 1996, the Company acquired all of the outstanding capital
stock of MGM Studios for an aggregate consideration of $1.3 billion. The
Company financed the MGM Acquisition through (i) the issuance of 8,333,400
shares of the Common Stock to each of Tracinda and Seven and the issuance of
450,000 and 50,000 shares of the Series A Preferred Stock (which will be
converted into 18,750,150 and 2,083,350 shares of the Common Stock,
respectively, immediately prior to the completion of the Offering pursuant to
the Series A Preferred Stock Conversion and the Stock Split) to Tracinda and
Seven, respectively, for an aggregate consideration of $900 million and
(ii) borrowings by MGM Studios under the Original MGM Credit Facility.
On July 10, 1997, the Company acquired all of the outstanding capital stock
of Orion and certain of its subsidiaries, for an aggregate consideration of
$573 million. The Company financed the Orion Acquisition through (i) the
issuance of 13,375,107 and 1,625,013 shares of the Common Stock to Tracinda
and Seven, respectively, for aggregate consideration of $360 million and (ii)
borrowings by Orion under the Original Orion Credit Facility.
The pro forma adjustments are based upon currently available information and
upon certain assumptions that management of the Company believes are
reasonable. The Orion Acquisition will be recorded based upon the estimated
fair market value of the net assets acquired at the date of acquisition. The
adjustments included in the unaudited pro forma condensed combining financial
statements represent the Company's preliminary estimates based upon available
information. Although MGM does not believe that such preliminary estimates
will differ significantly from the actual adjustments, no assurance can be
given.
The unaudited pro forma condensed combining financial statements are based
on the historical financial statements of each of the Company and Orion and
the assumptions and adjustments described in the accompanying notes. The
Company believes that the assumptions on which the unaudited pro forma
financial statements are based are reasonable. The unaudited pro forma
consolidated financial statements are provided for informational purposes only
and do not purport to represent what the Company's financial position or
results of operations actually would have been if the foregoing transactions
occurred as of the dates indicated or what such results will be for any future
periods. The unaudited pro forma financial statements should be read in
conjunction with the Consolidated Financial Statements and the related notes
thereto for each of the Company and Orion, included elsewhere in this
Prospectus.
21
<PAGE>
METRO-GOLDWYN-MAYER INC.
UNAUDITED PRO FORMA CONDENSED COMBINING BALANCE SHEET
AS OF JUNE 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
ORION ADJUSTMENTS MGM
MGM ORION ASSETS NOT PRO FORMA FOR PRO FORMA
HISTORICAL HISTORICAL ACQUIRED(10) ADJUSTMENTS OFFERING COMBINED
---------- ---------- ------------ ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents.......... $ 20,255 $ 1,252 $ (1,050) $ 14,035 /(1)/ $165,750 /(9)/ $ 200,242
Accounts and contracts receivable,
net............................... 150,920 45,878 (259) -- -- 196,539
Film and television costs, net..... 1,263,073 237,558 -- 168,879 /(2)/ -- 1,669,510
Property and equipment, net........ 29,411 39,287 (35,645) (1,000)/(3)/ -- 32,053
Excess of cost over net assets of
acquired businesses, net.......... 298,920 129,439 (22,619) 195,744 /(7)/ -- 601,484
Other assets....................... 43,995 12,901 (888) (4,049)/(3)/ -- 51,959
---------- --------- -------- --------- -------- ----------
TOTAL ASSETS....................... $1,806,574 $ 466,315 $(60,461) $ 373,609 $165,750 $2,751,787
========== ========= ======== ========= ======== ==========
LIABILITIES
Bank and other debt................ $ 566,258 $ 292,434 $ (6,529) $(276,159)/(4)/ $(84,250)/(9)/ $ 711,754
220,000 /(4)/
Accounts payable and accrued
expenses.......................... 63,006 28,828 (4,011) 34,169 /(5)/ -- 121,992
Accrued participants' share........ 150,035 56,657 -- -- -- 206,692
Income taxes payable............... 37,749 9,254 (9) -- -- 46,994
Advances and deferred revenues..... 83,548 64,829 -- -- -- 148,377
Due to parent...................... -- 85,168 -- (85,168)/(6)/ -- --
Other liabilities.................. 29,270 -- -- -- -- 29,270
---------- --------- -------- --------- -------- ----------
Total liabilities................ 929,866 537,170 (10,549) (107,158) (84,250) 1,265,079
---------- --------- -------- --------- -------- ----------
STOCKHOLDERS' EQUITY
Preferred Stock.................... 5 -- -- -- (5)/(8)/ --
Common Stock....................... 168 -- -- 150 /(7)/ 334 /(8)/ 652
Additional paid-in capital......... 904,485 350,774 (47,595) 56,671 /(7)/ 249,671 /(9)/ 1,514,006
Retained earnings.................. (28,839) (421,629) (2,317) 423,946 /(7)/ -- (28,839)
Cumulative translation adjustment.. 889 -- -- -- -- 889
---------- --------- -------- --------- -------- ----------
Total stockholders' equity....... 876,708 (70,855) (49,912) 480,767 250,000 1,486,708
---------- --------- -------- --------- -------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY........................... $1,806,574 $ 466,315 $(60,461) $ 373,609 $165,750 $2,751,787
========== ========= ======== ========= ======== ==========
</TABLE>
22
<PAGE>
METRO-GOLDWYN-MAYER INC.
UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDING JUNE 30, 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ORION MGM
MGM ORION OPERATIONS NOT PRO FORMA ADJUSTMENTS PRO FORMA
HISTORICAL HISTORICAL ACQUIRED(10) ADJUSTMENTS FOR OFFERING COMBINED
---------- ---------- -------------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues................ $ 351,014 $ 90,910 $(28,793) $ -- $ -- $ 413,131
Operating expenses
Film and television
production and
distribution........... 317,912 99,181 (22,804) (17,518)/(12)/ -- 376,771
General corporate
administration expense. 35,140 22,046 (4,869) -- -- 52,317
Goodwill amortization... 3,821 2,240 -- 1,549 /(14)/ -- 7,610
---------- -------- -------- -------- ------ ----------
Total operating
expenses.............. 356,873 123,467 (27,673) (15,969) -- 436,698
---------- -------- -------- -------- ------ ----------
Operating income (loss). (5,859) (32,557) (1,120) 15,969 -- (23,567)
Non-operating income and
expense
Interest expense, net of
amounts capitalized ... (20,599) (10,822) 412 (1,741)/(15)/ 3,706/(9)/ (29,044)
Interest and other
income, net............ 1,388 -- -- -- 3,676/(9)/ 5,064
---------- -------- -------- -------- ------ ----------
Total non-operating
income (expense)...... (19,211) (10,822) 412 (1,741) 7,382 (23,980)
---------- -------- -------- -------- ------ ----------
Income (loss) before
taxes.................. (25,070) (43,379) (708) 14,228 7,382 (47,547)
(Provision) benefit for
income taxes........... (3,935) (400) 9 (3,656)/(17)/ -- (7,982)
---------- -------- -------- -------- ------ ----------
Net income (loss)....... $ (29,005) $(43,779) $ (699) $ 10,572 $7,382 $ (55,529)
========== ======== ======== ======== ====== ==========
Pro forma loss per
share(18).............. $ (0.77) $ (0.85)
========== ==========
Pro forma weighted
average number of
common stock and common
equivalent shares
outstanding(18)........ 37,643,426 65,143,546
========== ==========
</TABLE>
23
<PAGE>
METRO-GOLDWYN-MAYER INC.
UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MGM
MGM STUDIOS
HISTORICAL HISTORICAL ORION
(10/11 TO (1/1 TO ORION OPERATIONS NOT GOLDWYN MPCA PRO FORMA
12/31/96) 10/10/96) HISTORICAL ACQUIRED(10) (11) (11) SUBTOTAL ADJUSTMENTS
---------- ---------- ---------- -------------- -------- ------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES......... $ 228,686 $ 912,706 $165,164 $(56,501) $ 54,112 $10,961 $1,315,128 $ --
OPERATING
EXPENSES
Film and
television
production and
distribution.... 195,076 953,820 139,307 (45,411) 53,617 11,769 1,308,178 (97,071)/(12)/
General corporate
administration
expense......... 18,319 60,056 27,356 (9,089) 12,527 3,801 112,970 10,758 /(13)/
Goodwill
amortization.... 1,717 11,570 2,908 -- -- -- 16,195 (989)/(14)/
Provision for
impairment...... -- 563,829 -- -- -- -- 563,829 --
---------- ---------- -------- -------- -------- ------- ---------- --------
Total operating
expenses....... 215,112 1,589,275 169,571 (54,500) 66,144 15,570 2,001,172 (87,302)
---------- ---------- -------- -------- -------- ------- ---------- --------
Operating income
(loss).......... 13,574 (676,569) (4,407) (2,001) (12,032) (4,609) (686,044) 87,302
NON-OPERATING
INCOME AND
EXPENSE
Interest expense,
net of amounts
capitalized .... (9,875) (71,375) (17,166) 1,024 (5,823) (300) (103,515) 36,843 /(15)/
Interest and
other income,
net............. 813 3,179 286 -- -- -- 4,278 740 /(16)/
---------- ---------- -------- -------- -------- ------- ---------- --------
Total non-
operating
income
(expense)...... (9,062) (68,196) (16,880) 1,024 (5,823) (300) (99,237) 37,583
---------- ---------- -------- -------- -------- ------- ---------- --------
Income (loss)
before taxes.... 4,512 (744,765) (21,287) (977) (17,855) (4,909) (785,281) 124,885
(Provision)
benefit for
income taxes.... (4,346) (273) (1,000) 463 (779) -- (5,935) (2,920)/(17)/
---------- ---------- -------- -------- -------- ------- ---------- --------
Income (loss)
from continuing
operations $ 166 $( 745,038) $(22,287) $ (514) $(18,634) $(4,909) $ (791,216) $121,965
========== ========== ======== ======== ======== ======= ========== ========
Pro forma
earnings (loss)
per share(18)... $ 0.00
==========
Pro forma
weighted average
number of common
stock and common
equivalent
shares
outstanding(18). 37,567,634
==========
<CAPTION>
ADJUSTMENTS MGM
FOR PRO FORMA
OFFERING COMBINED
-------------- -----------
<S> <C> <C>
REVENUES......... $ -- $1,315,128
OPERATING
EXPENSES
Film and
television
production and
distribution.... -- 1,211,107
General corporate
administration
expense......... -- 123,728
Goodwill
amortization.... -- 15,206
Provision for
impairment...... -- 563,829
-------- -----------
Total operating
expenses....... -- 1,913,870
-------- -----------
Operating income
(loss).......... -- (598,742)
NON-OPERATING
INCOME AND
EXPENSE
Interest expense,
net of amounts
capitalized .... 7,473/(7)/ (59,199)
Interest and
other income,
net............. 7,413/(7)/ 12,431
-------- -----------
Total non-
operating
income
(expense)...... 14,886 (46,768)
-------- -----------
Income (loss)
before taxes.... 14,886 (645,510)
(Provision)
benefit for
income taxes.... -- (8,855)
-------- -----------
Income (loss)
from continuing
operations $14,886 $ (654,365)
======== ===========
Pro forma
earnings (loss)
per share(18)... $ (10.06)
===========
Pro forma
weighted average
number of common
stock and common
equivalent
shares
outstanding(18). 65,067,754
===========
</TABLE>
24
<PAGE>
METRO-GOLDWYN-MAYER INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1997
(1) To record net cash remaining after drawdown on the Original Orion Credit
Facility at the date of the Orion Acquisition, net of closing payments.
(2) To increase the basis of the Orion film library in purchase accounting to
preliminary estimated fair market value of $406.4 million.
(3) To reflect new deferred loan fees of $4.5 million, eliminate unamortized
loan fees of $6.0 million on the retired Orion credit facility, and
reduce leasehold improvements and other equipment of $1.0 million and
other assets of $2.5 million acquired in the Orion Acquisition.
(4) To reflect repayment of borrowing under the retired Orion credit facility
of $276.2 million and drawdown under the Original Orion Credit Facility
of $220.0 million.
(5) To record the accrual of Orion's estimated employment termination
payments, lease termination costs and other non-recurring acquisition
costs.
(6) To reflect the termination of Orion's debt to its parent company.
(7) To reflect the issuance of 15,000,120 shares of the Common Stock for
$360.0 million, the elimination of the Orion pre-acquisition equity
accounts and the preliminary allocation of the fair value of Orion's net
assets acquired allocated as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS,
EXCEPT
SHARE DATA)
--------------
<S> <C>
Pro forma debt retired at closing (including accrued interest
of $1,291)................................................... $277,450
Closing costs paid............................................ 4,567
Pro forma cash paid to former Orion shareholder............... 283,948
--------
Cash Purchase Price........................................... $565,965
========
The preliminary allocation of the Cash Purchase Price is as follows:
Cash.......................................................... $ 202
Accounts and contracts receivable, net........................ 45,619
Film and television costs, net................................ 406,437
Property and equipment, net................................... 2,642
Other assets.................................................. 7,964
Bank and other debts assumed.................................. (9,746)
Accounts payable and accrued liabilities...................... (58,986)
Accrued participants' share................................... (56,657)
Income taxes payable.......................................... (9,245)
Advances and deferred revenues................................ (64,829)
--------
Fair value of net tangible assets acquired.................... 263,401
Excess of cost over fair value of net assets acquired......... 302,564
--------
Cash Purchase Price........................................... $565,965
========
</TABLE>
The foregoing purchase price allocation is based upon management's
preliminary estimates. The Company is in the process of working with
independent consultants to obtain valuations of individual assets and the
excess purchase price will be allocated accordingly.
25
<PAGE>
(8) To reflect the conversion of 502,588 shares of the Series A Preferred
Stock into 20,941,334 shares of the Common Stock concurrent with the
closing of the Offering.
(9) To reflect the issuance of 12,500,000 shares of the Common Stock offered
in connection with the Offering at an assumed offering price of $21.50
per share and the application of the $250 million estimated net proceeds
therefrom to reflect the repayment of the revolving portion of the
Amended Credit Facility, with the remaining proceeds representing net
cash.
(10) To eliminate the Goldwyn cinema operations not acquired in the Orion
Acquisition.
(11) To consolidate operating results for the period from January 1, 1996 to
June 30, 1996 of Goldwyn and MPCA, wholly-owned subsidiaries acquired by
Orion on July 2, 1996.
(12) To adjust film cost amortization for new basis in revalued MGM Studios
(for the period January 1, 1996 to October 10, 1996) and the Orion
library. The revaluation of the Library was based upon projected future
discounted net cash flows from the underlying assets, in accordance with
GAAP. In addition, the ultimate revenue projections for the Library were
revised accordingly, resulting in an amortization period not to exceed 20
years.
(13) To record long-term incentive management compensation plan accrual, which
was implemented concurrent with the closing of the MGM Acquisition in
October 1996.
(14) To adjust the goodwill amortization from the historical amortization
period of 25 years to the pro forma amortization period of 40 years.
(15) To adjust interest expense to reflect the application of the $360 million
equity contribution made as part of the Orion Acquisition and the pro
forma indebtedness.
(16) To record other miscellaneous pro forma adjustments.
(17) To adjust the tax provision to reflect pro forma pre-tax income,
including adjustments for non-tax deductible goodwill amortization and
other required items.
(18) Computes earnings (loss) per share as if all transactions occurred as of
the beginning of the periods presented computed as follows:
<TABLE>
<CAPTION>
6 MONTHS ENDED YEAR ENDED
JUNE 30, 1997 DECEMBER 31, 1996
-------------- -----------------
<S> <C> <C>
Weighted Average number of Common Shares
and Equivalents outstanding, including
Series A Preferred Stock (as converted)
....................................... 37,643,426 37,567,634
Shares issued in connection with the
Orion Acquisition...................... 15,000,120 15,000,120
Shares issued in the Offering........... 12,500,000 12,500,000
---------- ----------
65,143,546 65,067,754
========== ==========
</TABLE>
26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
"Selected Consolidated Financial Data" and the Consolidated Financial
Statements and the related notes thereto and other financial information
contained elsewhere in this Prospectus.
GENERAL
The Company is engaged primarily in the development, production and
worldwide distribution of theatrical motion pictures and television
programming.
SOURCES OF REVENUE
The principal sources of motion picture industry revenue are the domestic
and international distribution of motion pictures, including theatrical
exhibition, home video and television (network, syndication, basic cable, pay
and pay-per-view). Over the last decade, the relative contributions of these
components of revenues have changed dramatically. Although revenues from
domestic theatrical distribution have increased, growth in total motion
picture industry revenues has resulted predominantly from increased revenues
derived from the distribution of motion pictures internationally as well as
from other media and distribution channels.
The Company's feature films are exploited through a series of sequential
domestic and international distribution channels, typically beginning with
theatrical exhibition. Thereafter, feature films are first made available for
home video generally six months after theatrical release; for pay television,
one year after theatrical release; and for syndication, approximately three to
five years after theatrical release. The Company's television programming is
produced for initial broadcast on either pay, syndicated or network television
in the United States, followed by international territories and, in some
cases, worldwide video markets.
The Company distributes its motion picture and television productions in
foreign countries and, in recent years, has derived approximately 40 percent
of its revenues from foreign sources. Approximately 25 percent of the
Company's revenues are denominated in foreign currencies. In addition, the
Company incurs certain operating and production costs in foreign currencies.
As a result, fluctuations in foreign currency exchange rates can adversely
affect the Company's business. The Company, in certain instances, enters into
foreign currency exchange contracts in order to reduce exposure to changes in
foreign currency exchange rates that affect the value of its firm commitments
and certain anticipated foreign currency cash flows. These contracts generally
mature within one year. The Company does not enter into foreign currency
contracts for speculative purposes. Realized gains and losses on contracts
that hedge anticipated future cash flows were not material in each of the
periods presented herein. Deferred gains and losses on foreign exchange
contracts as of June 30, 1997 were not material. See "Risks Factors--Risks of
International Distribution."
COST STRUCTURE
General. In the motion picture industry, the largest component of the cost
of producing a motion picture generally is the negative cost, which includes
the "above-the-line" and "below-the-line" costs of producing the film. Above-
the-line costs are costs related to the acquisition of picture rights and the
costs associated with the producer, the director, the writer and the principal
cast. Below-the-line costs are the remaining costs involved in producing the
picture, such as film studio rental, principal photography, sound and editing.
Distribution expenses consist primarily of the costs of advertising and
preparing release prints. The costs of advertising associated with a major
domestic theatrical motion picture release are significant and typically
involve national and target market media campaigns, as well as public
appearances of a film's stars. These advertising costs are separate from the
advertising costs associated with other domestic distribution channels and the
international market.
27
<PAGE>
The major studios generally fund production costs from cash flow generated
by motion picture and related distribution activities or bank and other
financing methods. Over the past decade, expenses in the motion picture
industry have increased rapidly as a result of increased production costs and
distribution expenses.
Additionally, each of the major studios must fund substantial overhead
costs, consisting primarily of salaries and related costs of the production,
distribution and administrative staffs, as well as facilities costs and other
recurring overhead.
Participations and Residuals. In connection with the production and
distribution of a motion picture, major studios generally grant contractual
rights to actors, directors, screenwriters, producers and other creative and
financial contributors to share in the gross receipts or contractually defined
net profits from a particular motion picture. Except for the most sought-after
talent, these third-party participations are generally payable after all
distribution fees, marketing expenses, direct production costs and financing
costs are recouped in full.
Major studios also typically incur obligations to pay residuals to various
guilds and unions including the Screen Actors Guild ("SAG"), the Directors
Guild of America (the "DGA") and the Writers Guild of America (the "WGA"). The
residual payments are made on a picture-by-picture basis with respect to the
exploitation of a motion picture in markets other than the primary intended
markets for such picture and are calculated as a percentage of the gross
revenues derived from the exploitation of the picture in these ancillary
markets.
The Company's cost structure for motion pictures generally follows the
industry structure described above. For a discussion of television programming
cost structure see "The Industry--The Television Industry."
In recent years the Company has experienced significant fluctuations in the
level of its production activities. In July 1993 a new management team was
brought into MGM Studios with a mandate to increase its production and
distribution activities in anticipation of the eventual sale of MGM Studios.
As a result, production and distribution expenditures increased substantially
in 1994 and 1995. Starting in January 1996 and continuing throughout the Sale
Period, no new production was approved, and accordingly, production
expenditures on new films decreased significantly during 1996. Following the
MGM Acquisition in October 1996, production activity increased as the Company
resumed a normalized production and distribution level. These fluctuations in
production and distribution expenditures had a material impact on operating
results and cash flows during the related periods and will continue to do so
for at least the next three years.
INDUSTRY ACCOUNTING PRACTICES
Revenue Recognition. Revenues from theatrical distribution of feature motion
pictures are recognized on the dates of exhibition. Revenues from home video
distribution, together with related costs, are recognized in the period in
which the product is available (assuming it has been shipped) for sale at the
retail level. Revenues from television distribution are recognized when the
motion picture or television program is available to the licensee for
broadcast.
Accounting for Motion Picture and Television Costs. In accordance with GAAP
and industry practice, the Company amortizes film and television programming
costs using the individual-film-forecast method under which such costs are
amortized for each film or television program in the ratio that revenue earned
in the current period for such title bears to management's estimate of the
total revenues to be realized from all media and markets for such title.
Management regularly reviews, and revises when necessary, its total revenue
estimates on a title-by-title basis, which may result in a change in the rate
of amortization and/or a write-down of the film or television asset to net
realizable value. A typical motion picture generates 80 to 85 percent of its
ultimate revenues within the first two years of release. By then, the picture
has been exploited in the domestic and international theatrical markets and
the domestic and international home video markets, as well as the domestic and
international pay television and pay-per-view markets. A similar percentage of
the picture's capitalized costs should be expected to be amortized
accordingly, assuming the picture is profitable.
28
<PAGE>
The commercial potential of individual motion pictures and television
programming varies dramatically, and is not directly correlated with
production or acquisition costs. Therefore, it is difficult to predict or
project a trend of the Company's income or loss. However, the likelihood of
the Company reporting losses, particularly in the year of a motion picture's
release, is increased by the industry's method of accounting which requires
the immediate recognition of the entire loss (through increased amortization)
in instances where it is estimated the ultimate revenues of a motion picture
or television program will not recover the Company's costs. On the other hand,
the profit of a profitable motion picture or television program must be
deferred and recognized over the entire revenue stream generated by that
motion picture or television program. This method of accounting may also
result in significant fluctuations in reported income or loss, particularly on
a quarterly basis, depending on the Company's release schedule and the
relative performance of individual motion pictures or television programs. As
a result of the lack of movie production and distribution during the Sale
Period, the Company expects to experience lower revenues for at least the next
three years, and thus the fluctuations caused by this accounting method may
have a greater impact, than otherwise might be the case.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
In connection with the MGM Acquisition, all of the assets and liabilities of
MGM Studios, including the Library, were revalued as of October 10, 1996 under
purchase accounting. The revaluation of the Library was based upon projected
future discounted net cash flows from the underlying assets, in accordance
with GAAP. In addition, the ultimate revenue projections for the Library were
revised accordingly, resulting in an amortization period not to exceed 20
years. The combined effect of the Library revaluation and the revision of the
ultimate revenue projections resulted in a reduction in the amortization rate
in the periods following the MGM Acquisition. Consequently, operating results
for the six months ended June 30, 1997 are not comparable to the corresponding
1996 period.
The following table sets forth the Company's operating results for the six
months ended June 30, 1997 as compared to the corresponding 1996 period,
presented on both an actual and a pro forma basis. The pro forma results
assume that the MGM Acquisition occurred at the beginning of the 1996 period
presented and do not give effect to the Orion Acquisition, which was
consummated on July 10, 1997.
<TABLE>
<CAPTION>
(PREDECESSOR) (SUCCESSOR)
-------------------- -----------
SIX MONTHS ENDED JUNE 30,
---------------------------------
1996 1996 1997
ACTUAL PRO FORMA ACTUAL
--------- --------- -----------
(UNAUDITED, IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
Feature films............................... $ 542,658 $542,658 $303,100
Television programs......................... 52,474 52,474 47,914
--------- -------- --------
Total revenues............................ 595,132 595,132 351,014
Operating income (loss):
Feature films............................... (25,267) 6,834 31,633
Television programs......................... 12,491 13,958 1,469
General corporate administrative expenses... (29,597) (36,480) (35,140)
Goodwill amortization....................... (7,437) (3,821) (3,821)
--------- -------- --------
Total operating income (loss)............. (49,810) (19,509) (5,859)
Interest expense, net of amounts capitalized.. (45,086) (20,787) (20,599)
Interest and other income, net................ 874 1,282 1,388
--------- -------- --------
Income (loss) before provision for income
taxes........................................ (94,022) (39,014) (25,070)
Provision for income taxes.................... (9,530) ( 2,543) (3,935)
--------- -------- --------
Net income (loss) ............................ $(103,552) $(41,557) $(29,005)
========= ======== ========
</TABLE>
29
<PAGE>
Feature Films. Feature film revenues decreased by $239.6 million, or 44
percent, to $303.1 million in the six months ended June 30, 1997 (the "1997
Period") compared to the six months ended June 30, 1996 (the "1996 Period").
Explanations for the decrease in revenues are discussed in the following
paragraphs.
Worldwide theatrical revenues decreased by $193.0 million, or 93 percent, to
$13.5 million in the 1997 Period, due to relatively limited worldwide
theatrical distribution activity following the Sale Period. See "Risk
Factors--Curtailment of Certain Operations Due to Sale of the Company." In the
1997 Period, the Company released only three new feature films domestically as
compared to 12 films released in the 1996 Period, which included significant
revenues from The Birdcage and Leaving Las Vegas. There were no such
comparably performing releases in the 1997 Period. In the 1997 Period, the
Company released only one new feature film in the international marketplace as
compared to six feature films released in the 1996 Period, which included
significant revenue from GoldenEye, The Birdcage and Get Shorty.
Worldwide home video revenues decreased by $77.1 million, or 30 percent, to
$179.3 million in the 1997 Period, which included the domestic releases of
Kingpin and Fled in the rental market, as well as the releases of Larger Than
Life and The Birdcage in the sell-through market. The 1996 Period included
significant home video revenues from the releases of GoldenEye, Get Shorty,
Leaving Las Vegas and Showgirls in the rental market, and promotions of the
James Bond and Rocky film series in the sell-through market.
Worldwide pay television revenues increased by $21.6 million, or 77 percent,
to $49.7 million in the 1997 Period, primarily due to the availability of The
Birdcage, Biodome, Mulholland Falls and A Family Thing in the domestic pay
television market, as compared to the availability of Rob Roy in the 1996
Period. Network revenues increased $10.7 million to $12.2 million in the 1997
Period, which included license fees recognized on the films Stargate, Blown
Away, Getting Even With Dad and Clean Slate. The Company recognized network
license fees only on Undercover Blues in the 1996 Period. Worldwide
syndication revenues increased $3.0 million, or 7 percent, to $41.5 million in
the 1997 Period, principally due to the availability of Blown Away and Getting
Even With Dad in international markets.
The remaining $4.8 million decrease in feature film revenues in the 1997
Period principally related to lower merchandising and other revenues.
Feature film operating profit was $31.6 million in the 1997 Period as
compared to an operating loss of $25.3 million in the 1996 Period. The 1997
Period results reflect a higher operating margin on the Library, which was
revalued pursuant to purchase accounting in connection with the MGM
Acquisition and yielded lower amortization rates than in the 1996 Period.
Additionally, there were no feature film write-downs in the 1997 Period with
respect to the theatrical releases in that period. This compares to $52.2
million in write-downs on certain theatrical releases in the 1996 Period.
Feature film operating profit increased by $24.8 million, or 363 percent, in
the 1997 Period when compared to pro forma operating results in the 1996
Period, principally due to the aforementioned feature film write-downs in the
1996 Period.
Other operating expenses in the 1997 Period include interactive product and
development costs of $7.3 million and start-up losses of $5.6 million on the
Company's investment in MGM Gold (Asia), a satellite and cable delivery
channel based in Asia in which the Company holds a 50 percent equity interest.
The 1996 Period results did not include comparable activity in these new
businesses.
Television Programming. Television programming revenues decreased by $4.6
million, or 9 percent, to $47.9 million in the 1997 Period as compared to the
1996 Period. Worldwide pay television revenues decreased by $5.5 million, or
27 percent, to $14.9 million in the 1997 Period due to a reduction in the
license fees earned on the third season of The Outer Limits, as well as the
timing of delivery of current season episodes. Additionally, the Company
delivered only one new television movie in the 1997 Period as compared to four
movies in the 1996 Period. Worldwide syndication revenues increased by $1.3
million, or 5 percent, to
30
<PAGE>
$26.8 million in the 1997 Period due to the addition of the series
Poltergeist: The Legacy in domestic syndication, partially offset by lower
ratings on the Outer Limits series. The remaining revenue decrease of
$0.4 million in the 1997 Period principally related to lower home video
revenues earned on the aforementioned television movies.
Television programming operating profit was $1.5 million in the 1997 Period
as compared to an operating profit of $12.5 million in the 1996 Period.
Amortization expense on current series increased in the 1997 Period due to
reduced profitability estimates, as well as loss reserves recognized on
certain television series, including The Bradshaw Difference which has been
canceled.
Television programming operating profit decreased by $12.5 million, or 89
percent, in the 1997 Period when compared to pro forma operating results in
the 1996 Period for the reasons discussed above.
General Corporate Administration Expenses. General corporate administration
expenses increased by $5.5 million, or 19 percent, to $35.1 million in the
1997 Period as compared to the 1996 Period primarily due to the accrual of
long-term management incentive bonuses of $6.5 million established in
connection with the MGM Acquisition, partially offset by a net decrease in
various other items of $1.0 million.
General corporate administration expense decreased by $1.3 million, or 4
percent, in the 1997 Period when compared to 1996 pro forma results, which
include the aforementioned long-term management incentive bonuses.
Goodwill Amortization. Goodwill amortization decreased by $3.6 million, or
49 percent, to $3.8 million in the 1997 Period due to the revaluation pursuant
to purchase accounting of the Company's balance sheet as of October 10, 1996,
which resulted in lower goodwill than previously reflected in the pre-MGM
Acquisition balance sheet.
Interest Expense, Net of Amounts Capitalized. Net interest expense was $20.6
million in the 1997 Period as compared to $45.1 million in the 1996 Period.
Net interest expense decreased in the 1997 Period due to the substantial
equity investment received by the Company in connection with the MGM
Acquisition (see "--Liquidity and Capital Resources"). On a pro forma basis
after giving effect to such equity investment, net interest expense in the
1996 Period would have been $20.8 million.
Provisions For Income Taxes. The income tax provision of $3.9 million in the
1997 Period and $9.5 million in the 1996 Period reflects foreign remittance
taxes on international distribution revenues, which decreased substantially in
the 1997 Period.
31
<PAGE>
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
In connection with the MGM Acquisition, all of the assets and liabilities of
MGM Studios, including the Library, were revalued as of October 10, 1996 under
purchase accounting, resulting in lower amortization rates in periods after
the MGM Acquisition than in the prior periods. For purposes of presentation
and for management's discussion and analysis of the changes in financial
condition and results of operations for the above periods, the following table
combines the January 1, 1996 to October 10, 1996 pre-MGM Acquisition period
with the October 11, 1996 to December 31, 1996 post-MGM Acquisition period for
comparison to the year ended December 31, 1995.
<TABLE>
<CAPTION>
(PREDECESSOR) (SUCCESSOR)
--------------------------- ------------- COMBINED
YEAR ENDED JAN. 1 TO OCT. 11 TO JAN. 1 TO
DEC. 31, 1995 OCT. 10, 1996 DEC. 31, 1996 DEC. 31, 1996
------------- ------------- ------------- -------------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Feature films......... $ 770,740 $ 830,391 $214,273 $1,044,664
Television programs... 90,231 82,315 14,413 96,728
--------- --------- -------- ----------
Total revenues...... 860,971 912,706 228,686 1,141,392
Operating income (loss):
Feature films......... (61,560) (58,798) 35,655 (23,143)
Television programs... 28,251 17,684 (2,045) 15,639
General corporate
administration
expenses............. (64,175) (60,056) (18,319) (78,375)
Goodwill amortization. (14,876) (11,570) (1,717) (13,287)
Provision for
impairment........... -- (563,829) -- (563,829)
--------- --------- -------- ----------
Total operating
income (loss)...... (112,360) (676,569) 13,574 (662,995)
Interest expense, net of
amounts capitalized.... (66,386) (71,375) (9,875) (81,250)
Interest and other
income, net............ 10,372 3,179 813 3,992
--------- --------- -------- ----------
Income (loss) before
provision for income
taxes.................. (168,374) (744,765) 4,512 (740,253)
Provision for income
taxes.................. (935) (273) (4,346) (4,619)
--------- --------- -------- ----------
Net income (loss)....... $(169,309) $(745,038) $ 166 $ (744,872)
========= ========= ======== ==========
</TABLE>
Feature Films. Feature film revenues increased by $273.9 million, or 36
percent, to $1.0 billion in the year ended December 31, 1996 compared to the
year ended December 31, 1995. Explanations for the increase in revenues are
discussed in the following paragraphs.
Worldwide theatrical revenues increased by $21.9 million, or 10 percent, to
$252.4 million in 1996. Theatrical revenues increased in 1996 principally due
to international theatrical revenues earned by GoldenEye, a substantial
portion of which were earned in 1996 although the film was initially released
in December 1995. The Company released 13 new feature films in each year in
the domestic marketplace, and eight new feature films in each year in the
international marketplace. In 1996 the Company earned significant revenues
from the domestic theatrical releases of The Birdcage and Leaving Las Vegas as
compared to GoldenEye, Get Shorty and Species in 1995. Internationally, the
Company earned significant revenues from GoldenEye, Get Shorty and The
Birdcage as compared to GoldenEye, Species and Rob Roy in 1995.
Worldwide home video revenues increased by $262.3 million, or 79 percent, to
$595.1 million in 1996. In 1996, home video revenues included the domestic
rental releases of GoldenEye, The Birdcage, Get Shorty and Leaving Las Vegas
as well as the sell-through release of All Dogs Go To Heaven 2. In 1995 the
Company released Species, Rob Roy and Speechless in the domestic rental
marketplace, as well as Pebble and the Penguin in the domestic sell-through
market. The increase in home video revenue in 1996 reflected the strong
performance of titles released in the period, as well as the substantial
increase in the number of titles released as compared to 1995. The Company
released 15 new feature films in the home video market in 1996 as compared to
nine new feature films in 1995. Additionally, revenues earned under the
Company's distribution agreement
32
<PAGE>
with Turner increased substantially in 1996, primarily as a result of a sell-
through promotion of The Wizard of Oz. The Company also earned significant
revenues in 1996 from sell-through promotions of the James Bond and Rocky film
series. In 1996 significant international home video revenues were contributed
by GoldenEye, Species and Get Shorty as compared to Blown Away and Getting
Even With Dad in 1995.
Worldwide pay television revenues increased by $30.4 million, or 48 percent,
to $94.1 million in 1996, which included significant license fees earned on
the availability of GoldenEye, Get Shorty and Species, among others, as
compared to Stargate, Blown Away and Getting Even With Dad in 1995. Network
revenues decreased by $2.2 million, or 59 percent, to $1.5 million in 1996 due
to the availability of only one feature film, Undercover Blues, in 1996 as
compared to Benny & Joon and Untamed Heart in 1995. Worldwide syndication
revenues decreased by $23.7 million, or 22 percent, to $81.8 million in 1996,
primarily as a result of domestic license fees earned for Rain Man, License to
Kill, A Fish Called Wanda, Rocky IV and Rocky V in 1995. The Company
recognized relatively lower license fees for Rocky III and The Russia House,
among others, in 1996. Additionally, international syndication revenues were
higher in 1995 due to license fees recognized under a new agreement covering
free television in Germany.
Other operating revenues decreased by $14.8 million, or 43 percent, to $19.8
million in 1996 as compared to 1995. Other revenues in 1995 included non-
recurring payments received in connection with an Australian pay television
joint venture and an audit settlement with a major distributor.
The Company recognized an operating loss from feature films of $23.1 million
in 1996 as compared to an operating loss of $61.6 million in 1995. The
improvement in the operating loss in 1996 reflects the aforementioned
substantial increase in revenues and a higher operating margin in the 1996
post-MGM Acquisition period (October 11 to December 31), which benefited from
the lower amortization rates due to the revaluation of the Library under
purchase accounting as a result of the MGM Acquisition. Additionally, feature
film write-downs were $82.5 million in 1996, as compared to feature film
write-downs of $134.0 million in 1995.
Television Programming. Television programming revenues increased by $6.5
million, or 7 percent, to $96.7 million in 1996 as compared to 1995. Worldwide
pay television revenues increased by $11.6 million, or 81 percent, to $25.9
million in 1996, primarily due to the licensing of a new series, Poltergeist:
The Legacy. Network revenues decreased $2.7 million, or 95 percent, to $0.1
million in 1996 as a result of the broadcast in 1995 of one new television
movie. There was no comparable network programming broadcast in 1996.
Worldwide home video revenues increased by $9.4 million, or 348 percent, to
$12.1 million in 1996, primarily as a result of international sales of made-
for-television movies and The Outer Limits series. Worldwide television
syndication revenues decreased by $13.0 million, or 19 percent, to $56.9
million due to substantial domestic license fees earned in 1995 on the In The
Heat Of The Night series. Other operating revenues increased $1.2 million in
1996 primarily due to merchandising income earned on current series.
Television programming operating profit decreased by $12.6 million, or 45
percent, to $15.6 million in 1996 due to higher amortization rates on the
Company's new series, which generated a higher proportion of 1996 revenues, as
compared to relatively lower amortization on revenues from the television
library of older series in 1995.
General Corporate Administration Expenses. General corporate administration
expenses increased by $14.2 million, or 22 percent, to $78.4 million in 1996
compared to 1995 primarily due to increased executive compensation of $5.4
million, increased accrual of long-term management incentive bonuses of $2.6
million, higher legal and professional fees of $2.0 million, and a net
increase in various other items of $4.2 million.
Goodwill Amortization. The decrease in goodwill amortization in 1996 related
to the revaluation of the Company's assets and liabilities pursuant to
purchase accounting in connection with the MGM Acquisition, which resulted in
lower goodwill than carried in the balance sheet prior to the MGM Acquisition.
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Provision For Impairment. In accordance with Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," the Company recorded a
charge of $563.8 million during 1996 in connection with CDR's sale of MGM
Studios to the Company to write-off certain intangible assets, including
$404.4 million to write-off its remaining investment in the film distribution
organization and a charge of $159.4 million to reduce its investment in
goodwill to net realizable value.
Interest Expense, Net of Amounts Capitalized. Net interest expense increased
by $14.9 million, or 22 percent, to $81.3 million in 1996 as compared to 1995.
Net interest expense increased in 1996 due to higher average borrowing levels
in the 1996 pre-MGM Acquisition period, partially offset by lower interest in
the 1996 post-MGM Acquisition period due to reduced debt levels associated
with the equity infusions received in connection with the MGM Acquisition.
Interest and Other Income, Net. Interest and other income, net decreased by
$6.4 million, or 62 percent, to $4.0 million in 1996 as compared to 1995. In
1995 the Company recovered proceeds under a directors' and officers' insurance
policy relating to litigation originating prior to 1991 and also reduced
certain prior period litigation reserves, resulting in additional income in
the period. There was no such comparable activity in 1996.
Provisions For Income Taxes. The income tax provision of $4.6 million in
1996 reflects foreign remittance taxes attributable to foreign distribution
revenues, net of the reversal of certain tax reserves of approximately $14.0
million, and tax expense on net profits in the post-MGM Acquisition period.
The income tax provision of $0.9 million in 1995 resulted from foreign
remittance taxes incurred on international distribution revenues, net of the
reversal of certain tax reserves of approximately $10.0 million. The Company
does not anticipate any further substantial reversals of tax reserves.
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YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
(PREDECESSOR)
YEAR ENDED DECEMBER 31,
------------------------
1994 1995
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Revenues:
Feature films................................ $ 539,557 $ 770,740
Television programs.......................... 57,564 90,231
----------- -----------
Total revenues............................. 597,121 860,971
Operating income (loss):
Feature films................................ (86,422) (61,560)
Television programs.......................... 15,027 28,251
General corporate administration expenses.... (49,314) (64,175)
Goodwill amortization........................ (14,876) (14,876)
----------- -----------
Total operating income (loss).............. (135,585) (112,360)
Interest expense, net of amounts capitalized... (33,860) (66,386)
Interest and other income, net................. 2,070 10,372
----------- -----------
Income (loss) before provision for income
taxes......................................... (167,375) (168,374)
Provision for income taxes..................... (3,877) (935)
----------- -----------
Net income (loss).............................. $ (171,252) $ (169,309)
=========== ===========
</TABLE>
Feature Films. Feature film revenues increased by $231.2 million, or 43
percent, to $770.7 million in the year ended December 31, 1995 as compared to
the year ended December 31, 1994. Explanations for the increase in revenues
are discussed in the following paragraphs.
Worldwide theatrical revenues increased by $142.6 million, or 162 percent,
to $230.5 million in 1995 as compared to 1994. In 1995, the Company released
13 new feature films as compared to only six in 1994. Theatrical revenues
increased due to the significant contributions of GoldenEye, Get Shorty and
Species and due to the additional number of films released in 1995 as compared
to 1994. In 1995 these feature films included, among others, GoldenEye, Get
Shorty, Species and Rob Roy. In 1994, the Company released theatrically, among
others, the feature films Stargate, Speechless, Blown Away and Getting Even
With Dad.
Worldwide home video revenues increased by $67.6 million, or 25 percent, to
$332.8 million in 1995 as compared to 1994. Home video revenues in 1995
increased primarily due to the release of Species, Rob Roy and Speechless in
the domestic rental market, the release of Pebble and the Penguin in the
domestic sell-through market, and significant international revenues generated
by Blown Away and Getting Even With Dad. In 1994 there were only two
significant domestic rental releases, Blown Away and Getting Even With Dad,
and no significant international video releases.
Worldwide pay television and network revenues increased by $6.8 million, or
11 percent, to $67.4 million in 1995 as compared to 1994, principally as a
result of the recognition of significant domestic pay license fees in 1995 for
Stargate and Blown Away. There were no such comparable license fees earned in
1994.
Domestic syndication revenues decreased by $15.6 million, or 31 percent, to
$34.8 million in 1995 due to significant Library revenues generated in 1994 in
connection with an amendment to the Company's agreement with Turner, which
resulted in a one-time increase in license fees recognized in 1994.
International television syndication revenues increased by $7.4 million, or 12
percent, to $70.7 million in 1995, primarily due to the recognition of license
fees under a new agreement covering free television in Germany.
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<PAGE>
Other operating revenues increased by $22.4 million, or 184 percent, to
$34.6 million in 1995 primarily due to payments received in connection with an
Australian pay television joint venture, an audit settlement with a major
distributor, the reversal of certain prior period litigation reserves, and
additional music and other ancillary revenues.
The Company recognized an operating loss from feature films of $61.6 million
in 1995 as compared to an operating loss of $86.4 million in 1994. The
improvement in the operating loss in 1995 reflects the substantial increase in
revenues earned in the period, partially offset by increased feature film
write-downs of $49.0 million on 1995 releases. In 1995, feature film write-
downs were $134.0 million, as compared to feature film write-downs of $85.0
million in 1994.
Television Programming. Television programming revenues increased by $32.7
million, or 57 percent, to $90.2 million in 1995 as compared to 1994.
Worldwide pay television revenues increased by $11.2 million to $14.3 million,
primarily due to the distribution of the new Outer Limits series and made-for-
television movies. Worldwide syndication revenues increased by $34.9 million,
or 98 percent, to $70.5 million, primarily due to the success of the In The
Heat Of The Night series in syndication. These increases were partially offset
by a decrease in network television revenues of $15.9 million, or 85 percent,
to $2.8 million in 1995 compared to 1994, which included the final season of
the In The Heat Of The Night series. In 1995 the only network revenues were
generated by one made-for-television movie. The remaining revenue increase in
1995 of $2.5 million resulted from home video revenues earned on the new Outer
Limits series and made-for-television movies.
Television programming operating profit increased by $13.2 million, or 88
percent, to $28.3 million in 1995 as compared to 1994 due to the
aforementioned increase in revenues and improved margins on the television
library as a result of increases in profitability estimates.
General Corporate Administration Expenses. General corporate administration
expenses increased by $14.9 million, or 30 percent, to $64.2 million in 1995
compared to 1994 primarily due to the accrual of non-recurring management
incentive bonuses of $10.0 million and higher legal and professional fees of
$6.2 million, partially offset by a net decrease in various other items of
$1.3 million.
Interest Expense, Net of Amounts Capitalized. Net interest expense increased
by $32.5 million, or 96 percent, to $66.4 million in 1995 from $33.9 million
in 1994. Net interest expense increased due to higher borrowings outstanding
in 1995 and increases in interest rates.
Interest and Other Income, Net. Other income in 1995 includes proceeds
recovered under a directors' and officers' insurance policy relating to
litigation originating prior to 1991 and reductions in certain litigation
reserves.
Provisions For Income Taxes. The income tax provision of $0.9 million in
1995 includes foreign remittance taxes incurred on international distribution
revenues, partially offset by a reduction in tax reserves of approximately
$10.0 million due to the favorable settlement of certain international tax
audits. The provision for income taxes of $3.9 million in 1994 reflects
foreign remittance taxes, partially offset by the recognition of net operating
loss tax benefits.
LIQUIDITY AND CAPITAL RESOURCES
In recent years the Company has funded its operations primarily from
internally generated funds and bank borrowings. The Company is currently
operating under a business plan which calls for substantial continued
borrowing, primarily to fund film and television production.
In connection with the MGM Acquisition, MGM Studios obtained the Original
MGM Credit Facility aggregating $800 million, of which $450 million was used
to fund such acquisition. As of June 30, 1997, MGM Studios had $235 million
available under the Original MGM Credit Facility to fund ongoing operating
activities of the Company, and the interest rate was equal to the average of
the reserve-adjusted London Interbank Offered Rates quoted by certain
reference banks for deposits of U.S. dollars in comparable amounts and for
comparable periods in the London interbank market ("LIBOR") plus 2.75 percent.
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<PAGE>
On July 10, 1997 the Company completed the Orion Acquisition for a total
purchase price of approximately $573 million. In connection with the Orion
Acquisition, the Company issued 15,000,120 shares of the Common Stock to
Tracinda and Seven for $360 million. In addition, Orion obtained the Original
Orion Credit Facility, consisting of a $200 million term loan and a
$50 million revolving credit facility. The interest rate on the Orion Credit
Facility was equal to LIBOR plus 2.50 percent.
In October 1997 MGM Studios and its principal lenders amended and restated
the Original MGM Credit Facility into the Amended Credit Facility, a
syndicated facility aggregating $1.3 billion which includes Orion as a co-
borrower, consisting of a six year $400 million revolving credit facility,
increasing to $600 million upon receipt by the Company of gross proceeds of at
least $250 million from the issuance and sale of the Common Stock, including
in connection with the Offering, a $400 million seven and one-half year term
loan and a $300 million eight and one-half year term loan. The facility also
contains provisions allowing, with the consent of the requisite lenders and
subject to syndication thereof, for an additional $200 million tranche,
raising the amount of the Amended Credit Facility to $1.5 billion. Proceeds
drawn from the Amended Credit Facility have been used to retire all amounts
outstanding under the Original Orion Credit Facility. Scheduled amortization
of the term loans under the Amended Credit Facility is $0 in 1998, $0 in 1999,
$0 in 2000, $33 million in 2001, $73 million in 2002, $103 million in 2003,
$103 million in 2004 and $103 million in 2005, with the remaining balance due
at maturity. The revolving facility portion of the Amended Credit Facility
matures in October 2003, subject to extension under certain conditions. The
Amended Credit Facility contains various covenants, including limitations on
indebtedness, dividends and capital expenditures and maintenance of certain
financial ratios. See "Financing Arrangements."
The Company's strategy and business plans contemplate substantial on-going
investments in production of new feature films and television programs. In
addition, the Company plans to make investments or enter into joint ventures
to develop new distribution channels to further exploit the Library.
Furthermore, the Company may make strategic acquisitions, including
acquisitions to obtain such distribution channels or to further expand the
Library and may enter into joint ventures, including ventures to produce
motion pictures. The nature and extent of such additional investments
(including potential acquisitions and joint ventures) are dependent upon the
future evaluation of the strategic and economic factors underlying such
opportunities. The Company believes that the available credit under the
Amended Credit Facility, together with the proceeds from the Offering, should
be sufficient to meet the Company's current obligations and commitments and
will enable the Company to continue to conduct its operations in accordance
with its current business plans, although no assurance can be given in that
regard. The Company may need to seek other sources of financing in order to
complete any future acquisitions. Even if the Company does not consummate any
acquisitions, in order to take advantage of opportunities in the debt markets,
the Company may from time to time seek additional financing as discussed. No
assurance can be given that such other sources will be available or on terms
acceptable to the Company (see "Risk Factors--Risks Relating to Liquidity and
Financing Requirements").
37
<PAGE>
THE INDUSTRY
THE MOTION PICTURE INDUSTRY
General. The motion picture industry consists of two principal activities:
production and distribution. Production involves the development, financing
and production of feature-length motion pictures. Distribution involves the
promotion and exploitation of motion pictures throughout the world in a
variety of media, including theatrical exhibition, home video, television and
other ancillary markets. The U.S. motion picture industry can be divided into
major studios and independent companies, but the major studios dominate the
industry in the number of theatrical releases. In addition to the Company
(including MGM Pictures, UA Pictures, Orion and Goldwyn), the major studios as
defined by the MPAA are The Walt Disney Company (including Buena Vista,
Touchstone and Miramax) ("Disney"), Paramount, Sony Pictures Entertainment
Inc. (including Columbia and TriStar) ("Sony"), Twentieth Century Fox Film
Corporation ("Fox"), Universal and Warner Bros. (including Turner, New Line
Cinema and Castle Rock Entertainment) ("Warner"). The major studios are
typically large diversified corporations that have strong relationships with
creative talent, exhibitors and others involved in the entertainment industry
and have global film production and distribution capabilities.
Historically, the major studios have produced and distributed the majority
of high grossing theatrical motion pictures released annually in the United
States. Over the past decade, the number of feature-length motion pictures
released by the major studios has increased dramatically from 133 in 1986
(34.6 percent of the total) to a high of 233 in 1996 (71.7 percent of the
total). In addition, most of the studios have created or accumulated
substantial and valuable motion picture libraries that generate significant
revenues. These revenues can provide the major studios with a stable source of
earnings that offsets the variations in the financial performance of their
motion picture releases and other aspects of their motion picture operations.
The independent companies have more limited production and distribution
capabilities than do the major studios. While certain independent companies
may produce as many films as a major studio in any year, independent motion
pictures typically have lower negative costs and are not as widely released as
motion pictures produced and distributed by the major studios. Additionally,
the independent companies may have limited or no internal distribution
organizations and rely on the major studios for distribution and financing.
Motion Picture Production. The production of a motion picture begins with
the screenplay adaptation of a popular novel or other literary work acquired
by the producer of the motion picture or the development of an original
screenplay based upon a story line or scenario conceived or acquired by the
producer. In the development phase, the producer may seek production financing
and tentative commitments from a director, the principal cast members and
other creative personnel. A proposed production schedule and budget are
prepared. At the end of this phase, the decision is made whether or not to
"greenlight," or approve for production, the motion picture.
After greenlighting, pre-production of the motion picture begins. In this
phase, the producer engages creative personnel to the extent not previously
committed, finalizes the filming schedule and production budget, obtains
insurance and secures completion guaranties, if necessary. Moreover, the
producer establishes filming locations, secures any necessary studio
facilities and stages and prepares for the start of actual filming.
Principal photography, or the actual filming of the screenplay, generally
extends from seven to 16 weeks, depending upon such factors as budget,
location, weather and complications inherent in the screenplay. Following
completion of principal photography, the motion picture enters what is
typically referred to as post-production. In this phase, the motion picture is
edited, opticals, dialogue, music and any special effects are added, and
voice, effects and music soundtracks and pictures are synchronized. This
results in the production of the negative from which release prints of the
motion picture are made. Major studios and independent film companies hire
editors, composers and special effects technicians on the basis of their
suitability for a particular picture.
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<PAGE>
Motion Picture Distribution. The distribution of a motion picture involves
the licensing of the picture for distribution or exploitation in various
markets, both domestically and internationally, pursuant to a release pattern.
These markets include theatrical exhibition, non-theatrical exhibition (which
includes airlines, hotels and armed forces facilities), home video (including
rental and sell-through), presentation on television (including pay-per-view,
pay, network, syndication or basic cable) and marketing of the other rights in
the picture and underlying literary property, which may include books,
merchandising and soundtracks. The domestic and international markets
generally follow the same release pattern, with the starting date of the
release in the international market varying from being concurrent with the
domestic theatrical release to being as long as nine months afterwards. A
motion picture typically is distributed by a major studio or one or more
distributors that acquire rights from a studio or other producer in one or
more markets or media or a combination of the foregoing.
Both major studios and independent film companies often acquire pictures for
distribution through a customary industry arrangement known as a "negative
pickup," under which the studio or independent film company agrees to acquire
from a production company all rights to a film upon completion of production,
and also acquire completed films.
THE TELEVISION INDUSTRY
Television Production. The production of television series programming
involves the development of a format based on a creative concept or literary
property into a television script, the hiring of talent, the filming or taping
of the program and the technical and post-production work necessary to produce
a finished program. Television producers may originate projects internally or
acquire them from others. If a concept is deemed suitable for development, the
studio or other producer or network typically commissions and pays for a
script. Once a script is ordered, one or more license agreements are
negotiated with the potential broadcasters of such program. A pilot episode
usually is ordered or commissioned prior to the determination of whether a
series will be produced.
Television production can generally be divided into two distinct businesses:
network production (i.e., television shows for ABC, CBS, NBC, Fox, UPN and WB)
and non-network production (i.e., made-for-cable and first-run syndication).
The economics of the two types of television production are different. In
network production, a network generally orders approximately six to 13 initial
episodes of each new series for a license fee equal to a percentage of the
program's cost. The balance of the production cost can only be recouped
through international sales and syndication if a series is successful and
generally remains unrecouped for at least four years. In the non-network
production or first-run syndication business, a producer seeking to launch a
new series commits to produce a minimum number of episodes if the producer can
"clear" the series by selling to individual television stations in sufficient
markets throughout the country (generally comprising 70 percent of television
households). Once produced, the episodes are immediately available for
licensing to international broadcasters as well. This approach generally
involves a lower production cost risk and earlier return on investment ("ROI")
than the network production business; however, non-network programming also
generally provides a lower ROI than successful network production. See
"Business--Free and Pay Television--Television Production."
Television Distribution. The U.S. television market is served by network
affiliated stations, independent stations and cable systems, although the
number of independent stations has decreased as many formerly independent
stations have become affiliated with new networks in recent years. During
"prime time" hours, network affiliates primarily broadcast programming
produced for the network. In non-prime time, network affiliates telecast
network programming, off-network programming, first-run programming
(programming produced for distribution on a syndicated basis) and programming
produced by the local stations themselves. Independent television stations and
cable networks, during both prime and non-prime time, produce their own
programs and telecast off-network programs or first-run programs acquired from
independent producers or syndicators. Syndicators generally are companies that
sell to independent television stations and network affiliates programming
produced or acquired by the syndicator for distribution.
39
<PAGE>
BUSINESS
COMPANY OVERVIEW
The Company is engaged primarily in the development, production and
worldwide distribution of theatrical motion pictures and television programs.
The Company, including MGM Studios, UA, Orion, Goldwyn and its other
subsidiaries, is one of only seven major film and television studios
worldwide. With approximately 4,000 film titles and over 8,200 episodes of
television programming, the Library constitutes the largest collection of
post-1948 feature films in the world. Motion pictures in the Library have won
over 185 Academy Awards, including Best Picture Awards for Annie Hall, The
Apartment, The Best Years of Our Lives, Dances With Wolves, The Deer Hunter,
Hamlet, In the Heat of the Night, Marty, Midnight Cowboy, Platoon, Rain Man,
Rocky, Silence of the Lambs, Tom Jones and West Side Story. The Library also
includes 17 titles in the James Bond film franchise, five titles in the Rocky
film franchise and nine titles in the Pink Panther film franchise.
Tracinda, Seven and senior management of MGM Studios formed the Company to
acquire all of the outstanding capital stock of MGM Studios and its
subsidiaries, including UA, in October 1996 for an aggregate consideration of
$1.3 billion pursuant to the MGM Acquisition. Tracinda is wholly-owned by Kirk
Kerkorian. Seven is one of the largest television broadcast networks in
Australia with stations in five major Australian metropolitan areas and one
regional television station. Frank G. Mancuso, Chairman and Chief Executive
Officer of MGM Studios since July 1993 and of the Company since its formation,
has approximately 35 years of entertainment industry experience.
In July 1997 the Company acquired all of the outstanding capital stock of
Orion and its subsidiaries including Goldwyn, from Metromedia International
Group, Inc. pursuant to the Orion Acquisition. In connection with the Orion
Acquisition, the Company obtained the film and television libraries of the
Orion Companies consisting of approximately 1,900 film titles and 3,000
television episodes, effectively doubling the size of the Library to its
current size of approximately 4,000 film titles and over 8,200 episodes of
television programming. The Company also acquired 12 substantially completed
theatrical motion pictures and five direct-to-video features. The Goldwyn
cinema operations were excluded from the Orion Acquisition. See "Background of
the Company."
BUSINESS STRATEGY
The Company's goal is to enhance its position as a premier global
entertainment content company by maximizing the value of its assets, including
the Library and its film and television production units, under the direction
of its experienced management team. To achieve this goal, the Company intends
to:
Build and Leverage the Library. The Company believes that the Library is its
most powerful asset and that the Library will continue to generate relatively
stable cash flows through the worldwide distribution of its titles. Management
intends to maximize the value of the Library by (i) producing new motion
pictures and television programs that will not only be successful on their
own, but will also increase the depth and breadth of the Library, (ii)
aggressively marketing and repackaging the Library's titles, (iii) developing
new distribution channels for delivering MGM branded programming, (iv)
capitalizing on developments in technology and (v) further penetrating
international markets as they grow. As opportunities arise, the Company may
pursue strategic acquisitions, including acquisitions of titles or new
distribution channels for the Library. Additionally, the Company expects to
benefit as certain rights to its Library that have been previously licensed to
others revert to the Company over time.
Develop, Produce and Distribute Theatrical Motion Pictures. Through MGM
Pictures and UA Pictures, the Company plans to produce or co-produce and
distribute approximately ten to 12 motion pictures annually across a variety
of genres. The Company intends to (i) actively manage its production and
release schedules to maximize overall performance of those motion pictures,
(ii) tightly control development and production expenditures while maintaining
the artistic integrity required to develop and produce successful feature
films and
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(iii) utilize the Library as an inexpensive source for sequels and remakes and
the expansion of certain well-tested, familiar film franchises. Additionally,
the Company plans to produce or acquire and release approximately four to six
specialty motion pictures annually through Goldwyn. The Company also plans to
distribute annually approximately four to six motion pictures produced by
others.
Develop, Produce and Distribute Television Programming. The Company intends
to focus primarily on the development and production of series for pay
television and the first-run syndication business by using its extensive
Library as a source of ideas. Under its television programming strategy, the
Company has been able to recover substantially all production costs for a
series shortly following completion of production by obtaining up-front
financial commitments from domestic pay television broadcasters for production
of multiple episodes of the series and concurrently licensing the series in
international markets. The Company also develops programs such as two-hour
television movies and mini-series. The Company intends to allocate a portion
of its future television production budget to producing series for network
television.
Leverage the MGM Brand Name. The Company believes that the MGM name and its
lion logo are among the most recognized in the world. The Company intends to
capitalize on the value inherent in its name and logo through the distribution
of branded programming and the selective development of high quality consumer
products.
When Mr. Mancuso was appointed Chairman and Chief Executive Officer in 1993,
he began implementing the above business strategy. Under Mr. Mancuso's
direction, the Company completed the Orion Acquisition to build the Library.
In addition, under Mr. Mancuso's direction the Company has produced and/or
released such successful motion pictures as The Birdcage, Get Shorty,
GoldenEye, Leaving Las Vegas, Species and Stargate. Although the Company did
not approve any motion pictures for production during the Sale Period, since
completion of the MGM Acquisition, management has taken steps to return
operations to a higher level. Since October 1996 the Company has approved six
motion pictures for production. See "Risk Factors--Curtailment of Certain
Operations Due to Sale of the Company." Since Mr. Mancuso's appointment, the
Company has reestablished a television series production business and has
taken steps to leverage the MGM brand name.
FILM AND TELEVISION LIBRARY
The Library is one of the most critically acclaimed libraries in the motion
picture industry, representing one of the largest collections of Academy
Award-winning films. As of August 1, 1997 the Company owned, or held certain
distribution rights with respect to, approximately 4,000 theatrical motion
pictures, excluding the approximately 2,950 titles that the Company has the
right to distribute in home video markets under an agreement with Turner. See
"Risk Factors--Certain Limitations on the Exploitation of the Library" and "--
Distribution--Home Video Distribution." The motion pictures in the Company's
Library have won over 185 Academy Awards. Fifteen motion pictures have won the
Academy Award for Best Picture, including Annie Hall, The Apartment, The Best
Years of Our Lives, Dances With Wolves, The Deer Hunter, Hamlet, In the Heat
of the Night, Marty, Midnight Cowboy, Platoon, Rain Man, Rocky, Silence of the
Lambs, Tom Jones and West Side Story.
The Library also constitutes the largest collection of post-1948 feature
films in the world. In 1948 certain major studios negotiated consent decrees
requiring that the studios separate their exhibition businesses from their
production and distribution businesses and mandating the divestiture of
certain theater holdings. This is generally believed to have triggered greater
competition among the studios and an increased emphasis on the potential for
commercial success in the development and production stages, resulting in a
greater focus on the content and quality of the motion pictures produced and
distributed by the studios. The Company believes that films produced and
developed after 1948 generally are more valuable than films that were produced
and developed earlier.
Additionally, the Library includes motion pictures from a wide range of
genres, including dramas, comedies, action-adventure movies, westerns and
suspense thrillers. Management believes that the Library's diversity, quality
and extensive size provides the Company with substantial competitive
advantages. The Company intends to continue to build upon these advantages by
producing and acquiring new motion pictures across a variety of genres and
budget ranges to update and enhance the Library. See "--Production--Motion
Picture Production."
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The Library also includes over 8,200 episodes from television series
previously broadcast on prime-time network television or in first-run
syndication, including episodes of The Addams Family, American Gladiators, Bat
Masterson, Cagney & Lacey, Fame, Green Acres, Highway Patrol, In the Heat of
the Night, Mr. Ed, The Patty Duke Show, Pink Panther, Sea Hunt and
thirtysomething. The television series in the Library have won 41 Emmy awards
and six Golden Globe awards.
The Company will continue to implement its strategy of developing new
projects from existing Library assets. The Library represents a readily-
available, "market tested" source of development ideas. For example, the
Company recently had success with the film The Birdcage, a remake of La Cage
aux Folles, and is expected to release Species II, the sequel to Species, in
1998. Furthermore, the Company has successfully expanded the valuable film
franchises within its Library, most notably the James Bond franchise, with the
1995 commercial success of GoldenEye. The Company expects to release the
latest James Bond film, Tomorrow Never Dies, in December 1997. Additionally,
the Company has successfully developed four television series based on Library
motion pictures: Poltergeist: The Legacy based on Poltergeist; Stargate SG-1
based on Stargate; All Dogs Go to Heaven, based on the movie of the same name;
Fame L.A. based on Fame; and The Magnificent Seven, based on the movie of the
same name. The Company also recently produced a remake of Twelve Angry Men as
a made-for-television movie, which has aired on Showtime Networks Inc.
("Showtime").
Eighteen James Bond motion pictures in the Library, including the upcoming
release, are produced and distributed pursuant to a series of agreements with
Danjaq. The motion pictures are produced by Danjaq, and the Company has the
right to approve all key elements of the pictures, such as the selection of
the director and the leading actors. The copyright in each of the motion
pictures is owned jointly by the Company and Danjaq. Generally, the Company
has the right to distribute each of the pictures in all media worldwide in
perpetuity or for a term of 15 years. Where the Company's distribution rights
are not perpetual, the rights revert to joint control by the Company and
Danjaq after expiration of the distribution term. Danjaq owns any television
series created that is based on the James Bond motion pictures, and the
Company has the distribution rights to such series. Danjaq controls the
merchandising rights with respect to the pictures, with the Company being
entitled to receive a portion of the revenues from all merchandising licenses.
Additionally, the Company controls all marketing rights, and controls the
music from The Living Daylights (1987) and all subsequent pictures. All other
rights relating to the pictures are controlled jointly by the Company and
Danjaq. The agreements contain certain restrictions on the sale or licensing
by the Company of any of its rights in the pictures.
Prior to 1959, Ian Fleming authored a number of novels depicting the
adventures of James Bond, and commencing in 1959, Mr. Fleming and Kevin
McClory collaborated on the development of certain plot lines and treatments
and a script entitled Thunderball, featuring the James Bond character. In that
connection, Mr. McClory ultimately acquired from Mr. Fleming certain rights to
make a feature film using the James Bond character in these plot lines. Mr.
Fleming thereafter wrote a novel of the same name. In 1961, Mr. McClory
commenced litigation against Mr. Fleming with regard to the script, the novel
and certain related rights.
In 1962, prior to the settlement of the Fleming-McClory litigation, Mr.
Fleming effectively granted to a predecessor-in-interest of Danjaq the
exclusive worldwide rights to, among other things, make films based on Mr.
Fleming's existing or future James Bond novels (other than Thunderball or
Casino Royale) and to create original screenplays about the adventures of
James Bond not based on Mr. Flemings's James Bond novels. This agreement
further provides that the film rights to the Thunderball novel that were the
subject of the Fleming-McClory litigation would also be transferred to
Danjaq's predecessor to the extent Mr. Fleming was permitted to transfer such
rights following completion of the litigation.
The Fleming-McClory litigation was resolved in 1963 by a settlement among
Mr. Fleming, Mr. McClory and the other parties to the litigation in which Mr.
McClory acknowledged that Mr. Fleming was the creator and proprietor of the
James Bond character. Pursuant to that settlement, Mr. McClory was, in effect,
given the film rights in the Thunderball documents and scripts attached to the
settlement agreement, the rights to reproduce any part of Mr. Flemings's
Thunderball novel in a film and to exhibit any such film in any manner
whatsoever and the rights to use the James Bond character in the film
Thunderball. The Company believes these rights, at most,
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give Mr. McClory the right to make films of the story in the novel Thunderball
(i.e. a "remake" of Thunderball). Mr. McClory produced the film Thunderball
(with UA and Danjaq) in 1965. Mr. McClory has at various times since 1963
taken the position that he has broader rights to use the James Bond character
than simply remake Thunderball, but since 1965 he has only made the 1983 film
Never Say Never Again, which Mr. McClory claimed was a remake of the film
Thunderball.
On October 13, 1997, Sony issued a press release announcing plans by its
Columbia Pictures division to produce a series of new James Bond feature films
based on works created by Mr. Fleming, Mr. McClory and John Whittingham. The
Company believes that Sony and Mr. McClory intend to take the position that,
among other things, Mr. McClory's rights in the ideas embodied in the
Thunderball novel and the documents attached to the Fleming-McClory settlement
agreement form the basis for producing James Bond feature films whose plot
lines are not limited to the plot lines of the novel Thunderball. The Company
believes that no party, other than the Company and Danjaq, has the right to
produce or exploit a feature film, television program or similar program
based, in whole or in part, on the character James Bond, with the possible
exception of Mr. McClory's right to remake Thunderball. If Mr. McClory, Sony
or others were to attempt to produce or exploit another remake of Thunderball
or to produce or exploit any other film, television program or other similar
program based, in whole or in part, on the character James Bond that goes
beyond a remake of Thunderball, the Company would vigorously oppose any such
attempt and take all actions necessary to protect its rights in the James Bond
character and all related rights. The Company believes that a remake of
Thunderball by Mr. McClory, Sony or others would not have a material adverse
effect on the Company's business or results of operations. However, a
determination that Mr. McClory, Sony or others have broader rights to produce
or exploit other films, television programs or other similar programs that are
based, in whole or in part, on the James Bond character could have a material
adverse effect on the Company's business and results of operations.
The Company intends to aggressively market and distribute titles in the
Library in existing pay and free television, home video and other markets
worldwide, as well as through developing technologies. Rather than selling its
titles on a single or multi-picture basis, the Company strives to pool
strategically its motion picture and television titles into cohesive
programming packages directed at specific markets, including purchasers of
large quantity programming and services in emerging markets which may not have
their own programming capabilities. The Company believes that the development
and growth of direct broadcast satellite ("DBS") and other new distribution
systems may generate significant incremental profits for the industry as the
number of channels requiring content grows. The Company believes that, with
its extensive Library and its branded programming strategy, the Company is
well positioned to benefit from such growth and development.
As opportunities arise, the Company expects to consider acquisitions,
including acquisitions to expand the Library or to obtain new distribution
channels. The Company has recently submitted a non-binding indication of
interest for the acquisition of a film library of approximately 1,000 titles.
If invited by the seller of such library, the Company may make a binding offer
to purchase prior to the end of 1997. The Company anticipates that, if such
offer is accepted, completion of the acquisition would be subject to, among
other things, the successful completion of due diligence and the negotiation
and preparation of a definitive agreement on terms acceptable to the Company.
There can be no assurance that any such offer will be accepted or that the
acquisition will be completed or that, if completed, the anticipated benefits
of such acquisition will be achieved.
Due to certain long-term pre-paid licenses entered into by prior management,
the Company does not expect to receive significant revenue with respect to
substantial portions of its Library from domestic free and certain major
international television markets for the next several years. This includes
many of the most valuable pre-1990 MGM and UA titles, which have been licensed
in the U.S., France, Spain and Germany, and many of the most valuable Orion
titles, which have been licensed in France, Spain, Germany and the United
Kingdom. See "--Distribution--Pay and Free Television Distribution." The
Company expects to benefit as certain rights to the Library that have been
previously licensed to others revert to the Company over time. See "Risk
Factors--Certain Limitations on the Exploitation of the Library" and "--
Distribution--Home Video Distribution."
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PRODUCTION
MOTION PICTURE PRODUCTION
The Company currently develops and produces theatrical motion picture
projects through two separate production entities, MGM Pictures and UA
Pictures. The Company operates these production units independently with
separate management teams and allows them to compete directly for the best new
projects on the creative side of the business. At the same time, the Company
supports the units with the benefits of centralized marketing, sales, legal,
physical production and distribution functions. Direct access to senior
management also expedites major decision-making. By utilizing its two separate
production units, management believes that the Company benefits from the
distinct creative talents and perspective of each of its chief production
executives, resulting in greater diversity within its overall release slate.
Through these production units, the Company plans to produce or co-produce
and distribute between approximately ten and 12 motion pictures annually
across a variety of genres and budget ranges and release approximately four to
six additional pictures each year that are produced by other producers. Both
production units employ a development staff of creative executives who work to
refine concepts and scripts so that projects are developed to the point that
production decisions can be made. The creative staffs of both MGM Pictures and
UA Pictures currently have approximately 90 ongoing projects in the aggregate,
which are in various phases of development and pre-production. The Company's
current strategy is to have fewer projects in development at any one time than
the other major studios in order to concentrate its efforts and assets on the
projects that management believes could be the most commercially successful.
The Company believes that this strategy will result in lower development
related write-offs and abandonment costs. Historically, the Company's
development related write-offs and abandonment costs were $11.6 million, $19.5
million and $11.6 million in the years ended December 31, 1996, 1995 and 1994,
respectively.
Additionally, the Company plans to release approximately four to six
specialty motion pictures each year through Goldwyn. These motion pictures
will be produced or co-produced by Goldwyn or acquired through negative
pickups or other distribution arrangements and will include motion pictures in
a variety of genres generally involving producers and directors, writers or
other talent who typically work outside of the studio system. The Company's
investment in such pictures is expected to be significantly less than the
Company's investment for pictures produced through MGM Pictures or UA
Pictures. The Company believes that this strategy of releasing independent
motion pictures will add greater diversity to the Company's release slate and
enhance the Library both through the addition of new film product and the
building of relationships with up-and-coming producers and directors, writers
and other talent.
In order to manage the financial risks inherent in motion picture
production, management has developed a rigorous budgeting and approval process
and strictly controls the cost of each motion picture through active
management involvement in all phases of the production process. When a project
is considered to have commercial potential, budgets are developed
independently by the physical production department to determine the below-
the-line cost of a motion picture. At a point early in this process, a
preliminary below-the-line estimate is combined with potential above-the-line
costs, such as talent costs and participations, to form a model of the total
cost of the motion picture. The Company's financial planning and analysis
group then performs sensitivity analyses to determine the motion picture's
potential ROI. The ROI range is developed using a preliminary cost model
together with a revenue model based on the picture's budget, genre, cast,
international appeal and other factors. The Company believes that, as a result
of its focus on budgeting and controlling production expenditures, it will be
able to avoid unnecessary cost-overruns and excess expenditures.
The Company pursues fewer producer or talent "overhead" arrangements, in
which a studio pays a portion of the overhead of creative talent (i.e.,
producer, director or actor) for the right to receive a "first look" at that
party's projects, than other major studios. In general, the Company believes
that its capital resources are better allocated to acquire literary property
or the services of talent for a specific project than to fund overhead. See
"Risk Factors--Risks of Motion Picture and Television Production."
The Company does not own any studio facilities or stages but rather leases
facilities and sound stages on an "as needed" basis in connection with the
production of specific motion picture and television projects. The Company has
not experienced any difficulties in leasing appropriate facilities and sound
stages when needed.
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The following table details the Company's release schedule, as announced by
the Company in August 1997, for the remainder of 1997 and the first six months
of 1998.
RELEASE SCHEDULE
<TABLE>
<CAPTION>
APPROXIMATE
TITLE RELEASE DATE SUMMARY PRINCIPAL ACTORS
----- ------------ ------- ----------------
<C> <C> <C> <S>
Paperback Romance........... Released Madcap romantic comedy Gia Carides, Anthony
LaPaglia
Hoodlum(2).................. Released 1930's gangland action film Laurence Fishburne, Tim
centered on Bumpy Johnson Roth, Vanessa Williams,
Andy Garcia, Cicely Tyson
The End of Violence......... Released Wim Wenders' look at Bill Pullman, Andie
exploitation and violence MacDowell, Gabriel Byrne,
Loren Dean, Traci Lind,
Pruitt Taylor-Vince
The Locusts................. Released Film noir pot-boiler set in Kate Capshaw, Jeremy Davies,
1960's rural Kansas Vince Vaughn, Ashley Judd
Gang Related................ Released Tupac Shakur's last movie, a James Belushi, Tupac Shakur,
thought-provoking police Dennis Quaid, James Earl
action thriller Jones
Napoleon.................... Released Live-action children's Voices by: Adam Wylie,
adventure about a puppy lost Bronson Pinchot, Blythe
in the Australian outback Danner, Joan Rivers
Red Corner(1)............... Released Political thriller/courtroom Richard Gere, Bai Ling
drama directed by Jon Avnet
Deceiver.................... November 1997 Suspenseful thriller Tim Roth, Chris Penn, Renee
centered on a web of lies Zellweger, Ellen Burstyn,
and deceits Rosanna Arquette
Bent........................ December 1997 Based on the critically Lothaire Bluteau, Clive
acclaimed play Owen, Brian Webber, Ian
McKellen, Mick Jagger
Tomorrow Never Dies(2)...... December 1997 Latest installment of the Pierce Brosnan, Jonathan
James Bond series Pryce, Michelle Yeoh, Teri
Hatcher, Joe Don Baker,
Judi Dench
Welcome to Woop Woop........ January 1998 Twisted road comedy from the Johnathon Schaech, Rod
director of "The Adventures Taylor, Susie Porter, Dee
of Priscilla, Queen of the Smart
Desert"
Hurricane Streets........... January 1998 Disturbing look at modern- Brendan Sexton III, Shawn
day youth Elliott, Jose Zuniga
Music From Another Room..... February 1998 Romantic comedy about a Jude Law, Jennifer Tilly,
man's search for his one Martha Plimpton, Brenda
true love Blethyn
The Man in the Iron Mask(2). February 1998 Period piece based on the Leonardo DiCaprio, Jeremy
Alexandre Dumas novel Irons, John Malkovich,
Gerard Depardieu, Gabriel
Byrne
Storefront Hitchcock........ March 1998 Concert/performance movie Robyn Hitchcock
directed by Academy Award-
winning director, Jonathan
Demme
I Love You Don't Touch Me... April 1998 A bold romantic comedy Marla Schaffel, Mitchell
Whitfield, Meredith Scott
Lynn, Michael Harris
Dirty Work(1)............... April 1998 Comedy about the revenge Norm Macdonald, Chevy Chase,
business Jack Warden, Don Rickles,
Chris MacDonald, Artie
Lange, Taylor Howard
Species II(1)............... May 1998 Sequel to the successful Michael Madsen, Marg
1995 film Helgenberger, Natasha
Henstridge, Mykelti
Williamson, Justin Lazard,
James Cromwell,
George Dzundza
</TABLE>
- --------
(1) Developed and produced by MGM Pictures.
(2) Developed and produced by UA Pictures.
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The Company may revise the release date of a motion picture as the
production schedule changes or otherwise to maximize revenues. Additionally,
there can be no assurance that any of the motion pictures scheduled for
release will be completed, that completion will occur in accordance with the
anticipated schedule or budget, or that the motion pictures will necessarily
involve all of the creative talent listed above. See "Risk Factors--Risks of
Motion Picture and Television Production."
TELEVISION PRODUCTION
Through MGM Worldwide Television, Inc., a subsidiary of MGM Studios, the
Company is engaged in the development and production of episodic television
series, mini-series and movies for distribution on domestic and international
television networks, local independent and network-affiliated television
stations, pay television networks, basic cable networks and home video. Since
the re-establishment of its television series production operations in 1994,
the Company has obtained commitments for approximately 625 hours of television
programming, of which approximately 50 percent remained to be aired as of
September 30, 1997. Historically, the Company's television activities were
focused on the traditional network production business and made-for-television
movies, and many of the television programs in the Library were produced as
network series. Since the networks have been able to substantially lower the
license fees as a percentage of the budget for network television programming
in recent years, resulting in significantly larger production investment risks
for the producers of such programming, the Company altered its television
strategy in 1994 when the Company's management re-established the Company's
television series production operations. See "The Industry."
Since 1994 the Company has focused primarily on the development and
production of series for the first-run syndication business, which involves a
lower production investment risk for the Company, and movies and mini-series
for both network and off-network broadcasters. The Company's strategy is
designed to (i) minimize up-front capital investment through the production of
series for the first-run syndication business and through co-production
arrangements, (ii) minimize risks associated with large deficit financing by
developing product such as two-hour movies or mini-series that generally offer
stable, predictable cash flows, (iii) use valuable Library assets such as The
Outer Limits, Poltergeist, Stargate, All Dogs Go to Heaven, Fame and The
Magnificent Seven to develop recognizable products with enhanced marketability
at a reduced cost and (iv) develop alternative types of programming, such as
animated cartoon strips, talk shows, variety shows and reality-based
programming such as LAPD--Life on the Beat.
As part of its strategy, the Company entered into a programming arrangement
with Showtime whereby the Company provides television series and movies for
premiere on Showtime. Showtime has agreed to license exclusive U.S. pay
television rights to the following television series: (i) 110 one-hour
episodes (five seasons) of The Outer Limits (winner of the Cable Ace award for
Best Dramatic Series in 1995 and 1996) of which 44 episodes remained to be
aired as of September 30, 1997; (ii) 88 episodes (four seasons) of
Poltergeist: The Legacy of which 44 episodes remained to be aired as of
September 30, 1997; (iii) 44 episodes (two seasons) of Stargate-SG1 of which
32 episodes remained to be aired as of September 30, 1997; (iv) 44 episodes
(two seasons) of a series to be developed by the Company to air beginning in
2000; and (v) 22 episodes (one season) of a series to be developed by the
Company to air beginning in 2001. Showtime has also agreed to license
exclusive U.S. pay television rights to ten original television movies to be
produced by the Company for premiere on Showtime in the years 1997 through
2003. The production budgets for the movies are between $2.5 million and $5
million and will be funded jointly by the Company and Showtime.
Additionally, the Company has obtained a commitment to license 40 episodes
of All Dogs Go to Heaven, a one-half hour animated series, of which 14
episodes are scheduled to air beginning in fall 1998. Furthermore, the Company
has cleared 44 episodes (two seasons) of Fame L.A. with individual television
stations in markets throughout the country comprising approximately 90 percent
of television households.
The Company recently expanded its focus to produce series for network
television on a selective basis, which typically require deficit financing but
generally offer the potential for greater financial return. In its first sale
of a series to network television since 1994, the Company has produced a two-
hour pilot of The Magnificent Seven and obtained a commitment from CBS for
such pilot and six additional one-hour episodes.
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<PAGE>
DISTRIBUTION
THEATRICAL DISTRIBUTION
General. The initial step in the release of a motion picture is the booking
of engagements with theatrical exhibitors. The exhibitors retain a portion of
the admissions paid at the box office, which generally includes a fixed amount
per week, as well as a percentage of the admissions that escalates over time.
A studio's or other producer's (or third party distributor's) share is
approximately 50 percent of gross box office admissions, although such
percentage, which has generally decreased in recent years, varies depending
upon factors such as the number and box office performance of such studio's or
other producer's recent releases. Although the lack of production during the
Sale Period may have adversely affected the Company's relationship with major
domestic exhibitors, the Company believes that its exhibitor relationships and
negotiated share of box office receipts will improve to the extent that it
achieves box office success with the films in its new release slate.
The Company intends to release a slate of films appealing to a wide variety
of audiences. By strategically timing the release of its motion pictures
throughout the year, the Company intends to avoid some of the risks posed when
a motion picture is inappropriately released during the most crowded and
competitive box office seasons.
All motion pictures that are released theatrically by the Company in the
U.S. and Canada, whether produced by MGM Pictures or UA Pictures or third
parties, are marketed and distributed by Metro-Goldwyn-Mayer Distribution Co.
Additionally, the Company generally distributes its motion pictures in
theatrical markets outside of the U.S. and Canada through UIP, a partnership
owned equally by the Company, Paramount and Universal. UIP is the world's
largest theatrical motion picture distribution company outside the U.S., with
distribution activities in over 50 countries. UIP has a cost sharing
arrangement that requires each partner to be responsible for one-third of
UIP's annual operating overhead. UIP charges each partner a distribution fee
of 35 percent of gross theatrical receipts until the fee equals one-third of
the annual operating costs of the partnership, and thereafter a negotiated
percentage of any additional gross receipts as a fee for incremental use of
the organization. Each partner bears all of its own releasing costs and
retains all cash flow from its pictures after payment of fees. See "--
Regulation."
The Company can elect to withdraw from UIP on November 1 of any year with at
least one year's prior notice (although the Company has no current intention
to withdraw). If the Company, or either other partner, withdraws, that partner
is entitled to one-third of the book value of UIP less one-third of the
estimated winding down costs of the partnership. Both Universal and Paramount
have agreed not to withdraw from the partnership until after 2001; however,
the Company believes that either party's exit from UIP would not have a
material adverse effect on the Company's financial condition or results of
operations, as the Company would expect to distribute its motion pictures in
these territories by either modifying and downsizing the UIP structure or
finding or developing satisfactory alternative methods for international
distribution. There can be no assurance, however, that such alternatives would
not result in decreased revenues or profitability. The partners are prohibited
from transferring their respective partnership interests.
Co-Production and Distribution Agreements. In addition to producing feature
motion pictures independently, the Company occasionally enters into co-
production agreements under which the Company retains certain distribution
rights with respect to a picture and shares the cost of production with a
partner that obtains other rights (generally outside of the U.S. and Canada).
While such agreements limit the Company's risk relating to a motion picture's
performance as they reduce the Company's production costs, such agreements
also limit profitability. The Company also acquires rights to distribute films
through negative pickup arrangements under which the Company acquires a
completed motion picture, or certain rights therein, from a third party. Under
co-production or negative pickup arrangements, the Company may be committed to
spend specified amounts for prints and advertising. Additionally, the Company
occasionally enters into "rent-a-system" arrangements under which the Company
provides distribution services to an independent film company for a percentage
distribution fee. Under rent-a-system arrangements the independent film
company generally is responsible for all print and advertising costs. These
types of arrangements may be entered into before, during or after production
of a particular motion picture.
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<PAGE>
Theatrical Marketing. The Company's theatrical marketing department consists
of five functional groups: research, media planning, advertising, promotion
and publicity. The objective of the marketing department is to maximize the
Company's ROI on each motion picture by designing and implementing a marketing
campaign tailored to appeal to the picture's most receptive audience. The
marketing process begins with research before a motion picture is completed.
The research department determines, through audience screenings and focus
groups, a motion picture's appeal to its most likely target audience. The
marketing group begins to develop media plans and marketing materials well in
advance of a motion picture's scheduled theatrical release. The media campaign
generally begins six months before release with the circulation of teaser
trailers, posters and exhibitor advertising materials. The campaign becomes
more aggressive two to three months before release as full-length trailers are
released in theaters and more significant materials are sent to exhibitors.
Finally, a national campaign is launched four to five weeks before opening
day. This media campaign generally involves advertising a picture's release on
national television, including network prime time and syndication markets,
national cable and radio and in magazines, newspapers and specific target
markets, such as colleges. In addition, public appearances, such as television
talk shows, are arranged for a picture's stars in order to promote the film.
The entire process is managed by the Company's in-house staff, although
outside agencies are frequently retained to provide creative input.
HOME VIDEO DISTRIBUTION
The Company's marketing and distribution strategy in the home video market
domestically and internationally is to (i) market its motion picture and
television titles in cohesive packages, (ii) create branded product lines,
(iii) adapt to a maturing home video market and (iv) release new motion
pictures into the home entertainment market at the time of the year that it
believes will generate the most sales without diminishing revenues from other
markets. Under current management, the Company has repackaged and repriced a
number of Library titles. The Company believes this has resulted in increased
shelf space in video retail stores and that this increased visibility has led
to increased sales. For example, the Company recently experienced increased
sales with the packaging of groups of titles from the Rocky franchise.
Additionally, the Company will release Library films, or groups of Library
films, in connection with new films which it releases into the market, in
order to increase sales of both Library films and new releases. An example is
the recent James Bond video campaign, under which the 16 Bond films then in
the Library were remastered and repackaged into two sets of videos. The first
set was introduced in connection with the theatrical release of GoldenEye, in
order to capitalize on public awareness. The second set was introduced in
connection with the release of GoldenEye on video. The Company intends to
continue this strategy of packaging groups of films or film franchises and
releasing them in connection with the releases of its most highly visible new
films. Additionally, the Company intends to utilize new formats for home video
sales, such as the successful "infomercials" for James Bond and Elvis Presley
videos, the first in the motion picture business.
MGM Home Entertainment Inc. ("Home Entertainment") manages the marketing and
distribution of both current feature motion pictures and Library product of
MGM Studios and its subsidiaries in the home video and other home
entertainment markets. In addition, the Company has an agreement with Turner
pursuant to which the Company distributes the Turner library, the Old MGM
Library and all pre-1949 Warner titles in worldwide home video markets, for a
total of approximately 2,950 titles. The Company's rights under this agreement
with Turner expire in June 2001. As more fully described below, these titles
as well as the current pictures and Library product of MGM Studios and its
subsidiaries, and any theatrical motion picture in which MGM Studios or, with
certain exceptions, one of its affiliates acquires home video rights, are
serviced pursuant to the WHV Agreement.
In 1990, as part of the acquisition of MGM/UA by Pathe, MGM-Pathe (the
predecessor in interest to MGM Studios), MGM/UA and UA Pictures, Inc.
(collectively, the "Parties") entered into the WHV Agreement with WHV. Under
the WHV Agreement, the Parties have granted to WHV certain home video
distribution rights with respect to new motion pictures and the motion picture
library of MGM/UA, UA and their respective affiliates, subject to certain
limited exceptions, throughout the world for a distribution fee expressed as a
percentage of worldwide home video revenues (as determined under the WHV
Agreement) and reimbursement of certain
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<PAGE>
distribution expenses. In general, the percentage varies from 10 percent to 15
percent based upon the amount of worldwide home video revenues in any calendar
year and other factors. MGM Studios and its affiliates maintain direct control
of all significant elements of distribution such as the determination of
release dates, marketing, return policies and pricing for these home video
releases. Laser disc and digital video disc ("DVD") distribution rights are
also covered by the WHV Agreement.
The WHV Agreement expires in May 2003, with the home video rights of each of
the films still covered by the WHV Agreement at that time reverting to MGM
Studios or its affiliates five years after the film's initial availability in
the U.S. home video market. Management believes that the Company will be able
to manage home video distribution in a more cost-effective manner and increase
sales and profitability upon the expiration of the WHV Agreement. Even with
the agreement in effect, the Company's home video sales have increased since
1993. From 1993 to 1996, the Company increased its worldwide home video gross
revenue from feature films by 145 percent, from $243.0 million to $595.1
million. The Company believes that this increase is a result of more effective
and efficient marketing by the Company, the renegotiation by the Company of
key vendor relationships and a reorganization of the Company's distribution
infrastructure.
The WHV Agreement provides that it applies (with certain exceptions
discussed below) to (i) all motion pictures owned or controlled by the Parties
or their affiliates prior to the date of the WHV Agreement, (ii) new motion
pictures financed, developed, produced, owned and/or acquired by the Parties
or any of their present or future affiliates during the term of the agreement
and (iii) all other motion pictures as to which the Parties or any of their
present or future affiliates own, control or acquire any home video rights
during the term of the agreement. In general, the WHV Agreement requires that
the Parties and their present and future affiliates acquire home video rights
for any motion picture in which they acquire theatrical and/or television
rights throughout the world, unless WHV otherwise agrees. With respect to
licenses existing on such product prior to the date of acquisition, the
Parties have agreed to allow such rights to expire or terminate such rights
when and to the extent permitted. The Parties have limited termination rights
for WHV's failure to make certain payments or to provide certain accountings.
Currently, Orion manages the marketing and distribution of both current
feature motion pictures and library product of the Orion Companies in the home
video markets, except for the current feature motion pictures and library
product of Goldwyn. Goldwyn has licensed to Hallmark Entertainment
Distribution Company, Inc. ("Hallmark") the right to distribute in the U.S.
home video market substantially all of the Goldwyn library and all feature
motion pictures produced or acquired by Goldwyn between May 1995 and April
2000. The term of Hallmark's license of each of its library pictures expires
on the later of five and a half years after the date of the picture's initial
availability in the U.S. home video market or Hallmark's recoupment of its
advance under the license, but no later than June 30, 2005. There is a maximum
license period for each of the current motion pictures of five and a half
years from the date on which the picture is first available to be sold in the
U.S. home video market and a maximum period of ten years from such
availability. In October 1997 the Company and Hallmark reached an agreement in
principle to terminate the Hallmark license. The Company believes that such
termination will not have a material impact on the Company.
The WHV Agreement expressly provides that WHV's rights do not extend to,
among other things, motion pictures owned, produced or released by another
major studio in the event that any of the Parties or any of their affiliates
acquires control of any such major studio (so long as substantially the same
quality and quantity of motion pictures are produced that are covered by the
WHV Agreement following the acquisition as prior to the acquisition) and
specifically names Orion as well as others as major studios. Despite this
provision, MGM Studios has received correspondence from WHV alleging that the
Orion Companies' future production and library is subject to the WHV
Agreement. The Company has responded by referring to the express Orion
exclusion and is currently in discussions with WHV about this matter. While
the Company believes that WHV's position is without merit, there can be no
assurance as to the outcome of any claim brought by WHV. To the extent that
the future production and library films of the Orion Companies, or any future
affiliate of MGM Studios, were determined to be subject to the WHV Agreement,
there would likely be a reduction in the revenue and profits from the
distribution of that product.
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The Company intends to capitalize on developing technologies such as DVD, a
high-quality mass-produced delivery system for video and audio data. The
Company believes that DVD is a promising technology that could generate
significant incremental profits for the industry because the cost of
manufacturing DVDs is substantially less than the cost of manufacturing
videocassettes and the format may be more attractive to retail purchasers than
videocassettes. The Company was among the first major studios to make titles
available on DVD. The Company believes that it is well positioned to benefit
if DVD is successful, since the high quality of DVD is expected to create
additional demand for the many classic or familiar "collectible" titles in the
Library. As DVD is a developing technology, it is uncertain when and if DVD
will become viable and, therefore, the Company does not anticipate that it
will receive any material incremental revenue from DVD in the near future.
PAY AND FREE TELEVISION DISTRIBUTION
General. The Company generally licenses its current theatrical motion
pictures for pay and free television through output agreements pursuant to
which films not yet produced are pre-licensed for a specified fee paid on
delivery. The Company believes that output agreements with international
distributors with recognized expertise are beneficial as they assure that a
significant advance will be received for a given territory and that a
prominent distributor with recognized distribution and marketing capabilities
will distribute the picture in such territory. The Company currently has a
long-term output agreement with a subsidiary of Seven. See "Certain
Transactions--Other Transactions with Seven and its Affiliates."
The Company does not intend to enter into any new long-term licensing
arrangements for its Library films as it believes that this would limit the
ability of the Company to respond quickly to changing marketplace needs, would
tie future revenue to current price levels and could decrease the value of the
Library. Instead, the Company expects to enter into relatively short-term
licenses of its Library motion pictures for pay and free television in
packages that are strategically designed for the relevant marketplace. The
Company has created a proprietary database for use by its salesforce which
contains detailed information on each of the Company's films, including dates
of availability, media controlled by the Company, sales history, genre,
format, length, stars, soundtrack, etc. This information can be utilized by
the sales force in order to create strategically designed packages of motion
pictures based on one or more various criteria. The Company believes that this
system is the most advanced in the entertainment business and provides its
sales force with an advantage in a competitive marketplace that requires large
amounts of diverse content and is becoming more receptive to packaged
programming.
Previously, the Company had distributed its motion pictures in pay
television markets outside of the U.S. and Canada through UIP. However, as
part of an agreement reached between UIP and the competition authorities of
the European Union in 1997, UIP agreed that it will no longer engage in the
licensing or marketing of motion picture product for pay television, and the
Company now licenses its motion pictures to such markets directly. See "--
Regulation."
Domestic Pay Television. The Company and Showtime have entered into a
theatrical motion picture output agreement requiring the Company's future
theatrical motion pictures to air on Showtime's pay television network. The
first output period expires upon the first to occur of August 31, 2001 or the
delivery of 150 pictures (other than specialty pictures) under the agreement.
As of August 1, 1997, the Company had delivered 25 pictures to Showtime. The
second output period commences on September 1, 2001 and expires upon the first
to occur of December 31, 2003 or the delivery of 65 additional pictures (other
than specialty pictures). Additionally, the agreement requires the Company's
future specialty motion pictures to air on Showtime's pay television network.
The output period for specialty motion pictures expires upon the first to
occur of December 31, 2003 or the delivery of 50 independent motion pictures.
The license fees for each picture are determined according to a formula based
on U.S. theatrical rentals of such picture.
Orion and Home Box Office ("HBO") have entered into a theatrical motion
picture output agreement requiring future theatrical motion pictures produced
and distributed by the Orion Companies (excluding pictures produced by Goldwyn
and distributed under the Goldwyn logo) to air on HBO's pay television
network. The
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license fees for each picture are determined according to a formula based on
U.S. theatrical rentals of such picture. The agreement expires on December 31,
2001, but HBO has the right to extend the agreement through December 31, 2006.
Goldwyn is not a party to any significant pay television licensing
agreements.
Domestic Free Television. The Company distributes its feature motion
pictures to U.S. and Canadian networks, local television stations in the U.S.
and Canada and basic cable networks. The Company also generates revenue by
granting syndication licenses on a barter basis. Barter syndication allows the
television stations to license the Company's product in exchange for a portion
of the local commercial air time. The Company, in turn, sells the inventory of
commercial air time to advertisers on a national basis, while the television
stations retain a portion of the commercial air time for local advertisers.
The Company has used outside barter companies to sell television spots to
advertisers in the past, but the Company commenced its own barter sales
business in 1996.
In connection with the acquisition of MGM/UA by Pathe in November 1990, MGM-
Pathe licensed the domestic free television rights to a substantial portion of
its library (the UA library and the post-1986 MGM/UA titles in theatrical
release at the time) and selected television programs to Turner for a period
of ten years beginning from the availability of each such product in that
market. The license excludes motion pictures released theatrically after 1987.
With respect to most of the motion pictures and television programming covered
by the license, the domestic free television rights revert to the Company
between 2000 and 2003. The Company expects to receive relatively little
revenue from the licensing of the product covered by the agreement with Turner
in the domestic free television market until 2000. The Company believes that,
due to the significant increases in licensing fees for domestic television
since 1990, the expiration of the Turner license and the subsequent ability of
the Company to freely license the Library in this market will generate
incremental revenue for the Company. See "Risk Factors--Certain Limitations on
the Exploitation of the Library."
International Pay and Free Television. The Company currently distributes its
motion pictures through pay television licenses in over 90 territories. The
Company has output agreements with licensees in major territories, including
the United Kingdom, Spain, Italy, Germany, Japan and Brazil. In 1996 the
Company received $24.3 million in revenue from international pay television
distribution, accounting for two percent of the Company's total revenue for
the year.
The Company currently distributes its motion pictures and television product
through free television licenses in over 100 territories. In 1996 the Company
received $54 million in revenues under these agreements, accounting for five
percent of the Company's total revenues for the year. These license
arrangements typically provide licensees with the right to exhibit the motion
pictures licensed on television for a specific number of airings over a period
of three to seven years.
However, in connection with the acquisition of MGM/UA by Pathe in November
1990, MGM-Pathe entered into long-term licenses of pay and free television
rights for theatrical and television movies and, in some cases, television
series in its Library at that time with United Communications (France) and
F.O.R.T.A. (Spain). A similar agreement had been entered into in 1984 with
Degeto Film (Germany). Substantially all of the license fees under these long-
term licenses have already been paid to the Company, and, therefore, the
Company does not expect to receive significant revenue from these licenses in
future periods. With respect to most of the motion pictures licensed to United
Communications, the rights granted revert to the Company between 2000 and
2003. The James Bond features were excluded from such license. With respect to
most of the motion pictures licensed to F.O.R.T.A., the free television rights
revert to the Company between 1997 and 2000. With respect to most of the
motion pictures and television series licensed to Degeto, the distribution
rights granted revert to the Company between 1999 and 2010. See "Risk
Factors--Certain Limitations on the Exploitation of the Library."
Additionally, Orion has entered into certain long-term licenses covering a
significant number of its library motion pictures in the international free
and pay television markets. Orion has already received substantially all
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of the license fees under these licenses, and therefore, the Company does not
expect significant revenue from these licenses in future periods. Orion has
licensed titles to Capitol Film and TV International (Germany), Compagnie
Luxembourgeoise de Telediffusion (France), British Sky Broadcasting (the
United Kingdom), Film Finance Group, Inc. and Principal Network Limited
(Italy) and Televisio de Catalunya, S.A. (Spain). The distribution rights
granted to Capitol Film and TV International revert to Orion in 2025. The
distribution rights granted to Compagnie Luxembourgeoise de Telediffusion
revert to Orion between 2003 and 2013. The distribution rights granted to
British Sky Broadcasting currently are reverting to Orion, with such reversion
being complete in 2002. The distribution rights granted to Film Finance Group,
Inc. and Principal Network Limited revert to Orion between 1999 and 2012. The
distribution rights granted to Televisio de Catalunya, S.A. currently are
reverting to Orion, with such reversion being complete in 2010. The Company
believes that, due to the importance of France, Spain, Germany, the United
Kingdom and Italy and the significant increases in licensing fees for
television in these markets since 1990, the expiration of these licenses and
subsequent ability of the Company to freely license its Library in these
markets will create substantial incremental revenue for the Company.
The MGM/UA and Orion licenses discussed above (in "--Domestic Free
Television" and "--International Pay and Free Television") cover many of the
most valuable motion pictures in the Library. Although the Company exploits
the remaining titles in the Library in these markets, they do not generate
significant revenues.
In addition to licensing packages of films, the Company holds equity
positions ranging from 12.5 percent to 25 percent in joint ventures such as
CineCanal, Telecine, Star Channel (through UIP) and MovieVision, which are
emerging international cable television networks broadcasting in different
territories around the world. The Company has entered into license agreements
with respect to each of CineCanal, Telecine, Star Channel and MovieVision,
licensing theatrical and television motion pictures and, in some cases,
television series to each of the ventures.
The Company believes its strategy of providing strategically pooled, branded
MGM programming through the licensing of programming packages to cable
networks and television broadcasters, as well as through the development of
new channels of distribution that deliver the Company's programming, will
provide opportunities in the international marketplace as foreign countries
continue to develop cable television infrastructures and satellite television
becomes more available.
In June 1996 the Company announced the creation of MGM Gold (Asia), a 24-
hour satellite and cable delivered Hollywood entertainment television channel
serving various Asian markets, featuring programming from the Library. MGM
Gold (Asia) is a joint venture between the Company and an indirect subsidiary
of Tele-Communications, Inc. in which each of the joint venturers shares
equally in the profits of the venture and is obligated to fund 50 percent of
the joint venture's expenses up to a maximum of $23.3 million each. As of
September 30, 1997, the Company had contributed $8.6 million to fund such
expenses. MGM Gold (Asia) commenced operations in Hong Kong in November 1996.
As of September 30, 1997 MGM Gold (Asia) was being delivered to approximately
one million subscribers in Hong Kong, Indonesia, Malaysia, the Philippines,
Singapore and Taiwan, and had authorization to deliver in various hotels in
the People's Republic of China. MGM Gold (Asia) intends to launch in Thailand
within the next twelve months. The Company has entered into license agreements
with MGM Gold (Asia), licensing certain motion pictures and trademarks to the
venture.
The Company plans to launch MGM Gold branded programming in Brazil in
December 1997. The Company is entering into agreements with two of the largest
cable delivery systems in Brazil that will allow the Company to deliver MGM
Gold programming 24 hours a day to over 90 percent of the cable households in
that country.
TRADEMARKS AND CONSUMER PRODUCTS
The Company owns the registered trademarks Metro-Goldwyn-Mayer, MGM, United
Artists, UA, Orion and variations thereof, as well as trademarks, logos and
other representations of characters, such as The Pink
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Panther, from motion pictures and television series produced or distributed by
the Company. In 1996, the Company received $8.3 million in revenue from the
licensing of these trademarks, logos and other representations.
The Company believes that the MGM name and its lion logo are among the most
recognized in the world, evoking images of classic Hollywood. The Company
believes that the name and logo represent assets the value of which has been
substantially unrealized in the past. The Company plans to pursue a focused
branded strategy that will capitalize upon the Company's name and logo and
seek licensing opportunities for such name and logo, as well as other
trademarks of the Company, in a range of high quality product categories
(including gifts and apparel), distribution channels and venues (e.g.,
location-based entertainment, such as theme restaurants and theme parks) in
both the domestic and the international markets.
In February 1980 Old MGM granted MGM Grand Inc. ("Grand Hotel") an exclusive
open-ended royalty-free license to use certain trademarks and trade names that
include the letters "MGM," as well as logos consisting of a stylized depiction
of a lion, in Grand Hotel's hotel/gaming business and businesses that are not
entertainment-related. In 1986 MGM/UA granted MGM Grand Air, Inc. ("Grand
Air") an exclusive open-ended royalty-free license to use one of its logos
consisting of a stylized depiction of a lion in Grand Air's airline business.
See "Certain Transactions--Other Transactions with Tracinda and its
Affiliates."
In June 1985 Old MGM granted to Walt Disney Productions ("Disney
Productions") an exclusive long-term worldwide license (the "Disney License")
to use all trademarks, trade names and logos of MGM Studios that do not
include "United Artists" or "UA" and portions from certain MGM and UA motion
pictures and television programming in movie theme parks of Disney Productions
that include a working movie production studio, as long as Disney Productions
makes the annual license payments. The Disney License becomes non-exclusive
with respect to the licensed trademarks, trade names and logos on May 1, 2004
and is subject to early termination under certain circumstances. Additionally,
if Disney Productions did not develop a movie theme park in any given
territory by June 27, 1994, the Disney License requires that Disney
Productions reconvey all the licensed rights in that territory to MGM Studios.
MGM Studios has requested the reconveyance of the licensed rights in all
territories except the U.S., and Disney reconveyed those rights in 1995 for
all territories except the U.S. and Western European territories in 1995. The
Company has filed a lawsuit against Disney to compel the reconveyance of the
licensed rights in Western Europe and for termination of the Disney License.
See "--Legal Proceedings."
COMPETITION
Motion picture production and distribution are highly competitive
businesses. The Company faces competition from companies within the
entertainment business, as well as alternative forms of leisure entertainment.
The Company competes with the other major studios, numerous independent motion
picture and television production companies, television networks and pay
television systems for the acquisition of literary properties, the services of
performing artists, directors, producers and other creative and technical
personnel and production financing. Numerous organizations with which the
Company competes in the motion picture industry have significantly greater
financial and other resources than does the Company, while the independent
production companies may have less overhead than the Company. Most of the
other major studios are part of large diversified corporate groups with a
variety of other operations, including television networks and cable channels,
which can provide both means of distributing their products and stable sources
of earnings that offset the fluctuations in the financial performance of their
motion picture and television operations. See "Distribution--Pay and Free
Television Distribution."
In addition, the Company's motion pictures compete for audience acceptance
and exhibition outlets with motion pictures produced and distributed by other
companies. As a result, the success of any of the Company's motion pictures is
dependent not only on the quality and acceptance of a particular picture, but
also on the quality and acceptance of other competing motion pictures released
into the marketplace at or near the same time. The number of films released by
the Company's competitors, particularly the other major film studios, in any
given
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period may create an oversupply of product in the market, thereby potentially
reducing the Company's share of gross box office admissions and may make it
more difficult for the Company's films to succeed. See "Risk Factors--Risks of
Motion Picture and Television Production."
Competition also is intense within the television industry. There are
numerous suppliers of television programming, including the networks, the
television production divisions of the major studios and independent
producers, all of which compete actively for the limited number of available
broadcast hours. The Company's programming competes with first-run
programming, network reruns and programs produced by local television
stations. Competition is also intense in supplying motion pictures and other
programming for the pay television and home video markets. Numerous
organizations with which the Company competes in the television industry have
significantly greater financial and other resources than does the Company. See
"Risk Factors--Risks of Motion Picture and Television Production."
EMPLOYEES
As of September 30, 1997, the Company had approximately 920 full-time and
part-time regular employees in its worldwide operations. Of that total,
approximately 135 were primarily engaged in production and development,
approximately 310 were primarily engaged in sales, marketing and distribution
and approximately 475 were primarily engaged in management and administration.
Approximately 150 of the Company's employees are currently covered by
employment contracts. The Company also hires additional employees on a
picture-by-picture basis in connection with the production of the Company's
motion pictures and television programming. The salaries of these additional
employees, as well as portions of the salaries of certain full-time employees
of the Company who provide direct production services, are typically allocated
to the capitalized cost of the related motion pictures or television
programming.
Approximately 45 of the Company's employees are represented under industry-
wide collective bargaining agreements with various unions, including the WGA,
the DGA, SAG and IATSE. A strike, job action or labor disturbance by the
members of any of these organizations may have a material adverse effect on
the production of a motion picture or television program within the U.S. The
Company believes that its employee and labor relations are good.
PROPERTIES
The Company leases approximately 300,000 square feet of office space, as
well as related parking facilities, for its corporate headquarters in Santa
Monica, California under several leases which generally expire in May 2003.
The Company also leases approximately 27,000 square feet in New York City for
its East Coast theatrical, publicity, marketing and theatrical and television
distribution offices under a lease that expires in June 2004. Additionally,
the Company leases approximately 96,000 square feet of office space in Los
Angeles, California, which has been used by Orion, under a lease that expires
in January 2004. The monthly rent for the above properties is approximately
$1.2 million in the aggregate (in addition to taxes, insurance and certain
expenses paid by the Company). The Company plans to sublease the office space
used by Orion as the operations of MGM Studios and Orion are integrated. In
addition, the Company maintains relatively small domestic theatrical and
television distribution branches in Boca Raton, Chicago, Montreal, San Juan
and Toronto and has small international television distribution offices in
London, Paris and Sydney. The Company also leases studio facilities and stages
from unaffiliated parties on an as-needed basis in connection with the
production of specific motion picture and television projects.
The Company believes that its current facilities are adequate to conduct its
business operations for the foreseeable future.
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REGULATION
In 1994 the U.S. was unable to reach agreement with its major international
trading partners to include audiovisual works, such as television programs and
motion pictures, under the terms of the General Agreement on Trade and Tariffs
Treaty ("GATT"). The failure to include audiovisual works under GATT allows
many countries (including members of the European Union, which consists of
Belgium, Denmark, Germany, Greece, Spain, France, Ireland, Italy, Luxembourg,
The Netherlands, Portugal and the United Kingdom) to continue enforcing quotas
that restrict the amount of U.S. produced television programming which may be
aired on television in such countries. The Council of Europe has adopted a
directive requiring all member states of the European Union to enact laws
specifying that broadcasters must reserve a majority of their transmission
time (exclusive of news, sports, game shows and advertising) for European
works. The directive does not itself constitute law, but must be implemented
by appropriate legislation in each member country. In addition, France
requires that original French programming constitute a required portion of all
programming aired on French television. These quotas generally apply only to
television programming and not to theatrical exhibition of motion pictures,
but quotas on the theatrical exhibition of motion pictures could also be
enacted in the future. There can be no assurance that additional or more
restrictive theatrical or television quotas will not be enacted or that
countries with existing quotas will not more strictly enforce such quotas.
Additional or more restrictive quotas or more stringent enforcement of
existing quotas could materially and adversely affect the business of the
Company by limiting the ability of the Company to exploit fully its motion
pictures internationally and, consequently, to finance such motion pictures.
Distribution rights to motion pictures are granted legal protection under
the copyright laws of the U.S. and most foreign countries, which laws provide
substantial civil and criminal sanctions for unauthorized duplication and
exhibition of motion pictures. The Company seeks to take appropriate and
reasonable measures to secure, protect and maintain or obtain agreements to
secure, protect and maintain copyright protection for all of its motion
pictures or television programming under the laws of applicable jurisdictions.
Motion picture piracy is an international as well as a domestic problem,
however. Motion picture piracy is extensive in many parts of the world,
including South America, Asia (including Korea, China and Taiwan), the
countries of the former Soviet Union and other former Eastern bloc countries.
In addition to the MPAA, the Motion Picture Association, the American Film
Marketing Association and the American Film Export Association monitor the
progress and efforts made by various countries to limit or prevent piracy. In
the past, these various trade associations have enacted voluntary embargoes of
motion picture exports to certain countries in order to pressure the
governments of those countries to become more aggressive in preventing motion
picture piracy. In addition, the U.S. government has publicly considered trade
sanctions against specific countries which do not take steps to prevent
copyright infringement of U.S. produced motion pictures. There can be no
assurance that voluntary industry embargoes or U.S. government trade sanctions
will be enacted. If enacted, such actions could impact the amount of revenue
that the Company realizes from the international exploitation of its motion
pictures depending upon the countries subject to such action and the duration
of such action. If not enacted or if other measures are not taken, the motion
picture industry (including the Company) may continue to lose an indeterminate
amount of revenues as a result of motion picture piracy.
Article 85(1) of the Treaty of Rome prohibits certain agreements and
concerted practices which prevent, restrict or distort trade within the
European Union. In 1989 after several years of proceedings before the European
Commission, UIP received an exemption from Article 85(1) with respect to its
theatrical distribution activities in the European Union. In connection with
this exemption, UIP gave certain undertakings to the European Commission. The
1989 exemption expired in 1993 and, although UIP has filed an application
seeking renewal of such exemption, such renewal has not yet been granted. In
July 1996 the European Commission conducted unannounced visits of four of
UIP's offices in Europe, interviewing officers and copying documents. These
visits were based on complaints submitted to the European Commission by third
parties, to the effect that UIP was acting in an anti-competitive manner and
was not complying with certain of the undertakings given by it in connection
with receiving the 1989 exemption. There can be no assurances that the 1989
exemption will be renewed or renewed on terms acceptable to UIP. If the 1989
exemption is not renewed at all or not renewed on
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terms satisfactory to UIP and UIP ceased operations, the Company believes that
it would be able to find or develop satisfactory alternative methods for
international distribution. See "Risk Factors--Importance of Third Party
Relationships."
The Code and Ratings Administration of the MPAA assigns ratings indicating
age-group suitability for theatrical distribution of motion pictures. The
Company has followed and will continue to follow the practice of submitting
its pictures for such ratings. As a substantial number of the Company's films
are rated "R," under rules enforced by theatrical exhibitors, children under
certain ages may attend the applicable motion picture only if accompanied by
an adult.
United States television stations and networks as well as foreign
governments impose content restrictions on motion pictures which may restrict
in whole or in part exhibition on television or in a particular territory.
There can be no assurance that such restrictions will not limit or alter the
Company's ability to exhibit certain motion pictures in such media or markets.
LEGAL PROCEEDINGS
MGM Pictures and UA Pictures are named defendants in a matter entitled
Estate of Jim Garrison, et al v. Warner Bros., Inc., et al, which was filed as
a putative class action in the Los Angeles County Superior Court in November
1995. Warner, Paramount, Fox, Universal, Sony, Columbia Pictures Inc., Disney,
Disney Productions, Touchstone Pictures Inc., Hollywood Pictures Inc., Tri-
Star Pictures Inc. and the MPAA were also named as defendants in the action.
The plaintiffs in the action are the heirs of Jim Garrison, the former New
Orleans District Attorney who wrote the book "On The Trail of the Assassins"
upon which the Warner film JFK was based. The action is a purported class
action against all of the major studios in which the plaintiffs claim that the
defendant studios had conspired to fix the price and terms of contingent
compensation payable by the studios to actors, directors, producers, writers
and other "rights holders" (collectively identified as "talent"), through the
use of "standard net profits" provisions in contracts entered into with
respect to motion pictures produced by the defendant studios between January
1, 1988 and the date of the complaint.
In December 1995 the defendants removed the Garrison action to the U.S.
District Court for the Central District of California. MGM Pictures and UA
Pictures have denied all of the material allegations of the complaint and have
asserted 33 separate and additional defenses. The other studio defendants have
similarly responded to the complaint. The court has denied class certification
with respect to the plaintiffs' claims for breach of contract, breach of
implied covenant, unjust enrichment, imposition of constructive trust and
declaratory relief, but has granted class certification with respect to the
plaintiffs' claims for price fixing under the Sherman Antitrust Act, price
fixing under state law, boycott/concerted refusal to deal under the Sherman
Antitrust Act and boycott/concerted refusal to deal under state law.
Discovery was recently commenced in the case, but no dispositive motions
have been filed. The plaintiffs have not yet quantified their claim for
damages, nor has the size and membership of the class been determined. Based
upon the information available to date, the Company's management does not
believe that any adverse determination in the Garrison matter is likely to
have a material adverse effect on the financial condition or results of
operations of the Company.
MGM Studios is a defendant in an action filed in the Los Angeles County
Superior Court in March 1994, entitled Parretti v. CLBN, MGM et al. The
complaint seeks damages totaling $3.9 billion dollars for breach of Mr.
Parretti's employment contract, rescission of certain pledge agreements
pursuant to which CLBN foreclosed on the stock of MGM/Pathe owned by Pathe,
injunctive relief to prohibit the sale or transfer of the MGM Studios' assets
or shares and indemnification for three pending lawsuits. MGM Studios' motions
for final judgment have been granted on all grounds, although a notice of
appeal was filed in August 1997 by Mr. Parretti. MGM Studios has
indemnification from liability in the Parretti proceeding from CDR.
Accordingly, the
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Company's management does not believe that any adverse determination in the
Parretti litigation will have any material adverse effect on the Company's
financial condition or results of operations.
In May 1996 MGM Studios initiated an action in Los Angeles County Superior
Court against Disney to compel the reconveyance of rights granted with respect
to Western European territories to Disney Productions under the Disney
License. See"--Consumer Products." MGM Studios also claims that Disney
Productions' breach of the reconveyance obligation entitles MGM Studios under
the terms of the Disney License to terminate the Disney License altogether.
The Company believes that if the Disney License is terminated, the loss of
revenue to the Company will be minimal, and the Company may be able to
relicense or otherwise exploit these rights on more favorable terms. Disney
disputes MGM Studio's allegations and seeks a court declaration that it is
under no obligation to reconvey the Western European rights and that the
Disney License has not been terminated. Trial proceedings with respect to such
action began in October 1997.
MGM Studios, as successor in interest to UA, is a defendant in an action
filed in the United States District Court for the Northern District of Georgia
entitled Turner Broadcasting System Inc., et al. v. Metro-Goldwyn-Mayer Inc.,
et al. Turner alleges that, as a result of the 1986 acquisition of Old MGM by
Turner, UA was unjustly enriched by reason of a tax benefit (loss) in excess
of $260 million to which Turner was entitled but was actually utilized by
Tracinda. Turner has moved to remand the action to the Fulton County Superior
Court, and that motion has yet to be decided. If the case is not remanded, it
is likely that it will be transferred to the United States District Court for
the District of Nevada, in which a similar action between Turner and Tracinda
currently is pending. Management believes that UA did not receive any benefit
from these transactions and accordingly that it is unlikely that the Turner
matter would have a material adverse effect on the Company's financial
condition or results of operations.
Certain subsidiaries of the Company are defendants in an action pending in
the Commercial Court of Brussels, Belgium entitled Credit General Foncier et
Mobilier S.A. ("Cregefon") et al. v. Canon International V.O.F., Canon
International N.V., Canon Film Distribution Nederland B.V. and Pathe
Entertainment N.V. The action involves a suit by the bankruptcy trustee of
Cregefon to recover a 1990 loan made to Canon International V.O.F., as a
depository for Comfinance S.A. (a company associated with Mr. Parretti). The
suit seeks damages of up to approximately $60 million. The Company has
indemnification from CDR with respect to this matter. As a result, management
believes that the Cregefon litigation will not have any material adverse
effect on the Company's financial condition or results of operations.
Orion is a defendant in a matter entitled Sidney Sapsowitz et al. v. John W.
Kluge, Metromedia International Inc., and Orion Pictures Corp., et al., which
was filed in June 1997. The plaintiffs claim a "finder's fee" of $28.5 million
in connection with the Orion Acquisition. There have been no material
developments in the Sapsowitz case to date. Pursuant to the terms of
agreements executed in connection with the Orion Acquisition, the Company has
indemnification from Metromedia International Group, Inc. with respect to the
payment of any finder's fee. As a result, management believes that the
Sapsowitz litigation will not have any material adverse effect on the
Company's financial condition or results of operations.
In addition, from time to time the Company becomes involved in other
litigation arising in the normal course of business, and the Company believes
that none of such other litigation as is currently pending will have a
material adverse effect on the Company's financial condition or results of
operations.
57
<PAGE>
MANAGEMENT
CURRENT DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the name, age and position of each of the
directors and executive officers of the Company as of September 30, 1997. Each
director will hold office until the next annual meeting of stockholders or
until his or her successor has been elected and qualified. Executive officers
are elected by the Board of Directors and serve at the discretion of the Board
of Directors and Mr. Mancuso.
<TABLE>
<CAPTION>
NAME AGE POSITIONS
---- --- ---------
<C> <C> <S>
Frank G. Mancuso... 64 Chairman of the Board, Chief Executive Officer
and Director
A. Robert Pisano... 54 Vice Chairman
James D. Aljian.... 64 Director
Michael R. Gleason. 43 Director
Kirk Kerkorian..... 80 Director
Kerry M. Stokes.... 57 Director
Jerome B. York..... 59 Director
Michael G. 40 Senior Executive Vice President and Chief
Corrigan.......... Financial Officer
David G. Johnson... 41 Senior Executive Vice President and General
Counsel
William A. Jones... 55 Senior Executive Vice President and Secretary
</TABLE>
All members of the Board of Directors of the Company are elected annually by
the stockholders of the Company for a one-year term. The Common Stock does not
have cumulative voting rights. The Company, MGM Studios, Tracinda, Seven and
Mr. Mancuso are parties to an Amended and Restated Investors Shareholder
Agreement dated as of August 4, 1997 (the "Investors Shareholder Agreement")
pursuant to which they have agreed to vote their respective shares of the
Common Stock as a group with respect to certain matters, including, but not
limited to, certain corporate governance matters and the election of the Board
of Directors of the Company. See "Risk Factors--Ownership and Control of
Principal Stockholders" and "Ownership of Voting Securities--Investors
Shareholder Agreement."
BACKGROUNDS OF CURRENT DIRECTORS AND EXECUTIVE OFFICERS
Frank G. Mancuso. Mr. Mancuso has been the Chairman of the Board and Chief
Executive Officer of the Company since October 1996 and has been the Chairman
of the Board and Chief Executive Officer of MGM Studios since July 1993. Prior
to joining MGM Studios, Mr. Mancuso was the Chairman and Chief Executive
Officer of Paramount from September 1984 to March 1991, having served
Paramount in numerous other capacities beginning in 1963, and was an
entertainment industry consultant and private investor from March 1991 to July
1993.
A. Robert Pisano. Mr. Pisano will be appointed as a director and Vice
Chairman of the Board of Directors of the Company immediately following the
Offering. Mr. Pisano has served as Vice Chairman of the Company and MGM
Studios since March 1997 and, prior thereto, served as Executive Vice
President of MGM Studios from August 1993 to March 1997. Prior to joining MGM
Studios, Mr. Pisano was Executive Vice President of Paramount from June 1985
to May 1991, where he served as General Counsel and a member of the Office of
the Chairman. Prior to 1985 and from February 1992 to August 1993, Mr. Pisano
was a partner with the law firm of O'Melveny & Myers LLP.
James D. Aljian. Mr. Aljian has been a director of the Company since October
1996. Mr. Aljian has served as an executive of Tracinda since October 1987. In
addition, Mr. Aljian serves on the board of directors of MGM Grand, Inc. and
Chrysler Corporation.
Michael R. Gleason. Mr. Gleason has been a director of the Company since
October 1996. Mr. Gleason has served as President of MPK Capital, Inc., the
general partner of Culmen Group, L.P., a Texas limited
58
<PAGE>
partnership since November 1993. Culmen Group, L.P. regularly provides
financial advisory services to Seven. Prior thereto, Mr. Gleason served as
Vice President of PaineWebber Group, Inc. from February 1991 to November 1993.
Kirk Kerkorian. Mr. Kerkorian has been a director of the Company since
October 1996 and has had a professional relationship with MGM Studios for over
25 years. See "Background of the Company." Mr. Kerkorian has served as Chief
Executive Officer, President and sole director and shareholder of Tracinda for
more than the past five years. In addition, Mr. Kerkorian serves on the board
of directors of MGM Grand, Inc.
Kerry M. Stokes. Mr. Stokes has been a director of the Company since October
1996. Mr. Stokes has served as the Chairman of Australian Capital Equity Pty
Ltd, an Australian private holding company, for more than the past fifteen
years. Australian Capital Equity has various interests, including a
Caterpillar dealership, print and electronic media and investments in real
estate, industrial and other listed public companies. In addition, Mr. Stokes
has been the Chairman of Seven since June 1995.
Jerome B. York. Mr. York has been a director of the Company since October
1996. Mr. York has served as the Vice Chairman of Tracinda since September
1995. Prior to joining Tracinda, Mr. York served as Senior Vice President and
Chief Financial Officer of IBM Corporation from May 1993 to September 1995 and
as a director of IBM Corporation from January 1995 to September 1995. Prior
thereto, Mr. York served as Executive Vice President-Finance and Chief
Financial Officer of Chrysler Corporation from May 1990 to May 1993 and as a
director of Chrysler Corporation from April 1992 to May 1993. In addition, Mr.
York serves on the board of directors of MGM Grand, Inc., Apple Computer, Inc.
and USA Waste Services, Inc.
Michael G. Corrigan. Mr. Corrigan has been Senior Executive Vice President
and Chief Financial Officer of the Company and MGM Studios since July 1997.
From 1978 until July 1997, Mr. Corrigan was with Price Waterhouse LLP, an
independent accounting firm, most recently as a senior partner with the
entertainment, media and communications practice group.
David G. Johnson. Mr. Johnson has been Senior Executive Vice President and
General Counsel of the Company and MGM Studios since June 1997 and, prior
thereto, was Executive Vice President and General Counsel of MGM Studios since
January 1995. From September 1990 until January 1995 Mr. Johnson was with the
law firm of White & Case, most recently as a partner in its Los Angeles
office.
William A. Jones. Mr. Jones has been Senior Executive Vice President and
Secretary of the Company and MGM Studios since June 1997 and, prior thereto,
served as Executive Vice President-Corporate Affairs and Secretary of MGM
Studios since January 1995. Mr. Jones served as Executive Vice President,
General Counsel and Secretary of MGM-Pathe and MGM Studios from May 1991 to
January 1995 and as General Counsel and Secretary of predecessors to the
Company since 1983. Mr. Jones was a director of MGM-Pathe from June 1991 to
January 1992.
DIRECTORS TO BE APPOINTED FOLLOWING COMPLETION OF THE OFFERING
It is anticipated that, promptly following the completion of the Offering,
four persons in addition to Mr. Pisano will be selected and added to the Board
of Directors, including three persons meeting the requirements of the NYSE for
serving as independent directors, and one person nominated by Tracinda.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to the Offering, a Compensation Committee of the Board of Directors
will be established and will be responsible for administering the Company's
stock incentive plans and reviewing and making recommendations to the Board of
Directors with respect to employment agreements and the compensation of
officers and key employees, including the granting of options under the stock
incentive plans. See "--Executive Compensation" and "--Employment Agreements."
During 1996 the Company did not have a Compensation Committee of the
59
<PAGE>
Board of Directors. Messrs. Mancuso and Pisano, as well as Mr. Michael Hope
(who is no longer employed by the Company), served on a Management Committee
of the Company which, among other things, was responsible for the functions of
the Compensation Committee. None of the executive officers of the Company
served on the board of directors or the compensation committee of any other
entity, any of whose officers served either on the Board of Directors or on
the Management or Compensation Committee of the Company.
AUDIT COMMITTEE
The Audit Committee of the Board of Directors of the Company currently
consists of Mr. York and Mr. Gleason. Promptly following completion of the
Offering the three independent directors will be added to the Audit Committee.
The function of the Audit Committee is to: (i) review and approve the
selection of, and all services performed by, the Company's independent
auditors; (ii) meet and consult with and receive reports from, the Company's
independent auditors, its financial and accounting staff and its internal
audit department regarding internal controls; and (iii) review and act with
respect to the scope of audit procedures, accounting practices and internal
accounting and financial controls of the Company.
EXECUTIVE COMPENSATION
Compensation Summary. The following table sets forth the cash compensation
(including cash bonuses) paid or awarded by the Company for the fiscal year
ended December 31, 1996, to the Chief Executive Officer and the other four
most highly compensated executive officers of the Company who were serving as
executive officers at December 31, 1996 and certain other individuals who
would have been included among the four most highly compensated executive
officers of the Company, but for the fact that they were not serving as
executive officers of the Company at December 31, 1996 (the "Named Executive
Officers").
SUMMARY COMPENSATION TABLE FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------- -------------------------------
SECURITIES
NAME AND PRINCIPAL OTHER ANNUAL BONUS UNDERLYING ALL OTHER
POSITION SALARY ($) BONUS ($) COMPENSATION ($) INTERESTS (#)(1) OPTIONS (#)(2) COMPENSATION ($)
------------------ ---------- --------- ---------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Frank G. Mancuso........ $2,691,408 $750,000 $576,923(3) 811,756 1,745,680 $17,228,129(4)
Chairman of the Board
and Chief Executive
Officer
A. Robert Pisano........ 816,984 -- -- 243,544 523,754 1,800,706(5)
Vice Chairman
Michael S. Hope(6)...... 771,600 -- -- -- -- 1,800,969(7)
Executive Vice
President
David G. Johnson........ 482,623 122,692 -- 83,334 179,168 538,858(8)
Senior Executive Vice
President and General
Counsel
William A. Jones........ 466,966 -- -- 74,209 159,584 1,051,476(9)
Senior Executive Vice
President and Secretary
</TABLE>
- --------
(1) Represents the number of bonus interests granted pursuant to the Senior
Management Bonus Plan (as such term is defined below). If approved by the
stockholders, each bonus interest entitles the participant to receive up
to $24.00 under certain circumstances. See "--Incentive and Bonus Plans--
Senior Management Bonus Plan."
60
<PAGE>
(2) Represents options granted under the 1996 Incentive Plan (as such term is
defined below, see "--Incentive and Bonus Plans--1996 Incentive Plan")
after giving effect to the cancellation and re-grant of options (described
under "--Incentive and Bonus Plans") as follows: 872,840, 261,877, 89,584,
and 79,792 Series A Options and 872,840, 261,877, 89,584, and 79,792
Series B Options granted to Messrs. Mancuso, Pisano, Johnson and Jones,
respectively.
(3) Represents the portion of the annual stock purchase payment paid to Mr.
Mancuso during the period of October 10, 1996 to December 31, 1996
pursuant to his employment agreement, out of the after-tax proceeds of
which he is required to purchase shares of the Common Stock at a purchase
price of $24.00 through December 31, 1997 and, thereafter, at the fair
market value of such shares. See "--Employment Agreements--Frank G.
Mancuso."
(4) Includes: $14,468,220 paid to Mr. Mancuso by CL in 1997 as additional
compensation as a result of the sale of MGM Studios to the Company (see
"--CL Payments"); $1,020,000 in cash and 63,751 shares of the Common Stock
(valued at $24.00 per share) paid or issued to Mr. Mancuso by the
Company in connection with the MGM Acquisition, the waiver of certain
rights under his prior employment agreement and the execution of his
current employment agreement; and $209,885 in life insurance premiums paid
by the Company for the benefit of Mr. Mancuso. See "--Employment
Agreements--Frank G. Mancuso."
(5) Includes: $1,200,963 paid to Mr. Pisano by CL in 1997 as additional
compensation as a result of the sale of MGM Studios to the Company (see
"--CL Payments"); $235,343 in cash and 15,000 shares of the Common Stock
(valued at $24.00 per share) paid or issued to Mr. Pisano by the Company
in connection with the MGM Acquisition, the waiver of certain rights under
his prior employment agreement and the execution of his current employment
agreement; and $4,400 in life insurance premiums paid by the Company for
the benefit of Mr. Pisano. See "--Employment Agreements--A. Robert
Pisano."
(6) Mr. Hope, in addition to other duties, performed the duties of the Chief
Financial Officer of the Company and resigned from the Company effective
as of January 31, 1997. On July 1, 1997 Michael G. Corrigan was appointed
Chief Financial Officer of the Company. See "--Employment Agreements--
Michael G. Corrigan."
(7) Includes: $1,200,963 paid to Mr. Hope by CL in 1997 as additional
compensation as a result of the sale of MGM Studios to the Company (see
"--CL Payments"); $595,166 paid to Mr. Hope by the Company in connection
with Mr. Hope's election to terminate his employment with the Company as a
result of the MGM Acquisition; and $4,840 in life insurance premiums paid
by the Company for the benefit of Mr. Hope.
(8) Includes: $213,850 in cash and 13,542 shares of the Common Stock (valued
at $24.00 per share) paid or issued to Mr. Johnson by the Company in
connection with the MGM Acquisition, the waiver of certain rights under
his prior employment agreement and the execution of his current employment
agreement. See "--Employment Agreements--David G. Johnson."
(9) Includes: $416,178 in cash and 26,042 shares of the Common Stock (valued
at $24.00 per share) paid or issued to Mr. Jones by the Company in
connection with the MGM Acquisition and the termination of his prior
employment agreement; and $10,290 in life insurance premiums paid by the
Company for the benefit of Mr. Jones. See "--Employment Agreements--
William A. Jones."
61
<PAGE>
Option Grants. The following table sets forth information with respect to
grants of employee stock options issued by the Company to the Named Executive
Officers for the fiscal year ended December 31, 1996. The Company did not
grant any stock appreciation rights during such fiscal year.
OPTION GRANTS IN FISCAL YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE
-------------------------------------------------------- AT ASSUMED ANNUAL RATES
PERCENT OF OF STOCK PRICE
SHARES TOTAL OPTIONS APPRECIATION
UNDERLYING GRANTED TO EXERCISE OR FOR OPTION TERM ($)
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION -----------------------
NAME GRANTED (#)(1) FISCAL YEAR (%)(2) ($/SH) DATE 5% 10%
---- -------------- ------------------ ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Frank G. Mancuso........ 1,745,680 44.6% $24.00 10/1/2006 $26,348,371 $66,771,944
A. Robert Pisano........ 523,754 13.4 24.00 10/1/2006 7,905,266 20,033,496
Michael S. Hope......... -- -- 24.00 -- -- --
David G. Johnson........ 179,168 4.6 24.00 10/1/2006 2,658,987 6,738,394
William A. Jones........ 159,584 4.1 24.00 10/1/2006 2,408,676 6,104,059
</TABLE>
- --------
(1) Represents options granted under the 1996 Incentive Plan after giving
effect to the cancellation and regrant of options (described under "--
Incentive and Bonus Plans") as follows: 872,840, 261,877, 89,584, and
79,792 Series A Options and 872,840, 261,877, 89,584, and 79,792 Series B
Options granted to Messrs. Mancuso, Pisano, Johnson and Jones,
respectively.
(2) Based on a total of 3,914,944 employee stock options granted as of
December 31, 1996.
The following table sets forth information with respect to the ownership and
value of options as of December 31, 1996 held by the Named Executive Officers.
No Named Executive Officer exercised any options in the fiscal year ended
December 31, 1996.
AGGREGATED OPTION EXERCISES IN FISCAL YEAR ENDED DECEMBER 31, 1996
AND OPTION VALUES AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
SECURITIES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE-MONEY
OPTIONS AT DECEMBER 31, 1996 OPTIONS AT DECEMBER 31, 1996
--------------------------------------- ---------------------------------------
NAME EXERCISABLE (#)(1) UNEXERCISABLE (#)(2) EXERCISABLE ($)(1) UNEXERCISABLE ($)(3)
---- ------------------ -------------------- ------------------ --------------------
<S> <C> <C> <C> <C>
Frank G. Mancuso........ -- 1,745,680 $ -- $ --
A. Robert Pisano........ -- 523,754 -- --
Michael S. Hope......... -- -- -- --
David G. Johnson........ -- 179,168 -- --
William A. Jones........ -- 159,584 -- --
</TABLE>
- --------
(1) No options under the 1996 Incentive Plan were exercised during the fiscal
year ended December 31, 1996. Each outstanding option under the 1996
Incentive Plan is exercisable at $24.00 per share of the Common Stock,
generally vests over a period of five years and is not exercisable until
vested and, as to the outstanding Series A Options and Series B Options
(described below), until six months after completion of the Offering or
December 31, 2001, respectively, subject in each case to early vesting
and, depending on the circumstances, early exercisability in certain
events, including the death or permanent disability of the optionee,
termination of the optionee's employment under certain circumstances or a
Designated Change in Control of the Company (as defined in the 1996
Incentive Plan). See "--Incentive and Bonus Plans--1996 Incentive Plan."
(2) Represents options granted under the 1996 Incentive Plan after giving
effect to the cancellation and regrant of options (described under "--
Incentive and Bonus Plans") as follows: 872,840, 261,877, 89,584, and
79,792 Series A Options and 872,840, 261,877, 89,584, and 79,792 Series B
Options granted to Messrs. Mancuso, Pisano, Johnson and Jones,
respectively.
(3) The Board of Directors of the Company has determined that the fair market
value of the Common Stock as of December 31, 1996 was $24.00 per share,
the same as the exercise price under the 1996 Incentive Plan.
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<PAGE>
The following table sets forth information with respect to the ownership of
bonus interests granted under the 1997 Senior Management Bonus Plan as of
December 31, 1996 held by the Named Executive Officers.
LONG-TERM INCENTIVE PLANS--AWARDS IN FISCAL YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
NUMBER OF SHARES, PERFORMANCE OR OTHER
UNITS OR OTHER PERIOD UNTIL
NAME RIGHTS (#)(1) MATURATION OR PAYOUT
---- ----------------- --------------------
<S> <C> <C>
Frank G. Mancuso......................... 811,756 5 years
A. Robert Pisano......................... 243,544 5 years
Michael S. Hope.......................... -- --
David G. Johnson......................... 83,334 5 years
William A. Jones......................... 74,209 5 years
</TABLE>
- --------
(1) Represents the number of bonus interests granted pursuant to the Senior
Management Bonus Plan. If approved by the Stockholders, each bonus
interest entitles the participant to receive up to $24.00 under certain
circumstances. See "--Incentive and Bonus Plans--Senior Management Bonus
Plan."
Pension Plans. The Company maintains a retirement plan (the "MGM Retirement
Plan"), which covers substantially all of the employees of the Company. See
"--Employee Benefit Plans--MGM Retirement Plan." The Company also has entered
into the MGM Supplemental Executive Retirement Agreement dated April 22, 1996,
as amended and restated as of July 18, 1997 (the "Supplemental Executive
Retirement Agreement"), with Mr. Pisano. See "--Employee Benefit Plans--
Supplemental Executive Retirement Agreement." The following table sets forth
estimated annual benefits payable upon retirement with regard to the MGM
Retirement Plan.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE(1)
-----------------------------------------
REMUNERATION(2) 15 20 25 30 35
- --------------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
$50,000.............................. $11,625 $15,500 $19,375 $ 23,250 $ 27,125
100,000.............................. 25,067 33,422 41,778 50,133 58,489
150,000.............................. 39,317 52,422 65,528 78,633 91,739
160,000.............................. 42,167 56,222 70,278 84,333 98,389
200,000.............................. 53,567 71,422 89,278 107,133 124,989
</TABLE>
- --------
(1) As of September 30, 1997, Messrs. Mancuso, Pisano, Johnson and Jones were
credited with 4, 4, 2 and 14 years of service, respectively. As of
December 31, 1996, Mr. Hope was credited with 3.5 years of service.
(2) The compensation covered by the MGM Retirement Plan includes base salary
only, and not bonus or other amounts. The amount of the benefit to which a
participant is entitled is an annual amount equal to 1.55% of annual base
salary up to the Social Security wage base (currently $65,400) plus 1.9%
of annual base salary above that amount up to the maximum allowable under
the MGM Retirement Plan (currently $160,000 per year) for each year of
credited service up to a maximum of 35 years, at which time the applicable
percentage is 1.55% of the annual base salary for each year of service in
excess of 35. Benefits become vested upon completion of five years of
service. For each of the Named Executive Officers, other than Mr. Hope,
the current compensation covered by the MGM Retirement Plan is the maximum
allowable under the MGM Retirement Plan, which is substantially less than
the annual compensation for each such Named Executive Offices listed in
the "Salary" column of the Summary Compensation Table. Mr. Hope resigned
from the Company effective January 1, 1997 and, therefore, is no longer
covered by the MGM Retirement Plan and, since Mr. Hope did not complete
five years of service with the Company, his benefits under the MGM
Retirement Plan did not vest.
CL Payments. Pursuant to agreements entered into prior to the MGM
Acquisition, certain persons who were then executive officers of MGM Studios,
including Mr. Mancuso, Mr. Pisano, and Mr. Hope, received cash payments from
CL in connection with the sale of MGM Studios to the Company in return for
services rendered
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<PAGE>
in connection with the revitalization of MGM Studios. The amounts of such
payments were based on the appreciation in the value of MGM Studios prior to
the MGM Acquisition.
INCENTIVE AND BONUS PLANS
1996 Incentive Plan. The Company has an Amended and Restated 1996 Stock
Incentive Plan (the "1996 Incentive Plan"). The 1996 Incentive Plan will be
administered by the Compensation Committee, which will have broad authority.
Awards under the 1996 Incentive Plan are generally not restricted to any
specific form or structure and may include, without limitation, qualified or
non-qualified stock options, incentive stock options, restricted stock awards
and stock appreciation rights (collectively, "Awards"). Awards may be
conditioned on continued employment, have various vesting schedules and
accelerated vesting and exercisability provisions in the event of, among other
things, a change in control of the Company.
At September 30, 1997, 8,125,065 shares of the Common Stock were reserved
for award under the 1996 Incentive Plan, of which options to purchase
5,205,702 shares of the Common Stock were outstanding. Of the outstanding
options, 1,020,031 options are vested and exercisable (or will vest or become
exercisable within 60 days). The outstanding options are exercisable at $24.00
per share, generally vest over a period of five years and are not exercisable
until vested and, even if vested, are not exercisable until six months after
completion of the Offering (as to approximately one-half of the options) or
December 31, 2001 (as to the balance), subject in each case to early vesting
and, depending on the circumstances, early exercisability in certain events,
including the death or permanent disability of the optionee, termination of
the optionee's employment under certain circumstances or a "Designated Change
in Control" of the Company. A Designated Change in Control is defined to
include (i) Tracinda and Seven ceasing to beneficially own in the aggregate
50.1% or more of the voting securities of the Company and any other person,
other than an entity controlled by the Company, beneficially owning 30% or
more of the voting securities of the Company or (ii) the sale of substantially
all of the assets of the Company. See "--Original Plan; Repricing of Options
and Cancellation of Bonus Interests."
Senior Management Bonus Plan. The Company has a Senior Management Bonus Plan
(the "Senior Management Bonus Plan") under which 2,420,685 bonus interests
("Bonus Interests") have been granted to key employees. No additional bonus
interests may be issued under the Bonus Plan. The Senior Management Bonus Plan
will be administered by a committee of independent directors. The Senior
Management Bonus Plan and the Bonus Interests are subject to approval by the
stockholders of the Company no later than September 30, 1998. If a majority of
the outstanding shares of the Company do not approve the Senior Management
Bonus Plan and the Bonus Interests, such plan will be null and void and no
amounts will be paid pursuant to the Bonus Interests. Tracinda and Seven,
which together will own in excess of the majority of the outstanding shares of
the Company after the Offering, have committed to the holders of the Bonus
Interests to vote their shares in favor of the Senior Management Bonus Plan
and the Bonus Interests.
Subject to the stockholder approval requirement discussed above and subject
to certain vesting and other requirements, each Bonus Interest entitles the
holder to receive a cash payment if (a) the sum of per share distributions on
the Common Stock and the average closing price of the Common Stock during the
20 trading days (together, the "Price") preceding a Determination Date
(defined below) is greater than (b) $24.00 and less than $48.00 (adjusted for
stock splits, reverse stock splits and similar events). The cash payment will
be equal to (i) the vested portion of the Bonus Interest at the Determination
Date multiplied by (ii) the amount by which the Price at the Determination
Date is less than $48.00 (i.e., a maximum of $24.00 per Bonus Interest). Once
a payment is made in respect of the vested portion of a Bonus Interest, no
further payment is due in respect of that portion. If at any Determination
Date the Price exceeds $48.00, no payment will thereafter be due in respect of
any then-vested portion of a Bonus Interest.
Determination Dates occur on June 30 and December 31 of each year,
commencing December 31, 2001 and ending December 31, 2006, and will also occur
upon a Designated Change in Control or the taking of any action for the
dissolution or liquidation of the Company (each a "Special Circumstance").
64
<PAGE>
Bonus Interests generally vest 20% at October 1, 1997 and 1.67% each month
thereafter. The Senior Management Bonus Plan provides for accelerated vesting
and payment in the event of a Special Circumstance, accelerated vesting in the
event of termination of employment in certain circumstances and a special
Determination Date and payment at discounted present value, for the key
employee involved, in the event of death or permanent disability.
Original Plan; Repricing of Options and Cancellation of Bonus
Interests. Options to purchase 2,602,851 shares of the Common Stock at $24.00
per share ("Series A Options"), 2,859,648 shares of the Common Stock at $78.43
per share ("Series B Options") and 2,602,851 Bonus Interests that were granted
in tandem with Series A Options were outstanding under the 1996 Incentive Plan
prior to its amendment and restatement (the "Original Plan"). Subject to
vesting, which generally was to occur over a five-year period ending October
1, 2001 and was subject to acceleration under certain circumstances, these
bonus interests entitled the holder to $22.32 per Bonus Interest if the fair
market value of the outstanding capital stock of the Company (as determined in
the Original Plan) was more than $1.26 billion (subject to adjustment to
reflect certain capital distributions and contributions) at any determination
date specified in the Original Plan.
In connection with the amendment and restatement of the Original Plan, the
optionees and holders of Bonus Interests agreed with the Company that the
Series A Options, Series B Options and Bonus Interests outstanding under the
Original Plan would be cancelled. Concurrently with such amendment and
restatement, the options to purchase 5,205,702 shares of the Common Stock
described above under "1996 Incentive Plan" were granted to the holders
thereof.
EMPLOYMENT AGREEMENTS
Frank G. Mancuso. The Company has entered into an employment agreement with
Frank G. Mancuso effective as of October 10, 1996, as amended as of August 4,
1997, which provides that he will serve as Chairman and Chief Executive
Officer of the Company for a term of five years. Mr. Mancuso is entitled to an
annual base salary of $2 million, subject to increase at the discretion of the
Board of Directors of the Company and an annual stock purchase payment of $3
million (payable monthly) out of the after tax proceeds of which he is
required to purchase shares of the Common Stock at a price of $24.00 per share
until December 31, 1997 and, thereafter, at the fair market value of such
shares. In addition, Mr. Mancuso is entitled to receive certain other
benefits, including a car allowance, medical insurance and any other similar
plan or program which the Company provides for its senior officers generally,
participation in the Company's 1996 Incentive Plan and other benefits
customarily afforded to executives of similar stature in the motion picture
industry. The Company is also obligated to maintain a five year, reducing-term
life insurance policy in the initial face amount of $25 million on Mr.
Mancuso's life for his benefit. Pursuant to his employment agreement, Mr.
Mancuso holds stock options to purchase shares of the Common Stock. See "--
Executive Compensation" and "--Incentive and Bonus Plans--1996 Incentive
Plan." In connection with the MGM Acquisition, in consideration of the waiver
by Mr. Mancuso of certain rights relating to the change of control under his
previous employment agreement with the Company and to induce him to enter into
the existing employment agreement, in October 1996 Mr. Mancuso received 63,751
shares of the Common Stock and $1,020,000 in cash. If Mr. Mancuso's employment
is terminated without cause by the Company or if Mr. Mancuso terminates the
agreement for "good reason," which includes a Designated Change in Control of
the Company (as defined in the 1996 Incentive Plan), he will be entitled to
receive as severance an amount equivalent to the present value of the sum of
the base salary and the stock purchase payment for the entire remaining term
of the employment agreement, and his account in the 1996 Incentive Plan will
vest immediately. As of September 30, 1997, the amount payable to Mr. Mancuso
in the event of such circumstances would be approximately $18 million. Mr.
Mancuso is entitled to resign at any time on not less than 30 days' prior
notice.
A. Robert Pisano. The Company has entered into an employment agreement with
Mr. Pisano effective as of October 10, 1996, which provides that he will serve
as Vice Chairman of the Company for an initial term of five years. Pursuant to
the agreement, Mr. Pisano is entitled to an annual salary of $950,000, an
annual guaranteed bonus of $750,000 and an annual discretionary bonus which is
determined by the Chief Executive Officer of the Company, subject to the
approval of the Compensation Committee of the Board of Directors. In
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addition, Mr. Pisano is entitled to receive certain other benefits, including
a car allowance, medical insurance, participation in the Company's 1996
Incentive Plan and participation in the Company's 401(k), savings plan,
pension plan and any other similar plan or program which the Company provides
for its senior officers generally. The Company is also obligated to maintain a
term life insurance policy in the face amount of $5 million on Mr. Pisano's
life for his benefit. Furthermore, Mr. Pisano is entitled to receive certain
additional retirement benefits under his Supplemental Executive Retirement
Agreement. See "--Employee Benefit Plans--Supplemental Executive Retirement
Agreement." Under the 1996 Incentive Plan, Mr. Pisano holds stock options to
purchase shares of the Common Stock. See "--Executive Compensation" and "--
Incentive and Bonus Plans--1996 Incentive Plan." In connection with the MGM
Acquisition, in consideration of the waiver by Mr. Pisano of certain rights
relating to the change of control under his previous employment agreement with
the Company and to induce him to enter into his existing employment agreement,
Mr. Pisano received 15,000 shares of the Common Stock and $235,343 in cash. If
Mr. Pisano's employment is terminated without cause by the Company or if he
terminates the agreement for "good reason," which includes a Designated Change
in Control of the Company (as defined in the 1996 Incentive Plan), he will be
entitled to receive the net present value of the difference between
(i) $8.5 million and (ii) the sum of the annual salary and the guaranteed
bonuses paid to him to the date of the termination and, in addition, all
insurance benefits for the remainder of the term of the employment agreement.
As of September 30, 1997, the amount payable to Mr. Pisano in the event of
such circumstances would be approximately $6.6 million.
Michael G. Corrigan. The Company has entered into an employment agreement
with Mr. Corrigan effective as of July 1, 1997, which provides that he will
serve as Senior Executive Vice President and Chief Financial Officer of the
Company for an initial term of five years. Pursuant to the agreement, Mr.
Corrigan is entitled to an annual salary of $700,000 and an annual
discretionary bonus which is determined by the Chief Executive Officer of the
Company, subject to the approval of the Compensation Committee of the Board of
Directors. In addition, Mr. Corrigan is entitled to receive certain other
benefits, including a car allowance, medical insurance, participation in the
Company's 1996 Incentive Plan and participation in the Company's 401(k),
savings plan, pension plan and any other similar plan or program which the
Company provides for its senior officers generally. Under the 1996 Incentive
Plan, Mr. Corrigan holds options to purchase 179,168 shares of the Common
Stock, each at an exercise price of $24.00 per share. See "--Incentive and
Bonus Plans--1996 Incentive Plan." Mr. Corrigan also holds 83,334 Bonus
Interests granted to him under the Senior Management Bonus Plan. See "--
Incentive and Bonus Plans--Senior Management Bonus Plan." If Mr. Corrigan's
employment is terminated without cause by the Company or if he terminates the
agreement for "good reason," he will be entitled to receive the net present
value of the sum of the annual salary through the entire remaining term of the
employment agreement and all insurance benefits for the remainder of the term
of the employment agreement.
David G. Johnson. The Company has entered into an employment agreement with
Mr. Johnson effective as of October 10, 1996, which provides that he will
serve as Senior Executive Vice President and General Counsel of the Company
for an initial term of five years. Pursuant to the agreement, Mr. Johnson is
entitled to a current annual salary of $600,000, which will increase by
$50,000 each year for four years, an annual guaranteed bonus of $100,000 and
an annual discretionary bonus which is determined by the Chief Executive
Officer of the Company, subject to the approval of the Compensation Committee
of the Board of Directors. In addition, Mr. Johnson is entitled to receive
certain other benefits, including a car allowance, medical insurance,
participation in the Company's 1996 Incentive Plan and participation in the
Company's 401(k), savings plan, pension plan and any other similar plan or
program which the Company provides for its senior officers generally. Under
the 1996 Incentive Plan, Mr. Johnson holds stock options to purchase shares of
the Common Stock. See "--Executive Compensation" and "--Incentive and Bonus
Plans--1996 Incentive Plan." In connection with the MGM Acquisition, in
consideration of the waiver by Mr. Johnson of certain rights relating to the
change in control under his previous employment agreement with the Company and
to induce him to enter into his existing employment agreement, Mr. Johnson
received 13,542 shares of the Common Stock and $213,850 in cash. If
Mr. Johnson's employment is terminated without cause by the Company or if he
terminates the agreement for "good reason," which includes a Designated Change
in Control of the Company (as defined in the 1996 Incentive Plan), he will be
entitled to receive the net present value of the sum of the annual salary and
the guaranteed bonus through the entire remaining term of the agreement and
all insurance benefits for the remainder
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of the term of the employment agreement. As of September 30, 1997, the amount
payable to Mr. Johnson in the event of such circumstances would be
approximately $2.6 million.
William A. Jones. The Company has entered into an employment agreement with
Mr. Jones effective as of October 10, 1996, which provides that he will serve
as Senior Executive Vice President of the Company for an initial term of five
years. Pursuant to the agreement, Mr. Jones is entitled to a current annual
salary of $575,000, which will increase $50,000 each year for two years and
then be subject to adjustment as determined by the Company, and an annual
discretionary bonus which is determined by the Chief Executive Officer of the
Company, subject to the approval of the Compensation Committee of the Board of
Directors. In addition, Mr. Jones is entitled to receive certain other
benefits, including a car allowance, medical insurance, participation in the
Company's 1996 Incentive Plan and participation in the Company's 401(k),
savings plan, pension plan and any other similar plan or program which the
Company provides for its senior officers generally. The Company is also
obligated to maintain a term life insurance policy in the face amount of $2
million on Mr. Jones' life for his benefit. Under the 1996 Incentive Plan, Mr.
Jones holds stock options to purchase shares of Common Stock. See "--Executive
Compensation" and "--Incentive and Bonus Plans--1996 Incentive Plan." In
connection with the MGM Acquisition, in consideration of the waiver by Mr.
Jones of certain rights relating to the change in control under his previous
employment agreement with the Company and to induce him to enter into his
existing employment agreement, Mr. Jones received 26,042 shares of the Common
Stock and $416,178 in cash. If Mr. Jones' employment is terminated without
cause by the Company or if he terminates the agreement for "good reason," he
will be entitled to receive the net present value of the sum of the annual
salary through the entire remaining term of the employment agreement and all
insurance benefits for the remainder of the term of the employment agreement.
The employment agreement of each of Messrs. Pisano, Corrigan, Johnson and
Jones also contains: (i) a nondisclosure provision which is effective for the
term of such individual's employment with the Company and for an indefinite
period thereafter; (ii) noninterference and non-competition provisions, each
of which is effective for the term of such individual's employment with the
Company and one year thereafter; and (iii) a provision prohibiting the
solicitation for employment and employment of certain Company employees, or
making public statements concerning the Company, for a period of one year
following termination of employment.
LIMITATION ON THE DEDUCTIBILITY OF COMPENSATION UNDER SECTION 162(m)
Section 162(m) of the Internal Revenue Code generally disallows a tax
deduction to a publicly held corporation for compensation in excess of $1
million paid in any fiscal year to the corporation's chief executive officer
or the four other most highly compensated executive officers (the "Top
Executives"). Section 162(m) further provides, however, that compensation will
not be subject to the deduction limit if (i) the compensation is paid for the
attainment of one or more performance goals, (ii) the performance goals are
determined by a compensation committee of the board of directors comprised
solely of two or more independent directors, (iii) the material terms of such
compensation and performance goals are disclosed to the shareholders and
approved by a majority of the vote in a separate shareholder vote before the
payment of such compensation and (iv) before the payment of such compensation
the compensation committee certifies that the performance goals and other
material terms of such compensation have been satisfied. Any compensation that
meets the foregoing requirements is referred to as "performance-based
compensation".
In the case of a privately held corporation that undergoes an initial public
offering, the Treasury Regulations under Section 162(m) provide that the
deduction limit does not apply to any compensation paid, during a specified
reliance period, pursuant to a plan or agreement that existed while the
corporation was privately held, if the prospectus accompanying the initial
public offering discloses such plans and agreements in accordance with the
applicable securities laws. The reliance period terminates on the earliest to
occur of (i) the expiration of the plan or agreement, (ii) the material
modification of the plan or agreement, (iii) the issuance of all stock and
other compensation allocated under the plan and (iv) the first meeting of the
shareholders at which directors are to be elected that occurs after the close
of the third calendar year following the calendar year in which the initial
public offering occurs. In the case of stock options, the reliance period
applies to the date of grant and not exercise. As this Prospectus has
disclosed, in accordance with the applicable securities laws, the terms of any
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compensation plan or agreement applicable to its executive officers and in
effect prior to the Offering, the Company believes any compensation paid or
options granted pursuant to such plans or agreements during the reliance
period will not be subject to the deduction limit of Section 162(m). However,
compensation paid and options granted after the reliance period to a Top
Executive will be subject to the limitations of Section 162(m) unless it
qualifies as performance-based compensation. In general, any salary paid after
the reliance period, including salary paid pursuant to the Employment
Agreements, will not qualify as performance-based compensation and will be
subject to Section 162(m). With respect to the Bonus Interests, the Company
believes it has structured them to qualify as performance-based compensation.
Therefore, the Company believes that any payments after the reliance period
pursuant to the Bonus Interests should not be subject to Section 162(m),
although there is no assurance that this conclusion may not be challenged by
the taxing authorities. Similarly, the Company intends to structure any
options granted under the 1996 Incentive Plan to Top Executives after the
reliance period to qualify as performance-based.
The Company has the authority to award non-deductible compensation as it
deems appropriate. In addition, because of ambiguities and uncertainties as to
the application and interpretation of Section 162(m) and the Treasury
Regulations issued thereunder, no assurance can be given that compensation
intended by the Company to satisfy the requirements for deductibility under
Section 162(m) will so qualify.
EMPLOYEE BENEFIT PLANS
MGM Retirement Plan. The MGM Retirement Plan was adopted in March 1986 to
provide retirement income to certain employees who have completed at least one
year of service. The MGM Retirement Plan is a defined benefit plan under which
all contributions are made by MGM Studios. The compensation covered by the MGM
Retirement Plan includes base salary only, and not bonus or other amounts.
Subject to certain limits, the amount of the pension to which a participant is
entitled is an annual amount equal to 1.55 percent of annual base salary up to
the Social Security wage base (currently $65,400) plus 1.9 percent of annual
base salary above that amount up to the maximum amount allowable under the MGM
Retirement Plan (currently $160,000 per year) for each year of credited
service up to 35 years, at which time the applicable percentage is 1.55
percent of the annual base salary for each year of service in excess of 35.
Participants become vested upon completion of five years of service.
Participants, or their beneficiaries, are entitled to receive benefits which
have vested under the MGM Retirement Plan upon their normal or early
retirement (or deferred retirement if the participant has been an executive
for at least two years and will be entitled to receive at least $44,000 of
retirement income annually) or upon the total and permanent disability, death
or other termination of such participant's employment and after attaining
normal or early retirement age. Benefits are normally payable on a monthly
basis either (i) in a "life only" form to a unmarried participant during his
or her life or (ii) in a qualified "joint and survivor" form to married
participants, which shall be the actuarial equivalent of the life only form
and which shall provide equal monthly payments to the participant during his
or her lifetime with an amount equal to 50 percent (or 75 percent or 100
percent at the election of the participant) of such payments continued after
his or her death payable to his or her spouse for the remainder of such
spouse's life. Alternatively, participants may, under certain circumstances,
elect that a single lump-sum death benefit be payable to his or her
beneficiary or a "ten-year certain and life" form, providing that equal
monthly payments be made to the participant during his or her lifetime with
the provision that in the event the participant dies prior to the expiration
of ten years, such payments would continue for the remainder of the ten-year
period.
It is the intention of the Company to continue the MGM Retirement Plan;
however, the Company has the right to amend or terminate the MGM Retirement
Plan at any time. If the plan is terminated, the available assets held in
trust will be used to pay benefits to retired employees (including
beneficiaries), terminated vested employees entitled to benefits and active
employees. If termination occurs when the MGM Retirement Plan assets are not
sufficient to pay all benefits accrued to the date of the termination, the
assets held in trust under the plan will be allocated among employees and
beneficiaries in accordance with the provisions of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"). The Company is not liable
for the payment of MGM Retirement Plan benefits from its own assets. Upon full
satisfaction of the MGM Retirement Plan's liability to employees and their
beneficiaries, any amount remaining in the plan will be returned to the
Company.
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The Internal Revenue Code requires certain provisions for benefit accruals
if a defined benefit plan becomes "top heavy," that is, if the value of
accrued benefits for "key employees" is more than 60 percent of the total
value of all accrued benefits. While the Company believes that it is unlikely
that the MGM Retirement Plan will ever become top heavy, in such an event, it
may become necessary to amend the MGM Retirement Plan to conform it to the
applicable Internal Revenue Code requirements.
Supplemental Executive Retirement Agreement. Pursuant to Mr. Pisano's
previous employment agreement and in place of certain benefits under a pension
plan maintained for Mr. Pisano's benefit by a prior employer (the "Prior
Plan") which Mr. Pisano forfeited when he joined the Company in 1993, the
Company entered into the Supplemental Executive Retirement Agreement with Mr.
Pisano. The Supplemental Executive Retirement Agreement provides Mr. Pisano
with an annual benefit equal to $150,000 (the "Benefit Amount"), less an
amount equal to the benefit Mr. Pisano is entitled to receive under the Prior
Plan and subject to certain adjustments, payable in the form of a single life
annuity commencing on the later of the date Mr. Pisano attains age 60 and the
date Mr. Pisano's employment with the Company is terminated, including due to
Mr. Pisano's death. The minimum aggregate amount payable to Mr. Pisano or his
beneficiaries will be $900,000, less all benefits to which Mr. Pisano is
entitled under the Prior Plan. All benefits under the Supplemental Executive
Retirement Agreement are fully vested. If Mr. Pisano continues in the
employment of the Company after attaining age 60, the Benefit Amount shall be
increased by 5/12ths of one percent for each month Mr. Pisano continues to be
employed by the Company after such date. In addition, after payments have
commenced under the Supplemental Executive Retirement Plan, the Benefit Amount
shall be increased effective each January 1 by the adjustment factor applied
to retiree payments for the calendar year under the Prior Plan. If Mr. Pisano
is unmarried on the date benefits commence, the benefit shall be payable
monthly for Mr. Pisano's life ("life only" basis). If, however, Mr. Pisano is
married on the date benefits commence, he may elect to have the benefits to
which he is entitled payable on the life only basis or have the actuarial
equivalent of the life only form payable in equal monthly payments to him
during his lifetime with an amount equal to 50% or 100% of such payments to
continue after his death to his spouse for the remainder of his spouse's life.
In the event of a Designated Change of Control of the Company (as defined in
the 1996 Incentive Plan and the Supplemental Executive Retirement Agreement)
or the termination of Mr. Pisano's employment agreement by the Company without
cause or by Mr. Pisano for good reason, the Company will deposit into escrow
an amount sufficient to provide on an actuarial basis the level of payments
required under the Supplemental Executive Retirement Agreement.
MGM Savings Plan. Employees, including officers, who have completed one year
of service have the opportunity to participate in the MGM Savings Plan (the
"Savings Plan") which is managed by the Merrill Lynch Asset Management L.P.
Participants in the Savings Plan may contribute a portion of their pre-tax
compensation (up to a maximum of $9,500) and after-tax compensation (subject
to certain limitations) into the Savings Plan and direct the investment of
such contributions. MGM Studios matches 100 percent of such employee
contributions up to four percent of such employee's eligible compensation.
Shortly after completion of the Offering, the Company intends to amend the
Savings Plan such that the matching contributions shall be made in shares of
the Common Stock. The employee contributions to the Savings Plan and the
earnings thereon are always 100 percent vested. The matching contributions and
the earnings thereon vest 20 percent for each full year of service and
employees become 100 percent vested (i) after five years of service, (ii) upon
their total and permanent disability or (iii) upon their death. Employees
receive a lump sum payment of the vested portion of their respective Savings
Plan account when their employment is terminated. In addition, an employee
may, under certain conditions, withdraw or borrow from the vested portion of
his or her respective Savings Plan account.
DIRECTOR COMPENSATION
During 1996, no compensation was paid to the directors for services provided
in such capacity. Following the Offering, the Board of Directors intends to
adopt a policy whereby each independent director will be paid customary
amounts for services provided as a director as well as reimbursement for his
or her out-of-pocket expenses in attending Board meetings. See "Certain
Transactions" for a description of transactions involving directors or their
affiliates and the Company, if any.
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LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
As permitted by applicable provisions of the Delaware General Corporation
Law (the "DGCL"), the Company's Certificate of Incorporation contains a
provision eliminating, to the fullest extent permitted by the DGCL as it
exists or may in the future be amended, the liability of a director to the
Company and its stockholders for monetary damages for breaches of fiduciary
duty as a director. However, in accordance with the DGCL, such provision does
not limit the liability of a director for (i) any breach of the director's
duty of loyalty to the Company or its stockholders, (ii) acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) payment of dividends, stock purchases or redemptions that
violate the DGCL or (iv) any transaction from which the director derived an
improper personal benefit. Such limitation of liability also does not affect
the availability of equitable remedies such as injunctive relief or
rescission.
The Certificate of Incorporation and Bylaws of the Company also provide
that, to the fullest extent permitted by the DGCL as it exists or may in the
future be amended, the Company will indemnify each of the officers and
directors of the Company (or their estates, if applicable), and may indemnify
any employee or agent of the Company (or their estates, if applicable), who is
or was a party to, or is threatened to be made a party to, any threatened,
pending or completed action, suit or proceeding, by reason of the fact that
such person is or was an officer, director, employee or agent of the Company
or is or was serving at the request of Company as an officer, director,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise. The Company will so indemnify such officer or director, and
may so indemnify such employee or agent (if indemnification is authorized by
the Board of Directors), in the case of such actions (whether or not by or in
the right of the Company) if such person acted in good faith and in a manner
such person reasonably believed to be in or not opposed to the best interests
of the Company, and with respect to any criminal action or proceeding other
than by or in the right of the Company, had no reasonable cause to believe
such person's conduct was unlawful. With respect to indemnification other than
by or in the right of the Company, the termination of any action, suit or
proceeding by judgment, order, settlement or conviction, or upon a plea of
nolo contendere or its equivalent, will not, of itself, create a presumption
that the person did not act in good faith and in a manner which such person
reasonably believed to be in or not opposed to the best interests of the
Company, and, with respect to any criminal action or proceeding, that such
person had reasonable cause to believe that such person's conduct was
unlawful. No indemnification will be made in connection with actions by or in
the right of the Company in respect of any claim, issue or matter as to which
such person has been adjudged to be liable for negligence or misconduct in the
performance of such person's duty to the Company unless and only to the extent
that the Court of Chancery or the court in which such action or suit was
brought determines upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the Court
of Chancery or such other court deems proper. In addition, to the fullest
extent permitted by the DGCL, expenses (including attorneys' fees), judgments,
fines incurred by and amounts paid in settlement may be advanced by the
Company prior to the final disposition of such action, suit or proceeding upon
receipt of an undertaking by or on the behalf of such director, officer,
employee or agent to repay such amounts if it shall ultimately be determined
that he or she is not entitled to be indemnified as authorized in accordance
with the DGCL and the Company's Certificate of Incorporation. The Company's
Certificate of Incorporation and Bylaws also state that such indemnification
is not exclusive of any other rights of the indemnified party, including
rights under any indemnification agreements or otherwise.
The Company currently maintains insurance in the aggregate amount of $25
million on behalf of its officers and directors against any liability which
may be asserted against any such officer or director, subject to certain
customary exclusions.
The Company has entered into indemnification agreements with its directors,
its executive officers and certain other officers providing for
indemnification by the Company, including in circumstances in which
indemnification is otherwise discretionary under Delaware law. These
agreements constitute binding agreements between the Company and each of the
other parties thereto, thus preventing the Company from modifying its
indemnification policy in a way that is adverse to any person who is a party
to such an agreement.
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DESCRIPTION OF CAPITAL STOCK
COMMON STOCK
The Company's authorized common stock consists of 125,000,000 shares of the
Common Stock. All authorized shares of the Common Stock have a par value of
$0.01 per share and are entitled to one vote per share on all matters
submitted to a vote of stockholders. In the event of a liquidation,
dissolution or winding up of the Company, the holders of the Common Stock are
entitled to share ratably in all assets remaining after all liabilities and
the liquidation preference attributable to any outstanding preferred stock
have been paid. The holders of the Common Stock are entitled to one vote per
share on all matters submitted to a vote of stockholders. Other than as
described under "Ownership of Voting Securities--Investors Shareholder
Agreement," the holders of the Common Stock will have no pre-emptive rights or
cumulative voting rights and no rights to convert their Common Stock into any
other securities.
As of September 30, 1997 there were outstanding 52,711,921 shares of the
Common Stock. As of September 30, 1997 there were reserved for issuance upon
the exercise of options 8,437,567 shares of the Common Stock, of which options
for 5,518,204 shares of the Common Stock are outstanding (1,332,533 of which
are vested and exercisable or will become vested and exercisable within 60
days). The Company will effect the Stock Split immediately prior to the
completion of the Offering (and, unless otherwise indicated, all information
in this Prospectus gives effect to such Stock Split).
PREFERRED STOCK
As of September 30, 1997, 502,820 shares of the Company's Series A Preferred
Stock were outstanding (prior to giving effect to the Series A Preferred Stock
Conversion). All of the holders of the Company's outstanding Series A
Preferred Stock have agreed to the Series A Preferred Stock Conversion
(whereby each such share of the Series A Preferred Stock will be converted
into one share of the Common Stock immediately prior to the Stock Split,
resulting in an aggregate of 20,951,000 shares of Common Stock after giving
effect to the Stock Split). Unless otherwise indicated, all information in
this Prospectus gives effect to the Series A Preferred Stock Conversion. Thus,
upon completion of the Offering, the Company will not have outstanding any
shares of preferred stock (the "Preferred Stock"), although the Company will
be authorized to issue up to 25 million shares of the Preferred Stock.
Pursuant to the Company's Certificate of Incorporation, the Board of Directors
is authorized to fix by resolution the voting power, designations, powers,
preferences and relative, participating, optional or other special rights, and
the qualifications, limitations, or restrictions thereof, including, without
limitation, the dividend rate, conversion or exchange rights, redemption price
and liquidation preference, of one or more series of the Preferred Stock, and
to fix the number of shares constituting any such series. In the event of any
dissolution, liquidation or winding up of the affairs of the Company, whether
voluntary or involuntary, after payment or provision for payment of the debts
and other liabilities of the Company, the holders of each series of the
Preferred Stock shall be entitled to receive, out of the net assets of the
Company, an amount for each share of the Preferred Stock equal to the amount
fixed and determined by the Board of Directors in the resolution creating such
series and providing for the issuance of such shares, and no more, prior to
any of the assets of the Company being distributed to the holders of the
Common Stock (the "Liquidation Preference"). The issuance of the Preferred
Stock could adversely affect the voting power and other rights of the holders
of the Common Stock.
The authority possessed by the Board of Directors to issue the Preferred
Stock could potentially be used to discourage attempts by third parties to
obtain control of the Company through a merger, tender offer, proxy contest or
otherwise by making such attempts more difficult or more costly to
successfully complete. See "Risk Factors--Possible Anti-takeover Effect of
Certain Charter Provisions."
There are no agreements or understandings for the issuance of the Preferred
Stock and the Board of Directors has no present intention to issue any of the
Preferred Stock.
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OWNERSHIP OF VOTING SECURITIES
The table below sets forth the beneficial ownership of the Common Stock
(which, giving effect to the Series A Preferred Stock Conversion, constitutes
the only class of issued and outstanding capital stock of the Company) as of
September 30, 1997 (assuming no exercise of the Underwriters' over-allotment
options) by each director of the Company, each of the Named Executive
Officers, the directors and executive officers of the Company as a group and
each person who at such time beneficially owned more than five percent of the
outstanding shares of any class of voting securities of the Company.
<TABLE>
<CAPTION>
OWNERSHIP PRIOR TO OWNERSHIP AFTER THE
OFFERING OFFERING
------------------------ ------------------------
NAME AND ADDRESS OF NUMBER OF PERCENTAGE OF NUMBER OF PERCENTAGE OF
BENEFICIAL OWNER SHARES(1) CLASS SHARES CLASS
- ------------------- ---------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Tracinda Corporation(2)(3)... 36,448,208 68.7% 36,448,208 55.6%
4835 Koval Lane
Las Vegas, NV 89109
Seven Network Limited(3)..... 16,208,463 30.6 16,208,463 24.7
ATN7, Mobbs Lane
Epping NSW 2121 Australia
Frank G. Mancuso(3)(4)....... 542,610 1.0 542,610 *
A. Robert Pisano(5).......... 137,244 * 137,244 *
James D. Aljian(6)........... -- -- -- --
Michael R. Gleason(7)........ 156,251 * 156,251 *
Kirk Kerkorian(3)(8)......... 36,448,208 68.7 36,448,208 55.6
Kerry M. Stokes(3)(9)........ 16,208,463 30.6 16,208,463 24.7
Jerome B. York(6)............ -- -- -- --
Michael S. Hope(10).......... -- -- -- --
Michael G. Corrigan.......... -- -- -- --
David G. Johnson(11)......... 55,360 * 55,360 *
William A. Jones(12)......... 63,289 * 63,289 *
All Directors and Executive
Officers as a group
(10 persons)................ 53,611,425 99.9 53,611,425 81.1
</TABLE>
- --------
* Less than 1 percent.
(1) The shares of the Common Stock which a person has the right to acquire
within 60 days of September 30, 1997 and the shares of Common Stock
underlying options that are vested as of September 30, 1997 or that will
become vested within 60 days thereafter are deemed to be outstanding for
the purpose of calculating the beneficial ownership of the holder of such
options or other rights, but are not deemed to be outstanding for the
purpose of computing the beneficial ownership of any other person. As a
result, the aggregate percentage ownership of the Common Stock may exceed
100 percent.
(2) Includes 156,251 shares of the Common Stock issuable at a price of $6.41
per share pursuant to a presently exercisable stock option which expires
on October 10, 2002. See "Certain Transactions--Stock Option Grants and
Reimbursement of Fees to Tracinda and Celsus in Connection with the MGM
Acquisition." All of the shares of the Common Stock held by Tracinda are
pledged to a group of banks to secure a syndicated credit facility to
Tracinda.
(3) For a description of certain voting agreements applicable to such shares,
see "--Investors Shareholder Agreement."
(4) Includes an estimated 9,917 shares of the Common Stock which Mr. Mancuso
will be required to purchase with his stock purchase payment within 60
days of September 30, 1997 and 407,442 shares of the Common
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Stock underlying options vested as of September 30, 1997 or that will
become vested within 60 days thereafter.
(5) Includes 122,244 shares of the Common Stock underlying options vested as
of September 30, 1997 or that will become vested within 60 days
thereafter.
(6) Each of Messrs. Aljian and York is an employee of, and was nominated to
the Board of Directors of the Company by, Tracinda.
(7) Mr. Gleason was nominated to the Board of Directors of the Company by
Seven. Mr. Gleason serves as the President of the general partner of
Culmen Group, L.P., which regularly provides financial advisory services
to Seven. Represents 156,251 shares of the Common Stock issuable at a
price of $6.41 per share pursuant to a presently exercisable stock option
which expires on October 10, 2002 held by Celsus, an entity wholly owned
by Mr. Gleason. See "Certain Transactions--Stock Option Grants and
Reimbursement of Fees to Tracinda and Celsus in Connection with the MGM
Acquisition."
(8) Mr. Kerkorian is the President and sole shareholder and director of, and
was nominated to the Board of Directors of the Company by, Tracinda.
Represents 36,448,208 shares beneficially owned by Tracinda.
(9) Mr. Stokes is the Chairman of, and was nominated to the Board of
Directors of the Company by, Seven. Represents 16,208,463 shares
beneficially owned by Seven as to which Mr. Stokes disclaims beneficial
ownership.
(10) Mr. Hope resigned from the Company effective as of January 31, 1997.
(11) Includes 41,818 shares of the Common Stock underlying options vested as
of September 30, 1997 or that will become vested within 60 days
thereafter.
(12) Includes 37,247 shares of the Common Stock underlying options vested as
of September 30, 1997 or that will become vested within 60 days
thereafter.
INVESTORS SHAREHOLDER AGREEMENT
The following is a summary description of the material terms of the
Investors Shareholder Agreement. This summary description does not purport to
be complete and is subject to and qualified in its entirety by reference to
the definitive Investors Shareholder Agreement, a copy of which is filed as an
exhibit to the Registration Statement of which this Prospectus is a part.
Voting of Shares. Until the fifteenth anniversary of the closing date of the
Offering, (i) each of Tracinda and Seven has agreed to vote all of the shares
of capital stock of the Company beneficially owned by such party and take all
necessary or desirable action within such party's control, (ii) the Company
has agreed to vote all of the shares of capital stock of MGM Studios
beneficially owned by it and take all necessary or desirable action within its
control, and (iii) Mr. Mancuso has agreed to vote all his shares of capital
stock of the Company and to take all necessary or desirable action, in each
case so that the Board of Directors of the Company consists of eleven members
(subject to the provisions described below), up to four of whom are nominated
by Tracinda (subject to reduction if Tracinda does not maintain a certain
level of ownership of the Common Stock), up to two of whom are nominated by
Seven (subject to reduction if Seven does not maintain a certain level of
ownership of the Common Stock), two of whom are nominated by the Chairman and
Chief Executive Officer of the Company (one of whom shall be Mr. Mancuso as
long as he serves as the Chief Executive Officer of the Company), and three
independent directors who are nominated by the majority of the Board of
Directors of the Company (which majority, so long as Tracinda beneficially
owns at least 16,666,800 shares of the Common Stock, must include Tracinda's
nominees on the Board of Directors of the Company) and who are not affiliated
or associated with either Tracinda or Seven and otherwise meet the
requirements of the NYSE for serving as independent directors; provided,
however, that each of Tracinda and Seven is only obligated to vote for
nominees selected by the Board of Directors of the Company which are
acceptable to Tracinda or Seven, as the case may be. The Board of Directors
may determine to reduce the size of the Board of Directors to ten persons, in
which case the number of independent directors will be reduced to two.
Furthermore, each of Tracinda and Seven has
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the exclusive right (which, to the extent the same may be required by law, may
be exercised indirectly) (i) to remove, with or without cause, any director
designated by it in accordance with the foregoing and (ii) to designate and
elect any replacement for a director designated by it in accordance with the
foregoing upon the death, resignation, retirement, disqualification or removal
from office of such director.
Until the fifteenth anniversary of the closing date of the Offering, (i)
each of Tracinda and Seven has agreed to vote all of the shares of capital
stock of the Company beneficially owned by such party and take all necessary
or desirable action within such party's control, (ii) the Company has agreed
to vote all of the shares of capital stock of MGM Studios beneficially owned
by it and take all necessary or desirable action within its control and (iii)
Mr. Mancuso has agreed to vote all his shares of capital stock of the Company
and to take all necessary or desirable action, in each case so that the
compensation committee of the Board of Directors of the Company consists of
one member of the Board of Directors of the Company nominated by Tracinda (so
long as Tracinda maintains a certain level of ownership of the Common Stock),
one member of the Board of Directors of the Company nominated by Seven (so
long as Seven maintains a certain level of ownership of the Common Stock), and
one independent director nominated by the majority of the Board of Directors
of the Company (which majority, so long as Tracinda beneficially owns at least
16,666,800 shares of the Common Stock, must include Tracinda's nominees on the
Board of Directors of the Company) and who is not affiliated or associated
with either Tracinda or Seven and otherwise meets the requirements of the NYSE
for serving as an independent director.
Except to the extent consistent with the Investors Shareholder Agreement,
the Board of Directors of the Company shall not be authorized to fill a
vacancy on the Board of Directors of the Company caused by the death,
resignation, retirement, disqualification or removal of a director.
For as long as Mr. Mancuso serves as a member of the Board of Directors of
the Company and MGM Studios, Mr. Mancuso shall act as the Chairman of the
Board of Directors of the Company and MGM Studios. The Board of Directors of
the Company shall have the right to remove Mr. Mancuso as a director of the
Company, with or without cause, only upon the termination of his employment as
Chief Executive Officer of MGM Studios, subject to the terms of Mr. Mancuso's
employment agreement. See "Management-- Employment Agreements--Frank G.
Mancuso." If Mr. Mancuso ceases to act as Chief Executive Officer of the
Company, Mr. Mancuso has agreed to resign as a director of the Company and MGM
Studios and all other positions held by Mr. Mancuso at the Company, MGM
Studios and their respective subsidiaries effective as of the time he ceases
to act as Chief Executive Officer of the Company. Any person selected by Mr.
Mancuso as the second management director must agree to resign as a director
of both the Company and MGM Studios at such time as Mr. Mancuso ceases to
serve as the Chief Executive Officer of the Company, unless such other person
is acceptable to the new Chief Executive Officer of the Company. If
Mr. Mancuso ceases to act as the Chief Executive Officer of the Company, the
parties to the Investors Shareholder Agreement shall promptly remove the other
person nominated by Mr. Mancuso and then serving as a director of the Company
and MGM Studios, unless such other person is acceptable to the new Chief
Executive Officer of the Company.
Until October 10, 2001, the obligations described under the heading "--
Voting of Shares" will be binding upon any transferee of Seven or Tracinda
except for any person (other than an affiliate of Tracinda or Seven) who
acquires (i) shares of Common Stock from Tracinda or Seven pursuant to a
public offering registered under the Securities Act or pursuant to Rule 144 or
Regulation S promulgated thereunder or (ii) not more than 4,166,700 shares of
Common Stock from Tracinda or Seven, as the case may be, in one transaction or
a series of related transactions.
In addition, each of the Company, MGM Studios, Seven, Tracinda and Mr.
Mancuso has agreed that until the earlier to occur of (i) the fifteenth
anniversary of the closing date of the Offering and (ii) the date that Seven
no longer beneficially owns at least 10,416,750 shares of the Common Stock,
neither the Company nor MGM Studios shall (a) sell or agree to sell or (b)
license or agree to license for a period of more than three years, in
substantially all major territories of the world in one transaction, or a
series of related transactions, all or 85 percent or more of the films then in
the Library unless such sale, license or agreement shall have been
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unanimously approved by the Board of Directors of the Company. Thereafter, any
such sale, license or agreement shall only require the approval of a majority
of a quorum of directors at a duly called meeting of the Board of Directors of
the Company.
Business Operations. Each of the Company, MGM Studios, Tracinda, Seven and
Mr. Mancuso has agreed to use their best efforts (until the fifteenth
anniversary of the closing date of the Offering) to ensure that neither the
Company nor any of its subsidiaries engages in any business activity except
the entertainment business unless (i) all directors of the Board of Directors
shall have approved such engagement in other business activities or (ii) a
majority of the Board of Directors shall have approved such engagement in
other business activities and such engagement in other business activities
shall have been approved by the stockholders of the Company in accordance with
the applicable provisions of the DGCL. For purposes of the Investors
Shareholder Agreement, the entertainment business shall include the
acquisition, development, production, marketing, distribution, exhibition,
publication or use of intellectual property for purposes of providing
entertainment, education or information and all services and activities
reasonably related thereto, including the services and activities currently
provided or conducted by the Company and its subsidiaries.
First Refusal Rights. Each of Seven and Tracinda has agreed to be bound by
certain "first refusal" rights with respect to the sale, pledge, transfer,
assignment or other disposition ("Transfer") of their shares of capital stock
of the Company, subject to certain conditions. If prior to October 10, 2001,
either Tracinda or Seven desires to Transfer, directly or indirectly, in whole
or part, all or any portion of the shares of capital stock of the Company
beneficially owned by it, such party must provide the other party with a
written notice detailing the terms and conditions of such proposed Transfer
and the other party shall have, subject to certain notice requirements, the
right to purchase such shares on the same terms and conditions as the proposed
Transfer. The provisions relating to the right of first refusal will
terminate, with respect to such capital stock of the Company, upon the
transfer, in compliance with the provisions described in this paragraph, by
Tracinda or Seven of such capital stock to any person other than Tracinda or
Seven or their respective affiliates. These first refusal rights do not apply
to any bona fide pledge to a bank or other institutional financial lender.
The provisions relating to the right of first refusal will not apply to, in
the case of each of Tracinda and Seven, (i) the transfer of, or the grant of
options for the acquisition of, up to 312,502 shares of Common Stock (such
number to be appropriately adjusted in the event that the Company should
effect any stock dividend, stock split, reverse stock split or any similar
transaction after the date of the Investors Shareholder Agreement)
beneficially owned by it to officers, directors, employees, consultants and
affiliates so long as such transferee agrees in writing to be bound by all the
terms of the Investors Shareholder Agreement applicable to its transferor as
if the transferee originally had been a party to the Investors Shareholder
Agreement and (ii) the transfer and assignment of all or any portion of the
capital stock of the Company beneficially owned by it to any direct or
indirect wholly owned subsidiary of such entity so long as (a) such transferee
agrees in writing to be bound by all the terms of the Investors Shareholder
Agreement applicable to its transferor as if the transferee originally had
been a party to the Investors Shareholder Agreement and (b) the transferor
agrees to cause such direct or indirect wholly owned subsidiary to continue to
be a direct or indirect wholly owned subsidiary of the transferor for so long
as such direct or indirect wholly owned subsidiary beneficially owns any such
capital stock of the Company.
Pre-emptive Rights. The Company has granted to each of Seven, Tracinda and
Mr. Mancuso certain pre-emptive rights with respect to the Common Stock. If,
at any time prior to the fifteenth anniversary of the closing date of the
Offering, the Company proposes to issue to any person any shares of the Common
Stock or any securities exercisable for the purchase of or convertible into
the Common Stock, each of Seven, Tracinda and Mr. Mancuso may subscribe for
and purchase for cash a number of shares of the Common Stock or securities
exercisable for the purchase of or convertible into the Common Stock,
respectively, such that, after giving effect to such issuance to such other
persons and such purchase by any one or more of Seven, Tracinda and
Mr. Mancuso, as the case may be, such purchaser will continue to beneficially
own the same percentage of the outstanding Common Stock (including securities
exercisable for the purchase of or convertible into the Common Stock) that
such purchaser beneficially owned prior thereto.
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Such pre-emptive rights shall not apply to: (i) the issuance of the Common
Stock or securities exercisable for the purchase of or convertible into the
Common Stock pursuant to a firm commitment underwritten public offering or
pursuant to Rule 144A or Regulation S promulgated under the Securities Act;
(ii) the issuance of the Common Stock or securities exercisable for the
purchase of or convertible into the Common Stock pursuant to a registration
statement directly or indirectly to the holders of the outstanding capital
stock of a corporation or other business entity with a class of equity
securities registered under the Securities and Exchange Act of 1934, as
amended (the "Exchange Act"), in connection with the Company's acquisition of
such corporation or other business or substantially all of its assets (whether
by merger, consolidation, purchase of stock or assets or otherwise); or
(iii) the grant of stock options to officers, directors or employees of the
Company or any of its subsidiaries pursuant to stock option plans approved by
the Board of Directors of the Company or the issuance of the Common Stock upon
the exercise of any such stock option.
The price to be paid in any such purchase by any one or more of Seven,
Tracinda and Mr. Mancuso and the other terms of purchase shall be the same as
applicable to the purchase of the Common Stock or such other securities by
such other person, except that in all cases the price to be paid by Seven,
Tracinda and Mr. Mancuso shall be paid in cash. If such shares of the Common
Stock or such other securities are to be issued to such other person for
property or services, the price per share or other security to be paid by
Seven, Tracinda and Mr. Mancuso shall be equal to the fair market value per
share or other security of the property or services to be received by the
Company from such other person, as such fair market value is determined by the
independent directors of the Company elected to the Board of Directors of the
Company.
Such pre-emptive rights will terminate, with respect to either Seven or
Tracinda, at such time as such party beneficially owns less than 10,416,750
shares of the Common Stock (as presently constituted) and, with respect to
Mr. Mancuso, at such time as Mr. Mancuso is no longer the Chief Executive
Officer of the Company.
SHAREHOLDERS AGREEMENT
The following is a summary description of the material terms of the Amended
and Restated Shareholders Agreement (the "Shareholders Agreement") dated as of
August 4, 1997, by and among the Company, MGM Studios, Seven, Tracinda, Mr.
Mancuso and the other persons specified on the signature pages thereto
(Mr. Mancuso and such specified persons, collectively, "Executives"). This
summary description does not purport to be complete and is subject to and
qualified in its entirety by reference to the definitive Shareholders
Agreement, a copy of which is filed as an exhibit to the Registration
Statement of which this Prospectus is a part.
Tag-Along Rights. Each of Seven and Tracinda has agreed to be bound by
certain "tag-along" restrictions with respect to certain Transfers of their
shares of the Common Stock. If either Seven or Tracinda desires to Transfer
shares of the Common Stock beneficially owned by it, directly or indirectly,
in whole or in part (a "Tag-Along Sale"), then each of Seven, Tracinda, and
each of the Executives (collectively, the "Other Securityholders") shall have
certain "tag-along" rights, subject to certain notice provisions.
Specifically, each Other Securityholder shall have the right but not the
obligation, (i) in the case of the Executives, to exercise in the manner
provided in the Shareholders Agreement certain options held by such Executives
pursuant to the 1996 Incentive Plan to the extent required to realize the
"tag-along" rights of such Executives and (ii) to elect that Seven or
Tracinda, as the case may be, be obligated to require, as a condition to such
Tag-Along Sale, that the proposed purchaser purchase from each such electing
Other Securityholder a proportional number of shares (excluding shares of the
Common Stock acquired pursuant to open market purchases). Any such sales by
any Other Securityholder shall be on the same terms and conditions as the
proposed Tag-Along Sale by Seven or Tracinda, as the case may be and on the
same date as the closing of the proposed Tag-Along Sale.
In exercising the tag-along rights with respect to an Executive's options:
(i) the Executive's Series A Options must be exercised (to the extent then
vested) before the Executive's Series B Options may be exercised; (ii)
thereafter, the Executive's Series B Options (to the extent then vested) must
be exercised before the Executive's Series A Options (to the extent not
vested) may be exercised; (iii) then, the balance of the
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Executive's Series A Options must be exercised before the balance of the
Executive's Series B Options may be exercised; and (iv) thereafter, the
balance of the Executive's Series B Options may be exercised.
The tag-along rights shall not apply to: (i) any transaction in which shares
of the Common Stock are proposed to be sold publicly pursuant to a
registration statement filed under the Securities Act or pursuant to Rule 144
promulgated under the Securities Act; (ii) any one transaction or series of
related transactions involving the transfer of less than one percent of the
then issued and outstanding shares of the Common Stock; (iii) any bona fide
pledge to a bank or other institutional financial lender; or (iv) any sale
from one of the parties to the Shareholders Agreement to another party
thereto, and shall terminate with respect to each of Seven and Tracinda at
such time as such party beneficially owns less than 10,416,750 shares of the
Common Stock.
In addition, the tag-along provisions shall not apply to, in the case of
each of Tracinda and Seven, (i) the transfer of, or the grant of options for
the acquisition of, up to 312,502 shares of the Common Stock (such number to
be appropriately adjusted in the event that the Company should effect any
stock dividend, stock split, reverse stock split, or any similar transaction
after the date of the Shareholders Agreement) beneficially owned by it to its
officers, directors, employees, consultants and affiliates so long as such
transferee agrees in writing to be bound by all the terms of the Shareholders
Agreement applicable to its transferor as if the transferee originally had
been a party to the Shareholders Agreement and (ii) the transfer and
assignment of all or any portion of the capital stock of the Company
beneficially owned by it to any direct or indirect wholly owned subsidiary of
such entity so long as (a) such transferee agrees in writing to be bound by
all the terms of the Shareholders Agreement applicable to its transferor as if
the transferee originally had been a party to the Shareholders Agreement and
(b) the transferor agrees to cause such direct or indirect wholly owned
subsidiary to continue to be a direct or indirect wholly owned subsidiary of
the transferor for so long as such direct or indirect wholly owned subsidiary
beneficially owns any such capital stock of the Company.
Demand Registration Rights. Seven, Tracinda and the Executives, at any time
following 180 days after the closing date of the Offering, have the right to
make up to three requests, in the case of each of Seven and Tracinda, and up
to two requests with respect to all of the Executives, for registration
("Demand Registration") under the Securities Act of all or part of the Common
Stock or securities issued as a dividend on or distribution with respect to or
in exchange, replacement or in subdivision of, any such Common Stock, which
have not been sold pursuant to an effective registration statement under the
Securities Act or pursuant to Rule 144 under the Securities Act (the
"Registrable Securities") held by them; provided that any request for a Demand
Registration shall not be otherwise deemed to be effective unless such request
includes Registrable Securities with an estimated value of no less than $50
million. Demand Registration requests may be for shelf registrations (covering
sales on a delayed or contingent basis) if the Company is then eligible to
effect shelf registrations. The Company will pay all of the expenses of any
such Demand Registration, including the fees and expenses of a single counsel
retained by the selling stockholders; however, each selling stockholder will
be responsible for the underwriting discounts and commissions and transfer
taxes in connection with shares sold by such stockholder and any party
requesting long-form registration when short-form registration is available
will bear the incremental cost thereof. Each selling stockholder and the
underwriters through whom shares are sold on behalf of a selling stockholder
will be entitled to customary indemnification from the Company and MGM
Studios, in the case of the selling stockholders, and the Company, in the case
of the underwriters, against certain liabilities, including liabilities under
the Securities Act.
The Company will not be obligated to effect any Demand Registration within
six months after the effective date of a previous Demand Registration and
during any two-year period, the Company may make a one-time election to
postpone the filing or the effectiveness of a registration statement for a
Demand Registration for up to six months if the Board of Directors of the
Company determines, in its good faith judgment, that (i) such Demand
Registration would reasonably be expected to have a material adverse effect
on, interfere with or delay any proposal or plan by the Company to engage in
any acquisition of assets (other than in the ordinary course of business) or
any merger, consolidation, tender offer or similar transaction, (ii) the
filing of a registration statement or a sale of Registrable Securities
pursuant thereto would require disclosure of material information that the
Company has a bona fide business purpose for preserving as confidential or
(iii) the Company is unable
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to comply with the registration requirements of the Commission; provided,
that, in such event, the holders of shares of Registrable Securities initially
requesting such Demand Registration will be entitled to withdraw such request
and, if such request is withdrawn, such request for Demand Registration will
not count as a request for Demand Registration under the Shareholders
Agreement and the Company will pay all Registration Expenses in connection
with such withdrawn registration request. The party requesting Demand
Registration may select the managing underwriters, who must be of national
prominence and reasonably acceptable to the Company.
"Piggyback" Registration Rights. If after the closing date of the Offering
the Company proposes to register any of its equity securities under the
Securities Act (other than a registration on Form S-4 or Form S-8 or any
successor or similar forms) and the registration form to be used may be used
for the registration of Registrable Securities, whether or not for sale for
its own account, each of Tracinda, Seven and the Executives shall be entitled
to request that Registrable Securities of the same class beneficially owned by
such party be included in such registration (a "Piggyback Registration");
provided that if a Piggyback Registration is an underwritten primary
registration on behalf of the Company, and the managing underwriters advise
the Company in writing that in their opinion the number of shares of the
Common Stock requested to be included in such registration exceeds the number
which can be sold in such offering within a price range reasonably acceptable
to the Company, the Company will include in such registration (i) first, the
securities the Company proposes to sell and (ii) second, all other securities
requested to be included in such registration, pro rata among the respective
holders thereof on the basis of the number of securities owned by each such
holder; provided further, that if a Piggyback Registration is an underwritten
secondary registration on behalf of holders of securities of the Company, and
the managing underwriters advise the Company in writing that in their opinion
the number of securities requested to be included in such registration exceeds
the number which can be sold in such offering within a price range reasonably
acceptable to such holders, the Company will include in such registration the
securities requested to be included in such registration, pro rata among the
respective holders thereof on the basis of the number of securities owned by
each such holder. The Company will pay all of the expenses of any such
Piggyback Registration, including the fees and expenses of a single counsel
retained by the selling stockholders; however, each selling stockholder will
be responsible for the underwriting discounts and commissions and transfer
taxes in connection with shares sold by such stockholder. Each selling
stockholder and the underwriters through whom shares are sold on behalf of a
selling stockholder will be entitled to customary indemnification from the
Company and MGM Studios, in the case of the selling stockholders, and the
Company, in the case of the underwriters against certain liabilities,
including liabilities under the Securities Act.
Certain Holdback Agreements. Each of Seven, Tracinda and the Executives has
agreed, if requested in writing by the Company or any managing underwriters of
registration effected in accordance with the proceeding described in the
preceding three paragraphs, not to effect any public sale or distribution
(including sales pursuant to Rule 144) of shares of equity securities of the
Company, or any securities convertible into or exchangeable or exercisable for
equity securities, during the period reasonably requested by the managing
underwriters, not to exceed the period commencing with the date seven days
prior to and ending with the date 90 days, or such longer period, not to
exceed 180 days, as the managing underwriters shall request, after the
effective date of any underwritten registration by the Company of its
securities (except as part of such underwritten registration). The Company has
agreed to a similar restriction, if requested by the managing underwriters of
any such underwritten registration (except as part of such underwritten
registration or pursuant to registrations on Form S-4 or Form S-8 or any
successor forms), and to use its best efforts to cause certain holders of its
capital stock (other than in a registered public offering), to so agree.
Form S-8. The Company will, within six months following the closing date of
the Offering, cause to become effective a registration statement on Form S-8
with the Commission with respect to shares of capital stock of the Company
subject to options granted to the Executives pursuant to the 1996 Incentive
Plan.
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FINANCING ARRANGEMENTS
The following is a summary of the material terms of the Amended Credit
Facility, and is qualified in its entirety by reference to the definitive
agreements and instruments governing such indebtedness, copies of which have
been filed as exhibits to the Registration Statement.
General. In October 1997 MGM Studios and Orion (collectively, the
"Borrowers") entered into the Amended Credit Facility with Morgan, as
Administrative Agent (the "Agent") and a syndicate of banks (the "Banks")
arranged by J.P. Morgan Securities Inc. and BancAmerica Securities, Inc.,
which provides for borrowings up to $1.3 billion in aggregate principal
amount. The credit facilities provided in the Amended Credit Facility consist
of a seven and one-half year amortizing term loan in the amount of
$400 million (the "Tranche A Facility"), an eight and one-half year term loan
in the amount of $300 million (the "Tranche B Facility") and a six-year
revolving loan in the maximum amount of $400 million (the "Revolving Credit
Facility"). The Revolving Credit Facility will be increased to $600 million
upon receipt by the Company of gross proceeds of at least $250 million from
the issuance and sale of Common Stock, including in connection with the
Offering. Amounts available under the Revolving Credit Facility may be
utilized for general corporate purposes.
The Borrowers have the option to borrow an additional $200 million term loan
in the future (the "Tranche C Facility"), with the consent of lenders holding
at least 66 2/3 percent of the aggregate loans and commitments and subject to
syndication thereof. The Tranche C Facility would be required to have a final
maturity no earlier than the final maturity of the Tranche B Facility and no
substantial amortization prior to that date.
Amortization. The Tranche A Facility will require no substantial
amortization until 2001, and thereafter will fully amortize by final maturity.
The Tranche B Facility requires no substantial amortization prior to the final
maturity thereof. The borrowing availability under the Revolving Credit
Facility is not scheduled to be reduced prior to final maturity.
Prepayment. The term loans are required to be prepaid (and, if the term
loans are prepaid in full, the Revolving Credit Facility is required to be
reduced) out of (i) the net proceeds of incurrence of additional indebtedness
by the Company or any of its subsidiaries, with certain exceptions, (ii) the
net proceeds of certain asset sales (including certain license agreements with
respect to motion picture and television product) and of casualty insurance
proceeds and condemnation awards, subject to certain exceptions, and (iii) 75
percent of excess cash flow (as defined in the Amended Credit Facility) in
each fiscal year (or 50 percent for any year in which the Borrowers' leverage
ratio is below a specified level on the last day of the year), in any case
subject to certain exceptions, including an exception for the first
$50 million of cumulative excess cash flow.
Guarantees and Security. All of the Borrowers' domestic material
subsidiaries have guaranteed the Borrowers' obligations under the Amended
Credit Facility. The Borrowers' obligations under the Amended Credit Facility,
and their respective subsidiaries' obligations under their respective
guarantees, are secured by security interests and liens granted to the Agent
in substantially all of the assets of the Borrowers and their respective
subsidiaries, including copyrights, distribution rights, license, royalty and
other contract rights with respect thereto, trademarks and other intellectual
property and receivables, except to the extent that granting such a security
interest or lien would constitute a breach of or default under a contract by
which such property interest arises.
Interest Rates. Interest is payable quarterly in arrears on all borrowings
under the Amended Credit Facility at a variable rate equal to either (i) the
sum of 1.50 percent (1.75 percent for the Tranche B Facility) plus the rate
established by the Agent from time to time as its base rate or (ii) the sum of
2.50 percent (2.75 percent for the Tranche B Facility) plus LIBOR. Interest
that accrues at the LIBOR-based rate will be payable at the end of each
interest period for interest periods of three months or less and quarterly in
arrears for interest periods of six months. The interest rate margins over the
base rate and LIBOR will be decreased by 0.25 percent upon consummation of the
Offering, and are subject to further adjustment from time to time based on the
Borrowers' performance under certain financial tests and ratios.
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If at any time an event of default, as defined in the Amended Credit
Facility, occurs, interest will accrue on the principal amount of all
outstanding obligations under the Amended Credit Facility at an annual rate
that is two percent greater than the rate that would otherwise be in effect,
for so long as such event of default continues.
Covenants. The Amended Credit Facility contains customary covenants which,
among other things, (i) require the Borrowers to satisfy certain financial
tests and ratios (including a minimum net worth requirement, maximum leverage
(measured both by reference to the Borrowers' combined earnings before
interest, taxes, depreciation and amortization and to cash flow from the
Library), an interest coverage ratio and maximum annual capital expenditures)
and (ii) impose certain limitations on (a) the incurrence of additional
indebtedness by the Company or the Borrowers, (b) the creation or incurrence
of liens, (c) the making of investments, (d) mergers and acquisitions and
sales or other dispositions of assets (including certain licensing
agreements), (e) transactions with affiliates and (f) the incurrence of lease
obligations. The Amended Credit Facility also requires the Borrowers to enter
into certain interest rate hedging arrangements, and requires them to release
a minimum number of new films each year.
The Amended Credit Facility also generally prohibits the Borrowers from
making any dividend payment or other distribution with respect to, or
redeeming or acquiring, any capital stock of the Borrowers.
These covenants will continue in effect so long as any of the funding
commitments under the Amended Credit Facility are in effect and until all
loans under the Amended Credit Facility and interest thereon and other amounts
payable by the Borrowers under the Amended Credit Facility are paid in full.
As of the date hereof, the Borrowers were in compliance with these covenants
in all material respects.
Events of Default. The Amended Credit Facility enumerates several
occurrences that constitute events of default thereunder, including: (i) the
failure to pay any principal, interest or other amounts due under the Amended
Credit Facility when due, subject in some cases to a period of grace; (ii) the
failure to maintain financial covenants or to comply with other restrictive
covenants; (iii) the failure to comply with any other provision of the Amended
Credit Facility or related documents, subject in some cases to a period of
grace; (iv) the occurrence of certain events of bankruptcy or insolvency with
respect to the Company or a material subsidiary; (v) a default in certain
other obligations of the Company or its subsidiaries; and (vi) the breach of
any representation or warranty made by the Company.
Additionally, the occurrence of a "change in control" constitutes an event
of default. A change of control occurs if Tracinda and Seven collectively do
not maintain voting and economic control over at least 35 percent of each
class of capital stock of the Company, any person or group of persons obtains
voting or economic control over a greater percentage of any class of the
outstanding capital stock of the Company than Tracinda and Seven,
collectively, or if the directors nominated by Tracinda, Seven or Mr. Mancuso
pursuant to the Investors Shareholder Agreement (or appointed by such
directors to fill vacancies) no longer constitute a majority of the Company's
Board of Directors.
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CERTAIN TRANSACTIONS
The Company believes the transactions described below that were entered into
by the Company and its subsidiaries were beneficial to the respective
companies, and were no less favorable to the respective companies than could
have been obtained from unaffiliated third parties pursuant to arms-length
negotiations.
FIRST AND SECOND PRIVATE PLACEMENTS; CAPITAL CALL AGREEMENT
Pursuant to an investment agreement dated July 11, 1996 among Seven,
Tracinda and the Company, and in connection with the MGM Acquisition, Tracinda
purchased 8,333,400 shares of the Common Stock and 450,000 shares of the
Series A Preferred Stock (which will be converted into 18,750,150 shares of
the Common Stock immediately prior to the completion of the Offering pursuant
to the Series A Preferred Stock Conversion and the Stock Split) and Seven
purchased 8,333,400 shares of the Common Stock and 50,000 shares of the Series
A Preferred Stock (which will be converted into 2,083,350 shares of the Common
Stock immediately prior to the completion of the Offering pursuant to the
Series A Preferred Stock Conversion and the Stock Split), for a purchase price
of $24.00 per share (after giving effect to the Series A Preferred Stock
Conversion and Stock Split) and an aggregate purchase price of $900 million.
The Series A Preferred Stock will be converted into shares of the Common Stock
pursuant to the Series A Preferred Stock Conversion.
Pursuant to an investment agreement dated May 2, 1997 among Seven, Tracinda
and the Company, and in connection with the Orion Acquisition, Tracinda
purchased 13,375,107 shares of the Common Stock and Seven purchased 1,625,013
shares of the Common Stock, for a purchase price of $24.00 per share and an
aggregate purchase price of $360 million.
Pursuant to an agreement dated as of October 10, 1996 among Seven, Tracinda,
the Company, MGM Studios and the agent for the lending banks under the
Original MGM Credit Facility (the "Capital Call Agreement"), Tracinda and
Seven agreed to provide an aggregate of up to $60 million of equity to the
Company upon the occurrence of certain events. The Capital Call Agreement and
the obligations of Tracinda and Seven thereunder will terminate upon
completion of the Offering.
SALES OF UNREGISTERED SECURITIES TO MANAGEMENT
In connection with the MGM Acquisition and the renegotiation of employment
agreements with certain employees of the Company, including certain members of
management, the Company issued an aggregate of 66,667 shares of the Common
Stock and 2,000 shares of the Series A Preferred Stock (which will be
converted into 83,334 shares of the Common Stock prior to the completion of
the Offering pursuant to the Series A Preferred Stock Conversion and the Stock
Split) to such employees. The Company received no cash consideration from such
issuance. Company believes that the issuance of such shares to such employees
was exempt from registration under Section 4(2) of the Securities Act. See
"Ownership of Voting Securities."
In addition, pursuant to Mr. Mancuso's employment agreement, Mr. Mancuso
receives a monthly payment of $250,000, out of the after tax proceeds of which
he is required to purchase shares of the Common Stock at a price of $24.00 per
share until December 31, 1997 and, thereafter, at the fair market value of
such shares. As of September 30, 1997, Mr. Mancuso had purchased 61,500 shares
of the Common Stock for aggregate consideration of $1,476,000. See
"Management--Employment Agreements--Frank G. Mancuso." The Company believes
that the issuance of such shares to Mr. Mancuso was exempt from registration
under Section 4(2) of the Securities Act.
INVESTORS SHAREHOLDER AGREEMENT AND SHAREHOLDERS AGREEMENT
Seven, Tracinda, Mr. Mancuso, the Company and MGM Studios are parties to the
Investors Shareholder Agreement and the Shareholders Agreement, each of which
contains certain provisions relating to the corporate governance of the
Company and provide for certain rights relating to the shares of the Common
Stock, including registration rights and transfer restrictions. See "Ownership
of Voting Securities--Investors Shareholder Agreement" and "--Shareholders
Agreement."
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OTHER TRANSACTIONS WITH TRACINDA AND ITS AFFILIATES
In 1980 Old MGM granted to Grand Hotel an exclusive open-ended royalty-free
license to use certain trademarks and tradenames that include the letters
"MGM," as well as logos consisting of a stylized depiction of a lion in its
hotel/gaming business and other businesses that are not entertainment-related.
In 1986 MGM/UA granted Grand Air an exclusive open-ended royalty-free license
to use one of its logos consisting of a stylized depiction of a lion in Grand
Air's airline business. The Company did not receive any compensation for this
license. See "Business--Trademarks and Consumer Products." Tracinda owns a
majority of the outstanding common stock of Grand Hotel, and Grand Air was a
subsidiary of Grand Hotel. Additionally, the Company and affiliates of
Tracinda occasionally conduct cross-promotional campaigns, in which the
Company's motion pictures and the affiliates' hotels are promoted together;
however, the Company believes that the amounts involved are immaterial.
Home Entertainment has granted to Grand Hotel, or certain of its affiliates,
limited short-term, nonexclusive licenses to key art, still photographs of
artwork and one minute film clips from certain MGM Pictures and UA Pictures
releases for use in an "in-room" only publication for the MGM Grand
Hotel/Casino in Las Vegas, a clip reel program for the benefit of Make-a-Wish
foundation and promoting the sale of videocassettes containing such releases
at the MGM Grand Hotel/Casino in Las Vegas. The Company did not receive any
compensation for these licenses.
The Company sells to Grand Hotel, and certain of its affiliates, on a
wholesale basis merchandise such as baseball caps, clothing, keychains and
watches bearing the Company's trademarks and logos for resale to consumers in
retail shops located within Grand Hotel's hotels. Grand Hotel currently is the
Company's largest wholesale customer of the Company's merchandise and,
consequently, receives customary volume discounts from the Company.
In 1997 MGM Studios and Grand Hotel entered into a site location agreement
with respect to production of a pilot episode of a television series being
developed by MGM Studios. Grand Hotel was not compensated for the use of the
site, but was compensated, on customary terms, for services provided by Grand
Hotel.
From time to time, the Company uses aircraft owned by Tracinda for use in
the Company's business. The Company believes that the terms of such
arrangements are no less favorable to the Company than those that could be
obtained from unrelated parties. From October 10, 1996 to June 30, 1997, the
aggregate of the payments made to Tracinda for the use of such aircraft was
approximately $10,000.
In January 1997 MGM Studios entered into an agreement with Tracinda and
certain former directors of MGM/UA (including Kirk Kerkorian) (the "Insurance
Allocation Agreement") to allocate the proceeds of directors and officers
liability insurance policies relating to litigation filed prior to 1991
against MGM/UA, Tracinda and such former directors. The Insurance Allocation
Agreement provides for the proceeds of such policies (and certain legal fees
incurred to obtain such proceeds) to be allocated 65 percent to MGM Studios
and 35 percent to Tracinda (on behalf of such former directors). The Company
believes that the terms of the Insurance Allocation Agreement were fair and
equitable to the respective parties and were the result of arm's-length
negotiations between MGM Studios and Tracinda (on behalf of such former
directors). The total proceeds of such policies aggregated $8 million as of
September 30, 1997, of which $5.2 million was allocated to MGM Studios.
STOCK OPTION GRANTS AND REIMBURSEMENT OF FEES TO TRACINDA AND CELSUS IN
CONNECTION WITH THE MGM ACQUISITION
In consideration of financial advisory services provided to the Company in
connection with the MGM Acquisition, the Company entered into Stock Option
Agreements dated October 10, 1996 with Tracinda and Celsus, an entity wholly-
owned by Michael R. Gleason, pursuant to which each of Tracinda and Celsus was
granted an option by the Company to purchase 156,251 shares of the Common
Stock, at a price per share of $6.41. The options became exercisable on
October 10, 1997 and expire on October 10, 2002.
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The Company also paid each of Tracinda and Celsus $4,750,000 as additional
consideration for such services and for certain out-of-pocket and other
expenses incurred by Tracinda and Celsus in connection with the MGM
Acquisition.
OTHER TRANSACTIONS WITH SEVEN AND ITS AFFILIATES
In 1995 the Company licensed to a subsidiary of Seven the right to
distribute certain motion picture and television product in the Australian
free television market. This agreement was amended on September 9, 1997. The
product licensed includes certain Library pictures and theatrical motion
pictures and television series, miniseries and made-for-television movies
produced or distributed by the Company during the term of the agreement. The
license fees for the Library product are at a rate which the Company believes
is arm's-length. The term of the output portion of the agreement is 20 years,
subject to reduction to 10 years if there is a change of control of Seven or
Seven no longer beneficially owns shares of the Common Stock having a value of
at least $185 million. The license fees for output product television series,
television movies and television mini-series are on a "most favored nations"
basis with prices paid by the Seven subsidiary for comparable programming.
During the period from October 11, 1996 to December 31, 1996 and for the six
months ended June 30, 1997, the Company recognized revenues of $1,055,000 and
$2,395,000, respectively, under this agreement.
In 1994, in connection with the formation of MovieVision, a joint venture in
which the Company and a subsidiary of Seven have non-controlling interests,
the Company licensed to the joint venture certain of its current theatrical
and television motion pictures, as well as a number of Library pictures, for
distribution on Australian pay and basic cable television. The agreement
expires on June 30, 2000, with all motion pictures covered by the agreement
reverting to the Company within one year after that date, but both the Company
and MovieVision have the right to extend the license for a further five years.
The Company receives a license fee for each picture that is based on the
number of MovieVision's subscribers. The Company believes that the terms of
the agreement are no less favorable to the Company than those contained in its
licenses with unaffiliated licensees. See "Business--Pay and Free Television."
Seven has agreed to reimburse the Company for losses that the Company may
incur in connection with the distribution of Joey, an Australian film with
respect to which the Company has acquired distribution rights from an
unrelated third party.
OTHER
The Company has an exclusive producer overhead arrangement with Frank
Mancuso, Jr., the son of Mr. Mancuso, which expires on July 31, 2002. Mr.
Mancuso, Jr. receives $400,000 each year, subject to five to ten percent
annual increases, for overhead expenses, as well as a development fund and a
production fund to pay for the costs of developing and producing projects. Mr.
Mancuso, Jr. must submit all projects that he wishes to produce or develop to
the Company. Mr. Mancuso, Jr. receives a producing fee, as well as certain
participations and royalties, for each picture that is produced under the
arrangement. From January 1, 1996 to July 31, 1997 these fees, participations
and royalties (for movies produced by Mr. Mancuso, Jr. such as Species, Fled
and Hoodlum) have totalled approximately $2.2 million. The Company has the
right to acquire the domestic or worldwide rights to each picture produced
under the arrangement and controls all remake, sequel and television rights.
In connection with the commencement of Mr. Corrigan's employment with the
Company, the Company entered into a loan agreement dated July 30, 1997 with
Mr. Corrigan pursuant to which the Company made an unsecured and interest-free
loan to Mr. Corrigan in the principal amount of $91,000 in order to assist
Mr. Corrigan in the purchase of a residence in the Los Angeles area. Mr.
Corrigan has repaid all amounts borrowed under this loan agreement.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 65,211,921 of the
Common Stock outstanding. The 12,500,000 shares sold in the Offering will be
freely tradable without restriction under the Securities Act, except for any
such shares held at any time by an "affiliate" of the Company, as such term is
defined under Rule 144 promulgated under the Securities Act.
The 52,711,921 shares of the Common Stock outstanding immediately prior the
consummation of the Offering were issued in private transactions and may be
publicly sold only if registered under the Securities Act or sold in
accordance with an applicable exemption from registration, such as Rule 144.
In general, under Rule 144, as currently in effect, a person who has
beneficially owned shares for at least one year, including an "affiliate," as
that term is defined in Rule 144, is entitled to sell, within any three-month
period, a number of "restricted" shares that does not exceed the greater of
one percent of the then outstanding shares of the Common Stock (652,119 shares
immediately after the Offering) and the average weekly trading volume during
the four calendar weeks preceding such sale. Sales under Rule 144 are subject
to certain manner of sale limitations, notice requirements and the
availability of current public information about the Company. Rule 144(k)
provides that a person who is not deemed an "affiliate" and who has
beneficially owned shares for at least two years is entitled to sell such
shares at any time under Rule 144 without regard to the limitations described
above.
The Company has granted outstanding employee stock options to purchase an
aggregate of 5,205,702 shares of the Common Stock as of September 30, 1997.
The shares issuable upon the exercise of such options will be "restricted"
shares for Rule 144 purposes until such time as the Company registers such
shares under the Securities Act. The Company has undertaken to register the
shares of the Common Stock issuable upon exercise of employee stock options
within six months following completion of the Offering. See "Management--
Incentive and Bonus Plans--1996 Incentive Plan" and "Ownership of Voting
Securities--Shareholders Agreement--Form S-8." The Company also has
outstanding options to purchase an aggregate of 312,502 shares of the Common
Stock, which options are held by Tracinda and Celsus. See "Certain
Transactions--Stock Option Grants and Reimbursement of Fees to Tracinda and
Celsus in Connection with the MGM Acquisition."
The parties to the Shareholders Agreement, who in the aggregate held all of
the outstanding shares of Common Stock as of September 30, 1997 have been
granted certain registration rights with respect to shares of the Common Stock
in connection with this Offering by the Company and in connection with certain
future public offerings effected by the Company, Seven, Tracinda and each of
the Executives have waived their registration rights with respect to the
Offering. See "Ownership of Voting Securities--Shareholders Agreement."
The Company, Tracinda, Seven and each of the Executives will agree with the
Underwriters not to sell or otherwise dispose of any shares of the Common
Stock for a period of 180 days from the date of this Prospectus without the
prior written consent of Merrill Lynch.
The Company is unable to estimate the number of shares that may be sold in
the future by the existing stockholders or the effect, if any, that sales of
shares by such stockholders will have on the market price of the Common Stock
prevailing from time to time. Sales of substantial amounts of the Common Stock
by such stockholders could adversely affect prevailing market prices. See
"Risk Factors--Shares Eligible for Future Sale."
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UNDERWRITING
Subject to the terms and conditions set forth in a purchase agreement (the
"U.S. Purchase Agreement"), the Company has agreed to sell to each of the
Underwriters named below (the "U.S. Underwriters"), and each of the U.S.
Underwriters, for whom Merrill Lynch, J.P. Morgan Securities Inc., Bear,
Stearns & Co. Inc. and Furman Selz LLC are acting as representatives (the
"U.S. Representatives"), severally has agreed to purchase, the number of
shares of the Common Stock set forth opposite its name below.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ----------
<S> <C>
Merrill Lynch, Pierce Fenner & Smith
Incorporated..........................................
J.P. Morgan Securities Inc. ......................................
Bear, Stearns & Co. Inc. .........................................
Furman Selz LLC...................................................
----------
Total........................................................ 10,000,000
==========
</TABLE>
The Company has also entered into a purchase agreement (the "International
Purchase Agreement" and, together with the U.S. Purchase Agreement, the
"Purchase Agreements") with certain Underwriters outside the United States and
Canada (the "International Underwriters"), for whom Merrill Lynch
International, J.P. Morgan Securities Ltd., Bear, Stearns International
Limited and Furman Selz LLC are acting as representatives (the "International
Representatives" and, together with the U.S. Representatives, the
"Representatives"). Subject to the terms and conditions set forth in the
International Purchase Agreement, the Company has agreed to sell to the
International Underwriters, and the International Underwriters have severally
agreed to purchase from the Company, an aggregate of 2,500,000 shares of the
Common Stock.
In each Purchase Agreement, the Underwriters named therein have agreed,
subject to the terms and conditions set forth in such Purchase Agreement, to
purchase all of the shares of the Common Stock being sold pursuant to such
Purchase Agreement if any of the shares of the Common Stock being sold
pursuant to such Purchase Agreement are purchased. Under certain circumstances
under the Purchase Agreements, the purchase commitments of non-defaulting
Underwriters may be increased. Each Purchase Agreement provides that the
Company is not obligated to sell, and the Underwriters named therein are not
obligated to purchase, the shares of the Common Stock under the terms of such
Purchase Agreement unless all of the shares of the Common Stock to be sold
pursuant to such Purchase Agreement are contemporaneously sold. The sale of
shares of the Common Stock to the U.S. Underwriters and the sale of shares of
the Common Stock to the International Underwriters are conditioned on each
other.
The U.S. Representatives have advised the Company that the U.S. Underwriters
propose to offer the shares of the Common Stock to the public initially at the
public offering price set forth on the cover page of this Prospectus, and to
certain dealers at such price less a concession not in excess of $ per
share of the Common Stock, and that the U.S. Underwriters may allow, and such
dealers may reallow, a discount not in excess of $ per share of the Common
Stock on sales to certain other dealers. After the initial public offering,
the public offering price, concession and discount may be changed.
The Company has granted options to the U.S. Underwriters, exercisable for
30 days after the date of this Prospectus, to purchase up to an aggregate of
1,200,000 additional shares of the Common Stock at the initial
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public offering price set forth on the cover page of this Prospectus, less the
underwriting discount. The U.S. Underwriters may exercise these options only
to cover over-allotments, if any, made on the sale of the Common Stock offered
hereby. To the extent that the U.S. Underwriters exercise these options, each
U.S. Underwriter will be obligated, subject to certain conditions, to purchase
a number of additional shares of the Common Stock proportionate to such U.S.
Underwriter's initial amount reflected in the foregoing table. The Company has
also granted options to the International Underwriters, exercisable for
30 days after the date of this Prospectus, to purchase up to an aggregate of
300,000 additional shares of the Common Stock to cover over-allotments, if
any, on terms similar to those granted to the U.S. Underwriters.
The initial public offering price per share of the Common Stock and the
underwriting discount per share of Common Stock are identical under the U.S.
Purchase Agreement and the International Purchase Agreement.
The Company has been informed that the Underwriters have entered into an
agreement (the "Intersyndicate Agreement") providing for the coordination of
their activities. Pursuant to the Intersyndicate Agreement, the U.S.
Underwriters and the International Underwriters are permitted to sell shares
of the Common Stock to each other.
Each of the Company, Tracinda, Seven and each of the Executives has agreed
not to sell, offer to sell, grant any options for the sale of, or otherwise
dispose of, any shares of the Common Stock or securities convertible into or
exchangeable or exercisable for the Common Stock (other than, in the case of
the Company, sales pursuant to the exercise of the outstanding options) for a
period of 180 days after the date of this Prospectus without the prior written
consent of Merrill Lynch, subject to certain limited exceptions included in
the Purchase Agreements.
The Company has been informed that, under the terms of the Intersyndicate
Agreement, the U.S. Underwriters and any dealer to whom they sell shares of
the Common Stock will not offer to sell or resell shares of the Common Stock
to persons who are non-U.S. or non-Canadian persons, or to persons they
believe intend to resell to persons who are non-U.S. or non-Canadian persons,
and the International Underwriters and any bank, broker, or dealer to whom
they sell shares of the Common Stock will not offer to sell or resell shares
of the Common Stock to U.S. persons or to Canadian persons or to persons they
believe intend to resell to U.S. persons or to Canadian persons, except in the
case of transactions pursuant to the Intersyndicate Agreement which, among
other things, permits the Underwriters to purchase from each other and to
offer to resell such number of shares of the Common Stock as the selling
Underwriter or Underwriters and the purchasing Underwriter or Underwriters may
agree.
The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute
to payments the Underwriters may be required to make in respect thereof.
Application will be made to list the Common Stock for quotation on the NYSE
under the symbol "MGM." In order to meet requirements for listing on the NYSE,
the Underwriters have undertaken to sell lots of 100 or more shares of the
Common Stock to a minimum of 2,000 beneficial holders.
Until the distribution of the Common Stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the Underwriters
and certain selling group members to bid for and purchase the Common Stock. As
an exception to these rules, the Underwriters are permitted to engage in
certain transactions that stabilize the price of the Common Stock. Such
transactions consist of bids or purchases for the purpose of pegging, fixing
or maintaining the price of the Common Stock.
If the Underwriters create a short position in the Common Stock in
connection with the Offering, i.e., if they sell more shares of the Common
Stock than are set forth on the cover page of this Prospectus, the
Underwriters may reduce that short position by purchasing shares of the Common
Stock in the open market.
The Representatives may also impose a penalty bid on certain Underwriters
and selling group members. This means that if the Representatives purchase
shares of the Common Stock in the open market to reduce the Underwriters'
short position or to stabilize the price of the Common Stock, they may reclaim
the amount of the selling concession from the Underwriters and selling group
members who sold those shares as part of the Offering.
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In general, purchases of shares of the Common Stock for the purpose of
stabilization or to reduce a short position could cause the price of the
Common Stock to be higher than it might be in the absence of such purchases.
The imposition of a penalty bid might also have an effect on the price of the
Common Stock to the extent that it were to discourage resales of the Common
Stock.
Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the
transactions described above may have on the price of the Common Stock. In
addition, neither the Company nor any of the Underwriters makes any
representation that the Representatives will engage in such transactions or
that such transactions, once commenced, will not be discontinued without
notice.
The Underwriters have reserved for sale, at the initial public offering
price, shares of the Common Stock for certain employees, directors, vendors
and affiliates of the Company who have expressed an interest in purchasing
such shares of Common Stock. Such employees, directors and other persons are
expected to purchase, in the aggregate, not more than 5% of the Common Stock
offered in the Offering. The number of shares available for sale to the
general public in the Offering will be reduced to the extent such persons
purchase such reserved shares. Any reserved shares not so purchased will be
offered to the general public on the same basis as the other shares offered
hereby.
Net proceeds of the Offering will be used to reduce indebtedness under the
Amended Credit Facility. An affiliate of J.P. Morgan Securities Inc. serves as
an agent for a syndicate of lenders and as a lender under the Company's
Amended Credit Facility. Therefore, J.P. Morgan Securities Inc. may be deemed
to have an affiliate receiving more than 10 percent of the net proceeds of the
Offering. In such circumstances, Rule 2710 of the National Association of
Securities Dealers, Inc. ("NASD") requires that initial public offering price
be no higher than that recommended by a "qualified independent underwriter"
meeting certain standards. In addition, Culmen Group, L.P. (an NASD member and
a member of the selling group) may be deemed to be an affiliate of the Company
under NASD Rule 2720, which provides that, among other things, the initial
public offering price must be recommended by a qualified independent
underwriter when an NASD member participates in the underwriting of an
affiliate's equity securities. Merrill Lynch has agreed to serve in such role
and has agreed to recommend a price in compliance with the requirement of NASD
Rule 2720. In connection with the Offering, Merrill Lynch, in its role as
qualified independent underwriter, has performed due diligence investigations
and reviewed and participated in the preparation of the Prospectus and the
Registration Statement of which this Prospectus forms a part. In addition, the
Underwriters may not confirm sales to any discretionary account without the
prior written approval of the customer.
Prior to the Offering, there has been no public market for the shares of the
Common Stock. The initial public offering price of the Common Stock will be
determined through negotiations between the Company and the Representatives.
Among the factors that will be considered in such negotiations, in addition to
prevailing market conditions, will be the current market valuations of
publicly traded companies that the Company and Representatives believe to be
reasonably comparable to the Company, certain financial information of the
Company, the history of, and the prospects for, the Company and the industry
in which the Company will compete, an assessment of the Company's management,
the past and present operations of the Company, the prospects for, and timing
of, future revenues of the Company, the present state of the Company's
development, and the above factors in relation to market values and various
valuation measures of other companies engaged in activities similar to the
Company. There can be no assurance that an active trading market will develop
for the Common Stock or that the Common Stock will trade in the public market
subsequent to the Offering at or above the initial public offering price.
The U.S. Underwriters and the International Underwriters have informed the
Company that they do not intend to confirm sales of the shares of the Common
Stock offered hereby to any accounts over which they exercise discretionary
authority.
Furman Selz LLC and certain affiliates of J.P. Morgan Securities Inc. and
Merrill Lynch have been engaged from time to time (including, in the case of
J.P. Morgan Securities Inc., at the present time), and may in the future be
engaged, to perform banking, advisory-related and/or other services to the
Company and its affiliates in the ordinary course of business. In connection
with rendering such services, such Underwriters receive customary
compensation, including reimbursement of related expenses.
87
<PAGE>
LEGAL MATTERS
The validity of the issuance of the shares of the Common Stock offered
hereby will be passed upon for the Company by Gibson, Dunn & Crutcher LLP, Los
Angeles, California. Certain matters in connection with the offering will be
passed upon for the Underwriters by O'Melveny & Myers LLP, Los Angeles,
California, which represents the Company with respect to unrelated matters,
and may continue to do so in the future.
EXPERTS
The Audited Consolidated Financial Statements of the Company for the period
from October 11 to December 31, 1996 and the Consolidated Financial Statements
of MGM Studios for the period from January 1 to October 10, 1996 included in
this prospectus and elsewhere in the registration statement have been audited
by Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports. The Consolidated
Financial Statements of MGM Studios for the years ended December 31, 1994 and
1995 were audited by Price Waterhouse LLP, independent public accountants, as
stated in their report appearing herein. The Consolidated Financial Statements
of MGM for the years ended December 31, 1992 and 1993 were audited by KPMG
Peat Marwick LLP, independent auditors. The consolidated financial statements
of Orion Pictures Corporation and subsidiaries as of December 31, 1996 and for
the year then ended have been included herein and in the registration
statement in reliance upon the report of KPMG Peat Marwick LLP, independent
certified public accountants, appearing elsewhere herein, and upon the
authority of said firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement (of which
this Prospectus is a part) on Form S-1 under the Securities Act, with respect
to the Common Stock offered hereby. This Prospectus does not contain all the
information set forth in the Registration Statement and the exhibits and
schedules thereto. Statements contained in this Prospectus as to the content
of any contract or other document are not necessarily complete, and in each
instance reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference and the exhibits and schedules
thereto. The Registration Statement, including the exhibits and schedules
thereto, as well as reports, proxy and information statements and other
information filed by the Company may be inspected and copied at the public
reference facilities maintained by the Commission at its principal office
located at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549,
the New York Regional Office located at 75 Park Place, New York, New York
10007, and the Chicago Regional Office located at Northwest Atrium Center, 500
West Madison Street, Room 1204, Chicago, Illinois 60661-2511, and copies of
such material can be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. Electronics filings made by the Company through the Commission's
Electronic Data Gathering, Analysis and Retrieval System are publicly
available through the Commission's World Wide Web site (http://www.sec.gov),
which contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. Upon
listing on the NYSE, reports and other information concerning the Company can
also be inspected at the offices of the NYSE, 20 Broad Street, New York, New
York 10005.
88
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
METRO-GOLDWYN-MAYER INC.
SUCCESSOR CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Public Accountants................................ F-2
Consolidated Balance Sheets as of December 31, 1996 and June 30, 1997
(Unaudited)............................................................ F-3
Consolidated Statements of Operations for the Period From October 11,
1996 to December 31, 1996 and for the Six Months Ended June 30, 1997
and 1996 (Unaudited)................................................... F-4
Consolidated Statements of Stockholders' Equity for the Period From
October 11, 1996 to December 31, 1996 and for the Six Months Ended June
30, 1997 (Unaudited)................................................... F-5
Consolidated Statements of Cash Flows for the Period From October 11,
1996 to December 31, 1996 and for the Six Months Ended June 30, 1997
and 1996 (Unaudited)................................................... F-6
Notes to Consolidated Financial Statements.............................. F-7
METRO-GOLDWYN-MAYER STUDIOS INC.
PREDECESSOR CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Public Accountants................................ F-23
Report of Independent Public Accountants................................ F-24
Consolidated Balance Sheets as of October 10, 1996 and December 31,
1995................................................................... F-25
Consolidated Statements of Operations for the Period From January 1,
1996 to October 10, 1996 and for the Years Ended December 31, 1995 and
1994................................................................... F-26
Consolidated Statements of Stockholder's Equity for the Period From
January 1, 1996 to October 10, 1996 and for the Years Ended December
31, 1995 and 1994...................................................... F-27
Consolidated Statements of Cash Flows for the Period From January 1,
1996 to October 10, 1996 and for the Years Ended December 31, 1995 and
1994................................................................... F-28
Notes to Consolidated Financial Statements.............................. F-29
ORION PICTURES CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Public Accountants................................ F-41
Consolidated Balance Sheets as of December 31, 1996 and June 30, 1997
(Unaudited)............................................................ F-42
Consolidated Statements of Operations for the Year Ended December 31,
1996 and the Six Months Ended June 30, 1997 and 1996 (Unaudited)....... F-43
Consolidated Statements of Shareholder's Equity (Capital Deficiency) for
the Year Ended December 31, 1996 and for the Six Months Ended June 30,
1997 (Unaudited)....................................................... F-44
Consolidated Statements of Cash Flow for the Year Ended December 31,
1996 and for the Six Months Ended June 30, 1997 and 1996 (Unaudited)... F-45
Notes to Consolidated Financial Statements.............................. F-46
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Metro-Goldwyn-Mayer Inc.:
After the recapitalization transactions discussed in Note 15 to the
Company's consolidated financial statements are effected, we expect to be in a
position to render the following audit report.
Arthur Andersen LLP
Los Angeles, California
February 25, 1997
"REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Metro-Goldwyn-Mayer Inc.:
We have audited the accompanying consolidated balance sheet of Metro-
Goldwyn-Mayer Inc. (formerly known as P&F Acquisition Corp.) (a Delaware
corporation) and subsidiaries as of December 31, 1996, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the period from October 11, 1996 (date of commencement of principal
operations) to December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. 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 audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Metro-
Goldwyn-Mayer Inc. and subsidiaries as of December 31, 1996, and the results
of their operations and their cash flows for the period from October 11, 1996
(date of commencement of principal operations) to December 31, 1996 in
conformity with generally accepted accounting principles.
Arthur Andersen LLP
Los Angeles, California
February 25, 1997 (except with
regard to the matters discussed
in Note 15, as to which the date
is )"
F-2
<PAGE>
METRO-GOLDWYN-MAYER INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
(UNAUDITED)
ASSETS
------
<S> <C> <C>
Cash and cash equivalents............................. $ 16,381 $ 20,255
Accounts and contracts receivable (net of allowance
for doubtful accounts of $11,728 and $11,730,
respectively)........................................ 271,106 150,920
Film and television costs, net........................ 1,099,201 1,263,073
Investments and advances to affiliates................ 16,107 7,858
Property and equipment, net........................... 27,347 29,411
Excess of cost over net assets of acquired businesses,
net.................................................. 302,741 298,920
Other assets.......................................... 41,785 36,137
---------- ----------
$1,774,668 $1,806,574
========== ==========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Liabilities:
Bank and other debt................................. $ 444,427 $ 566,258
Accounts payable and accrued liabilities............ 90,933 63,006
Accrued participants' share......................... 173,094 150,035
Income taxes payable................................ 29,269 37,749
Advances and deferred revenues...................... 104,516 83,548
Other liabilities................................... 29,307 29,270
---------- ----------
Total liabilities................................. 871,546 929,866
---------- ----------
Commitments and contingencies
Stockholders' equity:
Preferred Stock, $.01 par value, 25,000,000 shares
authorized, 501,006 and 502,588 shares issued and
outstanding........................................ 5 5
Common Stock, $.01 par value, 125,000,000 shares
authorized, 16,700,342 and 16,753,050 shares issued
and outstanding.................................... 167 168
Additional paid-in capital.......................... 901,639 904,485
Retained earnings (deficit)......................... 166 (28,839)
Cumulative translation adjustment................... 1,145 889
---------- ----------
Stockholders' equity.............................. 903,122 876,708
---------- ----------
$1,774,668 $1,806,574
========== ==========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
F-3
<PAGE>
METRO-GOLDWYN-MAYER INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
(SUCCESSOR) (SUCCESSOR) (PREDECESSOR)
OCTOBER 11 TO SIX MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30, JUNE 30,
1996 1997 1996
------------- ---------------- ----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Revenues....................... $ 228,686 $ 351,014 $ 595,132
Expenses:
Film and television
production and distribution. 195,076 317,912 607,908
General and administrative
expenses.................... 18,319 35,140 29,597
Goodwill amortization........ 1,717 3,821 7,437
---------- ---------- ---------
Total expenses............. 215,112 356,873 644,942
---------- ---------- ---------
Operating income (loss)........ 13,574 (5,859) (49,810)
Other income (expense):
Interest expense, net of
amounts capitalized......... (9,875) (20,599) (45,086)
Interest and other income,
net......................... 813 1,388 874
---------- ---------- ---------
Total other expense........ (9,062) (19,211) (44,212)
---------- ---------- ---------
Income (loss) from operations
before provision for income
taxes......................... 4,512 (25,070) (94,022)
Income tax provision........... (4,346) (3,935) (9,530)
---------- ---------- ---------
Net income (loss).............. $ 166 $ (29,005) $(103,552)
========== ========== =========
Pro forma earnings (loss) per
share......................... $ 0.00 $ (0.77)
========== ==========
Pro forma weighted average
number of common and common
equivalent shares outstanding. 37,567,634 37,643,426
========== ==========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
F-4
<PAGE>
METRO-GOLDWYN-MAYER INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
PREFERRED
STOCK COMMON STOCK
------------- ----------------
NUMBER ADDITIONAL CUMULATIVE TOTAL
OF PAR NUMBER OF PAR PAID-IN RETAINED TRANSLATION STOCKHOLDERS'
SHARES VALUE SHARES VALUE CAPITAL EARNINGS ADJUSTMENT EQUITY
------- ----- ---------- ----- ---------- -------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BEGINNING BALANCE....... -- $ -- -- $ -- $ -- $ -- $ -- $ --
Issuance of Preferred
and Common Stock....... 501,006 5 16,700,342 167 901,639 -- -- 901,811
Foreign currency
translation adjustment. -- -- -- -- -- -- 1,145 1,145
Net income.............. -- -- -- -- -- 166 -- 166
------- ---- ---------- ---- -------- -------- ------ --------
BALANCE DECEMBER 31,
1996................... 501,006 5 16,700,342 167 901,639 166 1,145 903,122
Issuance of Preferred
and Common Stock....... 1,582 -- 52,708 1 2,846 -- -- 2,847
Foreign currency
translation adjustment. -- -- -- -- -- -- (256) (256)
Net loss................ -- -- -- -- -- (29,005) -- (29,005)
------- ---- ---------- ---- -------- -------- ------ --------
BALANCE JUNE 30, 1997
(UNAUDITED)............ 502,588 $ 5 16,753,050 $168 $904,485 $(28,839) $ 889 $876,708
======= ==== ========== ==== ======== ======== ====== ========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
F-5
<PAGE>
METRO-GOLDWYN-MAYER INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
(SUCCESSOR) (PREDECESSOR)
(SUCCESSOR) SIX MONTHS SIX MONTHS
OCTOBER 11 TO ENDED ENDED
DECEMBER 31, JUNE 30, JUNE 30,
1996 1997 1996
------------- ----------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Operating activities:
Net income (loss).................... $ 166 $ (29,005) $(103,552)
Adjustments to reconcile net income
from operations to net cash
provided by operating activities:
Amortization of film and television
costs and participants' share..... 83,508 155,938 403,085
Depreciation and amortization of
property and equipment............ 1,418 3,230 2,871
Amortization of goodwill and
deferred financing costs.......... 2,761 6,322 12,137
Reduction in goodwill due to
realization of tax benefits....... 1,206 -- --
Losses (gains) on equity
investments, net.................. (2,592) 13,838 3,485
Decrease in accounts and contracts
receivable and other assets....... 12,895 122,268 40,436
Decrease in accounts payable,
accrued and other liabilities,
accrued participants' share and
domestic and foreign taxes........ (31,542) (92,631) (2,995)
Decrease in advances and deferred
revenues.......................... (6,258) (20,968) (26,989)
Foreign currency exchange (gain)
loss.............................. (234) 1,064 333
----------- --------- ---------
Net cash provided by operating
activities...................... 61,328 160,056 328,811
----------- --------- ---------
Investing activities:
Acquisition of Metro-Goldwyn-Mayer
Studios Inc......................... (1,331,430) -- --
Additions to film costs, net......... (55,814) (269,722) (272,613)
Additions to property and equipment.. (2,079) (5,294) (5,291)
Other investing activities........... (1,538) (5,588) --
----------- --------- ---------
Net cash used in investing
activities...................... (1,390,861) (280,604) (277,904)
----------- --------- ---------
Financing activities:
Proceeds from issuance of Preferred
and Common Stock.................... 901,811 2,847 --
Proceeds from debt issuance.......... 475,000 -- --
Net bank advances (repayments)....... (31,417) 121,831 (50,829)
Dividends paid to parent............. -- -- (4,159)
----------- --------- ---------
Net cash provided by financing
activities...................... 1,345,394 124,678 (54,988)
----------- --------- ---------
Net change in cash and cash equivalents
from operating, investing and
financing activities.................. 15,861 4,130 (4,081)
Net increase (decrease) in cash due to
foreign currency fluctuations......... 520 (256) (538)
----------- --------- ---------
Net change in cash and cash
equivalents........................... 16,381 3,874 (4,619)
Cash and cash equivalents at beginning
of period............................. -- 16,381 17,128
----------- --------- ---------
Cash and cash equivalents at end of the
period................................ $ 16,381 $ 20,255 $ 12,509
=========== ========= =========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
F-6
<PAGE>
METRO-GOLDWYN-MAYER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND 1996 ARE UNAUDITED)
NOTE 1--BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation. The accompanying consolidated financial statements
include the accounts of Metro-Goldwyn-Mayer Inc. (formerly known as P&F
Acquisition Corp.) ("MGM"), and Metro-Goldwyn-Mayer Studios Inc. and its
majority owned subsidiaries ("MGM Studios") (collectively, the "Company"). MGM
is a Delaware corporation formed on July 10, 1996 specifically to acquire MGM
Studios. The acquisition of MGM Studios by MGM was completed on October 10,
1996 (see Notes 2 & 7), at which time MGM commenced principal operations.
Prior to its acquisition by MGM, MGM Studios was wholly owned by MGM Group
Holdings Corporation, an indirect wholly owned subsidiary of Consortium de
Realisation ("CDR"). CDR is a wholly owned subsidiary of Credit Lyonnais S.A.
and is controlled by the French State.
As permitted by Statement of Financial Accounting Standards ("SFAS") No. 53,
"Financial Reporting by Producers and Distributors of Motion Pictures", the
Company has presented an unclassified consolidated balance sheet.
Unaudited Information as of June 30, 1997 and 1996. The accompanying
consolidated financial statements as of June 30, 1997 and 1996 reflect all
adjustments which are, in the opinion of management, necessary for the fair
presentation of the financial statements for such interim periods. Such
adjustments consist only of normal recurring items. Interim results are not
necessarily indicative of results for a full year.
Business. The Company is engaged primarily in the development, production
and worldwide distribution of theatrical motion pictures and television
programs. The Company also distributes films produced or financed, in whole or
in part, by third parties.
Motion picture and television production and distribution is highly
speculative and inherently risky. There can be no assurance of the economic
success of such motion pictures and television programming since the revenues
derived form the production and distribution (which do not necessarily bear a
direct correlation to the production or distribution costs incurred) depend
primarily upon its acceptance by the public, which cannot be predicted. The
commercial success of a motion picture also depends upon the quality and
acceptance of other competing films released into the marketplace at or near
the same time, the availability of alternative forms of entertainment and
leisure time activities, general economic conditions and other tangible and
intangible factors, all of which can change and cannot be predicted with
certainty. The theatrical success of a motion picture is a very important
factor in generating revenues from such motion picture in other media.
The success of the Company's television programming also may be impacted by
prevailing advertising rates, which are subject to fluctuation. Therefore,
there is a substantial risk that some or all of the Company's motion picture
and television projects will not be commercially successful, resulting in
costs not being recouped or anticipated profits not being realized.
Principles of Consolidation. The consolidated financial statements include
the accounts of MGM, MGM Studios and all of its majority-owned and controlled
subsidiaries. The Company's investments in related companies which represent a
20% to 50% ownership interest over which the Company has significant influence
but not control are accounted for using the equity method (see Note 4). All
significant intercompany balances have been eliminated.
Cash and Cash Equivalents. The Company considers all highly liquid debt
instruments, purchased with an initial maturity of three months or less, to be
cash equivalents. Included in other assets at June 30, 1997 and December 31,
1996 is approximately $8,648,000 and $11,357,000, respectively, of cash
restricted by various
F-7
<PAGE>
METRO-GOLDWYN-MAYER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND 1996 ARE UNAUDITED)
escrow agreements. The carrying value of the Company's cash equivalents
approximated cost at each balance sheet date.
Revenue Recognition. Revenues from theatrical distribution of feature films
are recognized on the dates of exhibition. Revenues from direct home video
distribution are recognized, net of an allowance for estimated returns,
together with related costs, in the period in which the product is available
for sale by the Company's customers. Revenues from television licensing,
together with related costs, are recognized when the feature film or
television program is available to the licensee for telecast. Long-term non-
interest-bearing receivables arising from licensing agreements are discounted
to present value.
Accounting for Film and Television Costs. Except for purchase accounting
adjustments, film costs include the costs of production, prints, pre-release
and other advertising expected to benefit future periods and capitalized
overhead and interest. These costs, as well as participations and talent
residuals, are charged against earnings on an individual film basis in the
ratio that the current year's gross film revenues bear to management's
estimate of total remaining ultimate gross film revenues from all sources. The
cost allocated to films revalued in purchase accounting is being amortized
over their estimated economic lives not to exceed 20 years.
Film costs are stated at the lower of cost or estimated net realizable value
on an individual film basis. Revenue and cost forecasts are continually
reviewed by management and revised when warranted by changing conditions. When
estimates of total revenues and costs indicate that a feature film or
television program will result in an ultimate loss, additional amortization is
recognized to the extent required to produce a zero gross margin over the
remaining life of the film or television program.
Property and Equipment. Except for purchase accounting adjustments, property
and equipment are stated at cost. Property and equipment acquired as part of
the acquisition of MGM Studios are stated at estimated fair market value.
Depreciation of property and equipment is computed under the straight-line
method over the expected useful lives of applicable assets, ranging from three
to five years. Leasehold assets are amortized under the straight-line method
over the shorter of the estimated useful lives of the assets or the terms of
the related leases. When property is sold or otherwise disposed of, the cost
and related accumulated depreciation is removed from the accounts, and any
resulting gain or loss is included in income. The costs of normal maintenance,
repairs and minor replacements are charged to expense when incurred.
Goodwill. The excess cost of acquisition over the fair market values of
identifiable net assets acquired (goodwill) is amortized over an estimated
useful life of 40 years using the straight-line method. The Company has
adopted SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets to
be Disposed of". This statement establishes accounting standards for the
impairment of long-lived assets, certain identifiable intangibles, and
goodwill related to those assets to be held and used and for long-lived assets
and certain identifiable intangibles to be disposed of. The carrying value of
existing assets are reviewed when events or changes in circumstances indicate
that an impairment test is necessary in order to determine if an impairment
has occurred. When factors indicate that such assets should be evaluated for
possible impairment, the Company will estimate the future cash flows expected
to result from the use of the assets and their eventual disposition, and
compare the amounts to the carrying value of the assets to determine if an
impairment loss has occurred. For the period from October 11, 1996 to December
31, 1996, goodwill was reduced by $1,206,000 due to the utilization of certain
tax assets not benefitted at the acquisition date. Accumulated amortization of
goodwill was $1,717,000 and $5,538,000 as of December 31, 1996 and June 30,
1997, respectively.
F-8
<PAGE>
METRO-GOLDWYN-MAYER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND 1996 ARE UNAUDITED)
Income Taxes. In accordance with SFAS No. 109, "Accounting for Income
Taxes," deferred tax assets and liabilities are recognized with respect to the
tax consequences attributable to differences between the financial statement
carrying values and tax bases of existing assets and liabilities. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which these temporary differences are
expected to be recovered or settled. Further, the effect on deferred tax
assets and liabilities of changes in tax rates is recognized in income in the
period that includes the enactment date.
Foreign Currency Translation. Generally, foreign subsidiary assets and
liabilities are translated into United States dollars at the exchange rates in
effect at the balance sheet date. Revenues and expenses of foreign
subsidiaries are translated into United States dollars at the average exchange
rates that prevailed during the period. The gains or losses that result from
this process are included as a component of the cumulative translation
adjustment balance in stockholders' equity. Foreign currency denominated
transactions are recorded at the exchange rate in effect at the time of
occurrence, and the gains or losses resulting from subsequent translation at
current exchange rates are included in the statement of operations.
Financial Instruments. The carrying values of short-term trade receivables
and payables approximate their estimated fair values because of the short
maturity of these instruments. The carrying values of receivables with
maturities greater than one year have been discounted at LIBOR plus 2.75%
(approximately 8.56% at June 30, 1997 and 8.38% at December 31, 1996), which
approximates current market rates.
The Company has only limited involvement with derivative financial
instruments and does not use them for trading purposes. They are used to
manage well-defined interest rate risks. The Company enters into interest rate
swaps to lower funding costs, to diversify sources of funding, or to alter
interest rate exposures arising from mismatches between assets and
liabilities. Interest rate swaps allow the Company to raise long-term
borrowings at floating rates and effectively swap them into fixed rates that
are lower than those available to the Company if fixed-rate borrowings were
made directly. Under interest rate swaps, the Company agrees with other
parties to exchange, at specified intervals, the difference between fixed-rate
and floating-rate interest amounts calculated by reference to an agreed
notional principal amount.
Premiums paid for purchased interest rate swap agreements are amortized to
interest expense over the terms of the swaps. Unamortized premiums are
included in other assets in the statement of financial position. Amounts
receivable under swap agreements are accrued as a reduction of interest
expense.
Accounts and Contracts Receivable. At December 31, 1996, accounts and
contracts receivable aggregated $282,834,000 (before allowance for doubtful
accounts), of which approximately $230,000,000 is due within one year.
Concentration of credit and geographic risk with respect to accounts
receivable is limited due to the large number and general dispersion of
accounts which constitute the Company's customer base. The Company performs
credit evaluations of its customers and in some instances requires collateral.
At December 31, 1996, approximately 27% of the Company's accounts and
contracts receivable arose from an exclusive home video servicing agreement
with Warner Home Video.
Use of Estimates in the Preparation of Financial Statements. The preparation
of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities. Management estimates ultimate
revenues and costs for feature films and television programs for each market
based on anticipated release patterns, public acceptance and historical
results for similar products. Actual results could differ from those
estimates.
F-9
<PAGE>
METRO-GOLDWYN-MAYER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND 1996 ARE UNAUDITED)
New Accounting Pronouncements. In February 1997, the Financial Accounting
Standards Board ("FASB") issued SFAS No. 128, "Earnings Per Share" which is
effective for the Company's fiscal year ending December 31, 1997. The new
standard simplifies the computation of earnings per share (EPS) and increases
comparability to international standards. Under SFAS No. 128, primary EPS is
replaced by "Basic" EPS, which excludes dilution and is computed by dividing
income available to common shareholders by the weighted-average number of
common shares outstanding for the period. "Diluted" EPS, which is computed
similarly to fully diluted EPS, reflects the potential dilution that could
occur if securities or other contracts to issue common stock were exercised or
converted into common stock.
In February 1997, the FASB issued SFAS No. 129, "Disclosure of Information
about Capital Structure", which is effective for the Company's fiscal year
ending December 31, 1997. This statement establishes standards for disclosing
information about an entity's capital structure.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income", which is effective for the Company's fiscal year ending December 31,
1998. This statement establishes standards for the reporting and display of
comprehensive income and its components in financial statements and thereby
report a measure of all changes in equity of an enterprise that result from
transactions and other economic events other than transactions with owners.
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of An
Enterprise and Related Information", which is effective for the Company's
fiscal year ending December 31, 1998. This statement changes the requirements
under which publicly held companies report disaggregated information.
The Company will adopt these statements on their respective effective dates.
The effect of these new accounting pronouncements has not yet been determined
by Management.
NOTE 2--ACQUISITION OF THE COMPANY
On October 10, 1996, MGM completed the acquisition of all the common stock
of MGM Studios (the "Acquisition") for a purchase price of $1,300,000,000 in
cash, plus payment of acquisition related costs of approximately $31,430,000.
In connection with an investment agreement (the "Investment Agreement")
between Mr. Frank Mancuso and an investor group comprised of Tracinda
Corporation ("Tracinda") and Seven Network Limited ("Seven") (collectively,
the "Investors") and MGM, Tracinda acquired $200,000,000 of the common stock
of MGM (the "Common Stock") and $450,000,000 of the Series A Cumulative
Convertible Preferred Stock of MGM (the "Preferred Stock"), and Seven acquired
$200,000,000 of the Common Stock and $50,000,000 of the Preferred Stock,
concurrent with the closing of the Acquisition. Also, in connection with the
acquisition Tracinda and Celsus Financial Corp., an entity wholly-owned by
Michael R. Gleason (a director of the Company), were each granted an option by
the Company to purchase 156,251 shares of the Common Stock at an exercise
price of $6.41 per share (the options expire on October 10, 2002) and
reimbursed an agreed-upon amount of $4,750,000 each for costs related to the
Acquisition. In addition, Tracinda and Seven may be required to purchase
$60,000,000 in the aggregate of equity of MGM upon the occurrence of certain
events stipulated in the $800,000,000 Senior Secured Credit Facilities
established, in part, to fund a portion of the acquisition of MGM Studios (see
Note 6).
F-10
<PAGE>
METRO-GOLDWYN-MAYER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND 1996 ARE UNAUDITED)
The Acquisition has been accounted for as a purchase. MGM Studios' assets
and liabilities have been recorded in the Company's financial statements at
their estimated fair values at the acquisition date allocated as follows (in
thousands):
<TABLE>
<S> <C>
Accounts and contracts receivable............................. $ 291,550
Film and television costs..................................... 1,108,768
Other assets.................................................. 73,675
Excess of cost over net assets of acquired businesses......... 305,664
Liabilities assumed........................................... (448,227)
----------
Aggregate purchase price...................................... $1,331,430
==========
</TABLE>
The excess purchase price over the estimated fair value of the net assets
acquired is being amortized on a straight-line basis over 40 years.
The results of operations of MGM Studios have been included in the
consolidated statement of operations from October 11, 1996 (date of
commencement of principal activities) through December 31, 1996. The pro forma
results of operations for the year ended December 31, 1996 and six months
ended June 30, 1996 as if the Acquisition had occurred on January 1, 1996 are
as follows (in thousands, except share data):
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1996
------------ --------
<S> <C> <C>
Revenues........................................... $1,141,392 $595,132
Operating loss..................................... $ (620,165) $(19,509)
Net loss........................................... $ (664,238) $(41,557)
</TABLE>
NOTE 3--FILM AND TELEVISION COSTS
Film and television costs, net of amortization, are summarized as follows
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
Theatrical productions:
Released....................................... $ 912,216 $ 859,427
Completed not released......................... -- 20,832
In process and development..................... 59,077 208,633
Television programming........................... 127,908 174,181
---------- ----------
$1,099,201 $1,263,073
========== ==========
</TABLE>
Interest costs capitalized to theatrical productions were $524,000 during
the period from October 11, 1996 to December 31, 1996, and $4,241,000 and
$3,437,000 for the six months ended June 30, 1997 and 1996, respectively.
Based on the Company's estimates of projected gross revenues as of December
31, 1996, approximately 60% of unamortized film costs applicable to released
theatrical films and released television programs will be amortized during the
five years ending December 31, 2001.
F-11
<PAGE>
METRO-GOLDWYN-MAYER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND 1996 ARE UNAUDITED)
NOTE 4--INVESTMENTS
Distribution in foreign theatrical and certain pay television markets is
performed by United International Pictures B.V. ("UIP"), in which the Company
has a one-third interest. The Company's investment in UIP, which is included
in investments and advances to affiliates, is stated at cost plus equity in
undistributed earnings. The Company includes in its financial statements the
revenues and related costs associated with its films distributed by UIP. The
distribution fees paid to UIP by the Company are included in film and
television production and distribution expense. Due to timing differences
there are no taxable earnings and, therefore, there is no tax provision on
undistributed earnings. The Company's carrying value of its investment in UIP
at June 30, 1997 and at December 31, 1996 was $4,297,000 and $12,490,000,
respectively.
NOTE 5--PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
Leasehold improvements......................... $ 13,691 $ 14,169
Furniture, fixtures and equipment.............. 15,074 19,890
-------- --------
28,765 34,059
Less accumulated depreciation and amortization. (1,418) (4,648)
-------- --------
$ 27,347 $ 29,411
======== ========
NOTE 6--BANK AND OTHER DEBT
Bank and other debt is summarized as follows (in thousands):
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
Revolving Facility............................. $ 94,000 $215,000
Term Loans..................................... 349,750 349,250
Capitalized lease obligations and other
borrowings.................................... 677 2,008
-------- --------
$444,427 $566,258
======== ========
</TABLE>
Revolving Facility. In conjunction with the acquisition of MGM Studios (see
Note 2), on October 10, 1996 the Company obtained from a syndicate of banks a
$450,000,000 revolving credit facility (the "Revolving Facility") expiring on
August 31, 2001, subject to extension under certain conditions. Loans under
the Revolving Facility bear interest at 2.75% over the Adjusted LIBOR rate, as
defined (8.56% at June 30, 1997 and 8.38% at December 31, 1996). A commitment
fee of 0.5% per annum, adjustable under certain conditions, is charged on the
unused portion of the commitment.
Term Loans. In addition to the Revolving Facility, on October 10, 1996 the
Company obtained from the same syndicate of banks two term loans ("Term Loan
A" and "Term Loan B", or, collectively, the "Term Loans") aggregating
$350,000,000, which were used to partially finance the purchase of MGM
Studios. Term Loan A of $250,000,000 expires on September 30, 2002 and bears
interest at 2.75% over the Adjusted LIBOR
F-12
<PAGE>
METRO-GOLDWYN-MAYER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND 1996 ARE UNAUDITED)
rate, as defined (8.56% at June 30, 1997 and 8.38% at December 31, 1996). Term
Loan B of $100,000,000 expires on March 31, 2004 and bears interest at 3.25%
over the Adjusted LIBOR rate, as defined (9.06% at June 30, 1997 and 8.88% at
December 31, 1996). Term Loan A requires quarterly principal payments of
$12,500,000 commencing December 1999 through September 2000, $18,750,000 from
December 2000 through September 2001, and $31,250,000 quarterly thereafter
through maturity. Term Loan B requires quarterly principal payments of
$250,000 commencing in December 1996 through September 2000, $1,750,000 from
December 2000 through September 2002, $10,250,000 from December 2002 through
September 2003, and $20,500,000 quarterly thereafter through maturity.
The Company has entered into three year fixed interest rate swap contracts
in relation to a portion of the Term Loans with a notional value of
$300,000,000 at an average rate of 8.9%. At December 31, 1996, the Company
would have to pay approximately $373,000 to terminate such swap contracts.
The Company's borrowings under the Revolving Facility and the Term Loans are
secured by substantially all the assets of the Company. The Revolving Facility
and Term Loans contain various covenants including limitations on dividends,
capital expenditures and indebtedness, and the maintenance of certain
financial ratios.
Lease and other borrowings. Capitalized lease obligations relate principally
to computer equipment financing at interest rates of approximately 10%.
Maturity schedule. Credit facilities, lease and other borrowings at December
31, 1996 are scheduled to mature as follows (in thousands):
<TABLE>
<S> <C>
1997............................................................ $ 1,637
1998............................................................ 1,021
1999............................................................ 13,519
2000............................................................ 152,750
2001............................................................ 94,500
Thereafter...................................................... 181,000
--------
$444,427
========
</TABLE>
NOTE 7--STOCKHOLDERS' EQUITY
Common Stock. The Company had 16,753,050 and 16,700,342 shares of the Common
Stock outstanding at June 30, 1997 and December 31, 1996, of which 16,695,133
shares were issued for cash in connection with the initial capitalization of
MGM (see Note 2).
Preferred Stock. The Company had 502,588 and 501,006 shares of the Preferred
Stock outstanding at June 30, 1997 and December 31, 1996, of which 500,850
shares were issued for cash in connection with the initial capitalization of
MGM (see Note 2). The Preferred Stock has no voting rights until October 10,
2000. Thereafter, the holders of the Preferred Stock will vote with the
holders of the common stock, and each share of the Preferred Stock will have a
number of votes equal to the number of shares of the Common Stock into which
such Preferred Stock is convertible. Each share of the Preferred Stock is
convertible into a share of the Common Stock at any time at the election of
the holder, subject to certain limitations. The Preferred Stock is redeemable
at the option of MGM at any time of the earlier of (i) an underwritten initial
public offering of the Company's Common Stock and (ii) October 10, 2001. MGM
may redeem any or all shares of the Preferred Stock (pro rata from each holder
of the Preferred Stock subject to the conversion rights) by payment of the
liquidation value
F-13
<PAGE>
METRO-GOLDWYN-MAYER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND 1996 ARE UNAUDITED)
(the "Liquidation Value"), as defined, plus any accrued but unpaid dividends.
The Preferred Stock accrues dividends beginning after October 1, 2001 at an
annual rate of 14.044% of the stated value of $1,000 per share (the "Stated
Value"), payable quarterly in arrears.
The Preferred Stock has a Liquidation Value per share equal to the greater
of the accreted stated value (the "Accreted Stated Value") plus unpaid
dividends; or 75% of the amount such holder would have been entitled to with
respect to each share of the Preferred Stock in connection with any such
dissolution, liquidation or winding-up of the Company had such holder
converted the Preferred Stock into the Common Stock. The term Accreted Stated
Value with respect to any share of the Preferred Stock is defined as the
Stated Value of $1,000 plus an amount equal to 9% per annum of the Stated
Value compounded quarterly from October 11, 1996 through October 1, 2001.
The Liquidation Value per share of the Preferred Stock was $1,020 as of
December 31, 1996 and $1,066 as of June 30, 1997.
Stock Option & Bonus Plan. The 1996 Management Stock Option and Bonus Plan
(the "Plan") adopted on October 10, 1996 provides for the granting of non-
qualified stock options to purchase shares of MGM capital stock to officers
and executives responsible for the direction and management of the Company.
Each option granted affords the holder the right to acquire 18.519 shares of
the Common Stock and 5/9ths of one share of the Preferred Stock, exercisable
only as a unit. All options will be designated as either Series A Options or
Series B Options (the "Options"). Each employee receiving Series A Options
shall also receive an equal number of bonus interests (the "Bonus Interests")
which entitles the holder to $22.32 per Bonus Interest if the equity value of
the Company exceeds a defined amount. The total potential value of the
available Bonus Interests is approximately $65,000,000. The Company is
accruing the potential value of the available Bonus Interests ratably over the
five years ending October 1, 2001. Compensation expense of $2,921,000 and
$6,500,000 relating to this plan was charged to income for the period from
October 11, 1996 to December 31, 1996 and the six months ended June 30, 1997,
respectively.
The Plan provides that the Options and Bonus Interests vest at a rate of 20%
per year from the date of the grant. The Options expire on October 1, 2006 or,
if a significant public offering has not occurred by October 1, 2006, then the
Options expire on May 15, 2007. The Bonus Interests expire on May 15, 2007. No
Options or Bonus Interests shall be granted after October 1, 2001 or, if
earlier, immediately prior to designated change in control, as defined. Each
vested Option may be exercised on or after October 1, 2001 through their
expiration date, unless a significant public offering occurs prior to October
1, 2001 in which case the Options are exercisable six months from such date,
or earlier as provided in the Plan. If a significant public offering of the
Company's equity has not taken place, participants may exercise vested Options
during the period from April 15 through May 15 of each of the years 2002
through and including 2007 and require the Company to repurchase the
underlying Preferred Stock and Common Stock required from such exercise at
fair market value. Compensation expense based on the increase in the market
value of the Options and the Bonus Interests since the date of grant will be
amortized over the vesting period. No Options or Bonus Interests were vested
as of December 31, 1996.
F-14
<PAGE>
METRO-GOLDWYN-MAYER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND 1996 ARE UNAUDITED)
Stock option transactions as of December 31, 1996 and June 30, 1997 under
the plan were as follows:
<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK
--------------------- ---------------------
SERIES A SERIES B SERIES A SERIES B
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Balance as of October 11, 1996. -- -- -- --
Granted...................... 387,962 426,004 11,638 12,781
---------- ---------- ---------- ----------
Balance as of December 31,
1996.......................... 387,962 426,004 11,638 12,781
Granted...................... 466,795 512,629 14,005 15,380
---------- ---------- ---------- ----------
Balance as of June 30, 1997.... 854,757 938,633 25,643 28,161
========== ========== ========== ==========
Number of shares authorized for
grant......................... 1,293,135 1,420,053 38,794 42,602
========== ========== ========== ==========
Exercise Price................. $ 24.00 $ 78.43 $ 1,000 $ 3,268
========== ========== ========== ==========
Weighted average remaining
contractual life
As of December 31, 1996...... 5.5 years 5.5 years 5.5 years 5.5 years
========== ========== ========== ==========
As of June 30, 1997.......... 4.86 years 4.86 years 4.86 years 4.86 years
========== ========== ========== ==========
</TABLE>
No Options were exercisable as of December 31, 1996 and June 30, 1997.
The Company applies Accounting Principles Board ("APB") Opinion No. 25,
"Accounting For Stock Issued to Employees," and related interpretations in
accounting for its plans. Had compensation cost for these plans been
determined consistent with FASB Statement No. 123, the Company's net income
(loss) would have been reduced to the following pro forma amounts:
<TABLE>
<CAPTION>
SIX MONTHS
OCTOBER 11 TO ENDED
DECEMBER 31, JUNE 30,
1996 1997
------------- ----------
<S> <C> <C>
Net income (loss):
As reported................................... $166 $(29,005)
Pro forma..................................... (15) (29,955)
</TABLE>
The fair value of each option grant was estimated using the Black-Scholes
model based on the following assumptions: the weighted average fair value of
each of the Series A and Series B Common Stock Options granted in the six
months ended June 30, 1997 was $6.55 and $0, respectively, and the weighted
average fair value of each of the Series A and Series B Common Stock Options
granted in 1996 was $6.94 and $0, respectively. The weighted average fair
value of each of the Series A and Series B Preferred Stock Options granted in
the six months ended June 30, 1997 was $273 and $0, respectively, and the
weighted average fair value of each of the Series A and Series B Preferred
Stock Options granted in 1996 was $289 and $0, respectively. The dividend
yield and expected volatility was 0% for both periods. Also, the calculation
uses an expected life of 5.5 years and 5 years respectively, from the period
from October 11, 1996 through December 31, 1996 and the six months ended
June 30, 1997, respectively, and an assumed risk-free interest rate of 6.2%
and 6.4%, respectively, from the period from October 11, 1996 through December
31, 1996 and the six months ended June 30, 1997, respectively.
F-15
<PAGE>
METRO-GOLDWYN-MAYER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND 1996 ARE UNAUDITED)
NOTE 8--INCOME TAXES
The Company's domestic and foreign tax liability balances consist of the
following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
Current..................................................... $29,269
Deferred.................................................... --
-------
$29,269
=======
</TABLE>
For tax purposes, the historical tax basis of the assets and liabilities of
MGM Studios has been retained following MGM Studio's acquisition by MGM. The
tax effects of temporary differences between book value and tax basis of
assets and liabilities are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
Deferred tax assets:
Film and television costs.................................. $ 6,594
Film revenue............................................... 4,444
Participations and residuals payable....................... 15,574
Reserves and investments................................... 50,521
Net miscellaneous tax assets............................... 25,368
Operating loss carryforwards............................... 4,564
---------
Subtotal gross tax assets................................ 107,065
Valuation allowance........................................ (107,065)
---------
Total tax assets....................................... --
Deferred tax liabilities................................... --
---------
Net deferred tax asset..................................... $ --
=========
</TABLE>
As of December 31, 1996, the Company and its subsidiaries had a net
operating loss ("NOL") carryforward of $11,702,000, which expires in 2011.
Presently, the NOL carryforward is not limited in its utilization. However,
pursuant to Internal Revenue Code Section 382, "Limitation on Net Operating
Loss Carryforwards," the NOL may become subject to further limitation on its
use when there is a change of ownership of 50% or more by a 5% or more
shareholder during a three-year period.
At December 31, 1996, management has determined that $107,065,000 of
deferred tax assets do not satisfy the recognition criteria set forth in SFAS
No. 109. Accordingly, a valuation allowance has been recorded by the Company
for this amount. The net decrease in the valuation allowance attributable to
activity occurring after the ownership change described in Note 2 is reflected
as an adjustment to goodwill in accordance with purchase accounting.
F-16
<PAGE>
METRO-GOLDWYN-MAYER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND 1996 ARE UNAUDITED)
Details of the provision for income taxes are as follows (in thousands):
<TABLE>
<CAPTION>
OCTOBER 11 TO
DECEMBER 31,
1996
-------------
<S> <C>
Current taxes:
Foreign taxes.............................................. $ 3,140
Deferred taxes:
Federal and state taxes.................................... 6,055
Adjustment for change in valuation allowance............... (4,849)
-------
Total tax provision........................................ $ 4,346
=======
</TABLE>
The following is a summary reconciliation of the effective tax rate to the
assumed federal tax rate:
<TABLE>
<CAPTION>
OCTOBER 11 TO
DECEMBER 31,
1996
-------------
<S> <C>
Assumed federal tax rate on pre-tax book income............ 35%
Goodwill and other permanent differences................... 14%
Foreign taxes, net of available federal tax benefit........ 45%
---
Effective tax rate......................................... 94%
===
</TABLE>
The Company has various foreign subsidiaries formed or acquired to produce
or distribute motion pictures outside the United States. In the opinion of
management, the earnings of these subsidiaries are not permanently invested
outside the United States. Pursuant to APB No. 23, "Accounting For Income
Taxes-Special Areas," tax expense has accordingly been provided for these
unremitted earnings.
Federal income tax returns for the periods ended through March 25, 1986 have
been examined by the Internal Revenue Service. In the opinion of management,
any adjustments which may result from the examination of subsequent periods
for which the Company is responsible will not have a material effect on the
Company's consolidated financial position or results of operations.
In accordance with APB No. 28 "Interim Financial Reporting," the provision
for taxes for the six months ended June 30, 1997 and 1996 have been calculated
using an estimated effective tax rate. The effective tax rate is based upon
projected results for a full fiscal year.
F-17
<PAGE>
METRO-GOLDWYN-MAYER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND 1996 ARE UNAUDITED)
NOTE 9--RETIREMENT PLANS
The Company has a non-contributory retirement plan (the "Basic Plan")
covering substantially all regular full-time, non-union employees. Benefits
are based on years of service and compensation, as defined.
The following table summarizes the funded status of the Basic Plan (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
Actuarial present value of benefit obligations (including
vested benefits of $7,427)................................... $ 8,469
=======
Projected benefit obligations................................. $ 9,913
Plan assets at fair value (primarily debt securities)......... 8,403
-------
Projected benefit obligations in excess of plan assets........ (1,510)
Unrecognized net asset as of beginning of year................ (180)
Unrecognized net loss......................................... 505
Unrecognized prior service cost............................... (177)
-------
Accrued pension liability..................................... $(1,362)
=======
Key assumptions used in the actuarial computations were as follows:
Discount rate................................................. 7.50%
=======
Long-term rate of return on assets............................ 7.25%
=======
Rate of increase in future compensation levels................ 5.00%
=======
</TABLE>
The unrecognized net asset is being amortized over the estimated remaining
service life of 19.4 years. Domestic pension benefits and expense were
determined under the entry age actuarial cost method.
Pension costs includes the following components (in thousands):
<TABLE>
<CAPTION>
OCTOBER 11 TO
DECEMBER 31,
1996
-------------
<S> <C>
Service cost............................................... $ 244
Interest cost on projected benefit obligation.............. 163
Actual loss on plan assets................................. 224
Net amortization and deferral.............................. (330)
-----
Net periodic pension cost.................................. $ 301
=====
</TABLE>
A significant number of the Company's production employees are covered by
union sponsored, collectively bargained multi-employer pension plans. The
Company contributed approximately $2,824,000 for such plans in the period from
October 11, 1996 to December 31, 1996. Information from the plans'
administrators is not sufficient to permit the Company to determine its share
of unfunded vested benefits, if any.
The Company also provides each of its employees, including its officers, who
have completed one year of service with the Company the opportunity to
participate in the MGM Savings Plan (the "Savings Plan"). Participants in the
Savings Plan may contribute a portion of their pre-tax compensation and after-
tax compensation (subject to certain limitations) into the Savings Plan. The
Company matches 100% of such employee contributions up to 4% of such
employee's eligible compensation. The employee contributions to the Savings
Plan and the earnings thereon are always 100% vested. The Company's matching
contributions and the
F-18
<PAGE>
METRO-GOLDWYN-MAYER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND 1996 ARE UNAUDITED)
earnings thereon vest 20% for each full year of service with the Company and
employees become 100% vested (i) after five years of service with the Company,
(ii) upon their total and permanent disability or (iii) upon their death. The
Company contributed approximately $219,000 to the Savings Plan in the period
from October 11, 1996 to December 31, 1996.
NOTE 10--RELATED PARTY TRANSACTIONS
In 1980 MGM Studios granted to MGM Grand, Inc. ("Grand Hotel") an exclusive
open-ended royalty-free license to use certain trademarks, tradenames and
logos in Grand Hotel's hotel/gaming business and other businesses that are not
entertainment-related. Tracinda owns the majority of the outstanding common
stock of Grand Hotel. During the period from October 11, 1996 to December 31,
1996 and for the six months ended June 30, 1997, the Company recognized
revenues of $70,000 and $90,000, respectively, under these agreements.
The Company sells to Grand Hotel, and certain of its affiliates, on a
wholesale basis merchandise such as baseball caps, clothing, keychains and
watches bearing the Company's trademarks and logos for resale to consumers in
retail shops located within Grand Hotel's hotels. Grand Hotel currently is the
Company's largest wholesale customer of the Company's merchandise and,
consequently, receives pricing discounts from the Company.
From time to time, the Company charters airplanes from Tracinda for use in
the Company's business. The Company believes that the terms of the charter
arrangements are no less favorable to the Company than those that could be
obtained from unrelated third parties. From October 10, 1996 to June 30, 1997,
the aggregate of the payments made to Tracinda for such charters was
approximately $10,000.
The Company has entered into various television license agreements with a
subsidiary of Seven providing for broadcast of the Company's films and
television programs in Australia. During the period from October 11, 1996 to
December 31, 1996 and for the six months ended June 30, 1997, the Company
recognized revenues of $1,055,000 and $2,395,000, respectively, under these
agreements. Management believes that the terms of these agreements are
consistent with the terms of comparable television license arrangements with
third parties.
The Company has entered into various agreements to develop and produce
certain films and television programs with Mr. Frank Mancuso, Jr., the son of
the Company's Chairman of the Board and Chief Executive Officer. Pursuant to
these agreements, the Company paid Mr. Mancuso, Jr. approximately $39,000
during the period from October 11, 1996 to December 31, 1996 and approximately
$351,000 for the six months ended June 30, 1997. The agreements provide for
additional producer fees and potential profit participations to be paid in the
future at terms consistent with comparable development and production
agreements with third parties.
On January 14, 1997, MGM Studios and Tracinda entered into an agreement to
share the proceeds from certain insurance claims relating to litigation which
arose prior to October 10, 1996. The potential insurance proceeds (if any) of
up to approximately $15,000,000 will be paid 65% to MGM Studios and 35% to
Tracinda based on the relative value of each company's respective claims, as
determined by the parties.
F-19
<PAGE>
METRO-GOLDWYN-MAYER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND 1996 ARE UNAUDITED)
NOTE 11--FOREIGN OPERATIONS AND EXPORT SALES
The Company's foreign activities are principally motion picture and
television production and distribution in territories outside of the United
States and Canada. Net foreign assets of subsidiaries operating in foreign
countries are not material in relation to consolidated net assets.
Foreign export revenues are revenues earned from motion picture and
television films produced in the United States. Export revenues for the period
from October 11, 1996 to December 31, 1996 were as follows (in thousands):
<TABLE>
<CAPTION>
OCTOBER 11 TO
DECEMBER 31,
1996
-------------
<S> <C>
Europe..................................................... $62,298
Western Hemisphere......................................... 12,485
Other...................................................... 16,743
-------
$91,526
=======
</TABLE>
NOTE 12--COMMITMENTS AND CONTINGENCIES
Leases. The Company has operating leases for offices and equipment. Certain
property leases include provisions for increases over base year rents as well
as for escalation clauses for maintenance and other building operations. Rent
expense was approximately $2,936,000 for the period from October 11, 1996 to
December 31, 1996.
Employment Agreements. The Company has employment agreements with several
principal officers and employees. The agreements provide for minimum salary
levels as well as, in some cases, bonuses.
Creative Talent Agreements. The Company has entered into contractual
agreements for creative talent related to future film production. Such amounts
are scheduled to be paid through 1997.
Future minimum annual commitments under non-cancelable operating leases,
employment agreements, and creative talent agreements as of December 31, 1996
are as follows (in thousands):
<TABLE>
<S> <C>
1997......................................................... $ 34,585
1998......................................................... 38,643
1999......................................................... 35,717
2000......................................................... 30,406
2001......................................................... 21,102
Thereafter................................................... 12,291
--------
$172,744
========
</TABLE>
Litigation. The Company, together with other major companies in the filmed
entertainment industry, has been subject to numerous antitrust suits brought
by various motion picture exhibitors, producers and others. In addition,
various legal proceedings involving alleged breaches of contract, antitrust
violations, copyright infringement and other claims are now pending, which the
Company considers routine to its business activities.
In the opinion of Company management, any liability under pending litigation
is not material in relation to the Company's financial condition.
F-20
<PAGE>
METRO-GOLDWYN-MAYER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND 1996 ARE UNAUDITED)
NOTE 13--SUPPLEMENTARY CASH FLOW INFORMATION
The Company paid interest, net of capitalized interest, of $7,103,000 during
the period from October 11, 1996 to December 31, 1996, and $14,743,000 and
$14,442,000 during the six months ended June 30, 1997 and 1996, respectively.
Income taxes paid were $922,000 during the period from October 11, 1996 to
December 31, 1996. The Company received net foreign remittance tax refunds of
$4,845,000 in the six months ended June 30, 1997 and paid income taxes of
$5,052,000 in the six months ended June 30, 1996.
NOTE 14--QUARTERLY FINANCIAL DATA (UNAUDITED)
Certain quarterly information is presented below (in thousands):
<TABLE>
<CAPTION>
FIRST SECOND
QUARTER QUARTER
OF 1997 OF 1997
-------- --------
<S> <C> <C>
Revenues............................................... $197,629 $153,385
Operating income (loss)................................ (1,084) (4,775)
Interest expense, net.................................. 11,016 9,583
Net income (loss)...................................... (14,193) (14,812)
</TABLE>
NOTE 15--RECAPITALIZATION
On October , 1997, the Company effected a recapitalization pursuant to
which the Company effected a 1:41.667 stock split and increased the number of
common shares authorized from 50,000,000 to 125,000,000. Share and per share
information have been retroactively restated for all periods presented to
reflect this recapitalization.
Following completion of the recapitalization and concurrent with the closing
of the initial public offering, the holders of the Preferred Stock have agreed
to convert each share of the Preferred Stock into 41.667 shares of the Common
Stock.
Primary earnings per share represents the per share income or loss
applicable to common stockholders and is computed based on the weighted
average number of common shares outstanding. When dilutive, stock options are
included as share equivalents using the treasury stock method. The number of
shares used in computing primary earnings (loss) per share was 37,567,634 and
37,643,426 in the period from October 11, 1996 to December 31, 1996 and for
the six months ended June 30, 1997, respectively.
The per share computations for all periods presented reflect assumed
conversion of the Preferred Stock and the 1:41.667 stock split.
NOTE 16--EVENTS SUBSEQUENT TO THE DATE OF THE AUDITORS REPORT (UNAUDITED)
On July 10, 1997, the Company acquired certain entertainment assets of
Metromedia International Group, Inc. (the "Orion Acquisition") for a total
purchase price of $573,000,000, consisting of $560,000,000 in cash and
$13,000,000 in assumed liabilities. In connection with the Orion Acquisition,
MGM issued 13,375,107 shares of the Common Stock to Tracinda for $321,000,000
and 1,625,013 shares of the Common Stock to Seven for $39,000,000. In
addition, the Company obtained a new $250,000,000 Senior Secured Credit
Facility with a syndicate of banks, consisting of a $200,000,000 term loan and
a $50,000,000 revolving credit facility. The term loan and the revolving
credit facility bear interest at LIBOR plus 2.5% and mature on July 10, 2002.
The Orion Acquisition will be accounted for as a purchase.
F-21
<PAGE>
METRO-GOLDWYN-MAYER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND 1996 ARE UNAUDITED)
In September 1997, the Company changed its name from P&F Acquisition Corp.
to Metro-Goldwyn-Mayer Inc.
On October 15, 1997, the Company and its principal lenders agreed to amend
and restate the Revolving Facility and Term Loans (see Note 6) into a
syndicated facility aggregating $1.3 billion, consisting of a six year $400
million revolving credit facility, increasing to $600 million upon
consummation of an initial public offering (the "Offering") (provided that the
gross proceeds of the Offering are at least $250 million), a $400 million
seven and one-half year term loan and a $300 million eight and one-half year
term loan (the "Amended Credit Facility"). The Amended Credit Facility also
contains provisions allowing, with the consent of the requisite lenders, for
an additional $200 million tranche, raising the amount of the Amended Credit
Facility to $1.5 billion. Proceeds drawn from the Amended Credit Facility will
be used to retire amounts outstanding under the Revolving Facility, Term Loans
and the Orion Credit Facility. Scheduled maturities of the term loans under
the Amended Credit Facility are $0 in 1998, $0 in 1999, $0 in 2000, $33
million in 2001, $73 million in 2002, $103 million in 2003, $103 million in
2004 and $103 million in 2005 with the remaining balance due at maturity. The
revolving facility portion of the Amended Credit Facility matures in October,
2003, subject to extension under certain conditions. The Amended Credit
Facility contains various covenants, including limitations on indebtedness,
dividends, capital expenditures, and maintenance of certain financial ratios.
On September 9, 1997, the Company amended and restated (subject to the
consummation of the Offering) its Stock Option Plan (the "Restated Stock
Option Plan") and Bonus Plan (the "Restated Bonus Plan") discussed in Note 7.
The Restated Stock Option Plan will allow the Company to grant options to
purchase up to 8,125,065 shares of the Common Stock. Awards can be made in the
form of qualified or non-qualified options, incentive stock options,
restricted stock, or stock appreciation rights. The exercise price of the
awards and other terms will be determined by the Compensation Committee of the
Board of Directors.
Subject to certain vesting and other requirements, each Bonus Interest
entitles the holder to receive a cash payment if (a) the sum of per share
distributions on the Common Stock and the average closing price of the Common
Stock during the 20 trading days (together, the "Price") preceding a
Determination Date (defined below) is (b) greater than $24.00 and less than
$48.00 (adjusted for stock splits, reverse stock splits and similar events).
The cash payment will be equal to (i) the vested portion of the Bonus Interest
at the Determination Date multiplied by (ii) the amount by which the Price at
the Determination Date is less than $48.00 (i.e., a maximum of $24.00 per
Bonus Interest). Once a payment is made in respect of the vested portion of a
Bonus Interest, no further payment is due in respect of that portion. If at
any Determination Date the Price exceeds $48.00, no payment will thereafter be
due in respect of any then-vested portion of a Bonus Interest.
F-22
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholder of Metro-Goldwyn-Mayer Studios Inc.
We have audited the accompanying consolidated balance sheet of Metro-
Goldwyn-Mayer Studios Inc. (formerly known as Metro-Goldwyn-Mayer Inc.) and
its subsidiaries (the "Company") as of October 10, 1996, and the related
consolidated statements of operations and equity and cash flows for the period
from January 1, 1996 to October 10, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. 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 audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the
Company as of October 10, 1996 and the results of their operations and their
cash flows for the period from January 1, 1996 to October 10, 1996 in
conformity with generally accepted accounting principles.
Arthur Andersen LLP
Los Angeles, California
December 16, 1996
F-23
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholder of
Metro-Goldwyn-Mayer Studios Inc.
We have audited the accompanying consolidated balance sheet of Metro-Goldwyn-
Mayer Studios Inc. (formerly known as Metro-Goldwyn-Mayer Inc.), and its
subsidiaries (the "Company") as of December 31, 1995, and the related
consolidated statements of operations, stockholder's equity and of cash flows
for each of the two years in the period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We have not audited the consolidated financial statements of the
Company and its subsidiaries for any period subsequent to December 31, 1995.
We conducted our audits in accordance with generally accepted auditing
standards. 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 report dated February 29, 1996, we expressed an opinion that the 1995
financial statements did not fairly present financial position, results of
operations, and cash flows in conformity with generally accepted accounting
principles because the Company did not record executive compensation expense
relating to bonuses payable to certain of the Company's executives. These
bonuses, payable by the Company's sole shareholder, reflect the increase in
value of the Company during the period of these executives' employment, based
upon the amount realized by the sole shareholder upon the sale of the Company
in excess of a defined amount. As described in note 12, the Company has
restated the 1995 financial statements to conform with generally accepted
accounting principles. Accordingly, our present opinion on the 1995 financial
statements, as presented herein, is different from that expressed in our
previous report.
In our opinion, the consolidated financial statements audited by us present
fairly, in all material respects, the financial position of Metro-Goldwyn-
Mayer Studios Inc., and its subsidiaries at December 31, 1995, and the results
of their operations and their cash flows for each of the two years in the
period ended December 31, 1995, in conformity with generally accepted
accounting principles.
Price Waterhouse LLP
Century City, California
February 29, 1996, except for the restatement
described in Note 12, as to which the date
is July 31, 1996
F-24
<PAGE>
METRO-GOLDWYN-MAYER STUDIOS INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
OCTOBER 10, DECEMBER 31,
1996 1995
----------- ------------
ASSETS
------
<S> <C> <C>
Cash and cash equivalents........................... $ 24,717 $ 17,128
Accounts and contracts receivable (net of allowance
for doubtful accounts of $12,718 and $18,479 in
1996 and 1995, respectively)....................... 291,550 255,444
Film and television costs, including film distribu-
tion organization, net............................. 1,006,402 1,565,438
Investments and advances to affiliates.............. 26,420 15,238
Property and equipment, net......................... 26,686 32,078
Trademarks, logos and excess of cost over net assets
of acquired businesses, net........................ 349,158 520,199
Other assets........................................ 19,301 34,729
----------- -----------
$ 1,744,234 $ 2,440,254
=========== ===========
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
<S> <C> <C>
Liabilities:
Bank and other debt............................... $ 1,229,499 $ 1,217,316
Accounts payable and accrued liabilities.......... 84,379 112,521
Interest payable.................................. 72,079 76,859
Accrued participants' share....................... 170,257 140,316
Income taxes payable.............................. 27,313 58,900
Due to affiliate.................................. 11,900 --
Advances and deferred revenues.................... 110,774 161,973
Other liabilities................................. 38,033 12,870
----------- -----------
Total liabilities............................... 1,744,234 1,780,755
Commitments and contingencies
Stockholder's equity:
Common Stock, $1.00 par value, 1,000 shares
authorized, 10 shares issued and outstanding in
1996 and 1995.................................... 1 1
Additional paid-in capital........................ $ 2,222,133 $ 2,132,694
Cumulative translation adjustment................. (318) (413)
Accumulated deficit............................... (2,221,816) (1,472,783)
----------- -----------
Stockholder's equity............................ -- 659,499
----------- -----------
$ 1,744,234 $ 2,440,254
=========== ===========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
F-25
<PAGE>
METRO-GOLDWYN-MAYER STUDIOS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands)
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED YEAR ENDED
OCTOBER 10, DECEMBER 31, DECEMBER 31,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Revenues................................ $ 912,706 $ 860,971 $ 597,121
Expenses:
Film and television production and
distribution......................... 953,820 894,280 668,516
General and administrative............ 60,056 64,175 49,314
Goodwill amortization................. 11,570 14,876 14,876
Provision for impairment.............. 563,829 -- --
---------- --------- ---------
Total expenses...................... 1,589,275 973,331 732,706
---------- --------- ---------
Operating loss.......................... (676,569) (112,360) (135,585)
Other income (expense):
Interest expense, net of amounts
capitalized.......................... (71,375) (66,386) (33,860)
Interest and other income, net........ 3,179 10,372 2,070
---------- --------- ---------
Total other expense................. (68,196) (56,014) (31,790)
---------- --------- ---------
Loss from operations before provision
for income taxes....................... (744,765) (168,374) (167,375)
Income tax provision.................... (273) (935) (3,877)
---------- --------- ---------
Net loss................................ $ (745,038) $(169,309) $(171,252)
========== ========= =========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
F-26
<PAGE>
METRO-GOLDWYN-MAYER STUDIOS INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
COMMON STOCK
--------------- ADDITIONAL CUMULATIVE TOTAL
NUMBER OF PAR PAID-IN ACCUMULATED TRANSLATION STOCKHOLDER'S
SHARES VALUE CAPITAL DEFICIT ADJUSTMENT EQUITY
--------- ----- ---------- ----------- ----------- -------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
BALANCE DECEMBER 31,
1993................... 10 $ 1 $2,100,000 $(1,116,774) $ 1,380 $ 984,607
Foreign currency
translation adjustment. -- -- -- -- (1,090) (1,090)
Forgiveness of interest
payable to affiliate... -- -- 16,794 -- -- 16,794
Net loss................ -- -- -- (171,252) -- (171,252)
--- --- ---------- ----------- ------- ---------
BALANCE DECEMBER 31,
1994................... 10 1 2,116,794 (1,288,026) 290 829,059
Contributions received
from affiliate......... -- -- 15,900 -- -- 15,900
Dividends declared...... -- -- -- (15,448) -- (15,448)
Foreign currency
translation adjustment. -- -- -- -- (703) (703)
Net loss................ -- -- -- (169,309) -- (169,309)
--- --- ---------- ----------- ------- ---------
BALANCE DECEMBER 31,
1995................... 10 1 2,132,694 (1,472,783) (413) 659,499
Contributions received
from affiliate......... -- -- 89,439 -- -- 89,439
Dividends declared...... -- -- -- (3,995) -- (3,995)
Foreign currency
translation adjustment. -- -- -- -- 95 95
Net loss................ -- -- -- (745,038) -- (745,038)
--- --- ---------- ----------- ------- ---------
BALANCE OCTOBER 10,
1996................... 10 $1 $2,222,133 $(2,221,816) $ (318) $ --
=== === ========== =========== ======= =========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
F-27
<PAGE>
METRO-GOLDWYN-MAYER STUDIOS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED YEAR ENDED
OCTOBER 10, DECEMBER 31, DECEMBER 31,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Operating activities:
Net loss.............................. $(745,038) $(169,309) $(171,252)
Adjustments to reconcile net loss from
operations to net cash provided by
operating activities:
Amortization of film and television
costs, film distribution
organization and participants'
share.............................. 608,704 628,420 434,354
Depreciation and amortization of
property and equipment............. 4,645 4,021 5,335
Provision for impairment and
amortization of intangibles........ 575,399 14,876 14,876
(Decrease) increase in bad debt and
other reserves..................... 430 (17,425) 3,266
Losses (gains) on equity
investments........................ (1,967) 1,620 (1,762)
Increase in accounts and contracts
receivable, advances to affiliates
and other assets................... (28,192) (65,454) (32,905)
Increase (decrease) in accounts
payable, accrued and other
liabilities, accrued participants'
share and domestic and foreign
taxes.............................. (19,970) 680 (8,967)
Decrease in advances and deferred
revenues........................... (51,199) (24,597) (27,458)
Foreign currency exchange (gain)
loss and other..................... 325 (1,175) 802
--------- --------- ---------
Net cash provided by operating
activities....................... 343,137 371,657 216,289
--------- --------- ---------
Investing activities:
Additions to film costs, net.......... (369,148) (701,436) (454,932)
Additions to property and equipment... (6,901) (9,376) (9,099)
Other investing activities............ (4,093) -- --
--------- --------- ---------
Net cash used in investing
activities....................... (380,142) (710,812) (464,031)
--------- --------- ---------
Financing activities:
Net bank advances..................... 51,012 340,148 251,918
Contribution received from parent..... -- 5,900 --
Dividends paid........................ (6,160) (13,283) --
Financing costs and other............. -- (4,736) (11,953)
--------- --------- ---------
Net cash provided by financing
activities....................... 44,852 328,029 239,965
--------- --------- ---------
Net change in cash and cash equivalents
from operating, investing and financing
activities............................. 7,847 (11,126) (7,777)
Net decrease in cash due to foreign
currency fluctuations.................. (258) (543) (199)
--------- --------- ---------
Net change in cash and cash equivalents. 7,589 (11,669) (7,976)
Cash and cash equivalents at beginning
of period.............................. 17,128 28,797 36,773
--------- --------- ---------
Cash and cash equivalents at end of the
period................................. $ 24,717 $ 17,128 $ 28,797
========= ========= =========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
F-28
<PAGE>
METRO-GOLDWYN-MAYER STUDIOS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 10, 1996
NOTE 1--BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation. The accompanying consolidated financial statements
include the accounts of Metro-Goldwyn-Mayer Studios Inc. (formerly known as
Metro-Goldwyn-Mayer Inc.). and its majority-owned subsidiaries ("MGM Studios"
or "the Company"). The Company is wholly owned by MGM Group Holdings
Corporation ("MGM Group Holdings"), an indirect wholly owned subsidiary of
Consortium de Realisation ("CDR"). CDR is a wholly owned subsidiary of Credit
Lyonnais S.A. ("Credit Lyonnais") and is controlled by the French State. On
October 10, 1996, the Company was sold to an unaffiliated group of investors
(see Note 15). The sale transaction has not been reflected in the accompanying
historical financial statements, except to reduce certain long-lived assets to
their net realizable value (see Note 5).
As permitted by Statement of Financial Accounting Standards ("SFAS") No. 53,
"Financial Reporting by Producers and Distributors of Motion Pictures", the
Company has presented unclassified consolidated balance sheets. Certain
reclassifications have been made to amounts reported in prior periods to
conform with the current presentation.
Business. The Company is engaged in the financing, production and worldwide
distribution of theatrical motion pictures and television programming, as well
as new media and interactive products. The Company also distributes films
produced or financed, in whole or in part, by third parties.
Principles of Consolidation. The consolidated financial statements include
the accounts of MGM Studios and all of its majority-owned and controlled
subsidiaries. The Company's investments in related companies which represent a
20% to 50% ownership interest over which the Company has significant influence
but not control are accounted for using the equity method (see Note 4). All
significant intercompany balances and transactions have been eliminated.
Cash and Cash Equivalents. The Company considers all highly liquid debt
instruments, purchased with an initial maturity of three months or less, to be
cash equivalents. Included in other assets at October 10, 1996 and December
31, 1995 is approximately $12,774,000 and $12,354,000, respectively, of cash
restricted by various escrow agreements. The carrying value of the Company's
cash equivalents approximated cost at each balance sheet date.
Revenue Recognition. Revenues from theatrical distribution of feature films
are recognized on the dates of exhibition. Revenues from direct home video
distribution are recognized, net of an allowance for estimated returns,
together with related costs, in the period in which the product is available
for sale by the Company's customers. Revenues from television licensing,
together with related costs, are recognized when the feature film or
television program is available to the licensee for telecast. Generally,
feature films are first made available for home video release in a particular
territory six months after theatrical release in such territory; for pay
television, one year after theatrical release; for initial free television,
two to three years after theatrical release; and for syndication,
approximately three to five years after theatrical release. Long-term non-
interest-bearing receivables arising from licensing agreements are discounted
to present value.
Accounting for Film Costs. Except for purchase accounting adjustments, film
costs include the costs of production, prints, pre-release and other
advertising expected to benefit future periods and capitalized overhead and
interest. These costs, as well as participations and talent residuals, are
charged against earnings on an individual film basis in the ratio that the
current year's gross film revenues bear to management's estimate of total
remaining ultimate gross film revenues from all sources.
F-29
<PAGE>
METRO-GOLDWYN-MAYER STUDIOS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Film costs are stated at the lower of cost or estimated net realizable value
on an individual film basis. Revenue and cost forecasts are continually
reviewed by management and revised when warranted by changing conditions. When
estimates of total revenues and costs indicate that a feature film or
television program will result in an ultimate loss, additional amortization is
recognized to the extent required to produce a zero gross margin over the
remaining life of the film or television program.
The film distribution organization is an intangible asset reflecting the
estimated value of the Company's investment in its worldwide distribution
organization; these costs are being amortized on a straight-line basis over 40
years. During the period ended October 10, 1996, the Company recorded a charge
of $404,409,000 to write off its remaining investment in the film distribution
organization (see Notes 2 and 5).
Property and equipment. Property and equipment are stated at cost.
Depreciation of property and equipment is computed under the straight-line
method over the expected useful lives of applicable assets, ranging from three
to five years. Amortization of leasehold assets is computed under the
straight-line method over the shorter of the estimated useful lives of the
assets or the terms of the related leases. When property is sold or otherwise
disposed of, the cost and related accumulated depreciation is removed from the
accounts, and any resulting gain or loss is included in income. The costs of
normal maintenance and repairs and minor replacements are charged to expense
when incurred.
Trademarks, Logos and Goodwill. Trademarks, logos and the excess cost of
acquisitions over the fair market values of identifiable net assets acquired
(goodwill) are amortized over an estimated useful life of 40 years using the
straight-line method. During 1996, the Company adopted SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed of". This statement establishes accounting standards for the
impairment of long-lived assets, certain identifiable intangibles, and
goodwill related to those assets to be held and used and for long-lived assets
and certain identifiable intangibles to be disposed of. The carrying value of
existing assets are reviewed when events or changes in circumstances indicate
that an impairment test is necessary in order to determine if an impairment
has occurred. When factors indicate that such assets should be evaluated for
possible impairment, the Company will estimate the future cash flows expected
to result from the use of the assets and their eventual disposition, and
compare the amounts to the carrying value of the assets to determine if an
impairment loss has occurred. Accordingly, the Company recorded a charge of
$159,420,000 to reduce the net realizable value of goodwill (see Note 5).
Income Taxes. In accordance with SFAS No. 109, "Accounting For Income
Taxes", deferred tax assets and liabilities are recognized with respect to the
tax consequences attributable to differences between the financial statement
carrying values and tax bases of existing assets and liabilities. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which these temporary differences are
expected to be recovered or settled. Further, the effect on deferred tax
assets and liabilities of changes in tax rates is recognized in income in the
period that includes the enactment date.
From May 7, 1992 to October 10, 1996, the Company has been included in the
consolidated federal income tax return of MGM Holdings. The Company's income
tax provision has been computed on a separate return basis, modified to
allocate to MGM Studios the benefits calculated at the MGM Holdings level
which results from the Company's tax attributes. Foreign subsidiaries file
separate or consolidated returns depending on the statutes and elections
available in each foreign jurisdiction.
Foreign Currency Translation. Generally, foreign subsidiary assets and
liabilities are translated into United States dollars at the exchange rates in
effect at the balance sheet date. Revenues and expenses of foreign
subsidiaries are translated into United States dollars at the average exchange
rates that prevailed during the period. The gains or losses that result from
this process are included as a component of the cumulative translation
adjustment balance in stockholder's equity. Foreign currency denominated
transactions are recorded at the
F-30
<PAGE>
METRO-GOLDWYN-MAYER STUDIOS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
exchange rate in effect at the time of occurrence, and the gains or losses
resulting from subsequent translation at current exchange rates are included
in the statement of operations.
Financial Instruments. The carrying values of short-term trade receivables
and payables approximate their estimated fair values because of the short
maturity of these instruments. The carrying values of receivables with
maturities greater than one year have been discounted at LIBOR plus 2.25%
(approximately 7.78% at October 10, 1996), which approximates current market
rates.
Accounts and Contracts Receivable. At October 10, 1996, accounts and
contracts receivable aggregated $304,268,000 (before allowance for doubtful
accounts), of which approximately $240,000,000 is due within one year.
Concentration of credit risk with respect to accounts receivable is limited
due to the large number and general dispersion of accounts which constitute
the Company's customer base. The Company performs credit evaluations of its
customers and in some instances requires collateral. At October 10, 1996 and
December 31, 1995, approximately 41% and 18%, respectively, of the Company's
accounts and contracts receivable arose from an exclusive home video
distribution agreement with Warner Home Video.
Use of Estimates in the Preparation of Financial Statements. The preparation
of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities. Management estimates ultimate
revenues and costs for feature films and television programs for each market
based on anticipated release patterns, public acceptance and historical
results for similar products. Actual results could differ from those
estimates.
NOTE 2--FILM AND TELEVISION COSTS, INCLUDING FILM DISTRIBUTION ORGANIZATION
Film costs, net of amortization, are summarized as follows (in thousands):
<TABLE>
<CAPTION>
OCTOBER 10, DECEMBER 31,
1996 1995
----------- ------------
<S> <C> <C>
Theatrical productions:
Released.......................................... $ 796,715 $ 825,623
Completed not released............................ 25,782 --
In process and development........................ 72,678 210,955
Television programming.............................. 111,227 115,216
Film distribution organization...................... -- 413,644
---------- ----------
$1,006,402 $1,565,438
========== ==========
</TABLE>
Interest costs capitalized to theatrical productions were $4,112,000,
$21,498,000 and $7,022,000 during the period ended October 10, 1996 and the
years ended December 31, 1995 and 1994, respectively.
Based on the Company's estimates of projected gross revenues as of October
10, 1996, approximately 64% of unamortized film costs applicable to released
theatrical films and released television programs will be amortized during the
three years ending September 30, 1999.
NOTE 3--INVESTMENTS
Distribution of foreign theatrical and certain pay television product is
performed by United International Pictures B.V. ("UIP"), in which the Company
has a one-third interest. The Company's investment in UIP, which is included
in investments and advances to affiliates, is stated at cost plus equity in
undistributed earnings. The Company includes in its financial statements the
revenues and related costs associated with its films distributed
F-31
<PAGE>
METRO-GOLDWYN-MAYER STUDIOS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
by UIP. The distribution fees paid to UIP by the Company are included in film
and television production and distribution expense. Due to timing differences
there are no taxable earnings and, therefore, there is no tax provision on
undistributed earnings. The Company's carrying value of its investment in UIP
at October 10, 1996 and December 31, 1995 was $9,898,000 and $10,008,000,
respectively.
NOTE 4--PROPERTY AND EQUIPMENT
Property and equipment, stated at cost, are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
OCTOBER 10, DECEMBER 31,
1996 1995
----------- ------------
<S> <C> <C>
Leasehold improvements.. $ 17,923 $ 22,867
Furniture, fixtures and
equipment.............. 50,490 50,082
---------- ----------
68,413 72,949
Less accumulated depre-
ciation and amortiza-
tion................... (41,727) (40,871)
---------- ----------
$ 26,686 $ 32,078
========== ==========
NOTE 5--IMPAIRMENT OF INTANGIBLE ASSETS
As discussed in Note 15, the Company was sold to an unaffiliated group of
investors effective on October 10, 1996. The proceeds from the sale of
$1,300,000,000 were insufficient to recover the net asset value of the Company
on the date of the disposition, and were insufficient to repay the bank debt
and related accrued interest due to Credit Lyonnais (see Note 6). In accordance
with SFAS No. 121, the Company recorded a charge of $404,409,000 to write off
its remaining investment in the film distribution organization (see Note 2) and
a charge of $159,420,000 to reduce its investment in goodwill to net realizable
value during the period ended October 10, 1996.
NOTE 6--BANK AND OTHER DEBT
Bank and other debt is summarized as follows (in thousands):
<CAPTION>
OCTOBER 10, DECEMBER 31,
1996 1995
----------- ------------
<S> <C> <C>
Senior Facility......... $ 390,000 $ 339,000
CL Facility............. 298,936 333,926
Term Loan............... 539,760 539,504
Capitalized lease obli-
gations and other
borrowings............. 803 4,886
---------- ----------
$1,229,499 $1,217,316
========== ==========
</TABLE>
Senior Facility. On September 16, 1994, the Company obtained from a
syndicate of banks a $450,000,000 senior secured credit facility, as amended
(the "Senior Facility"). Borrowings under the Senior Facility bear interest at
2.25% over the three-month LIBOR (7.78% at October 10, 1996), subject to
adjustment under certain conditions. Borrowings outstanding under the Senior
Facility prior to extinguishment (see Note 15) as of October 10, 1996 were
$390,000,000.
CL Facility. On September 14, 1994, the Company obtained a $400,000,000
credit facility (the "CL Facility") from Credit Lyonnais, a portion of which
was used to retire a previously outstanding $190,000,000 credit facility with
CLBN. Borrowings under the CL Facility bear interest at 0.25% over the three-
month LIBOR (5.78% at October 10, 1996). The principal amount outstanding at
October 10, 1996 prior to extinguishment (see Note 15) was $298,936,000.
F-32
<PAGE>
METRO-GOLDWYN-MAYER STUDIOS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Term Loan. Prior to April, 1993, the Company was financed under two credit
facilities with CLBN (the "CLBN Facilities"). As of September 14, 1994, all of
the Company's outstanding borrowings under the CLBN Facilities, together with
accrued interest of $67,290,000, were converted into a term loan (the "Term
Loan"). The Term Loan bears interest at 0.25% over the three-month LIBOR
(5.78% at October 10, 1996). The principal amount outstanding at October 10,
1996 prior to extinguishment (see Note 15) was $539,760,000.
The Company's borrowings under the Senior Facility, the CL Facility and the
Term Loan are secured by all the assets of the Company. The security interests
under the CL Facility and the Term Loan are subordinate to the Senior
Facility. The Senior Facility contains various covenants including limitations
on dividends, capital expenditures and indebtedness, and the maintenance of
certain financial ratios.
The Senior Facility, CL Facility and Term Loan aggregating $1,379,797,000,
including accrued interest, were extinguished on October 10, 1996 upon the
sale of the Company (see Notes 7 and 15). At that time, the Company obtained
$800,000,000 in Senior Secured Credit Facilities to partially finance the
acquisition of the Company and to provide for ongoing operations of the
Company.
Lease and other borrowings. The capitalized lease obligations relate
principally to computer equipment financing at interest rates of approximately
10%.
Maturity schedule. Credit facilities, lease and other borrowings are
scheduled to mature as follows (in thousands):
<TABLE>
<S> <C>
October 10, 1996.................................................. $1,228,696
December 31, 1996................................................. 6
December 31, 1997................................................. 788
December 31, 1998................................................. 9
----------
$1,229,499
==========
</TABLE>
NOTE 7--STOCKHOLDER'S EQUITY
Capital Contributions. Pursuant to the terms of the sale of the Company, the
proceeds from the transaction were insufficient to repay the entire bank debt
and accrued interest due to Credit Lyonnais as of October 10, 1996.
Accordingly, the deficit of $79,798,000 has been accounted for as a
contribution of capital from the parent in the accompanying financial
statements.
Additionally, an affiliate of Credit Lyonnais has agreed to pay bonuses of
$19,641,000 to certain executives of the Company due upon the sale of the
Company (see Note 15). Accordingly, the Company has recorded compensation
expense and a corresponding contribution to capital of $9,641,000 during the
period ended October 10, 1996 and $10,000,000 during the year ended December
31, 1995, respectively.
Upon commencement of the CL Facility in 1994 (see Note 6), CLBN agreed to
waive $16,794,000 in accrued interest charges on the Company's credit
facilities for the period from January 1, 1994 through September 14, 1994.
Accordingly, the Company has included this amount as a contribution to paid-in
capital in the consolidated financial statements.
F-33
<PAGE>
METRO-GOLDWYN-MAYER STUDIOS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8--INCOME TAXES
The Company's domestic and foreign tax liability balances consist of the
following (in thousands):
<TABLE>
<CAPTION>
OCTOBER 10, DECEMBER 31,
1996 1995
----------- ------------
<S> <C> <C>
Current............................................. $27,313 $58,900
Deferred............................................ -- --
------- -------
$27,313 $58,900
======= =======
</TABLE>
Prior to December 30, 1993, the assets and operations of the Company had
been held by MGM Group Holdings. On that date, pursuant to a financial
restructuring program approved by the Company's Board of Directors,
substantially all the assets and operations of MGM Group Holdings, other than
certain litigation claims and deferred tax assets, were transferred to the
Company. At the same time, the Company assumed all of the liabilities of MGM
Group Holdings other than (i) certain litigation liabilities; (ii) certain
deferred tax liabilities; and (iii) certain of the outstanding indebtedness of
MGM Group Holdings owing to General Bank Nederland N.V. (formerly Credit
Lyonnais Bank Nederland B.V. or "CLBN"), an affiliate of Credit Lyonnais.
Under the tax sharing agreement arising out of the restructuring, the Company
is deemed to have tax basis in the transferred assets and liabilities equal to
the book values at the date of the restructuring. The deferred tax liabilities
and assets for the temporary differences between book value and tax basis of
assets and liabilities transferred to the Company are recorded by MGM Group
Holdings.
Pursuant to the tax sharing agreement, the Company computes its income tax
provision and corresponding deferred tax liabilities and assets, net of a
valuation allowance, on a separate tax return basis, modified as discussed
above with respect to the tax basis of assets transferred in the
restructuring, and further modified to reflect the allocation to the Company
of any tax benefits recognized by the consolidated filing group to the extent
that the Company's losses in the current period reduce the current or deferred
income taxes payable.
Management believes certain of the Company's deferred tax assets are more
likely than not to be realized. For deferred tax assets which do not meet that
standard, a valuation allowance is applied. At October 10, 1996, management
has determined that $69,161,000 of deferred tax assets related to assets and
liabilities existing at the time of restructuring do not satisfy the
recognition criteria set forth in SFAS No. 109. Similarly, deferred tax assets
of $270,427,000 related to the period after the restructuring have been
determined not to satisfy the recognition criteria. Accordingly, a valuation
allowance has been recorded by the Company for these amounts.
F-34
<PAGE>
METRO-GOLDWYN-MAYER STUDIOS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The tax effects of temporary differences between book value and tax bases of
assets and liabilities transferred to the Company in the restructuring (for
which the deferred tax benefits are recorded by MGM Group Holdings) are as
follows (in thousands):
<TABLE>
<CAPTION>
OCTOBER 10, DECEMBER 31,
1996 1995
----------- ------------
<S> <C> <C>
Deferred tax (assets):
Film revenue...................................... $ (25,678) $ (66,153)
Reserves/investments.............................. (86,872) (121,320)
Participations and residuals payable.............. (6,208) (8,174)
Net miscellaneous assets.......................... (6,707) (17,289)
--------- ---------
Subtotal gross tax (assets)..................... (125,465) (212,936)
Valuation allowance............................... 69,161 61,650
--------- ---------
Total tax (assets).............................. $ (56,304) $(151,286)
--------- ---------
Deferred tax liabilities:
Film distribution system.......................... $ -- $ 161,321
Film and television costs......................... 56,304 67,261
Net miscellaneous liabilities..................... -- --
--------- ---------
Total tax liabilities........................... $ 56,304 $ 228,582
--------- ---------
Net deferred tax liability.......................... $ -- $ 77,296
========= =========
</TABLE>
The net operating loss carryforwards of MGM Group Holdings are in excess of
the net deferred tax liabilities for the temporary differences related to
assets and liabilities transferred to the Company.
The tax effects of temporary differences and carryforwards arising after the
restructuring date which give rise to deferred tax assets and liabilities for
1996 and 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
OCTOBER 10, DECEMBER 31,
1996 1995
----------- ------------
<S> <C> <C>
Deferred tax (assets):
Film and television costs......................... $(109,302) $ (33,526)
Miscellaneous liabilities......................... (53,425) (36,185)
Investment tax credit carryforwards............... (12,836) (16,575)
Net operating loss carryforwards.................. (116,417) (50,429)
--------- ---------
Subtotal gross tax (assets)..................... (291,980) (136,715)
Valuation allowance............................... 270,427 36,308
--------- ---------
Total tax (assets).............................. (21,553) (100,407)
Deferred tax liabilities
Film revenue...................................... 17,153 96,007
--------- ---------
Total tax liabilities........................... 17,153 96,007
--------- ---------
Net deferred tax (asset)............................ $ (4,400) $ (4,400)
========= =========
</TABLE>
Under the terms of the tax sharing agreement discussed above, the deductible
temporary differences of the Company which originate after the restructuring
date are available to be used against the deferred tax liability retained by
MGM Group Holdings.
F-35
<PAGE>
METRO-GOLDWYN-MAYER STUDIOS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
As of October 10, 1996, the Company and its subsidiaries had net operating
loss carryforwards of $268,888,000, capital loss carryforwards of $29,616,000
and investment tax credit carryforwards of $12,836,000, before adjustments for
the effect of the tax sharing agreement, which expire through 2010. These
carryforwards are available for use in the U.S. consolidated tax return group,
of which the Company is a member, and are subject to the tax sharing agreement
between the Company and MGM Group Holdings. A portion of these losses are
subject to substantial limitations on utilization because of various income
tax rules.
Details of the provision for income taxes are as follows (in thousands):
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED YEAR ENDED
OCTOBER 10, DECEMBER 31, DECEMBER 31,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Current taxes:
Foreign taxes......................... $ 273 $ 935 $ 8,277
Deferred taxes:
Federal and state taxes (benefit)..... (241,630) 1,997 (26,130)
Adjustment for change in enacted tax
rate................................. -- -- --
Adjustment for change in valuation
allowance............................ 241,630 (1,997) 21,730
--------- ------- --------
Total tax provision................. $ 273 $ 935 $ 3,877
========= ======= ========
</TABLE>
Tax expense for 1994 reflects a $4,400,000 deferred tax benefit arising from
the carryforward and use by MGM Group Holdings of a portion of the Company's
current year net operating losses. As a result, the Company has recorded a
corresponding $4,400,000 receivable from MGM Group Holdings.
The following is a summary reconciliation of the effective tax rate to the
assumed federal tax rate:
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED YEAR ENDED
OCTOBER 10, DECEMBER 31, DECEMBER 31,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Assumed federal tax rate on loss........ (35)% (35)% (35)%
Goodwill and other permanent
differences............................ 8 % 3 % 3 %
Foreign taxes, net of available federal
tax benefit............................ 1 % (2)% 5 %
Loss carryforward not benefited......... 27 % 35 % 29 %
--- --- ---
Effective tax rate.................... 1 % 1 % 2 %
=== === ===
</TABLE>
The Company has various foreign subsidiaries formed or acquired to produce
or distribute motion pictures outside the United States. In the opinion of
management, the earnings of these subsidiaries are not permanently invested
outside the United States. Pursuant to APB 23, tax expense has accordingly
been provided for these unremitted earnings.
Federal income tax returns for the periods ended through March 25, 1986 have
been examined by the Internal Revenue Service. In the opinion of management,
any adjustments which may result from the examination of subsequent periods
for which the Company is responsible will not have a material effect on the
Company's consolidated financial position or results of operations.
NOTE 9--RETIREMENT PLANS
The Company has a non-contributory retirement plan (the "Basic Plan")
covering substantially all regular full-time, non-union employees. Benefits
are based on years of service and compensation, as defined.
F-36
<PAGE>
METRO-GOLDWYN-MAYER STUDIOS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table summarizes the funded status of the Basic Plan (in
thousands):
<TABLE>
<CAPTION>
OCTOBER 10, DECEMBER 31,
1996 1995
----------- ------------
<S> <C> <C>
Actuarial present value of benefit obligations
(including vested benefits of $6,880
and $7,348, respectively)............................ $ 7,870 $ 8,030
======= =======
Projected benefit obligations......................... $ 9,182 $ 9,361
Plan assets at fair value (primarily debt securities). 8,700 6,287
------- -------
Projected benefit obligations in excess of plan
assets............................................... (482) (3,074)
Unrecognized net asset as of beginning of year........ (184) (200)
Unrecognized net (gain) loss.......................... (215) 1,359
Unrecognized prior service cost....................... (181) (191)
------- -------
Accrued pension liability............................. $(1,062) $(2,106)
======= =======
</TABLE>
Key assumptions used in the actuarial computations for the reported periods
were as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Discount rate.................................................. 7.75% 7.00%
==== ====
Long-term rate of return on assets............................. 7.25% 7.25%
==== ====
Rate of increase in future compensation levels................. 5.00% 5.00%
==== ====
</TABLE>
The unrecognized net asset is being amortized over the estimated remaining
service life of 19.4 years. Domestic pension benefits and expense were
determined under the entry age actuarial cost method.
Pension costs includes the following components (in thousands):
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED YEAR ENDED
OCTOBER 10, DECEMBER 31, DECEMBER 31,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Service cost......................... $ 854 $ 658 $ 805
Interest cost on projected benefit
obligation.......................... 570 630 633
Actual return on plan assets......... (521) (797) 24
Net amortization and deferral........ 148 329 (529)
------ ----- -----
Net periodic pension cost............ $1,051 $ 820 $ 933
====== ===== =====
</TABLE>
A significant number of the Company's production employees are covered by
union sponsored, collectively bargained multi-employer pension plans. The
Company contributed approximately $5,775,000, $11,950,000 and $6,521,000 in
1996, 1995 and 1994, respectively, for such plans. Information from the plans'
administrators is not sufficient to permit the Company to determine its share
of unfunded vested benefits, if any.
NOTE 10--RELATED PARTY TRANSACTIONS
See Note 6 regarding the Company's credit arrangements with CLBN and Credit
Lyonnais (collectively, the "Bank").
Interest of approximately $45,000,000, $58,000,000 and $36,000,000 was
charged by the Bank during the period ended October 10, 1996 and the years
ended December 31, 1995 and 1994, respectively. Of the total
F-37
<PAGE>
METRO-GOLDWYN-MAYER STUDIOS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
interest charged during 1994, the Bank waived $16,794,000 representing
interest on the Company's credit facilities for the period from January 1,
1994 through September 14, 1994 (see Note 7). Pursuant to the terms of its
credit facilities, the Company also paid to the Bank charges related to
letters of credit and other fees of approximately $19,000, $52,000 and
$278,000, respectively, during these periods.
The Company has entered into various agreements to develop and produce
certain films and television programs with Hometown Films Inc., an entity
controlled by Mr. Frank Mancuso, Jr., who is a relative of the Company's
Chairman of the Board and Chief Executive Officer. Pursuant to these
agreements, the Company paid Hometown Films Inc., approximately $1,582,000
during the period from January 1, 1996 to October 10, 1996 and approximately
$633,000 and $444,000 for the years ended December 31, 1995 and 1994,
respectively. The agreements provide for additional producer fees and
potential profit participations to be paid in the future at terms consistent
with comparable development and production agreements with third parties.
During the period ended October 10, 1996 and the years ended December 31,
1995 and 1994, the Company incurred legal fees of approximately $1,735,000,
$2,737,000 and $802,000, respectively, to White & Case, one of whose partners
is also a director of the Company.
NOTE 11--FOREIGN OPERATIONS AND EXPORT SALES
The Company's foreign activities are principally motion picture and
television production and distribution in territories outside of the United
States and Canada. Net foreign assets and income from subsidiaries operating
in foreign countries are not material in relation to consolidated net assets
or consolidated net loss.
Foreign export revenues are revenues earned from motion picture and
television films produced in the United States. Export revenues for the period
ended October 10, 1996 and the years ended December 31, 1995 and 1994 were as
follows (in thousands):
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED YEAR ENDED
OCTOBER 10, DECEMBER 31, DECEMBER 31,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Europe................................ $215,588 $223,830 $132,003
Western Hemisphere.................... 24,066 29,882 18,745
Other................................. 102,466 90,274 61,706
-------- -------- --------
$342,120 $343,986 $212,454
======== ======== ========
</TABLE>
NOTE 12--COMMITMENTS AND CONTINGENCIES
Leases. The Company has operating leases for offices and equipment. Certain
property leases include provisions for increases over base year rents as well
as for escalation clauses for maintenance and other building operations. Rent
expense was approximately $8,500,000, $8,630,000 and $8,008,000 for the period
ended October 10, 1996 and the years ended December 31, 1995, and 1994,
respectively.
F-38
<PAGE>
METRO-GOLDWYN-MAYER STUDIOS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Future minimum rental commitments under non-cancelable operating leases as
of October 10, 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------
<S> <C>
1996.............................................................. $ 2,624
1997.............................................................. 10,242
1998.............................................................. 6,666
1999.............................................................. 10,808
2000.............................................................. 11,314
2001.............................................................. 7,437
Thereafter........................................................ 9,813
-------
$58,904
=======
</TABLE>
Employment Agreements. The Company has employment agreements with several
principal officers and employees. The agreements provide for minimum salary
levels as well as, in some cases, bonuses. In addition, the Company's
shareholder is obligated to pay bonuses to certain executives in the event the
value of the Company is eventually determined to exceed a defined amount.
Based on the sales price of the Company, as described in Note 14, this
incentive bonus amounted to $19,641,000. The Company has recorded compensation
expense and a corresponding contribution to capital of $9,641,000 for the
period ended October 10, 1996 and restated its financial statements for the
year ended December 31, 1995 by recording compensation expense and a
corresponding contribution to capital of $10,000,000. Certain executives are
entitled to terminate their employment agreements upon the sale of the
Company.
Creative Talent Agreements. The Company has entered into contractual
agreements for creative talent related to future film production which
aggregate approximately $9,449,000 at October 10, 1996. Such amounts are
scheduled to be paid through 1997.
Litigation. The Company, together with other major companies in the filmed
entertainment industry, has been subject to numerous antitrust suits brought
by various motion picture exhibitors, producers and others. In addition,
various legal proceedings involving alleged breaches of contract, antitrust
violations, copyright infringement and other claims are now pending, which the
Company considers routine to its business activities.
In the opinion of Company management, any liability under pending litigation
is not material in relation to the Company's results of operations.
NOTE 13--SUPPLEMENTARY CASH FLOW INFORMATION
Total interest paid, net of capitalized interest, was $29,490,000 and
$15,416,000 in the period ended October 10, 1996 and the years ended December
31, 1995, respectively. No interest was paid in 1994. Income taxes paid were
$17,856,000, $5,140,000 and $5,164,000 in the period ended October 10, 1996
and the years ended December 31, 1995 and 1994, respectively.
The Company recorded a non-cash contribution of capital of $9,641,000 during
the period ended October 10, 1996 and $10,000,000 during the year ended
December 31, 1995, respectively, from CDR due to the payment of compensation
expense (see Note 12).
F-39
<PAGE>
METRO-GOLDWYN-MAYER STUDIOS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 14--QUARTERLY FINANCIAL DATA (UNAUDITED)
Certain quarterly information is presented below (in thousands):
<TABLE>
<CAPTION>
FIRST QUARTER OF SECOND QUARTER OF
----------------------------- ----------------------------
1996 1995 1994 1996 1995 1994
--------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues................ $ 286,947 $156,804 $150,115 $308,185 $162,029 $106,613
Operating loss.......... (24,724) (27,144) (17,926) (25,086) (29,562) (44,197)
Interest expense, net... 22,361 13,014 5,699 22,725 15,256 6,600
Net loss................ (53,678) (38,716) (25,347) (49,874) (45,814) (50,787)
<CAPTION>
THIRD QUARTER OF FOURTH QUARTER OF
----------------------------- ------------------
1996 1995 1994 1995 1994
--------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues................ $ 317,574 $206,239 $139,572 $335,845 $200,821
Operating loss.......... (626,759) (27,114) (34,938) (18,540) (38,524)
Interest expense, net... 26,289 17,281 9,378 20,835 12,183
Net loss................ (641,486) (46,048) (44,429) (28,731) (50,689)
</TABLE>
1996 Quarterly Results. The third quarter of 1996 includes the period from
July 1, 1996 to October 10, 1996, the date of the Acquisition. In the third
quarter of 1996, the Company recorded a charge of $563,829,000 to write off
its remaining investment in the film distribution organization and to reduce
its investment in goodwill to net realizable value (see Note 5).
The 1994 and 1995 interim financial information was not reviewed by the
Company's independent accountants in accordance with standards established for
such review.
NOTE 15--SUBSEQUENT EVENT
On October 10, 1996, CDR completed the sale of all of the Company's
outstanding stock to Metro-Goldwyn-Mayer Inc. (formerly P&F Acquisition Corp.)
an entity formed by Tracinda Corporation, Seven Network Limited and Mr. Frank
G. Mancuso, for $1,300,000,000. In connection with the sale of the Company,
Mr. Mancuso has entered into a new five year employment agreement to remain as
Chief Executive Officer and Chairman of the Board of Directors of the Company.
The acquisition price was financed with equity contributions of $900,000,000
and new bank debt of $400,000,000. The Company obtained $800,000,000 in Senior
Secured Credit Facilities to partially finance the acquisition of the Company
and to provide for ongoing operations of the Company. The Company's existing
bank debt, including the Senior Facility, the CL Facility and the Term Loan
(see Note 6), were extinguished upon the closing of the transaction. The
acquisition will be accounted for as a purchase.
F-40
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholder of Orion Pictures Corporation
We have audited the accompanying consolidated balance sheet of Orion
Pictures Corporation and its subsidiaries as of December 31, 1996, and the
related consolidated statements of operations, stockholder's equity (capital
deficiency) and cash flows for the year then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. 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 audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Orion
Pictures Corporation and subsidiaries as of December 31, 1996 and the results
of their operations and their cash flows for the year then ended in conformity
with generally accepted accounting principles.
KPMG Peat Marwick LLP
Los Angeles, California
March 31, 1997
F-41
<PAGE>
ORION PICTURES CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
------
Cash and cash equivalents............................. $ 2,922 $ 1,252
Accounts receivable, net.............................. 50,661 45,878
Film and television costs, net........................ 252,299 237,558
Property, plant and equipment, net.................... 38,470 39,287
Goodwill, net......................................... 132,139 129,439
Other assets.......................................... 13,797 12,901
--------- ---------
Total assets...................................... $ 490,288 $ 466,315
========= =========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Liabilities:
Bank and other debt................................. $ 269,410 $ 292,434
Accounts payable and accrued expenses............... 35,489 38,082
Participations and residuals payable................ 62,916 56,657
Due to Parent....................................... 84,637 85,168
Deferred revenues................................... 64,912 64,829
--------- ---------
Total liabilities................................. 517,364 537,170
--------- ---------
Commitments and contingencies
Stockholder's equity (capital deficiency):
Common Stock, $.01 par value, authorized, issued and
outstanding 1,000 shares........................... -- --
Additional paid-in capital.......................... 350,774 350,774
Accumulated deficit................................. (377,850) (421,629)
--------- ---------
Total shareholder's equity (capital deficiency)... (27,076) (70,855)
--------- ---------
Total liabilities and shareholder's equity
(capital deficiency)............................. $ 490,288 $ 466,315
========= =========
</TABLE>
See accompanying notes to consolidated financial statements
F-42
<PAGE>
ORION PICTURES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
TWELVE MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED
DECEMBER 31, JUNE 30, JUNE 30,
1996 1997 1996
------------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Revenues................................. $165,164 $ 90,910 $62,853
Costs and expenses:
Cost of rentals and operating expenses. 139,307 99,181 54,834
Selling, general, and administrative... 24,709 19,302 9,625
Depreciation and amortization.......... 5,555 4,984 596
-------- -------- -------
Operating loss........................... (4,407) (32,557) (2,202)
Interest expense......................... 17,166 11,019 6,823
Interest income.......................... (286) (197) (208)
-------- -------- -------
Interest expense, net.................. 16,880 10,822 6,615
Loss before extraordinary items and
provision for income taxes.............. (21,287) (43,379) (8,817)
Provision for income taxes............... 1,000 400 400
-------- -------- -------
Loss before extraordinary items.......... (22,287) (43,779) (9,217)
Extraordinary loss on extinguishment of
debt.................................... 4,505 -- --
-------- -------- -------
Net loss................................. $(26,792) $(43,779) $(9,217)
======== ======== =======
</TABLE>
See accompanying notes to consolidated financial statements
F-43
<PAGE>
ORION PICTURES CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY (CAPITAL DEFICIENCY)
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
COMMON STOCK
----------------
ADDITIONAL
NUMBER OF PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT
--------- ------ ---------- -----------
<S> <C> <C> <C> <C>
Balance at December 31, 1995........... 1,000 $-- $290,238 $(351,058)
Net loss............................... -- -- -- (26,792)
Contribution by parent of net assets of
Motion Picture Corporation of America. -- -- 20,801 --
Contribution by parent of net assets of
The Samuel Goldwyn Company............ -- -- 39,735 --
----- ---- -------- ---------
Balance at December 31, 1996........... 1,000 -- 350,774 (377,850)
Net loss............................... -- -- -- (43,779)
----- ---- -------- ---------
Balance at June 30, 1997 (unaudited)... 1,000 $-- $350,774 $(421,629)
===== ==== ======== =========
</TABLE>
See accompanying notes to consolidated financial statements
F-44
<PAGE>
ORION PICTURES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOW
(IN THOUSANDS)
<TABLE>
<CAPTION>
TWELVE MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED
DECEMBER 31, JUNE 30, JUNE 30,
1996 1997 1996
------------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
OPERATIONS:
Net loss............................... $ (26,792) $(43,779) $ (9,217)
Adjustments to reconcile loss to cash
provided by operations:
Amortization of film costs........... 61,472 53,660 29,418
Amortization of discount on notes,
subordinated debt and guarantee..... 2,243 1,039 1,205
Depreciation and amortization........ 5,555 4,984 596
Loss on early extinguishment of debt. 4,505 -- --
Payroll charge due to restricted
stock............................... 528 532 --
(Increase) decrease in accounts
receivable.......................... 16,122 3,793 (499)
Increase (decrease) in accounts
payable............................. 219 (416) (1,047)
Increase (decrease) in accrued
expenses............................ 371 4,145 (2,243)
Accrual of participations and
residuals........................... 34,255 9,192 17,051
Payments of participations and
residuals........................... (27,364) (15,451) (8,141)
Decrease in deferred revenues........ (20,984) (83) (11,514)
--------- -------- --------
Cash provided by operations............ 50,130 17,616 15,609
--------- -------- --------
INVESTING ACTIVITIES:
Investment in film inventories......... (67,176) (38,919) (22,392)
Additions to property, plant and
equipment............................. (3,648) (3,252) (587)
Cash acquired, net of contributions
from parent........................... 843 -- 568
Other investing activities............. (4,370) 193 --
--------- -------- --------
Cash used in investment activities..... (74,351) (41,978) (22,411)
--------- -------- --------
FINANCING ACTIVITIES:
Additions to notes and subordinated
debt.................................. 307,658 36,200 30,400
Payments on notes and subordinated
debt.................................. (275,829) (13,508) (20,914)
Payments of deferred financing costs... (10,700) -- (7,912)
Increase (decrease) in due to/from
parent................................ (270) -- (220)
--------- -------- --------
Cash provided by financing activities.. 20,859 22,692 1,354
--------- -------- --------
Net decrease in cash..................... (3,362) (1,670) (5,448)
Cash and cash equivalents at beginning of
period.................................. 6,284 2,922 6,284
--------- -------- --------
Cash and cash equivalents at end of
period.................................. $ 2,922 $ 1,252 $ 836
========= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements
F-45
<PAGE>
ORION PICTURES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AT JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND
1996 ARE UNAUDITED)
1. BASIS OF PRESENTATION, DESCRIPTION OF THE BUSINESS AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Orion Pictures Corporation, a Delaware corporation, and its subsidiaries, most
of which are wholly-owned (the "Company") and reflect the acquisitions of the
Samuel Goldwyn Company and the Motion Picture Corporation of America each
effective as of July 2, 1996.
As permitted by Statement of Financial Accounting Standards ("SFAS") No. 53,
"Financial Reporting by Producers and Distributors of Motion Pictures", the
Company has presented unclassified consolidated balance sheets as of December
31, 1996 and June 30, 1997. The Company is a wholly-owned subsidiary of
Metromedia International Group Inc. ("MIG").
Unaudited Information as of June 30, 1997 and 1996
The accompanying unaudited consolidated financial statements as of June 30,
1997 and 1996 reflect all adjustments which are, in the opinion of management,
necessary to present fairly the financial position of the Company as of June
30, 1997 and the results of its operations and cash flows for the six months
ended June 30, 1997 and 1996. Such adjustments consist only of normal
recurring items. Interim results are not necessarily indicative of results for
a full year.
DESCRIPTION OF THE BUSINESS
The business activities of the Company constitute a single business segment,
entertainment, which includes the financing, production and distribution of
theatrical motion pictures and television programming as well as the operation
of a theatre circuit. Theatrical motion pictures are produced initially for
exhibition in theaters. Initial theatrical release generally occurs in the
United States and Canada. Foreign theatrical exhibition generally begins
within the first year after initial release. Home video distribution in all
territories usually begins six to twelve months after theatrical release in
that territory, with pay television exploitation beginning generally six
months after initial home video release. Exhibition of the Company's product
on network and on other free television outlets begins generally three to five
years from the initial theatrical release date in each territory.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Orion Pictures Corporation and its subsidiaries, most of which are wholly-
owned. All significant intercompany transactions and accounts have been
eliminated.
Cash and Cash Equivalents
Cash equivalents consists of highly liquid instruments with original
maturities of three months or less.
REVENUE RECOGNITION
Revenue from the theatrical distribution of films is recognized as the films
are exhibited. The Company's home video revenue, less a provision for returns,
is recognized when the video cassettes are shipped. Distribution
F-46
<PAGE>
ORION PICTURES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND
1996 ARE UNAUDITED)
of the Company's films to the home video markets in foreign countries is
generally effected through subdistributors who control various aspects of
distribution. When the terms of sale to such subdistributors include the
receipt of nonrefundable guaranteed amounts by the Company, revenue is
recognized when the film is available to the subdistributors for exhibition or
exploitation and other conditions of sale are met. When the arrangements with
such subdistributors call for distribution of the Company's product without a
minimum amount guaranteed to the Company, such sales are recognized when the
Company's share of the income from exhibition or exploitation is earned.
Revenue from the licensing of the Company's product to networks, basic and
pay cable companies and independent television stations or groups of stations
in the United States and Canada as well as in foreign territories is
recognized when the license period begins and when certain other conditions
are met. Such conditions include the availability of such product for
broadcast by the licensee.
Film Inventories and Cost of Rentals
Except for purchase accounting adjustments, theatrical and television
program inventories consist of direct production costs, production overhead
and capitalized interest, print and exploitation costs, less accumulated
amortization. Film inventories are stated at the lower of unamortized cost or
estimated net realizable value. Selling costs and other distribution costs are
charged to expense as incurred.
Film inventories and estimated total costs of participations and residuals
are charged to cost of rentals under the individual film forecast method in
the ratio that current period revenue recognized bears to management's
estimate of total gross revenue to be realized. Such estimates are re-
evaluated quarterly in connection with a comprehensive review of the Company's
inventory of film product, and estimated losses, if any, are provided for in
full. Such losses include provisions for estimated future distribution costs
and fees as well as participation and residual costs expected to be incurred.
Property, Plant and Equipment
Except for purchase accounting adjustments, buildings, property, equipment,
furniture and fixtures are carried at cost and depreciated over their
estimated useful lives. Generally depreciation is provided on the straight-
line method. The estimated useful life of buildings is approximately 25 years,
and for equipment, furniture and fixtures approximately three to seven years.
Theatre leasehold interests and leasehold improvements are amortized on a
straight-line basis over the lesser of the estimated useful lives of the
improvements or the terms of the respective leases. Maintenance and repairs
are expensed as incurred.
Goodwill
Goodwill has been recognized for the excess of the purchase price over the
value of the identifiable net assets acquired. Such amount is being amortized
over 25 years using the straight-line method. Accumulated amortization of
goodwill was $2.9 million and $5.7 million at December 31, 1996 and June 30,
1997, respectively.
Management continuously monitors and evaluates the realizability of recorded
intangibles to determine whether their carrying values have been impaired. In
evaluating the value and future benefits of intangible assets, their carrying
value is compared to management's best estimate of undiscounted future cash
flows over the remaining amortization period. If such assets are considered to
be impaired, the impairment to be recognized is measured by the amount by
which the carrying value of the assets exceeds the fair value of the assets.
The Company believes that the carrying value of the recorded intangibles is
not impaired.
F-47
<PAGE>
ORION PICTURES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND
1996 ARE UNAUDITED)
Income Taxes
The Company accounts for income taxes under Statement of Financial
Accounting Standard No. 109, Accounting for Income Taxes "Statement 109",
whereby deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amount of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. Under Statement
109, the effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
Financial Instruments
The estimated fair values of cash, accounts receivable, accounts payable and
accrued expenses approximate their carrying values because of the short
maturity of these instruments. The carrying value of receivables with
maturities greater than one year have been discounted and if such receivables
were discounted based on current market rates, the fair value of these
receivables would not be materially different than their carrying value.
Because the Company's bank debt is a floating interest rate instrument, it is
assumed that the carrying value would approximate fair value.
Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities to prepare these financial
statements in conformity with generally accepted accounting principles.
Significant estimates are primarily related to ultimate revenues and ultimate
costs relating to the Company's film and television properties and the
allowance for doubtful accounts. Actual results may differ from estimated
amounts.
2. ACQUISITIONS
On July 2, 1996 MIG consummated its acquisition (the "Goldwyn Merger") of
The Samuel Goldwyn Company ("Goldwyn"). Upon consummation of the Goldwyn
Merger, Goldwyn was renamed Goldwyn Entertainment Company. Holders of the
Goldwyn common stock received .3335 shares of MIG's common stock (the "Common
Stock") for each share of Goldwyn Common Stock in accordance with a formula
set forth in the Agreement and Plan of Merger relating to the Goldwyn Merger
("the Goldwyn Merger Agreement"). Pursuant to the Goldwyn Merger, MIG issued
3,130,277 shares of Common Stock. Goldwyn is a producer and distributor of
motion pictures and television product and has a film and television library
of over 850 titles. In addition, Goldwyn owns Landmark Theatre Corporation,
which the Company believes is the leading specialized theatre circuit in the
Unites States with 138 screens. The purchase price, including stock options
and transaction costs, related to the Goldwyn Merger was approximately $43.8
million.
Also on July 2, 1996, MIG consummated its acquisition (the "MPCA Merger,"
together with the Goldwyn Merger, the "July 2 Mergers") of Motion Picture
Corporation of America ("MPCA"). In connection with the MPCA Merger, MIG (i)
issued 1,585,592 shares of Common Stock to MPCA's stockholders, and (ii) paid
such stockholders approximately $1.2 million in additional consideration,
consisting of promissory notes. The purchase price, including transaction
costs, related to the acquisition of MPCA was approximately $21.9 million.
The purchases of Goldwyn and MPCA have been recorded by MIG in accordance
with the purchase method of accounting for business combinations. The purchase
price to acquire both Goldwyn and MPCA were allocated
F-48
<PAGE>
ORION PICTURES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND
1996 ARE UNAUDITED)
to the net assets acquired according to management's estimate of their
respective fair values and resulted in $125.5 million of goodwill. Following
the consummation of the July 2 Mergers, MIG contributed its interests (at
MIG's net book value) in Goldwyn and MPCA to Orion with Goldwyn and MPCA
becoming wholly owned subsidiaries of Orion. The results of those purchased
businesses have been included in the accompanying consolidated financial
statements from July 2, 1996, the date of the acquisition. The following net
assets were contributed by MIG (in thousands):
<TABLE>
<CAPTION>
GOLDWYN MPCA
--------- --------
<S> <C> <C>
Assets acquired....................................... $ 178,352 $ 67,790
Liabilities assumed................................... (133,331) (46,989)
Due to Parent......................................... (5,286) --
--------- --------
Net assets contributed................................ $ 39,735 $ 20,801
========= ========
</TABLE>
The following unaudited proforma information illustrates the effect of the
July 2 Mergers on revenues and net loss for calendar 1996 and assumes that the
July 2 Mergers occurred at the beginning of the period and does not account
for refinancing of certain indebtedness of Goldwyn and MPCA debt as discussed
above (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
YEAR ENDED 1996
---------- ------------
<S> <C>
Revenues...................................................... $230,196
Net loss...................................................... $(37,672)
</TABLE>
3. ACCOUNTS RECEIVABLE, PARTICIPATION AND RESIDUALS PAYABLE, AND DEFERRED
REVENUES
Accounts receivable consists primarily of trade receivables due from film
distribution, including theatrical, home video, basic cable and pay
television, network, television syndication, and other licensing sources which
have payment terms generally covered under contractual arrangements. Of the
total accounts receivable as of December 31, 1996, $30.4 million is expected
to be collected during the twelve months ended December 31, 1997. Accounts
receivable is stated net of an allowance for doubtful accounts of $11.6
million and $13.6 million at December 31, 1996 and June 30, 1997,
respectively.
The Company has entered into contracts for licensing of theatrical and
television product to the pay cable, home video and free television markets,
for which the revenue and the related accounts receivable will be recorded in
future periods when the films are available for broadcast or exploitation.
These contracts, net of advance payments received and recorded in Deferred
revenues, as described below, aggregated approximately $175.0 million at
December 31, 1996. Included in this amount is $61.5 million of license fees
for which the revenue and the related accounts receivable will be recorded
only as if the Company is able to successfully produces or acquires new
product under the restrictions of the Plan.
Approximately $4.8 million and $4.6 million was payable to an officer of a
subsidiary of the Company and was included in participation and residuals
payable as of December 31, 1996 and June 30, 1997, respectively. The executive
is also entitled to future participations (limited to annual maximum payments)
on certain Goldwyn titles.
Deferred revenues consist principally of advance payments received on pay
cable, home video and other television contracts for which the films are not
yet available for broadcast or exploitation.
F-49
<PAGE>
ORION PICTURES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND
1996 ARE UNAUDITED)
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
Land and buildings................................ $ 7,461 $ 7,461
Theatre leasehold interests....................... 18,633 19,301
Leasehold improvements............................ 7,678 8,685
Equipment, furniture and fixtures................. 8,535 9,916
------- -------
42,307 45,363
Accumulated depreciation.......................... (3,837) (6,076)
------- -------
$38,470 $39,287
======= =======
</TABLE>
4. FILM AND TELEVISION COSTS, NET
Film and television costs, net of amortization, are summarized as follows
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
Theatrical and television product released........ $193,391 $186,214
Completed not released............................ 8,255 3,730
In process and development........................ 50,653 47,614
-------- --------
$252,299 $237,558
======== ========
</TABLE>
Orion had, in prior years, made substantial write-offs to its released
product. As a result, approximately one-half of the gross cost of film
inventories currently in release are stated at estimated net realizable value
and will not result in the recording of gross profit upon the recognition of
related revenues in future periods. As of December 31, 1996, approximately 62%
of the unamortized balance of film inventories will be amortized within the
next three-year period based upon the Company's revenue estimates at that
date.
5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consists of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
Accounts payable.............................................. $ 6,584
Accrued salaries and wages.................................... 2,354
Accrued taxes................................................. 10,128
Accrued interest.............................................. 1,110
Accrued distribution costs.................................... 7,742
Other......................................................... 7,571
-------
$35,489
=======
</TABLE>
F-50
<PAGE>
ORION PICTURES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND
1996 ARE UNAUDITED)
6. BANK AND OTHER DEBT
Bank and other debt is comprised of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
Notes payable to banks under Credit, Security &
Guaranty Agreement.............................. $247,500 $276,200
Capital leases, other guarantees and notes
payable, net of unamortized discounts of $2,699
and $2,346, respectively........................ 21,910 16,234
-------- --------
Total notes payable.............................. $269,410 $292,434
======== ========
</TABLE>
On July 2, 1996, the Company entered into the Orion credit facility with
Chemical Bank ("Chemical"), as agent for a syndicate of lenders, pursuant to
which the lenders provided to Orion and its subsidiaries a $300 million credit
facility ("the Orion Credit Facility"). The $300 million facility consists of
a secured term loan of $200 million (the "Term Loan") and a revolving credit
facility of $100 million, including a $10 million letter of credit
subfacility, (the "Revolving Credit Facility"). Proceeds from the Term Loan
and $24 million of the Revolving Credit Facility were used to refinance
Orion's, Goldwyn's and MPCA's existing indebtedness.
Borrowings under the Orion Credit Facility which do not exceed the
"borrowing base," as defined in the agreement will bear interest at Orion's
option at a rate of LIBOR plus 2 1/2% or Chemical's alternative base rate plus
1 1/2%, and borrowings in excess of the borrowing base, which have the benefit
of the guarantee referred to below, will bear interest at Orion's option at a
rate of LIBOR plus 1% or Chemical's alternative base rate. The Term Loan has a
final maturity date of June 30, 2001 and will amortize in 20 equal quarterly
installments of $7.5 million commencing on September 30, 1996, with the
remaining principal amount due at the final maturity date. If the outstanding
balance under the Term Loan exceeds the borrowing base, the Company will be
required to pay down such excess amount. The Term Loan and the Revolving
Credit Facility are secured by a first priority lien on all of the stock of
Orion and its subsidiaries and on substantially all of Orion's assets,
including its accounts receivable and film and television libraries. Amounts
outstanding under the revolving Credit Facility in excess of the applicable
borrowing base are also guaranteed jointly and severally by Metromedia
Company, and John W. Kluge, its general partner. To the extent the borrowing
base exceeds the amount outstanding under the Term Loan, such excess will be
used to support the Revolving Credit Facility so as to reduce the exposure of
the guarantors under such facility.
The Orion Credit Facility contains customary covenants including limitations
on the issuance of additional indebtedness and guarantees, on the creation of
new liens, development costs and budgets for films, the aggregate amount of
unrecouped print and advertising costs Orion may incur, on the amount of
Orion's leases, capital and overhead expenses (including specific limitations
on Orion's theatrical exhibition subsidiary's capital expenditures),
prohibitions on the declaration of dividends or distributions by Orion (except
as defined in the agreement), limitations on merger or consolidation of Orion
or the sale by Orion of any substantial portion of its assets or stock and
restrictions on Orion's line of business, other than activities relating to
the production, distribution and exhibition of entertainment product. Orion's
Credit Facility also contains financial covenants, including requiring
maintenance by Orion of certain cash flow and operational ratios.
The Revolving Credit Facility contains certain events of default, including
nonpayment of principal or interest on the facility, the occurrence of a
"change of control" (as defined in the agreement) or an assertion by the
guarantors of such facility that the guarantee of such facility is
unenforceable. The Term Loan portion of
F-51
<PAGE>
ORION PICTURES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND
1996 ARE UNAUDITED)
Orion's Credit Facility also contains a number of customary events of default,
including non-payment of principal and interest and the occurrence of a
"change of management" (as defined in the agreement), violation of covenants,
falsity of representations and warranties in any material respect, certain
cross-default and cross-acceleration provisions, and bankruptcy or insolvency
of Orion or its material subsidiaries.
In connection with the July 2, 1996 refinancing of the Orion Credit
Facility, Orion expensed deferred financing costs associated with old debt and
recorded an extraordinary loss of approximately $4.5 million.
During calendar 1996 and the six months ended June 30, 1997 and 1996, $18.4
million, $12.6 million and $6.8 million, respectively, of interest costs were
incurred of which $1.2 million, $1.6 million and $.2 million, respectively,
were capitalized to film inventories. Cash utilized for the payment of
interest during calendar 1996, and the six months ended June 30, 1997 and
1996, was $16.5 million, $10.0 million and $6.7 million, respectively.
Aggregate annual repayments of long-term debt, excluding capital leases and
debt discounts, over the next five years and thereafter are as follows as of
December 31, 1996 (in thousands):
<TABLE>
<S> <C>
1997.............................................................. $ 38,421
1998.............................................................. 32,489
1999.............................................................. 31,660
2000.............................................................. 31,666
2001.............................................................. 129,423
Thereafter........................................................ 2,679
</TABLE>
7. STOCKHOLDER'S EQUITY
In connection with the July 2 Mergers, MIG contributed $60.5 million (MIG's
net book value, excluding $5.3 million of the purchase price which became
payable to MIG) of assets to the Company including substantially all of the
operations of Goldwyn and MPCA.
8. INCOME TAXES
The provision for income taxes for calendar 1996 and for the six months
ended June 30, 1997 and 1996, all of which is current, consists of the
following (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, JUNE 30, JUNE 30,
1996 1997 1996
------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Federal............................... $ -- $-- $--
State and local....................... 100 100 100
Foreign............................... 900 300 300
------ ---- ----
Current............................... 1,000 400 400
Deferred.............................. -- -- --
------ ---- ----
Total................................. $1,000 $400 $400
====== ==== ====
</TABLE>
F-52
<PAGE>
ORION PICTURES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND
1996 ARE UNAUDITED)
Such provision has been allocated to Loss before extraordinary items and
Extraordinary losses as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
------------
<S> <C>
Loss before extraordinary items............................... $1,000
Extraordinary loss............................................ --
------
$1,000
======
</TABLE>
The federal income tax portion of the provision for income taxes includes
the benefit of state income taxes provided. The Company recognizes investment
tax credits on the flow-through method.
State and local income tax expense for the year ended December 31, 1996
includes an estimate for franchise and other state tax levies required in
jurisdictions which do not permit the utilization of the Company's calendar
1996 operating losses to mitigate such taxes.
Foreign tax expense for the year ended December 31, 1996 reflects estimates
of withholding and remittance taxes. Cash utilized for the payment of income
taxes during 1996, the six months ended June 30, 1997 and 1996, was $0.7
million, $0.3 million and $0.4 million, respectively.
Effective March 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). SFAS
109 requires a change to the "assets and liability method" of accounting for
income taxes from the "deferred method" of accounting for income taxes which
was required under Accounting Principles Board Opinion No. 11 ("APB 11").
Under SFAS 109, deferred tax assets and liabilities are recognized with
respect to the tax consequences attributable to differences between the
financial statement carrying values and the tax bases of existing assets and
liabilities. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to the taxable income in the years in which these
temporary differences are expected to be recovered or settled. Further, the
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date. Under the
deferred method, deferred taxes were not adjusted for subsequent changes in
tax rates.
F-53
<PAGE>
ORION PICTURES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND
1996 ARE UNAUDITED)
The Company's results of operations was not impacted by the change in method
of accounting for income taxes resulting from the adoption of SFAS 109 in the
current year. Deferred income taxes at December 31, 1996 reflects the impact
of "temporary differences" between assets and liabilities for financial
reporting purposes and their carrying values as measured by tax laws. The
temporary differences and carryforwards which give rise to deferred tax assets
and (liabilities) as of December 31, 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
Net operating loss carryforward............................... $ 180,000
Deferred revenues............................................. 29,183
Investment credit carryforward................................ 25,000
Allowance for doubtful accounts............................... 4,640
Reserves...................................................... 1,020
Depreciation.................................................. (5,505)
Other deferred tax assets..................................... 7,782
Film costs.................................................... (29,412)
Shares payable................................................ 21,228
Other deferred tax liabilities................................ (132)
Notes and debentures.......................................... (1,080)
---------
Subtotal before valuation allowance........................... 232,724
Valuation allowance........................................... (232,724)
---------
Deferred taxes................................................ $ --
=========
</TABLE>
The net change in the total valuation allowance for the year ended December
31, 1996 was a decrease in the allowance of approximately $45 million.
The Company's provision for income taxes for the year ended December 31,
1996 differs from the provision that would have resulted from applying the
federal statutory rates to loss before provision for income taxes. The reasons
for these differences are explained in the following table (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
------------
<S> <C>
Benefit based upon federal statutory rate of 35%.............. $(7,450)
State taxes, net of federal benefit........................... 65
Foreign taxes in excess of federal credit..................... 900
Non-deductible direct expenses of chapter 11 filing........... 76
Current year operating loss not benefited..................... 6,302
Amortization of goodwill...................................... 1,017
Extraordinary loss on early extinguishment of debt............ (1,577)
Reduction of extraordinary loss not benefited................. 1,577
Other, net.................................................... 90
-------
Provision for income taxes.................................... $ 1,000
=======
</TABLE>
At December 31, 1996, the Company had available net operating loss
carryforwards and unused investment tax credits of approximately $450 million
and $25 million, respectively, which can reduce future federal income taxes.
The Company is included in the consolidated federal income tax return filed by
its parent MIG and
F-54
<PAGE>
ORION PICTURES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND
1996 ARE UNAUDITED)
utilization of the available net operating loss carryforwards and unused
investment tax credits is limited. If not utilized, these carryforwards and
credits will begin to expire in 2005 and 1997, respectively. Of the $450
million loss carryforward, the amount that can be utilized to offset MIG
consolidated taxable income is limited to $11.9 million per year due to the
change in ownership associated with the merger of the former Orion Pictures
Corporation with The Actava Group Inc. (renamed Metromedia International Group
Inc. ("MIG")), Metromedia International Telecommunications, Inc. and MCEG
Sterling Incorporated ("MCEG") on November 1, 1995. Unused portions of each
year's limitation may be carried forward on a limited basis to increase the
limitation in future years. The utilization of additional federal net
operating loss carryforwards of approximately $6 million arising after the
change in ownership is not limited.
The provision for taxes for the six months ended June 30, 1997 and 1996 are
based, in part, upon estimates of the Company's effective tax rate. The
effective tax rate is based upon projected results for a full fiscal year.
Only a portion of such provision, are offset by losses from operations,
because of certain state and foreign taxes which cannot be mitigated by such
losses. In addition, foreign taxes are provided for certain transactions in
the period in which they occur.
9. REVENUE DATA
The Company derives significant revenues from the foreign distribution of
its theatrical motion pictures and television programming. The following table
sets forth foreign revenues from operations by major geographic area for the
last fiscal year (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
------------
<S> <C>
Canada........................................................ $ 1,996
Europe........................................................ 32,699
Mexico and South America...................................... 3,151
Asia and Australia............................................ 8,669
-------
$46,515
=======
</TABLE>
10. COMMITMENTS AND CONTINGENCIES
The Company is obligated under various operating and capital leases. Total
rent expense amounted to $4.4 million in calendar 1996.
Minimum rental commitments under noncancellable operating leases is set
forth in the following table (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996 AMOUNT
----------------- -------
<S> <C>
1997............................................................ $ 6,806
1998............................................................ 5,742
1999............................................................ 5,064
2000............................................................ 4,636
2001............................................................ 4,527
Thereafter...................................................... 24,187
-------
Total minimum rental commitments................................ $50,962
=======
</TABLE>
F-55
<PAGE>
ORION PICTURES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND
1996 ARE UNAUDITED)
Future minimum lease payments under capital leases together with the present
value of minimum lease payments consisted of the following at December 31,
1996 (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996 AMOUNT
----------------- -------
<S> <C>
1997............................................................ $ 870
1998............................................................ 869
1999............................................................ 1,384
2000............................................................ 835
2001............................................................ 540
Thereafter...................................................... 8,751
-------
Total minimum rental commitments................................ 13,249
=======
Less amount representing interest............................... (7,476)
-------
Present value of future minimum lease payments.................. $ 5,773
=======
</TABLE>
The Company and certain of its subsidiaries have employment contracts with
various officers with remaining terms of up to four and one half years. The
Company's remaining aggregate commitment at December 31, 1996 under such
contracts is approximately $27.4 million.
The Company and its subsidiaries are contingently liable with respect to
various matters, including litigation in the ordinary course of business and
otherwise wherein substantial amounts are claimed. In the opinion of counsel
and management, the ultimate resolution of these matters will not have a
material adverse effect on the Company's financial condition, results of
operations or liquidity.
11. RETIREMENT AND SAVINGS PLAN
The Company has a 401(k) defined contribution retirement and savings plan
covering all eligible employees who prior to March 1 or September 1, have
completed 1,000 hours of service, as defined. Participants may make pretax
contributions to the plan of up to 15% of their compensation, as defined,
subject to certain limitations as prescribed by the Internal Revenue Code. The
Company matches fifty cents for each dollar contributed up to $1,000 per
participant per plan year. The Company may make discretionary contributions on
an annual basis to the plan. The exact amount of discretionary contributions
is decided each year by the Board of Directors. There have been no
discretionary contributions since the inception of the plan. Total employer
contribution expense for the year ended December 31, 1996 was approximately
$123,000.
12. SUBSEQUENT EVENT
On July 10, 1997, P&F Acquisition Corp. acquired certain entertainment
assets of the Company (the "Acquisition") from Metromedia International Group,
Inc., the Company's parent, for a total purchase price of $573.0 million,
consisting of $560.0 million in cash and $13.0 million in assumed liabilities.
In connection with the Acquisition, the Company obtained a new $200.0 million
term loan and a $50.0 million revolving credit facility. The term loan and the
revolving credit facility will bear interest at LIBOR plus 2.5% and mature on
July 10, 2002. The Acquisition will be accounted for as a purchase, and
therefore, the assets and liabilities of the Company will be adjusted to their
estimated fair market value as of the date of the Acquisition.
F-56
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE COMMON
STOCK IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION
THAT THERE HAS BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN
THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary................................................................... 3
Risk Factors.............................................................. 7
Background of the Company................................................. 15
Use of Proceeds........................................................... 16
Capitalization............................................................ 17
Dividend Policy........................................................... 18
Selected Consolidated Financial Data...................................... 19
Unaudited Pro Forma Financial Information................................. 21
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 27
The Industry.............................................................. 38
Business.................................................................. 40
Management................................................................ 58
Description of Capital Stock.............................................. 71
Ownership of Voting Securities............................................ 72
Financing Arrangements.................................................... 79
Certain Transactions...................................................... 81
Shares Eligible for Future Sale........................................... 84
Underwriting.............................................................. 85
Legal Matters............................................................. 88
Experts................................................................... 88
Available Information..................................................... 88
Index to Financial Statements............................................. F-1
</TABLE>
---------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
12,500,000 SHARES
[LOGO OF METRO-GOLDWYN-MAYER INC.]
METRO-GOLDWYN-MAYER INC.
COMMON STOCK
---------------
PROSPECTUS
---------------
MERRILL LYNCH & CO.
J.P. MORGAN & CO.
BEAR, STEARNS & CO. INC.
FURMAN SELZ
, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED OCTOBER 21, 1997
PROSPECTUS
12,500,000 SHARES
[LOGO OF METRO-GOLDWYN-MAYER INC.]
COMMON STOCK
----------
All of the shares of the common stock, $.01 par value per share (the "Common
Stock"), offered hereby are being sold by Metro-Goldwyn-Mayer Inc. ("MGM" or
the "Company"). Of the 12,500,000 shares offered by the Underwriters, 2,500,000
shares will be offered initially outside the United States and Canada (the
"International Offering") by the International Underwriters and 10,000,000
shares will be offered initially in the United States and Canada (the "U.S.
Offering" and, collectively, with the International Offering, the "Offering")
by the U.S. Underwriters (collectively, with the International Underwriters,
the "Underwriters"). The Company has granted the International Underwriters and
the U.S. Underwriters options to purchase up to an additional 300,000 and
1,200,000 shares, respectively, to cover over-allotments, if any. The public
offering price and the underwriting discount per share will be identical for
the International Offering and the U.S. Offering. See "Underwriting."
Prior to the Offering, there has been no public market for the Common Stock.
It is currently estimated that the initial offering price per share will be
between $20 and $23. See "Underwriting" for a discussion of the factors
considered in determining the initial public offering price. All information in
this Prospectus gives effect to a recapitalization of the Company occurring
concurrent with the closing of the Offering and consisting of (i) the
conversion of each share of the Company's Series A Cumulative Convertible
Preferred Stock (the "Series A Preferred Stock") into one share of the Common
Stock (the "Series A Preferred Stock Conversion") and (ii) a subsequent 41.667
for 1 stock split of the Common Stock (the "Stock Split").
Application will be made to list the Common Stock on the New York Stock
Exchange (the "NYSE") under the symbol "MGM."
Following the Offering, Tracinda Corporation, Seven Network Limited, the
directors and officers of the Company and affiliates thereof will beneficially
own approximately 81.2% of the Common Stock and, therefore, will be able to
control all actions requiring a vote of the stockholders, including the
election of directors. The Company does not expect to be profitable for at
least several years.
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK.
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO PUBLIC DISCOUNT(1) COMPANY(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share.............................. $ $ $
- --------------------------------------------------------------------------------
Total(3)............................... $ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). See "Underwriting."
(2) Before deducting expenses estimated at $ payable by the Company.
(3) The Company has granted the International Underwriters and the U.S.
Underwriters options, exercisable within 30 days after the date of this
Prospectus, to purchase up to an additional 300,000 and 1,200,000 shares of
Common Stock, respectively, solely to cover over-allotments, if any. If
such options are exercised in full, the total Price to Public, Underwriting
Discount and Proceeds to Company will be $ , $ and
$ , respectively.
----------
Merrill Lynch International is acting as book running lead manager for the
Offering. Merrill Lynch International and J.P. Morgan Securities Ltd. are
acting as joint lead managers. The shares of the Common Stock are offered by
the several Underwriters, subject to prior sale, when, as and if delivered to
and accepted by the Underwriters, subject to approval of certain legal matters
by counsel for the Underwriters and certain other conditions. The Underwriters
reserve the right to withdraw, cancel or modify such offer and to reject orders
in whole or in part. It is expected that the delivery of the shares will be
made in New York, New York on or about , 1997.
----------
MERRILL LYNCH INTERNATIONAL J.P. MORGAN SECURITIES LTD.
Joint Lead Managers
----------
BEAR, STEARNS INTERNATIONAL LIMITED FURMAN SELZ
----------
The date of this Prospectus is , 1997.
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in a purchase agreement (the
"International Purchase Agreement"), the Company has agreed to sell to each of
the Underwriters named below (the "International Underwriters"), and each of
the International Underwriters, for whom Merrill Lynch International, J.P.
Morgan Securities Ltd., Bear, Stearns International Limited and Furman Selz
LLC (the "International Representatives"), severally has agreed to purchase,
the number of shares of the Common Stock set forth opposite its name below.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
Merrill Lynch International........................................
J.P. Morgan Securities Ltd. .......................................
Bear, Stearns International Limited................................
Furman Selz LLC....................................................
---------
Total......................................................... 2,500,000
=========
</TABLE>
The Company has also entered into a purchase agreement (the "U.S. Purchase
Agreement" and, together with the International Purchase Agreement, the
"Purchase Agreements") with certain Underwriters in the United States and
Canada (the "U.S. Underwriters"), for whom Merrill Lynch, J.P. Morgan
Securities Inc., Bear, Stearns & Co. Inc. and Furman Selz LLC are acting as
representatives (the "U.S. Representatives" and, together with the
International Representatives, the "Representatives"). Subject to the terms
and conditions set forth in the U.S. Purchase Agreement, the Company has
agreed to sell to the U.S. Underwriters, and the U.S. Underwriters have
severally agreed to purchase from the Company, an aggregate of 10,000,000
shares of the Common Stock.
In each Purchase Agreement, the Underwriters named therein have agreed,
subject to the terms and conditions set forth in such Purchase Agreement, to
purchase all of the shares of the Common Stock being sold pursuant to such
Purchase Agreement if any of the shares of the Common Stock being sold
pursuant to such Purchase Agreement are purchased. Under certain circumstances
under the Purchase Agreements, the purchase commitments of non-defaulting
Underwriters may be increased. Each Purchase Agreement provides that the
Company is not obligated to sell, and the Underwriters named therein are not
obligated to purchase, the shares of the Common Stock under the terms of such
Purchase Agreement unless all of the shares of the Common Stock to be sold
pursuant to such Purchase Agreement are contemporaneously sold. The sale of
shares of the Common Stock to the International Underwriters and the sale of
shares of the Common Stock to the U.S. Underwriters are conditioned on each
other.
The International Representatives have advised the Company that the
International Underwriters propose to offer the shares of the Common Stock to
the public initially at the public offering price set forth on the cover page
of this Prospectus, and to certain dealers at such price less a concession not
in excess of $ per share of the Common Stock, and that the International
Underwriters may allow, and such dealers may reallow, a discount not in excess
of $ per share of the Common Stock on sales to certain other dealers. After
the initial public offering, the public offering price, concession and
discount may be changed.
The Company has granted options to the International Underwriters,
exercisable for 30 days after the date of this Prospectus, to purchase up to
an aggregate of 300,000 additional shares of the Common Stock at the initial
85
<PAGE>
public offering price set forth on the cover page of this Prospectus, less the
underwriting discount. The International Underwriters may exercise these
options only to cover over-allotments, if any, made on the sale of the Common
Stock offered hereby. To the extent that the International Underwriters
exercise these options, each International Underwriter will be obligated,
subject to certain conditions, to purchase a number of additional shares of
the Common Stock proportionate to such International Underwriter's initial
amount reflected in the foregoing table. The Company has also granted options
to the U.S. Underwriters, exercisable for 30 days after the date of this
Prospectus, to purchase up to an aggregate of 1,200,000 additional shares of
the Common Stock to cover over-allotments, if any, on terms similar to those
granted to the International Underwriters.
The initial public offering price per share of the Common Stock and the
underwriting discount per share of Common Stock are identical under the U.S.
Purchase Agreement and the International Purchase Agreement.
The Company has been informed that the Underwriters have entered into an
agreement (the "Intersyndicate Agreement") providing for the coordination of
their activities. Pursuant to the Intersyndicate Agreement, the International
Underwriters and the U.S. Underwriters are permitted to sell shares of the
Common Stock to each other.
Each of the Company, Tracinda, Seven and each member of management has
agreed not to sell, offer to sell, grant any options for the sale of, or
otherwise dispose of, any shares of the Common Stock or securities convertible
into or exchangeable or exercisable for the Common Stock (other than, in the
case of the Company, sales pursuant to the exercise of outstanding options)
for a period of 180 days after the date of this Prospectus without the prior
written consent of Merrill Lynch, subject to certain limited exceptions
included in the Purchase Agreements.
The Company has been informed that, under the terms of the Intersyndicate
Agreement, the International Underwriters and any dealer to whom they sell
shares of the Common Stock will not offer to sell or resell shares of the
Common Stock to persons who are U.S. or Canadian persons, or to persons they
believe intend to resell to persons who are U.S. or Canadian persons, and the
U.S. Underwriters and any bank, broker, or dealer to whom they sell shares of
the Common Stock will not offer to sell or resell shares of the Common Stock
to non-U.S. persons or to non-Canadian persons or to persons they believe
intend to resell to non-U.S. persons or to non-Canadian persons, except in the
case of transactions pursuant to the Intersyndicate Agreement which, among
other things, permits the Underwriters to purchase from each other and to
offer to resell such number of shares of the Common Stock as the selling
Underwriter or Underwriters and the purchasing Underwriter or Underwriters may
agree.
The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute
to payments the Underwriters may be required to make in respect thereof.
Application will be made to list the Common Stock for quotation on the NYSE
under the symbol "MGM." In order to meet requirements for listing on the NYSE,
the Underwriters have undertaken to sell lots of 100 or more shares of the
Common Stock to a minimum of 2,000 beneficial holders.
Until the distribution of the Common Stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the Underwriters
and certain selling group members to bid for and purchase the Common Stock. As
an exception to these rules, the Underwriters are permitted to engage in
certain transactions that stabilize the price of the Common Stock. Such
transactions consist of bids or purchases for the purpose of pegging, fixing
or maintaining the price of the Common Stock.
If the Underwriters create a short position in the Common Stock in
connection with the Offering, i.e., if they sell more shares of the Common
Stock than are set forth on the cover page of this Prospectus, the
Underwriters may reduce that short position by purchasing shares of the Common
Stock in the open market.
The Representatives may also impose a penalty bid on certain Underwriters
and selling group members. This means that if the Representatives purchase
shares of the Common Stock in the open market to reduce the Underwriters'
short position or to stabilize the price of the Common Stock, they may reclaim
the amount of the selling concession from the Underwriters and selling group
members who sold those shares as part of the Offering.
86
<PAGE>
In general, purchases of shares of the Common Stock for the purpose of
stabilization or to reduce a short position could cause the price of the
Common Stock to be higher than it might be in the absence of such purchases.
The imposition of a penalty bid might also have an effect on the price of the
Common Stock to the extent that it were to discourage resales of the Common
Stock.
Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the
transactions described above may have on the price of the Common Stock. In
addition, neither the Company nor any of the Underwriters makes any
representation that the Representatives will engage in such transactions or
that such transactions, once commenced, will not be discontinued without
notice.
The Underwriters have reserved for sale, at the initial public offering
price, shares of the Common Stock for certain employees, directors, vendors
and affiliates of the Company who have expressed an interest in purchasing
such shares of Common Stock. Such employees, directors and other persons are
expected to purchase, in the aggregate, not more than 5% of the Common Stock
offered in the Offering. The number of shares available for sale to the
general public in the Offering will be reduced to the extent such persons
purchase such reserved shares. Any reserved shares not so purchased will be
offered to the general public on the same basis as the other shares offered
hereby.
Net proceeds of the Offering will be used to reduce indebtedness under the
Amended Credit Facility. An affiliate of J.P. Morgan Securities Inc. serves as
an agent for a syndicate of lenders and as a lender under the Company's
Amended Credit Facility. Therefore, J.P. Morgan Securities Inc. may be deemed
to have an affiliate receiving more than 10 percent of the net proceeds of the
Offering. In such circumstances, Rule 2710 of the National Association of
Securities Dealers, Inc. ("NASD") requires that initial public offering price
be no higher than that recommended by a "qualified independent underwriter"
meeting certain standards. In addition, Culmen Group, L.P. (an NASD member and
a member of the selling group) may be deemed to be an affiliate of the Company
under NASD Rule 2720, which provides that, among other things, the initial
public offering price must be recommended by a qualified independent
underwriter when an NASD member participates in the underwriting of an
affiliate's equity securities. Merrill Lynch has agreed to serve in such role
and has agreed to recommend a price in compliance with the requirement of NASD
Rule 2720. In connection with the Offering, Merrill Lynch, in its role as
qualified independent underwriter, has performed due diligence investigations
and reviewed and participated in the preparation of the Prospectus and the
Registration Statement of which this Prospectus forms a part. In addition, the
Underwriters may not confirm sales to any discretionary account without the
prior written approval of the customer.
Prior to the Offering, there has been no public market for the shares of
Common Stock. The initial public offering price of the Common Stock will be
determined through negotiations between the Company and the Representatives.
Among the factors that will be considered in such negotiations, in addition to
prevailing market conditions, will be the current market valuations of
publicly traded companies that the Company and Representatives believe to be
reasonably comparable to the Company, certain financial information of the
Company, the history of, and the prospects for, the Company and the industry
in which the Company will compete, an assessment of the Company's management,
the past and present operations of the Company, the prospects for, and timing
of, future revenues of the Company, the present state of the Company's
development, and the above factors in relation to market values and various
valuation measures of other companies engaged in activities similar to the
Company. There can be no assurance that an active trading market will develop
for the Common Stock or that the Common Stock will trade in the public market
subsequent to the Offering at or above the initial public offering price.
The International Underwriters and the U.S. Underwriters have informed the
Company that they do not intend to confirm sales of the shares of Common Stock
offered hereby to any accounts over which they exercise discretionary
authority.
Furman Selz LLC and certain affiliates of J.P. Morgan Securities Inc. and
Merrill Lynch have been engaged from time to time (including, in the case of
J.P. Morgan Securities Inc., at the present time), and may in the future be
engaged, to perform banking, advisory-related and/or other services to the
Company and its affiliates in the ordinary course of business. In connection
with rendering such services, such Underwriters receive customary
compensation, including reimbursement of related expenses.
87
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE COMMON
STOCK IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION
THAT THERE HAS BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN
THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary................................................................... 3
Risk Factors.............................................................. 7
Background of the Company................................................. 15
Use of Proceeds........................................................... 16
Capitalization............................................................ 17
Dividend Policy........................................................... 18
Selected Consolidated Financial Data...................................... 19
Unaudited Pro Forma Financial Information................................. 21
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 27
The Industry.............................................................. 38
Business.................................................................. 40
Management................................................................ 58
Description of Capital Stock.............................................. 71
Ownership of Voting Securities............................................ 72
Financing Arrangements.................................................... 79
Certain Transactions...................................................... 81
Shares Eligible for Future Sale........................................... 84
Underwriting.............................................................. 85
Legal Matters............................................................. 88
Experts................................................................... 88
Available Information..................................................... 88
Index to Financial Statements............................................. F-1
</TABLE>
---------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
12,500,000 SHARES
[LOGO OF METRO-GOLDWYN-MAYER INC.]
METRO-GOLDWYN-MAYER INC.
COMMON STOCK
---------------
PROSPECTUS
---------------
MERRILL LYNCH INTERNATIONAL
J.P. MORGAN SECURITIES LTD.
BEAR, STEARNS INTERNATIONAL LIMITED
FURMAN SELZ
, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
Front Page:
- ----------
Text reading "MGM PROUDLY PRESENTS THE FUTURE OF ENTERTAINMENT" below which is
the Metro-Goldwyn-Mayer "Lion" logo: a roaring lion encircled by a banner of
film, on which is written "ARS GRATIA ARTIS".
Left Front Gatefold:
- -------------------
Text reading "MGM NOW HAS THE LARGEST POST-1948 FILM LIBRARY IN THE WORLD WHICH
HAS RECEIVED 186 ACADEMY AWARDS (r)" to the left of which is a wall of movie
posters with the following titles visible: The Apartment; The French
Lieutenant's Woman; Bill & Ted's Excellent Adventure; Blue Sky; Dirty Rotten
Scoundrels (remake); The Pink Panther; A View to a Kill; Mermaids; Robocop 3;
The Great Escape; Married to the Mob; Robocop; A Shot in the Dark; Rocky; Some
Like it Hot; The Birdcage; Get Shorty; Raging Bull; The Pink Panther Strikes
Again; A Fish Called Wanda; Leaving Las Vegas; Rainman; License to Kill; Rob
Roy; Rocky III; Fiddler on the Roof; Coming Home; The Woman in Red; The Good,
The Bad, and The Ugly; Species; Annie Hall; Dances with Wolves; The Silence of
the Lambs; West Side Story; Thelma and Louise; In the Heat of the Night; Baby
Boom; Mississippi Burning; The Living Daylights; Robocop 2; Robocop; The Deer
Hunter; Rocky IV; Bull Durham; All Dogs go to Heaven; Throw Momma From the
Train; Moonstruck; Marty; and Tom Jones.
Right Front Gatefold:
- ---------------------
Text reading "THE LONGEST RUNNING FILM SERIES IN MOTION PICTURE HISTORY"
underneath which is a large picture of the movie poster of "Tomorrow Never
Dies," smaller pictures of other movie posters from the James Bond series of
movies, and a picture of Roger Moore, Sean Connery and Pierce Brosnan, with
their names in text beside their images.
Back Gatefold:
- --------------
Text reading "GET READY FOR ACTION... ADVENTURE... COMEDY... ROMANCE... DRAMA...
SUSPENSE... "below which are large pictures of movie posters for the following
movies: Hoodlum; The Man in the Iron Mask; Red Corner; Species II; and Tomorrow
Never Dies.
Back Page:
- ----------
A wall of pictures containing images and titles from the following television
series and specials: Poltergeist: The Legacy; The Outer Limits; Fame L.A.;
Stargate SG-1; Creature; National Enquirer Presents 25 Years of Scandals; The
Magnificent 7; and 12 Angry Men. The "Lion" logo is far in the distance.
.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses in connection with the Offering are as follows:
<TABLE>
<CAPTION>
EXPENSES AMOUNT
-------- ----------
<S> <C>
SEC Registration Fee............................................. $ 97,578
NASD Fee......................................................... 30,500
NYSE Fee......................................................... 326,100
Printing Expenses................................................ 750,000
Legal Fees and Expenses.......................................... 2,000,000
Transfer Agent and Registrar Fees................................ 16,000
Accounting Fees and Expenses..................................... 500,000
Blue Sky Fees and Expenses....................................... 4,000
Miscellaneous Expenses........................................... 244,572
----------
Total.......................................................... 3,968,750
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Section 145 of the Delaware General Corporation Law ("DGCL") makes provision
for the indemnification of officers and directors in terms sufficiently broad
to indemnify officers and directors of the Company under certain circumstances
from liabilities (including reimbursement for expenses incurred) arising under
the Securities Act. The Certificate of Incorporation and Bylaws of the Company
provide, in effect, that, to the fullest extent and under the circumstances
permitted by the DGCL, the Company will indemnify any person (or the estate of
any person) who is or was a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, by reason of the
fact that he or she is a director or officer of the Company or is or was
serving at the request of the Company as a director or officer of another
corporation, partnership, joint venture, trust or other enterprise. In
addition, the Company has entered into indemnification agreements with its
directors and certain of its officers providing, subject to the terms therein,
that the Company will indemnify such individuals for damages suffered by
reason of the fact that any such individual is a director or officer of the
Company or is or was serving at the request of the Company as a director or
officer of another corporation or enterprise. The Certificate of Incorporation
of the Company, together with such indemnification agreements, relieve its
directors from monetary damages for breach of such director's fiduciary duty
as directors to the fullest extent permitted by the DGCL. Consequently, a
director or officer will not be personally liable to the Company or its
stockholders for monetary damages for any breach of their fiduciary duty as
directors except (i) for a breach of the duty of loyalty, (ii) for failure to
act in good faith, (iii) for intentional misconduct or knowing violation of
law, (iv) for willful or negligent violation of certain provisions in the DGCL
imposing certain requirements with respect to stock repurchases, redemption
and dividends, or (v) for any transactions from which the director derived an
improper personal benefit. In connection with proceedings whether or not by or
in the right of the Company, under the Bylaws, the Company will indemnify the
officers and directors against expenses (including attorneys' fees), actually
and reasonably incurred in connection with any action, suit or proceeding if
such person acted in good faith and in a manner such person reasonably
believed to be in or not opposed to the best interests of the Company, and
with respect to any criminal action or proceeding other than by or in the
right of the Company, had no reasonable cause to believe such person's conduct
was unlawful. With respect to indemnification other than by or in the right of
the Company, the termination of any action, suit or proceeding by judgment,
order, settlement or conviction, or upon a plea of nolo contendere or its
equivalent, will not, of itself, create a presumption that the person did not
act in good faith and in a manner which such person reasonably believed to be
in or not opposed to the best interests of the Company, and, with respect to
any criminal action or proceeding, that such person had reasonable cause to
believe that such person's conduct was unlawful. No indemnification will be
made in connection with actions by or in the right of the Company in respect
of any claim, issue or matter as to which such person has been adjudged to be
liable for negligence or
II-1
<PAGE>
misconduct in the performance of such person's duty to the Company unless and
only to the extent that the Court of Chancery or the court in which such
action or suit was brought determines upon application that, despite the
adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court deems proper. Such expenses
(including attorneys, fees), judgments, fines and amounts paid in settlement
may, as permitted by Delaware law, be advanced by the Company prior to the
final disposition of such action upon receipt of an undertaking by or on the
behalf of such director or officer to repay such amounts if it shall
ultimately be determined that he or she is not entitled to be indemnified as
authorized in accordance with Delaware law. To the extent that a director or
officer of the Company has been successful in the defense of any action, suit
or proceeding referred to above, the Company will be obligated to indemnify
him or her against expenses (including attorneys' fees) actually and
reasonably incurred in connection therewith. In addition, prior to the MGM
Acquisition certain of the directors and officers had employment agreements
with MGM Studios, and such agreements contained indemnification provisions.
Such indemnification provisions are consistent with the agreements described
above and the obligations of MGM Studios thereunder are guaranteed by CL. The
Company maintains insurance in the aggregate amount of $25 million on behalf
of its officers and directors against any liability which may be asserted
against any such officer or director, subject to certain customary exclusions.
Upon consummation of the Offering, the Company will be required to renegotiate
the terms of such insurance.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On October 10, 1996, as part of the First Private Placement, the Company
sold 8,333,400 shares of Common Stock to each of Tracinda and Seven, and
450,000 and 50,000 shares of Series A Preferred Stock (which will be converted
into 18,750,150 and 2,083,350 shares of the Common Stock, respectively,
immediately prior to the completion of the Offering pursuant to the Series A
Preferred Stock Conversion and the Stock Split) to Tracinda and Seven,
respectively, in connection with the MGM Acquisition for aggregate
consideration of $900 million. The Company believes that the First Private
Placement was exempt from registration under Section 4(2) of the Act.
On July 10, 1997, as part of the Second Private Placement, the Company sold
13,375,107 and 1,625,013 shares of Common Stock to Tracinda and Seven,
respectively, in connection with the Orion Acquisition for aggregate
consideration of $360 million. The Company believes that the Second Private
Placement was exempt from registration under Section 4(2) of the Act.
In connection with MGM Acquisition and the renegotiation of employment
agreements with certain employees of the Company, including certain members of
management, the Company issued an aggregate of 66,667 shares of the Common
Stock and 2,000 shares of the Series A Preferred Stock (which will be
converted into 83,334 shares of the Common Stock prior to the completion of
the Offering pursuant to the Series A Preferred Stock Conversion and the Stock
Split) to such employees. The Company received no cash consideration from such
issuance. Company believes that the issuance of such shares to such employees
was exempt from registration under Section 4(2) of the Securities Act.
In addition, pursuant to Mr. Mancuso's employment agreement, Mr. Mancuso
receives a monthly payment of $250,000, out of the after tax proceeds of which
he is required to purchase shares of the Common Stock at a price of $24.00 per
share until December 31, 1997 and, thereafter, at the fair market value of
such shares. As of September 30, 1997, Mr. Mancuso had purchased 61,500 shares
of the Common Stock for aggregate consideration of $1,476,000. The Company
believes that the issuance of such shares to Mr. Mancuso was exempt from
registration under Section 4(2) of the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
See Exhibit Index attached hereto and incorporated herein by reference.
II-2
<PAGE>
(b) Financial Statement Schedules. The following financial statement
schedule is filed with Part II of this Registration Statement:
Schedule II--Valuation and Qualifying Accounts and Reserves.
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under
the applicable instructions or are inapplicable and therefore have been
omitted.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising out of the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that, in the opinion of the Commission, such indemnification
is against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense in any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes to provide to the Underwriters
at the closing specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 1 to the Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Santa Monica, California, on October 21, 1997.
METRO-GOLDWYN-MAYER INC.
By: /s/ David G. Johnson
_____________________________________
David G. Johnson
Senior Executive Vice President
and General Counsel
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 1 to the Registration Statement has been signed by the following
persons in the capacities indicated on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
*Frank G. Mancuso Chairman of the Board of October 21, 1997
____________________________________ Directors and Chief
Frank G. Mancuso Executive Officer
(Principal Executive
Officer)
*Michael G. Corrigan Chief Financial Officer October 21, 1997
____________________________________ (Principal Financial and
Michael G. Corrigan Accounting Officer)
*James D. Aljian Director October 21, 1997
____________________________________
James D. Aljian
*Michael R. Gleason Director October 21, 1997
____________________________________
Michael R. Gleason
*Kirk Kerkorian Director October 21, 1997
____________________________________
Kirk Kerkorian
*Kerry M. Stokes Director October 21, 1997
____________________________________
Kerry M. Stokes
*Jerome B. York Director October 21, 1997
____________________________________
Jerome B. York
</TABLE>
*By: /s/ David G. Johnson
-------------------------------
David G. Johnson
As attorney-in-fact pursuant
to power of attorney
previously filed with the
Commission
II-4
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Metro-Goldwyn-Mayer Inc.:
After the recapitalization transactions discussed in Note 15 to the Company's
consolidated financial statements are effected, we expect to be in a position
to render the following report.
Arthur Andersen LLP
Los Angeles, California
February 25, 1997
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Metro-Goldwyn-Mayer Inc.:
We have audited in accordance with generally accepted auditing standards, the
financial statements of Metro-Goldwyn-Mayer Inc. included in this registration
statement and have issued our report thereon dated February 25, 1997 (except
with regard to the matters discussed in Note 15, as to which the date is
, 1997). Our audit was made for the purpose of forming an opinion on the
basic financial statements taken as a whole. The accompanying schedule is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and are not part
of the basic financial statements. This schedule has been subjected to the
auditing procedures applied in the audit of the basic financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
Arthur Andersen LLP
Los Angeles, California
February 25, 1997 (except with Regard to the matters discussed In Note 15, as
to which date Is , 1997)
S-1
<PAGE>
METRO-GOLDWYN-MAYER INC
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
-------------------
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END
OF PERIOD EXPENSES ACQUIRED DEDUCTIONS OF PERIOD
---------- ---------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
For the Period from
October 11, 1996 to
December 31, 1996:
Reserve for allowances
and doubtful accounts.. $12,718 $ (23) $ -- $ (967) $11,728
======= ======= ====== ======= =======
Reserve for home video
inventory obsolescence,
shrinkage, and
reduplication.......... $ -- $ -- $ -- $ -- $ --
======= ======= ====== ======= =======
For the Period from
January 1, 1996 to
October 10, 1996
(Predecessor):
Reserve for allowances
and doubtful accounts.. $18,479 $ 430 $ -- $(6,191) $12,718
======= ======= ====== ======= =======
Reserve for home video
inventory obsolescence,
shrinkage, and
reduplication.......... $ 1,769 $ -- $ -- $(1,769) $ --
======= ======= ====== ======= =======
For the Year Ended
December 31, 1995
(Predecessor):
Reserve for allowances
and doubtful accounts.. $26,059 $(2,565) $ -- $(5,015) $18,479
======= ======= ====== ======= =======
Reserve for home video
inventory obsolescence,
shrinkage, and
reduplication.......... $ 5,933 $ -- $ -- $(4,164) $ 1,769
======= ======= ====== ======= =======
For the Year Ended
December 31, 1994
(Predecessor):
Reserve for allowances
and doubtful accounts.. $26,276 $ 1,881 $ -- $(2,098) $26,059
======= ======= ====== ======= =======
Reserve for home video
inventory obsolescence,
shrinkage, and
reduplication.......... $ 6,013 $ -- $ -- $ (80) $ 5,933
======= ======= ====== ======= =======
</TABLE>
S-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
1.1 Form of U.S. Purchase Agreement*...............................
1.2 Form of International Purchase Agreement*......................
2.1 Stock Purchase Agreement, dated as of July 16, 1996, by and
among the Company (f/k/a P&F Acquisition Corp.), CDR, MGM
Holdings, MGM Group Holdings Corporation and MGM Studios
(f/k/a Metro-Goldwyn-Mayer, Inc.)+**..........................
2.2 Stock Purchase Agreement, dated as of May 2, 1997, by and among
the Company, Orion and Metromedia International Group, Inc.
("MIG")+**....................................................
2.3 Agreement and Plan of Merger, dated as of January 31, 1996, by
and among MIG, SGC Merger Corp. and the Samuel Goldwyn Company
(the "Goldwyn Merger Agreement")+**...........................
2.4 Amendment No. 1 to Goldwyn Merger Agreement dated as of May 29,
1996**........................................................
2.5 Amendment and Restated Plan of Merger, dated as of May 17,
1996, between MIG, MPCA Merger Corp., Bradley Krevoy, Steven
Stabler and MPCA+**...........................................
3.1 Form of Amended and Restated Certificate of Incorporation of
the Company...................................................
3.2 Form of Amended and Restated Bylaws of the Company.............
5.1 Opinion of Gibson, Dunn & Crutcher LLP*........................
10.1 Credit Agreement, dated as of October 10, 1996, among the
Company, MGM Studios, certain lenders and Morgan, as agent+**.
10.2 Credit Agreement, dated as of July 10, 1997, among Orion,
certain lenders and Morgan, as agent+**.......................
10.3 Amended and Restated Credit Agreement, dated as of October 15,
1997, among the Company, MGM Studios, Orion, certain lenders,
Morgan, as agent and Bank of America, as syndication agent+...
10.4 Form of Modification and Cancellation Agreement, dated as of
, 1997*...................................................
10.5 Amended and Restated 1996 Stock Incentive Plan dated as of ,
1997 and form of related Stock Option Agreement*..............
10.6 Senior Management Bonus Plan dated as of , 1997 and form of
related Bonus Interest Agreement* ............................
10.7 Form of Amended and Restated Employment Agreement of Frank G.
Mancuso dated as of
August 4, 1997................................................
10.8 Employment Agreement of A. Robert Pisano dated as of October
10, 1996......................................................
10.9 Employment Agreement of Michael G. Corrigan dated as of July 1,
1997..........................................................
10.10 Employment Agreement of David G. Johnson dated as of October
10, 1996......................................................
10.11 Employment Agreement of William A. Jones dated as of October
10, 1996......................................................
10.12 Indemnification Agreement dated as of October 10, 1996--Frank
G. Mancuso**..................................................
10.13 Indemnification Agreement dated as of October 10, 1996--A.
Robert Pisano**...............................................
10.14 Form of Indemnification Agreement dated as of , 1997--
Michael G. Corrigan...........................................
10.15 Indemnification Agreement dated as of October 10, 1996--David
G. Johnson**..................................................
10.16 Indemnification Agreement dated as of October 10, 1996--William
A. Jones**....................................................
10.17 Indemnification Agreement dated as of October 10, 1996--James
D. Aljian**...................................................
10.18 Indemnification Agreement dated as of October 10, 1996--Michael
R. Gleason**..................................................
10.19 Indemnification Agreement dated as of October 10, 1996--Kirk
Kerkorian**...................................................
10.20 Indemnification Agreement dated as of October 10, 1996--Kerry
M. Stokes**...................................................
10.21 Indemnification Agreement dated as of October 10, 1996--Jerome
B. York**.....................................................
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
10.23 Amended and Restated Supplemental Executive Retirement Agreement
dated as of July 18, 1997--A. Robert Pisano....................
10.24 Form of Amended and Restated Shareholders Agreement dated as of
August 4, 1997.................................................
10.25 Form of Amended and Restated Investors Shareholder Agreement
dated as of August 4, 1997.....................................
10.26 Amended and Restated Stock Option Agreement between the Company
and Tracinda*..................................................
10.27 Amended and Restated Stock Option Agreement between the Company
and Celsus*....................................................
21 List of Subsidiaries of Metro-Goldwyn-Mayer Inc. (updated)......
23.1 Consent of Arthur Andersen LLP (updated)........................
23.2 Consent of Price Waterhouse LLP (updated).......................
23.3 Consent of KPMG Peat Marwick LLP (updated)......................
23.4 Consent of Gibson, Dunn & Crutcher LLP (to be included in their
opinion filed as Exhibit 5.1)*.................................
24 Power of Attorney (included on page II-4)**.....................
27 Financial Data Schedule**.......................................
99.1 Consent of A. Robert Pisano**...................................
</TABLE>
- --------
*To be filed by amendment.
**Previously filed.
+To be filed without Schedules.
<PAGE>
EXHIBIT 3.1
FORM OF AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
METRO-GOLDWYN-MAYER INC.
The undersigned, for the purpose of amending and restating the Certificate
of Incorporation of Metro-Goldwyn-Mayer Inc. (the "Corporation"), a corporation
organized and existing under and by virtue of the General Corporation Law of the
State of Delaware, does hereby certify that:
FIRST: The date of filing of the Corporation's original Certificate of
Incorporation with the Secretary of State of the State of Delaware was July 10,
1996 and the name under which it was originally incorporated was P&F Acquisition
Corp.
SECOND: The Board of Directors of the Corporation, by unanimous vote of
its members, filed with the minutes of the Board of Directors, duly adopted a
resolution setting forth this Amended and Restated Certificate of Incorporation
of the Corporation pursuant to Sections 242 and 245 of the General Corporation
Law of the State of Delaware and declaring the Amended and Restated Certificate
of Incorporation of the Corporation to be advisable and calling for
consideration thereof by the stockholders of the Corporation.
THIRD: The stockholders of the Corporation considered and voted in favor
of this Amended and Restated Certificate of Incorporation by written consent in
accordance with Section 228 of the General Corporation Law of the State of
Delaware.
FOURTH: This Amended and Restated Certificate of Incorporation was duly
adopted in accordance with the provisions of Sections 228, 242 and 245 of the
General Corporation Law of the State of Delaware by the holders of the requisite
number of shares of issued and outstanding stock of the Corporation, and prompt
written notice thereof shall be given to those stockholders of the Corporation
who have not consented thereto in writing.
FIFTH: The capital of the Corporation shall not be reduced under or by
reason of such amendment.
SIXTH: The Certificate of Incorporation is hereby amended and restated in
its entirety as follows:
<PAGE>
ARTICLE I
NAME OF CORPORATION
The name of this corporation is:
Metro-Goldwyn-Mayer Inc.
ARTICLE II
REGISTERED OFFICE
The address of the registered office of the Corporation in the State of
Delaware is 9 East Loockerman Street, in the City of Dover 19901, County of
Kent, and the name of its registered agent at that address is National
Registered Agents, Inc.
ARTICLE III
PURPOSE
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of the
State of Delaware.
ARTICLE IV
AUTHORIZED CAPITAL STOCK
SECTION 1. Authorized Stock. The Corporation shall be authorized to issue
----------------
two classes of stock to be designated, respectively, "Preferred Stock" and
"Common Stock." The total number of shares which the Corporation shall have
authority to issue is One Hundred Fifty Million (150,000,000); the total number
of shares of Preferred Stock shall be Twenty Five Million (25,000,000), and each
such share shall have a par value of one cent ($0.01); and the total number of
shares of Common Stock shall be One Hundred Twenty Five Million (125,000,000),
and each such share shall have a par value of one cent ($0.01). Effective as of
the close of business on the day on which this Amended and Restated Certificate
of Incorporation shall have been filed, every share of Common Stock outstanding
prior to such effective date shall be deemed to be converted into and
reconstituted into 41.667 shares of Common Stock, par value one cent ($.01) per
share.
SECTION 2. Preferred Stock. The shares of Preferred Stock may be issued
---------------
from time to time in one or more series. The Board of Directors of the
Corporation (the "Board") is hereby vested with authority to fix by resolution
or resolutions providing for the issue of any series of Preferred Stock, the
voting power, the designations, the powers, preferences and relative,
participating, optional or other special rights, and the qualifications,
limitations or restrictions thereof, including, without limitation, the dividend
rate, conversion or exchange rights, redemption price and liquidation
preference, of any series of shares of Preferred Stock, and to fix
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the number of shares constituting any such series of Preferred Stock, and to
increase or decrease the number of shares of any such series (but not below the
number of shares thereof then outstanding). In case the number of shares of any
such series shall be so decreased, the shares constituting such decrease shall
resume the status that they had prior to the adoption of the resolution or
resolutions originally fixing the number of shares of such series. The number of
authorized shares of Preferred Stock may be increased or decreased (but not
below the number of shares thereof then outstanding) by the affirmative vote of
the holders of a majority of the stock of the Corporation entitled to vote
irrespective of Section 242 of the General Corporation Law of the State of
Delaware or any successor provision requiring that such an increase or decrease
be voted upon by the holders of the Preferred Stock voting as a separate class.
SECTION 3. Distributions upon Liquidation. In the event of any
------------------------------
dissolution, liquidation, or winding up of the affairs of the Corporation,
whether voluntary or involuntary, after payment or provision for payment of the
debts and other liabilities of the Corporation, the holders of each series of
Preferred Stock shall be entitled to receive, out of the net assets of the
Corporation, an amount for each share of such series of Preferred Stock equal to
the amount fixed and determined by the Board in the resolution or resolutions
creating such series and providing for the issuance of such shares, and no more,
before any of the assets of the Corporation shall be distributed or paid over to
the holders of Common Stock. After payment in full of said amounts to the
holders of Preferred Stock of all series, the remaining assets and funds of the
Corporation shall be divided among and paid to the holders of shares of Common
Stock. If, upon such dissolution, liquidation or winding up, the assets of the
Corporation distributable as aforesaid among the holders of Preferred Stock of
all series shall be insufficient to permit full payment to them of said
preferential amounts, then such assets shall be distributed ratably among such
holders of Preferred Stock in proportion to the respective total amounts that
they shall be entitled to receive as provided in this Section 3.
ARTICLE V
ANNUAL MEETINGS OF STOCKHOLDERS
The annual meeting of stockholders shall be held at such time, on such date
and at such place (within or without the State of Delaware) as provided in the
Bylaws of the Corporation. Subject to any requirement of applicable law, the
books of the Corporation may be kept outside the State of Delaware at such place
or places as may be designated from time to time by the Board or in the Bylaws
of the Corporation.
ARTICLE VI
BOARD POWER REGARDING BYLAWS
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized to make, repeal, alter, amend and
rescind the Bylaws of the Corporation.
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ARTICLE VII
ELECTIONS OF DIRECTORS
Elections of directors need not be by written ballot unless the Bylaws of
the Corporation shall so provide.
ARTICLE VIII
LIABILITY AND INDEMNIFICATION
To the fullest extent permitted by the General Corporation Law of the State
of Delaware as the same exists or may hereafter be amended (provided that the
effect of any such amendment shall be prospective only) (the "Delaware Law"), a
director of the Corporation shall not be liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director.
If the Delaware Law is amended after the date of the filing of this Amended and
Restated Certificate of Incorporation to authorize corporate action further
eliminating or limiting the personal liability of directors, then the liability
of a director of the Corporation shall be eliminated or limited to the fullest
extent permitted by the Delaware Law, as so amended from time to time.
The Corporation shall indemnify, in the manner and to the fullest extent
permitted by the Delaware Law (but in the case of any amendment, only to the
extent that such amendment permits the Corporation to provide broader
indemnification rights than permitted prior thereto), any person (or the estate
of any person) who is or was a party to, or is threatened, to be made a party
to, any threatened, pending or completed action, suit or proceeding, whether or
not by or in the right of the Corporation, and whether civil, criminal,
administrative, investigative or otherwise, by reason of the fact that such
person is or was a director or officer of the Corporation, or is or was serving
at the request of Corporation as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise. The Corporation may
indemnify, in the manner and to the fullest extent permitted by the Delaware
Law, any person (or the estate of any person) who is or was a party to, or is
threatened to be made a party to, any threatened, pending or completed action,
suit or proceeding, whether or not by or in the right of the Corporation, and
whether civil, criminal, administrative, investigative or otherwise, by reason
of the fact that such person is or was an employee or agent of the Corporation,
or is or was serving at the request of the Corporation as an employee or agent
of another corporation, partnership, joint venture, trust or other enterprise.
To the fullest extent permitted by the Delaware Law, expenses (including
attorneys' fees), judgments or fines incurred by and amounts paid in settlement
by any such director, officer, employee or agent in defending any such action,
suit or proceeding may be advanced by the Corporation prior to the final
disposition of such action, suit or proceeding upon receipt of an undertaking by
or on behalf of such director, officer, employee or agent to repay such amount
if it shall ultimately be determined that he or she is not entitled to be
indemnified as authorized by the Delaware Law and this Article VIII. The
Corporation may, to the fullest extent permitted by the Delaware Law, purchase
and maintain insurance on behalf of any such director, officer, employee or
agent against such person. The Corporation may create a trust fund, grant a
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security interest or use other means (including without limitation a letter of
credit) to ensure the payment of such sums as may become necessary to effect the
indemnification as provided herein. The indemnification provided herein shall
not be deemed to limit the rights of the Corporation to indemnify any other
person for any such expenses to the fullest extent permitted by the Delaware
Law, nor shall it be deemed exclusive of any other rights to which any person
seeking indemnification from the Corporation may be entitled under any
agreement, the Corporation's Bylaws, vote of stockholders or disinterested
directors, or otherwise, both as to action in such person's official capacity
and as to action in another capacity while holding such office.
No repeal or modification of this Article VIII by the stockholders shall
adversely affect any right or protection of a director of the Corporation
existing by virtue of this Article VIII at the time of such repeal or
modification.
ARTICLE IX
CORPORATE POWER
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Amended and Restated Certificate of Incorporation,
in the manner now or hereafter prescribed by statute, and all rights conferred
on stockholders herein are granted subject to this reservation.
ARTICLE X
COMMON COMPROMISE OR ARRANGEMENT
Whenever a compromise or arrangement is proposed between this Corporation
and its creditors or any class of them and/or between this Corporation and its
stockholders or any class of them, any court of equitable jurisdiction within
the State of Delaware may, on the application in a summary way of this
Corporation or of any creditor or stockholder thereof or on the application of
any receiver or receivers appointed for this Corporation under the provisions of
Section 291 of Title 8 of the Delaware Code or on the application of trustees in
dissolution or of any receiver or receivers appointed for this Corporation under
the provisions of Section 279 of Title 8 of the Delaware Code order a meeting of
the creditors or class of creditors, and/or of the stockholders or class of
stockholders of this Corporation, as the case may be, to be summoned in such
manner as the said court directs. If a majority in number representing three-
fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this Corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of this
Corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of this Corporation, as the case may be, and also on this
Corporation.
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IN WITNESS WHEREOF, the undersigned has executed, signed and acknowledged
this Amended and Restated Certificate of Incorporation on behalf of Metro-
Goldwyn-Mayer Inc., on this ______ day of October, 1997.
By:_______________________________
William Allen Jones
Executive Vice President and
Secretary
LC972760.002/7+
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EXHIBIT 3.2
FORM OF
METRO-GOLDWYN-MAYER INC.
(A DELAWARE CORPORATION)
AMENDED AND RESTATED BYLAWS
Adopted __________
ARTICLE I
OFFICES
SECTION 1.01 Registered Office. The registered office of Metro-
------------------
Goldwyn-Mayer Inc. (hereinafter called the "Corporation") in the State of
Delaware shall be at 9 East Loockerman Street, City of Dover 19901, County of
Kent, and the name of the registered agent at that address shall be National
Registered Agents, Inc.
SECTION 1.02 Other Offices. The Corporation may also have an office
--------------
or offices at such other place or places, either within or without the State of
Delaware, as the Board of Directors (hereinafter called the "Board") may from
time to time determine or as the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 2.01 Annual Meetings. Annual meetings of the stockholders of
----------------
the Corporation for the purpose of electing directors and for the transaction of
such other proper business as may come before such meetings may be held at such
time, date and place as the Board shall determine by resolution.
SECTION 2.02 Special Meetings. A special meeting of the stockholders
-----------------
for the transaction of any proper business may be called at any time by the
Board or by the Chairman of the Board.
SECTION 2.03 Place of Meetings. All meetings of the stockholders
------------------
shall be held at such places, within or without the State of Delaware, as may
from time to time be designated by the person or persons calling the respective
meeting and specified in the respective notices or waivers of notice thereof.
SECTION 2.04 Notice of Meetings. Except as otherwise required by
-------------------
law, notice of each meeting of stockholders, whether annual or special, shall be
given not less than ten
<PAGE>
(10) days nor more than sixty (60) days before the date of the meeting to each
stockholder of record entitled to vote at such meeting by delivering a
typewritten or printed notice thereof to such stockholder personally, or by
depositing such notice in the United States mail, in a postage prepaid envelope,
directed to such stockholder at such stockholder's post office address furnished
by such stockholder to the Secretary of the Corporation for such purpose or, if
such stockholder shall not have furnished to the Secretary an address for such
purpose, then at such stockholder's post office address last known to the
Secretary, or by transmitting a notice thereof to such stockholder at such
address by telegraph, cable, wireless or facsimile. Except as otherwise
expressly required by law, no publication of any notice of a meeting of the
stockholders shall be required. Every notice of a meeting of the stockholders
shall state the place, date and hour of the meeting, and, in the case of a
special meeting, shall also state the purpose or purposes for which the meeting
is called. Notice of any meeting of stockholders shall not be required to be
given to any stockholder who shall have waived such notice and such notice shall
be deemed waived by any stockholder to whom notice may be omitted pursuant to
applicable Delaware law or who shall attend such meeting in person or by proxy,
except a stockholder who shall attend such meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened. Except as otherwise
expressly required by law, notice of any adjourned meeting of the stockholders
need not be given if the time and place thereof are announced at the meeting at
which the adjournment is taken.
SECTION 2.05 Quorum. Except in the case of any meeting for the
-------
election of directors summarily ordered as provided by law, the holders of
record of a majority in voting interest of the shares of stock of the
Corporation entitled to be voted thereat, present in person or by proxy, shall
constitute a quorum for the transaction of business at any meeting of the
stockholders of the Corporation or any adjournment thereof. In the absence of a
quorum at any meeting or any adjournment thereof, a majority in voting interest
of the stockholders present in person or by proxy and entitled to vote thereat
or, in the absence therefrom of all the stockholders, any officer entitled to
preside at, or to act as secretary of, such meeting, may adjourn such meeting
from time to time. At any such adjourned meeting at which a quorum is present
any business may be transacted which might have been transacted at the meeting
as originally called.
SECTION 2.06 Voting.
-------
(a) Each stockholder shall, at each meeting of the stockholders, be
entitled to vote in person or by proxy each share or fractional share of the
stock of the Corporation having voting rights on the matter in question and
which shall have been held by such stockholder and registered in such
stockholder's name on the books of the Corporation:
(i) on the date fixed pursuant to Section 6.05 of these Amended
and Restated Bylaws as the record date for the determination of
stockholders entitled to notice of and to vote at such meeting; or
(ii) if no such record date shall have been so fixed, then (a) at
the close of business on the business day next preceding the day on
which notice of the meeting shall be given or (b) if notice of the
meeting shall be
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waived, at the close of business on the business day next preceding
the day on which the meeting shall be held.
(b) Shares of the Corporation's own stock belonging to the Corporation
or to another corporation, if a majority of the shares entitled to vote in the
election of directors in such other corporation is held, directly or indirectly,
by the Corporation, shall neither be entitled to vote nor be counted for quorum
purposes. Persons holding stock of the Corporation in a fiduciary capacity
shall be entitled to vote such stock. Persons whose stock is pledged shall be
entitled to vote, unless in the transfer by the pledgor on the books of the
Corporation the pledgor shall have expressly empowered the pledgee to vote
thereon, in which case only the pledgee, or the pledgee's proxy, may represent
such stock and vote thereon. Stock having voting power standing of record in
the names of two or more persons or other entities, whether fiduciaries, members
of a partnership, joint tenants, tenants in common, tenants by entirety or
otherwise, or with respect to which two or more persons have the same fiduciary
relationship, shall be voted in accordance with the provisions of the General
Corporation Law of the State of Delaware.
(c) Any such voting rights may be exercised by the stockholder
entitled thereto in person or by such stockholder's proxy appointed by an
instrument in writing, subscribed by such stockholder or by such stockholder's
attorney thereunto authorized and delivered to the secretary of the meeting;
provided, however, that no proxy shall be voted or acted upon after three (3)
- -------- -------
years from its date unless said proxy shall provide for a longer period. The
attendance at any meeting of a stockholder who may theretofore have given a
proxy shall not have the effect of revoking the same unless such stockholder
shall in writing so notify the secretary of the meeting prior to the voting of
the proxy. At any meeting of the stockholders at which a quorum is present all
matters, except as otherwise provided in the Amended and Restated Certificate of
Incorporation, in these Amended and Restated Bylaws or by law, shall be decided
by the vote of a majority in voting interest of the stockholders present in
person or by proxy and entitled to vote thereat and thereon. The vote at any
meeting of the stockholders on any question need not be by ballot, unless so
directed by the chairman of the meeting. On a vote by ballot each ballot shall
be signed by the stockholder voting, or by such stockholder's proxy, if there be
such proxy, and it shall state the number of shares voted.
SECTION 2.07 List of Stockholders. The Secretary of the Corporation
---------------------
shall prepare and make, at least ten (10) days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten (10) days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
SECTION 2.08 Judges. If at any meeting of the stockholders a vote by
-------
written ballot shall be taken on any question, the chairman of such meeting may
appoint a judge or judges to act with respect to such vote. Each judge so
appointed shall first subscribe an oath
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faithfully to execute the duties of a judge at such meeting with strict
impartiality and according to the best of such judge's ability. Such judges
shall decide upon the qualification of the voters and shall report the number of
shares represented at the meeting and entitled to vote on such question, shall
conduct and accept the votes, and, when the voting is completed, shall ascertain
and report the number of shares voted respectively for and against the question.
Reports of judges shall be in writing and subscribed and delivered by them to
the Secretary of the Corporation. The judges need not be stockholders of the
Corporation, and any officer of the Corporation may be a judge on any question
other than a vote for or against a proposal in which he shall have a material
interest.
SECTION 2.09 Action Without Meeting. Any action required to be taken
-----------------------
at any annual or special meeting of stockholders of the Corporation, or any
action which may be taken at any annual or special meeting of such stockholders,
may be taken without a meeting, without prior notice and without a vote, if a
consent or consents in writing, setting forth the action so taken, shall be
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted.
Prompt notice of the taking of the corporate action without a meeting by less
than unanimous written consent shall be given to those stockholders who have not
consented in writing.
ARTICLE III
BOARD OF DIRECTORS
SECTION 3.01 General Powers. The property, business and affairs of
---------------
the Corporation shall be managed by the Board.
SECTION 3.02 Number and Term of Office. The number of directors of
--------------------------
the Corporation shall be at least seven (7) but not more than thirty-five (35),
the precise number to be fixed from time to time by the Board. Directors need
not be stockholders. Each of the directors of the Corporation shall hold office
until his or her successor shall have been duly elected and shall qualify or
until he or she shall resign or shall have been removed in the manner
established by the Board.
SECTION 3.03 Election of Directors. The directors shall be elected
----------------------
annually by the stockholders of the Corporation and the persons receiving the
greatest number of votes, up to the number of directors to be elected, shall be
the directors.
SECTION 3.04 Resignations. Any director of the Corporation may
-------------
resign at any time by giving written notice to the Board or to the Secretary of
the Corporation. Any such resignation shall take effect at the time specified
therein, or, if the time be not specified, it shall take effect immediately upon
its receipt; unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
SECTION 3.05 Vacancies. Except as otherwise provided in the Amended
----------
and Restated Certificate of Incorporation or by the Board, any vacancy in the
Board, whether
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because of death, resignation, disqualification, an increase in the number of
directors, or any other cause, may be filled by vote of the majority of the
remaining directors, although less than a quorum. Each director so chosen to
fill a vacancy shall hold office until such director's successor shall have been
elected and shall qualify or until such director shall resign or shall have been
removed in the manner established by the Board.
SECTION 3.06 Place of Meeting, Etc. The Board or any committee
----------------------
thereof may hold any of its meetings at such place or places within or without
the State of Delaware as the Board or such committee may from time to time by
resolution designate or as shall be designated by the person or persons calling
the meeting or in the notice or a waiver of notice of any such meeting.
Directors may participate in any regular or special meeting of the Board or any
committee thereof by means of conference telephone or similar communications
equipment pursuant to which all persons participating in the meeting of the
Board or such committee can hear each other, and such participation shall
constitute presence in person at such meeting.
SECTION 3.07 First Meeting. The Board shall meet as soon as
--------------
practicable after each annual election of directors and notice of such first
meeting shall not be required.
SECTION 3.08 Regular Meetings. Regular meetings of the Board may be
-----------------
held at such times as the Board shall from time to time by resolution determine.
If any day fixed for a regular meeting shall be a legal holiday at the place
where the meeting is to be held, then the meeting shall be held at the same hour
and place on the next succeeding business day not a legal holiday. Except as
provided by law, notice of regular meetings need not be given.
SECTION 3.09 Special Meetings. Special meetings of the Board may be
-----------------
called at any time, and for any purpose permitted by law, by the Chairman of the
Board, or by the Secretary on the written request of a majority of the members
of the Board, which meetings shall be held at the time and place either within
or without the State of Delaware designated by the person or persons calling the
meeting.
SECTION 3.10 Notice. Except as otherwise provided by law or by these
-------
Amended and Restated Bylaws, notice of the time, place and purpose of any
special meeting shall be given to the directors by the Secretary, or in case of
his or her absence, refusal or inability to act, by any other officer. Any such
notice may be given by mail, by telegraph, by telephone, by facsimile or by
personal service, to each of the directors. If the notice is by mail, it shall
be addressed to such director at such director's residence or usual place of
business and deposited in a United States post office at least forty-eight (48)
hours before the time of the meeting; if by facsimile, transmitted to such
director at such place at least twelve (12) hours before the time of the
meeting; if by telegraph, by deposit of the message with the telegraph company
at least twelve (12) hours before the time of the meeting; and if by telephone
or by personal service, given at least twelve (12) hours before the time of the
meeting. Except as otherwise required by law or by these Amended and Restated
Bylaws, notice of the purpose of a special meeting need not be given. Notice of
any meeting of the Board shall not be required to be given to any director who
is present at such meeting, except a director who shall attend such meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
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SECTION 3.11 Quorum and Manner of Acting. Except as otherwise
----------------------------
provided in the Amended and Restated Certificate of Incorporation, these Amended
and Restated Bylaws or by law, the presence of a majority of the authorized
number of directors shall be required to constitute a quorum for the transaction
of business at any meeting of the Board, and all matters shall be decided at any
such meeting, a quorum being present, by the affirmative votes of a majority of
the directors present. In the absence of a quorum, a majority of directors
present at any meeting may adjourn the same from time to time until a quorum
shall be present. Notice of any adjourned meeting need not be given. The
directors shall act only as a Board, and the individual directors shall have no
power as such.
SECTION 3.12 Action by Consent. Any action required or permitted to
------------------
be taken at any meeting of the Board or of any committee thereof may be taken
without a meeting if a written consent thereto is signed by all members of the
Board or of such committee, as the case may be, and such written consent is
filed with the minutes of proceedings of the Board or committee.
SECTION 3.13 Removal of Directors. Subject to the provisions of the
---------------------
Amended and Restated Certificate of Incorporation, any director may be removed
at any time, either with or without cause, by the affirmative vote of the
stockholders having a majority of the voting power of the Corporation given at a
special meeting of the stockholders called for the purpose.
SECTION 3.14 Compensation. The directors shall receive only such
-------------
compensation for their services as directors as may be allowed by resolution of
the Board. The Board may also provide that the Corporation shall reimburse each
such director for any expense incurred by such director on account of such
director's attendance at any meetings of the Board or committees of the Board.
Neither the payment of such compensation nor the reimbursement of such expenses
shall be construed to preclude any director from serving the Corporation or its
subsidiaries in any other capacity and receiving compensation therefor.
SECTION 3.15 Committees. The Board may, by resolution passed by a
-----------
majority of the whole Board, designate one or more committees, each committee to
consist of one or more of the directors of the Corporation. Any such committee,
to the extent provided in the resolution of the Board and except as otherwise
limited by law, shall have and may exercise all the powers and authority of the
Board in the management of the business and affairs of the Corporation, and may
authorize the seal of the Corporation to be affixed to all papers which may
require it. Any such committee shall keep written minutes of its meetings and
report the same to the Board at the next regular meeting of the Board. In the
absence or disqualification of a member of a committee, the member or members
thereof present at any meeting and not disqualified from voting, whether or not
such member or members constitute a quorum, may unanimously appoint another
member of the Board to act at the meeting in the place of any such absent or
disqualified member.
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ARTICLE IV
OFFICERS
SECTION 4.01 Number. The officers of the Corporation shall include a
-------
Chairman of the Board, a Chief Executive Officer, a Vice Chairman, one or more
Vice Presidents (the number thereof and their respective titles to be determined
by the Board), a Secretary, a Chief Financial Officer and such other officers as
may be determined by the Board.
SECTION 4.02 Election, Term of Office and Qualifications. The
--------------------------------------------
officers of the Corporation, except such officers as may be appointed in
accordance with Section 4.03, shall be elected annually by the Board at the
first meeting thereof held after the election thereof. Each officer shall hold
office until such officer's successor shall have been duly chosen and shall
qualify or until such officer's resignation or removal in the manner hereinafter
provided.
SECTION 4.03 Assistants, Agents and Employees, Etc. In addition to
--------------------------------------
the officers specified in Section 4.01, the Board may appoint other assistants,
agents and employees as it may deem necessary or advisable, including one or
more Assistant Secretaries, each of whom shall hold office for such period, have
such authority, and perform such duties as the Board may from time to time
determine. The Board may delegate to any officer of the Corporation or any
committee of the Board the power to appoint, remove and prescribe the duties of
any such assistants, agents or employees.
SECTION 4.04 Removal. Any officer, assistant, agent or employee of
--------
the Corporation may be removed, with or without cause, at any time: (i) in the
case of an officer, assistant, agent or employee appointed by the Board, only by
resolution of the Board; and (ii) in the case of an officer, assistant, agent or
employee not appointed by the Board, by any officer of the Corporation or
committee of the Board upon whom or which such power of removal may be conferred
by the Board.
SECTION 4.05 Resignations. Any officer or assistant may resign at
-------------
any time by giving written notice of such officer's or assistant's resignation
to the Board or the Secretary of the Corporation. Any such resignation shall
take effect at the time specified therein, or, if the time be not specified,
upon receipt thereof by the Board or the Secretary, as the case may be; unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
SECTION 4.06 Vacancies. A vacancy in any office because of death,
----------
resignation, removal, disqualification, or other cause, may be filled for the
unexpired portion of the term thereof in the manner prescribed in these Amended
and Restated Bylaws for regular appointments or elections to such office.
SECTION 4.07 Chairman of the Board. The Chairman of the Board shall
---------------------
be the Chief Executive Officer of the Corporation and shall, subject to the
control of the Board, have general supervision, direction and control of the
business and affairs of the Corporation. The Chairman of the Board shall
preside at all meetings of stockholders and at all meetings of the
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Board. The Chairman of the Board shall have the general powers and duties of
management usually vested in the chief executive officer of a corporation, and
shall have such other powers and duties as may be prescribed by the Board or
these Amended and Restated Bylaws.
SECTION 4.08 Vice Chairman. The Vice Chairman shall have such powers
--------------
and perform such duties as the Board may from time to time prescribe. At the
request of the Board, the Vice Chairman shall perform the duties of the Chairman
of the Board and, when so acting, shall have all the powers of, and be subject
to all the restrictions upon, the Chairman of the Board.
SECTION 4.09 The Vice Presidents. Each Vice President shall have
--------------------
such powers and perform such duties as the Board may from time to time
prescribe. At the request of the Chairman of the Board or in case of the
Chairman of the Board's or Vice Chairman's absence or inability to act upon the
request of the Board, a Vice President shall perform the duties of the Chairman
of the Board and when so acting, shall have all the powers of, and be subject to
all the restrictions upon, the Chairman of the Board.
SECTION 4.10 The Secretary. The Secretary shall, if present, record
--------------
the proceedings of all meetings of the Board, of the stockholders, and of all
committees of which a secretary shall not have been appointed in one or more
books provided for that purpose; the Secretary shall see that all notices are
duly given in accordance with these Amended and Restated Bylaws and as required
by law; the Secretary shall be custodian of the seal of the Corporation and
shall affix and attest the seal to all documents to be executed on behalf of the
Corporation under its seal; and, in general, the Secretary shall perform all the
duties incident to the office of the Secretary and such other duties as may from
time to time be assigned to the Secretary by the Board.
SECTION 4.11 The Chief Financial Officer. The Chief Financial
---------------------------
Officer shall have the general care and custody of the funds and securities of
the Corporation, and shall deposit all such funds in the name of the Corporation
in such banks, trust companies or other depositories as shall be selected by the
Board. The Chief Financial Officer shall receive, and give receipts for, moneys
due and payable to the Corporation from any source whatsoever. The Chief
Financial Officer shall exercise general supervision over expenditures and
disbursements made by officers, agents and employees of the Corporation and the
preparation of such records and reports in connection therewith as may be
necessary or desirable. The Chief Financial Officer shall, in general, perform
all other duties incident to the office of Chief Financial Officer and such
other duties as from time to time may be assigned to the Chief Financial Officer
by the Board.
SECTION 4.12 Compensation. The compensation of the officers of the
-------------
Corporation shall be fixed from time to time by the Board. None of such
officers shall be prevented from receiving such compensation by reason of the
fact that such officer is also a director of the Corporation. Nothing contained
herein shall preclude any officer from serving the Corporation, or any
subsidiary corporation, in any other capacity and receiving such compensation by
reason of the fact that such officer is also a director of the Corporation.
Nothing contained herein shall preclude any officer from serving the
Corporation, or any subsidiary corporation, in any other capacity and receiving
proper compensation therefor.
8
<PAGE>
ARTICLE V
CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
SECTION 5.01 Execution of Contracts. The Board, except as otherwise
-----------------------
provided in these Amended and Restated Bylaws, may authorize any officer or
officers or agent or agents to enter into any contract or execute any instrument
in the name of and on behalf of the Corporation, and such authority may be
general or confined to specific instances; unless so authorized by the Board or
by these Amended and Restated Bylaws, no officer, agent or employee shall have
any power or authority to bind the Corporation by any contract or engagement or
to pledge its credit or to render it liable for any purpose or in any amount.
SECTION 5.02 Checks, Drafts, Etc. All checks, drafts or other orders
--------------------
for payment of money, notes or other evidence of indebtedness, issued in the
name of or payable to the Corporation, shall be signed or endorsed by such
person or persons and in such manner as, from time to time, shall be determined
by resolution of the Board. Each such officer, assistant, agent or attorney
shall give such bond, if any, as the Board may require.
SECTION 5.03 Deposits. All funds of the Corporation not otherwise
---------
employed shall be deposited from time to time to the credit of the Corporation
in such banks, trust companies or other depositories as the Board may select, or
as may be selected by any officer or officers, assistant or assistants, agent or
agents, or attorney or attorneys of the Corporation to whom such power shall
have been delegated by the Board. For the purpose of deposit and for the
purpose of collection for the account of the Corporation, the Chairman of the
Board, the Vice Chairman, any Vice President or the Chief Financial Officer (or
any other officer or officers, assistant or assistants, agent or agents, or
attorney or attorneys of the Corporation who shall from time to time be
determined by the Board) may endorse, assign and deliver checks, drafts and
other orders for the payment of money which are payable to the order of the
Corporation.
SECTION 5.04 General and Special Bank Accounts. The Board may from
----------------------------------
time to time authorize the opening and keeping of general and special bank
accounts with such banks, trust companies or other depositories as the Board may
select or as may be selected by any officer or officers, assistant or
assistants, agent or agents, or attorney or attorneys of the Corporation to whom
such power shall have been delegated by the Board. The Board may make such
special rules and regulations with respect to such bank accounts, not
inconsistent with the provisions of these Amended and Restated Bylaws, as it may
deem expedient.
ARTICLE VI
SHARES AND THEIR TRANSFER
SECTION 6.01 Certificates for Stock. Every owner of stock of the
-----------------------
Corporation shall be entitled to have a certificate or certificates, to be in
such form as the Board shall prescribe, certifying the number and class or
series of shares of the stock of the Corporation
9
<PAGE>
owned by such owner. The certificates representing shares of such stock shall be
numbered in the order in which they shall be issued and shall be signed in the
name of the Corporation by the Chairman of the Board, the Vice Chairman or a
Vice President, and by the Secretary or an Assistant Secretary or by the Chief
Financial Officer. Any of or all of the signatures on the certificates may be a
facsimile. In case any officer, transfer agent or registrar who has signed, or
whose facsimile signature has been placed upon, any such certificate, shall have
ceased to be such officer, transfer agent or registrar before such certificate
is issued, such certificate may nevertheless be issued by the Corporation with
the same effect as though the person who signed such certificate, or whose
facsimile signature shall have been placed thereupon, were such officer,
transfer agent or registrar at the date of issue. A record shall be kept of the
respective names of the persons, firms or corporations owning the stock
represented by such certificates, the number and class or series of shares
represented by such certificates, respectively, and the respective dates
thereof, and in case of cancellation, the respective dates of cancellation.
Every certificate surrendered to the Corporation for exchange or transfer shall
be canceled, and no new certificate or certificates shall be issued in exchange
for any existing certificate until such existing certificate shall have been so
canceled, except in cases provided for in Section 6.04 hereof.
SECTION 6.02 Transfers of Stock. Transfers of shares of stock of the
-------------------
Corporation shall be made only on the books of the Corporation by the registered
holder thereof, or by such holder's attorney thereunto authorized by power of
attorney duly executed and filed with the Secretary, or with a transfer clerk or
a transfer agent appointed as provided in Section 6.03 hereof, and upon
surrender of the certificate or certificates for such shares properly endorsed
and the payment of all taxes thereon. The person in whose name shares of stock
stand on the books of the Corporation shall be deemed the owner thereof for all
purposes as regards the Corporation. Whenever any transfer of shares shall be
made for collateral security, and not absolutely, such fact shall be so
expressed in the entry of transfer if, when the certificate or certificates
shall be presented to the Corporation for transfer, both the transferor and the
transferee request the Corporation to do so.
SECTION 6.03 Regulations. The Board may make such rules and
------------
regulations as it may deem expedient, not inconsistent with these Amended and
Restated Bylaws, concerning the issue, transfer and registration of certificates
for shares of the stock of the Corporation. It may appoint, or authorize any
officer or officers to appoint, one or more transfer clerks or one or more
transfer agents and one or more registrars, and may require all certificates for
stock to bear the signature or signatures of any of them.
SECTION 6.04 Lost, Stolen, Destroyed, and Mutilated Certificates. In
----------------------------------------------------
any case of loss, theft, destruction, or mutilation of any certificate of stock,
another may be issued in its place upon proof of such loss, theft, destruction,
or mutilation and upon the giving of a bond of indemnity to the Corporation in
such form and in such sum as the Board may direct; provided, however, that a new
-------- -------
certificate may be issued without requiring any bond when, in the judgment of
the Board, it is proper so to do.
SECTION 6.05 Fixing Date for Determination of Stockholders of Record.
-------------------------------------------------------
In order that the Corporation may determine the stockholders entitled to notice
of or to vote at any meeting of stockholders or any adjournment thereof, or to
express consent to corporate
10
<PAGE>
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any other change, conversion or exchange of
stock or for the purpose of any other lawful action, the Board may fix, in
advance, a record date, which shall not be more than sixty (60) nor less than
ten (10) days before the date of such meeting, nor more than sixty (60) days
prior to any other action. If in any case involving the determination of
stockholders for any purpose other than notice of or voting at a meeting of
stockholders or expressing consent to corporate action without a meeting the
Board shall not fix such a record date, the record date for determining
stockholders for such purpose shall be the close of business on the day on which
the Board shall adopt the resolution relating thereto. A determination of
stockholders entitled to notice of or to vote at a meeting of stockholders shall
apply to any adjournment of such meeting; provided, however, that the Board
-------- -------
may fix a new record date for the adjourned meeting.
ARTICLE VII
INDEMNIFICATION
SECTION 7.01 Action, Etc., Other Than by or in the Right of the
--------------------------------------------------
Corporation. The Corporation shall indemnify, in the manner and to the fullest
- ------------
extent permitted by the General Corporation Law of the State of Delaware (the
"Delaware Law") (but in the case of any amendment, only to the extent that such
amendment permits the Corporation to provide broader indemnification rights than
permitted prior thereto), any person (or the estate of any person) who is or was
a party to, or is threatened to be made a party to, any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative or otherwise (other than an action by or in the right of the
Corporation), by reason of the fact that such person is or was a director or
officer of the Corporation, or is or was serving at the request of the
Corporation as a director or officer of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such person in connection with such action, suit or proceeding, if such
person acted in good faith and in a manner such person reasonably believed to be
in or not opposed to the best interests of the Corporation, and with respect to
any criminal action or proceeding, had no reasonable cause to believe such
person's conduct was unlawful. The Corporation may indemnify, in the manner and
to the fullest extent permitted by the Delaware Law (but in the case of any
amendment, only to the extent that such amendment permits the Corporation to
provide broader indemnification rights than permitted prior thereto), any person
(or the estate of any person) who is or was a party to, or is threatened to be
made a party to, any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative, investigative or otherwise
(other than by or in the right of the Corporation), by reason of the fact that
such person is or was an employee or agent of the Corporation, or is or was
serving at the request of the Corporation as an employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding, if such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the Corporation, and with respect to any criminal action or
proceeding, had no reasonable cause to
11
<PAGE>
believe such person's conduct was unlawful. The termination of any action, suit
or proceeding by judgment, order, settlement or conviction, or upon a plea of
nolo contendere or its equivalent, shall not, of itself, create a presumption
that the person did not act in good faith and in a manner which such person
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, that such
person had reasonable cause to believe that such person's conduct was unlawful.
To the fullest extent permitted by the Delaware Law, expenses (including
attorneys' fees), judgments or fines incurred by and amounts paid in settlement
by any such director, officer, employee or agent in defending any such action,
suit or proceeding, may be advanced by the Corporation prior to the final
disposition of such action, suit or proceeding upon receipt of an undertaking by
or on behalf of such director, officer, employee or agent to repay such amount
if it shall ultimately be determined that he or she is not entitled to be
indemnified as authorized by the Delaware Law and this Article VII.
SECTION 7.02 Actions, Etc., by or in the Right of the Corporation.
----------------------------------------------------
The Corporation shall indemnify, in the manner and to the fullest extent
permitted by the Delaware Law (but in the case of any amendment, only to the
extent that such amendment permits the Corporation to provide broader
indemnification rights than permitted prior thereto), any person (or the estate
of any person) who is or was a party to, or is threatened to be made a party to,
any threatened, pending or completed action, suit or proceeding, by or in the
right of the Corporation to procure a judgment in its favor, by reason of the
fact that such person is or was a director or officer of the Corporation, or is
or was serving at the request of the Corporation as a director or officer of
another corporation, partnership, joint venture, trust or other enterprise
against expenses (including attorneys' fees ) actually and reasonably incurred
by such person in connection with the defense or settlement of such action or
suit if such person acted in good faith and in a manner such person reasonably
believed to be in or not opposed to the best interest of the Corporation. The
Corporation may indemnify, in the manner and to the fullest extent permitted by
the Delaware Law (but in the case of any amendment, only to the extent that such
amendment permits the Corporation to provide broader indemnification rights than
permitted prior thereto), any person (or the estate of any person) who is or was
a party to, or is threatened to be made a party to, any threatened, pending or
completed action, suit or proceeding, by or in the right of the Corporation to
procure a judgment in its favor, by reason of the fact that such person is or
was an employee or agent of the Corporation, or is or was serving at the request
of the Corporation as an employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against expenses (including attorneys'
fees ) actually and reasonably incurred by such person in connection with the
defense or settlement of such action or suit if such person acted in good faith
and in a manner such person reasonably believed to be in or not opposed to the
best interest of the Corporation. Notwithstanding the foregoing, no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable for negligence or
misconduct in the performance of such person's duty to the Corporation unless
and only to the extent that the Court of Chancery or the court in which such
action or suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses which
the Court of Chancery or such other court shall deem proper. To the fullest
extent permitted by the Delaware Law, expenses (including attorneys' fees),
judgments or fines
12
<PAGE>
incurred by and amounts paid in settlement by any such director, officer,
employee or agent in defending any such action, suit or proceeding, may be
advanced by the Corporation prior to the final disposition of such action, suit
or proceeding upon receipt of an undertaking by or on behalf of such director,
officer, employee or agent to repay such amount if it shall ultimately be
determined that he or she is not entitled to be indemnified as authorized by the
Delaware Law and this Article VII.
SECTION 7.03 Determination of Right of Indemnification. Any
------------------------------------------
indemnification under Section 7.01 or Section 7.02 (unless ordered by a court)
shall be made by the Corporation only as authorized in the specific case upon a
determination that indemnification of the director or officer or the employee or
agent (if indemnification is authorized by the Board), is proper in the
circumstances because such person has met the applicable standard of conduct set
forth in Section 7.01 or Section 7.02. Such determination shall be made (i) by
the Board by a majority vote of a quorum consisting of directors who were not
parties to such action, suit or proceeding, or (ii) if such a quorum is not
obtainable, or, even if obtainable a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (iii) by the
stockholders.
SECTION 7.04 Indemnification Against Expenses of Successful Party.
-----------------------------------------------------
Notwithstanding the other provisions of this Article, to the extent that a
director or officer, or an employee or agent (if indemnification is authorized
by the Board) of the Corporation has been successful on the merits or otherwise
in defense of any action, suit or proceeding referred to in Section 7.01 or
Section 7.02, or in defense of any claim, issue or matter therein, such person
shall be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection therewith.
SECTION 7.05 Other Rights and Remedies. The indemnification provided
--------------------------
by this Article shall not be deemed exclusive of any other rights to which those
seeking indemnification may be entitled under the Amended and Restated Bylaws,
any agreement, any vote of stockholders or disinterested directors or otherwise,
both as to action in such person's official capacity and as to action in another
capacity while holding such office, and shall continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such a person.
SECTION 7.06 Insurance. Upon resolution passed by the Board, the
----------
Corporation may purchase and maintain insurance on behalf of any person who is
or was a director, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against such person and incurred by
such person in any such capacity, or arising out of such person's status as
such, whether or not the Corporation would have the power to indemnify such
person against such liability under the provisions of this Article.
SECTION 7.07 Constituent Corporations. For the purposes of this
-------------------------
Article, references to "the Corporation" include all constituent corporations
absorbed in a consolidation or merger as well as the resulting or surviving
corporation, so that any person who is or was a
13
<PAGE>
director, officer, employee or agent of such a constituent corporation or is or
was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise shall stand in the same position under the provisions
of this Article with respect to the resulting or surviving corporation as such
person would if such person had served the resulting or surviving corporation in
the same capacity.
SECTION 7.08 Other Enterprises, Fines, and Serving at Corporation's
------------------------------------------------------
Request. For purposes of this Article, references to "other enterprise" shall
- --------
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to any employee benefit plan; and
references to "serving at the request of the Corporation" shall include any
service as a director or officer, or any employee or agent of the Corporation
(if indemnification is authorized by the Board) which imposes duties on, or
involves services by, such director or officer, or employee or agent (if
indemnification is authorized by the Board) with respect to an employee benefit
plan, its participants, or beneficiaries; and a person who acted in good faith
and in a manner such person reasonably believed to be in the interests of the
participants and beneficiaries of an employee benefit plan shall be deemed to
have acted in a manner "not opposed to the best interests of the Corporation" as
referred to in this Article.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01 Seal. The Board shall provide a corporate seal, which
-----
shall be in the form of a circle and shall bear the name of the Corporation and
words and figures showing that the Corporation was incorporated in the State of
Delaware and the year of incorporation.
SECTION 8.02 Waiver of Notices. Whenever notice is required to be
------------------
given by these Amended and Restated Bylaws or the Amended and Restated
Certificate of Incorporation or by law, the person entitled to said notice may
waive such notice in writing, either before or after the time stated therein,
and such waiver shall be deemed equivalent to notice.
SECTION 8.03 Amendments. These Amended and Restated Bylaws, or any
-----------
of them, may be altered, amended or repealed, and new Amended and Restated
Bylaws may be made, (i) by the Board, by vote of a majority of the number of
directors then in office as directors, acting at any meeting of the Board, or
(ii) by the stockholders, at any annual meeting of stockholders, without
previous notice, or at any special meeting of stockholders; provided that notice
-------- ----
of such proposed amendment, modification, repeal or adoption is given in the
notice of special meeting. Any of the Amended and Restated Bylaws made or
altered by the stockholders may be altered or repealed by either the Board or
the stockholders.
14
<PAGE>
CERTIFICATE OF OFFICER
The undersigned, being the duly elected Executive Vice President and
Secretary of Metro-Goldwyn-Mayer Inc., a Delaware corporation, hereby certifies
that the Amended and Restated Bylaws to which this Certificate is attached were
duly adopted by the Board of Directors of said Corporation as of the ____ day of
___________, l997.
--------------------------
Name: William Allen Jones
15
<PAGE>
EXHIBIT 10.3
[EXECUTION COPY]
$1,300,000,000
AMENDED AND RESTATED CREDIT AGREEMENT
dated as of
October 15, 1997
among
Metro-Goldwyn-Mayer Studios Inc.,
Orion Pictures Corporation,
The Lenders Listed Herein,
The L/C Issuers Named Herein,
Morgan Guaranty Trust Company of New York,
as Agent
and
Bank of America National Trust and Savings Association,
as Syndication Agent
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
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<S> <C>
ARTICLE 1
- ---------
Definitions
-----------
Section 1.01. Definitions................................................... 1
Section 1.02. Accounting Terms and Determinations........................... 28
Section 1.03. Classes and Types of Loans and Borrowings..................... 28
ARTICLE 2
- ---------
The Credits
-----------
Section 2.01. Commitments to Lend........................................... 29
Section 2.02. Method of Borrowing........................................... 33
Section 2.03. Notes......................................................... 34
Section 2.04. Maturity of Loans; Mandatory Prepayments; Certain
Commitment Reductions........................................ 35
Section 2.05. Interest Rates................................................ 41
Section 2.06. Fees.......................................................... 42
Section 2.07. Optional Termination or Reduction of Commitments
Section 2.08. Method of Electing Interest Rates............................. 43
Section 2.09. Mandatory Termination of Commitments.......................... 45
Section 2.10. Optional Prepayments.......................................... 45
Section 2.11. General Provisions as to Payments............................. 46
Section 2.12. Funding Losses................................................ 46
Section 2.13. Computation of Interest and Fees.............................. 47
Section 2.14. Letters of Credit............................................. 47
ARTICLE 3
- ---------
Conditions
----------
Section 3.01. Effective Date................................................ 50
Section 3.02. Consequences of Effectiveness................................. 53
Section 3.03. Borrowings and Issuances of Letters of Credit................. 53
ARTICLE 4
- ---------
Representations and Warranties
------------------------------
Section 4.01. Corporate Existence and Power................................. 54
Section 4.02. Corporate and Governmental Authorization; No Contravention.... 54
Section 4.03. Binding Effect................................................ 55
Section 4.04. Financial Information; Information Memorandum................. 55
Section 4.05. Litigation.................................................... 56
</TABLE>
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<S> <C>
Section 4.06. Compliance with ERISA......................................... 56
Section 4.07. Environmental Compliance...................................... 57
Section 4.08. Taxes......................................................... 57
Section 4.09. Subsidiaries.................................................. 58
Section 4.10. Regulatory Restrictions on Borrowing.......................... 58
Section 4.11. Full Disclosure............................................... 58
Section 4.12. Intellectual Property......................................... 58
Section 4.13. Collateral Documents.......................................... 59
Section 4.14. Solvency...................................................... 59
ARTICLE 5
- ---------
Covenants
---------
Section 5.01. Information................................................... 59
Section 5.02. Payment of Obligations........................................ 62
Section 5.03. Maintenance of Property; Insurance............................ 62
Section 5.04. Conduct of Business and Maintenance of Existence.............. 63
Section 5.05. Compliance with Laws.......................................... 63
Section 5.06. Inspection of Property, Books and Records..................... 63
Section 5.07. Mergers and Sales of Assets; Licensing Agreements............. 64
Section 5.08. Use of Proceeds............................................... 65
Section 5.09. Negative Pledge............................................... 65
Section 5.10. Limitation on Debt............................................ 68
Section 5.11. Adjusted EBITDA to Cash Interest Expense...................... 69
Section 5.12. Total Borrowed Funds to Adjusted EBITDA....................... 70
Section 5.13. Total Borrowed Funds/Library Cash Flow........................ 70
Section 5.14. Maximum Capital Expenditures.................................. 71
Section 5.15. Minimum Combined Adjusted Net Worth........................... 72
Section 5.16. Operating Lease Payments...................................... 72
Section 5.17. Restricted Payments........................................... 72
Section 5.18. Investments................................................... 74
Section 5.19. Transactions with Affiliates.................................. 76
Section 5.20. Limitation on Restrictions Affecting Subsidiaries............. 77
Section 5.21. MGM Debt...................................................... 78
Section 5.22. Hedging Facilities............................................ 78
Section 5.23. Further Assurances............................................ 78
Section 5.24. Minimum Number of Films....................................... 80
ARTICLE 6
- ---------
Defaults
--------
Section 6.01. Events of Default............................................. 80
</TABLE>
ii
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<S> <C>
Section 6.02. Notice of Default............................................. 84
Section 6.03. Cash Cover.................................................... 84
ARTICLE 7
- ---------
The Agents
----------
Section 7.01. Appointment and Authorization................................. 85
Section 7.02. Agents and Affiliates......................................... 85
Section 7.03. Action by Agents.............................................. 85
Section 7.04. Consultation with Experts..................................... 85
Section 7.05. Liability of Agents........................................... 85
Section 7.06. Indemnification............................................... 86
Section 7.07. Credit Decision............................................... 86
Section 7.08. Successor Agents.............................................. 87
Section 7.09. Agents' Fees.................................................. 87
Section 7.10. Arrangers..................................................... 87
ARTICLE 8
- ---------
Change in Circumstances
-----------------------
Section 8.01. Basis for Determining Interest Rate Inadequate or Unfair...... 87
Section 8.02. Illegality.................................................... 88
Section 8.03. Increased Cost and Reduced Return............................. 88
Section 8.04. Taxes......................................................... 90
Section 8.05. Base Rate Loans Substituted for Affected Euro-Dollar Loans.... 92
Section 8.06. Substitution of Lender........................................ 92
ARTICLE 9
- ---------
Guaranty
--------
Section 9.01. The Guaranty.................................................. 93
Section 9.02. Guaranty Unconditional........................................ 93
Section 9.03. Discharge Only upon Payment in Full; Reinstatement In
Certain Circumstances........................................ 94
Section 9.04. Waiver by the Borrowers....................................... 94
Section 9.05. Subrogation................................................... 94
Section 9.06. Stay of Acceleration.......................................... 95
Section 9.07. Limitation on the Obligations................................. 95
</TABLE>
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<S> <C>
ARTICLE 10
- ----------
Miscellaneous
-------------
Section 10.01. Notices...................................................... 95
Section 10.02. No Waivers................................................... 96
Section 10.03. Expenses; Indemnification.................................... 96
Section 10.04. Sharing of Set-offs.......................................... 97
Section 10.05. Amendments and Waivers; Release of Guarantors
or Collateral............................................... 97
Section 10.06. Successors and Assigns....................................... 98
Section 10.07. Collateral................................................... 101
Section 10.08. Governing Law; Submission to Jurisdiction.................... 101
Section 10.09. Counterparts; Integration.................................... 101
Section 10.10. Waiver of Jury Trial......................................... 101
Section 10.11. Confidentiality.............................................. 102
</TABLE>
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SCHEDULES AND EXHIBITS
<TABLE>
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<S> <C>
Pricing Schedule
Commitment Schedule
Schedule 1.01 - Library Films
Schedule 4.05 - Material Litigation
Schedule 4.09 - Material Subsidiaries
Schedule 5.09 - Existing Liens
Schedule 5.10 - Outstanding Debt
Schedule 5.18 - Existing Investments
Schedule 5.19 - Transactional Agreements with Affiliates
Exhibit A - Note
Exhibit B - Borrower Pledge Agreement
Exhibit C - MGM Agreement
Exhibit D - Guarantor Pledge Agreement
Exhibit E - Borrower and Guarantor Security Agreement
Exhibit F - Subsidiary Guaranty Agreement
Exhibit G - Opinion of Gibson, Dunn & Crutcher LLP, counsel
for the Obligors
Exhibit H-1 - Opinion of Davis Polk & Wardwell, special counsel
for the Agents
Exhibit H-2 - Opinion of Amster, Rothstein & Ebenstein, special
counsel for the Agents
Exhibit I - Assignment and Assumption Agreement
Exhibit J - Capital Call Agreement
Exhibit K - Extension Agreement
Exhibit L - Section 8.04(d) Certificate
</TABLE>
<PAGE>
AMENDED AND RESTATED CREDIT AGREEMENT
AGREEMENT dated as of October 15, 1997 among METRO-GOLDWYN-MAYER STUDIOS
INC. (formerly known as Metro-Goldwyn-Mayer Inc.), ORION PICTURES CORPORATION,
the LENDERS listed on the signature pages hereof, the L/C ISSUERS named herein,
MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent and BANK OF AMERICA NATIONAL
TRUST AND SAVINGS ASSOCIATION, as Syndication Agent.
MGM Studios (as defined below), certain lenders, the L/C Issuers named
therein and Morgan Guaranty Trust Company of New York, as Agent, are parties to
a Credit Agreement dated as of October 10, 1996 (as originally in effect and as
amended from time to time prior to the Effective Date (as defined below), the
"ORIGINAL CREDIT AGREEMENT") under which loans are available to MGM Studios on
the terms and conditions set forth therein, and wish to amend the Original
Credit Agreement and restate it as so amended, effective upon the satisfaction
of the conditions specified in Section 3.01, as provided in this Amended and
Restated Credit Agreement (as so amended and restated, and as the same may be
amended from time to time after the Effective Date referred to below, this
"AGREEMENT"; references to the Agreement include, for periods prior to the
Effective Date, the Original Credit Agreement as in effect from time to time),
including without limitation by adding Orion (as defined below) as an additional
borrower, terminating the Commitments of certain Lenders, adding new Lenders and
revising the Commitments of the Lenders all as provided herein.
The parties hereto therefore agree as follows:
ARTICLE 1
Definitions
Section 1.01. Definitions. The following terms, as used herein, have the
following meanings:
"ACCEPTING TRANCHE B LENDERS" has the meaning set forth in Section
2.04(f)(iii).
"ADJUSTED LONDON INTERBANK OFFERED RATE" has the meaning set forth in
Section 2.05(b).
<PAGE>
"ADMINISTRATIVE QUESTIONNAIRE" means, with respect to each Lender, an
administrative questionnaire in the form prepared by the Agent and submitted to
the Agent (with a copy to the Borrowers) duly completed by such Lender.
"AFFILIATE" means (i) any Person that directly, or indirectly through one
or more intermediaries, controls either Borrower (a "CONTROLLING PERSON") or
(ii) any Bond Film Sale-Leaseback Company, any Single Purpose Subsidiary or any
other Person (other than any MGM/Orion Company) which is controlled by or is
under common control with a Controlling Person. As used herein, the term
"CONTROL" means possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of a Person, whether through
the ownership of voting securities, by contract or otherwise.
"AGENT" means Morgan Guaranty Trust Company of New York in its capacity as
agent for the Lenders under the Loan Documents, and its successors in such
capacity. References herein to "THE AGENTS", "EACH AGENT" and "ANY AGENT" shall
refer to both the Agent and the Syndication Agent, or either the Agent or the
Syndication Agent, as the context may require.
"APPLICABLE LENDING OFFICE" means, with respect to any Lender, (i) in the
case of its Base Rate Loans, its Domestic Lending Office and (ii) in the case of
its Euro-Dollar Loans, its Euro-Dollar Lending Office.
"ARRANGERS" means, collectively, J.P. Morgan Securities Inc. and
BancAmerica Securities, Inc., each in its capacity as arranger for the Lenders
under the Loan Documents.
"ASSET SALE" means any sale, lease, license or other disposition (including
any such transaction effected by way of merger or consolidation) (any of the
foregoing, for purposes of this definition, a "DISPOSITION") by any MGM/Orion
Company of any asset, including without limitation any sale-leaseback
transaction, whether or not involving a capital lease, but excluding (i)
dispositions of cash, cash equivalents and other cash management investments and
obsolete, unused or unnecessary equipment and undeveloped real estate, in each
case in the ordinary course of business, (ii) dispositions of any right, title
or interest in an individual Film (other than any Library Film) or slate of
Films (other than any Library Film) or Film Related Asset in the ordinary course
of business in connection with any Investment permitted under Section 5.18,
(iii) dispositions of any right, title or interest in an individual Film (other
than any Library Film) or slate of Films (other than any Library Film) or Film
Related Asset in the ordinary course of business in connection with any
financing permitted under Section 5.10(h), (iv) dispositions pursuant to a Sale-
Leaseback Transaction, (v) dispositions pursuant to a Licensing Agreement
permitted under Section 5.07(d)
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or (e), (vi) dispositions of inventory, including Film Related Assets, but
excluding any Film (including without limitation any Library Film), in the
ordinary course of business, (vii) dispositions of any right, title or interest
in an individual Film (other than any Library Film) or slate of Films (other
than any Library Film) or Film Related Asset in the ordinary course of business
pursuant to transactions constituting split-rights deals, coproduction deals or
cofinancing deals (as such terms are generally understood in the movie industry
on the Effective Date), (viii) dispositions of accounts receivables pursuant to
Receivables Financings entered into prior to June 30, 1996, (ix) dispositions to
either Borrower or any Guarantor and (x) dispositions of any Film Related
Assets, any Film (other than any Library Film) or slate of Films (other than any
Library Film) (any of the foregoing, for purposes of this clause (x), a
"DISPOSED ASSET") to any Single Purpose Subsidiary for the purpose of permitting
such Single Purpose Subsidiary to develop, produce, finance, acquire, distribute
or exploit such disposed asset so long as the cash consideration received by the
Borrower or the Subsidiary disposing of such disposed asset in any such
disposition is at least equal to the amount invested or spent by the MGM/Orion
Companies on or prior to the date of such disposition with respect to the
development, production, acquisition or financing of such disposed asset
(excluding from the calculation of such amount invested or spent overhead and
other selling, general and administrative costs); provided that a disposition of
assets not excluded by clauses (i) through (x) above during any Fiscal Year
shall not constitute an Asset Sale unless and until (and solely to the extent
that) the aggregate Net Cash Proceeds from such disposition, when combined with
all other such dispositions previously made during such Fiscal Year, exceeds
$7,500,000. The description of any transaction as not constituting an "ASSET
SALE" does not affect any limitation on such transaction imposed by Article 5
of this Agreement (other than Section 5.07(b)).
"ASSIGNEE" has the meaning set forth in Section 10.06(c).
"AVAILABLE REVOLVING COMMITMENT" means, for any Lender, (i) prior to a
Qualifying Equity Issuance Date, the lesser of such Lender's Revolving
Commitment and such Lender's Revolving Percentage of $400,000,000 and (ii) on
and after a Qualifying Equity Issuance Date, such Lender's Revolving Commitment.
"BASE RATE" means, for any day, a rate per annum equal to the higher of
(i) the Prime Rate for such day and (ii) the sum of 1/2 of 1% plus the Federal
Funds Rate for such day.
"BASE RATE LOAN" means a Loan which bears interest by reference to the Base
Rate pursuant to the applicable Notice of Borrowing or Notice of Interest Rate
Election or the provisions of Article 8.
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<PAGE>
"BASE RATE MARGIN" means a rate per annum determined in accordance with the
Pricing Schedule.
"BOND FILM SALE-LEASEBACK COMPANY" means Seventeen Leasing Corporation and
any other Subsidiary that has been established for the sole purpose of engaging
in and performing one or more Sale-Leaseback Transactions with respect to one or
more Bond Films (as defined in the definition of "Excluded Bond Property" in the
Security Agreement), in each case for so long as any such Person does not engage
in any business or conduct any activities other than Sale-Leaseback Transactions
with respect to one or more Bond Films.
"BORROWER" means either MGM Studios or Orion, as the context may require,
and "BORROWERS" means both of the foregoing (including, in any case as the
context may require, such Person with respect to its obligations as guarantor
under Article 9).
"BORROWER PLEDGE AGREEMENT" means the Amended and Restated Borrower Pledge
Agreement dated as of the Effective Date between the Borrowers, on the one hand,
and the Agent, substantially in the form of Exhibit B, and as further amended
from time to time.
"BORROWING" has the meaning set forth in Section 1.03.
"CAPITAL CALL AGREEMENT" means the Amended and Restated Capital Call
Agreement dated as of the Effective Date among Tracinda, Seven Network, MGM, the
Borrowers and the Agent, substantially in the form of Exhibit J hereto, and as
further amended from time to time.
"CLASS" has the meaning set forth in Section 1.03.
"CODE" means the Internal Revenue Code of 1986, as amended, or any
successor statute.
"COLLATERAL" means collateral subject to the Collateral Documents.
"COLLATERAL DOCUMENTS" means the Pledge Agreements, the Security Agreement,
any additional pledge agreements, security agreements or mortgages required to
be delivered pursuant to the Loan Documents and any instruments of assignment,
laboratory access letters or other instruments or agreements executed pursuant
to the foregoing.
"COMBINED ADJUSTED EBITDA" means for any period (i) Combined Adjusted Net
Income for such period plus (ii) to the extent deducted in
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<PAGE>
determining Combined Adjusted Net Income for such period, the sum of the
following amounts, in each case determined on a Combined Basis: (x) interest
expense, (y) income tax expense and (z) depreciation and amortization (other
than amortization of Film costs and participants' share), plus (iii) to the
extent not otherwise included in such Combined Adjusted Net Income, distribution
fees paid in cash and cash distributions in respect of capital stock actually
made during such period by Single Purpose Subsidiaries to, and received by, any
Combined Company that is not a Single Purpose Subsidiary, plus (iv) to the
extent deducted in determining Combined Adjusted Net Income for such period, (x)
the aggregate amount of inherent loss reserves established in such period under
Financial Accounting Standard Board Statement No. 53 (as in effect on the
Effective Date) ("FASB 53"), in respect of Films initially released or broadcast
in such period, (y) amortization of the film cost asset of Library Films, to the
extent such amortization is attributable to increases in the book value of such
Library Films pursuant to Accounting Principles Board Opinion 16 (as in effect
on the Effective Date) (including without limitation such increases prior to the
Effective Date) and (z) net losses (or minus net income) of Permitted Joint
Ventures allocated to the Borrowers and their respective Consolidated
Subsidiaries for such period, minus (v) an amount equal to the positive
difference, if any, between (A) pro forma amortization of Film costs for the
Combined Companies (other than any Single Purpose Subsidiary) in such period as
if no inherent loss reserves with respect to Films initially released or
broadcast after January 1, 1998 had been established under FASB 53 and (B)
actual amortization of Film costs for the Combined Companies (other than any
Single Purpose Subsidiary) in such period, all determined on a Combined Basis.
As used in this definition, "PERMITTED JOINT VENTURE" means a Person (other than
a Consolidated Subsidiary of either Borrower) (i) the common stock or other
equity interests of which are owned at least 20% but not more than 50% by the
MGM/Orion Companies and (ii) the Investments in which by the MGM/Orion Companies
are permitted under this Agreement.
"COMBINED ADJUSTED NET INCOME" means for any period (i) the net income of
the Combined Companies (other than any Single Purpose Subsidiaries) for such
period, determined in any event before payment of any dividends on the Investor
Preferred Stock or any other preferred stock plus (ii) to the extent deducted in
determining such net income, any Specified Non-Cash Charges minus (iii) any cash
payments made by the Combined Companies during such period with respect to items
for which any Specified Non-Cash Charges were taken in a prior period, all
determined on a Combined Basis minus (or plus) (iv) any extraordinary or other
non-recurring gain (or loss) or any gain (or loss) recognized in respect of any
asset sale outside of the ordinary course of business.
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<PAGE>
"COMBINED ADJUSTED NET WORTH" means at any date (i) the aggregate
stockholders' equity of the Combined Companies as reflected on the balance sheet
of the Combined Companies at such date (or as the same would be reflected on
such balance sheet if such balance sheet were prepared at such date on a
Combined Basis) plus (ii) the aggregate amount of Specified Non-Cash Charges
taken after September 30, 1996 minus (iii) the aggregate amount of cash payments
made by the Combined Companies after September 30, 1996 with respect to items
for which any Specified Non-Cash Charges have been taken after September 30,
1996 minus (iv) all amounts that are included as assets on such balance sheet at
such date (or as the same would be included on such balance sheet if such
balance sheet were prepared at such date) in respect of any Film produced or
acquired by either Borrower or any of their respective Consolidated Subsidiaries
which Film has not been released within 18 months following the date of
completion of principal photography thereof or, if later, the date of
acquisition thereof, all determined on a Combined Basis.
"COMBINED BASIS" has the meaning set forth in Section 1.02
"COMBINED CAPITAL EXPENDITURES" means for any period the gross additions to
property, plant and equipment and other capital expenditures of the Combined
Companies determined on a Combined Basis for such period.
"COMBINED CASH INTEREST EXPENSE" means for any period the cash interest
expense of the Combined Companies other than any Single Purpose Subsidiaries,
determined on a Combined Basis for such period.
"COMBINED COMPANIES" means (i) MGM Studios and its Consolidated
Subsidiaries and (ii) Orion and its Consolidated Subsidiaries. Unless the
context otherwise requires, whenever an amount is to be determined hereunder
with respect to the Combined Companies, such amount shall be determined on a
Combined Basis.
"COMBINED NET INCOME" means for any period (i) the net income of the
Combined Companies for such period, determined in any event before payment of
any dividends on the Investor Preferred Stock or any other preferred stock plus
(ii) to the extent deducted in determining such net income, any Specified Non-
Cash Charges minus (iii) any cash payments made by the Combined Companies during
such period with respect to items for which any Specified Non-Cash Charges were
taken in a prior period, all determined on a Combined Basis.
"COMMITMENT" means a Term Commitment, a Revolving Commitment or a Swing
Loan Commitment, and "COMMITMENTS" means any combination of the foregoing.
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"COMMITMENT FEE RATE" means a rate per annum determined in accordance with
the Pricing Schedule.
"COMMITMENT SCHEDULE" means the Schedule attached hereto identified as
such.
"COMMONLY CONTROLLED ENTITY" means an entity, whether or not incorporated,
which is under common control with either Borrower within the meaning of Section
4001 of ERISA or is part of a group which includes either Borrower and which is
treated as a single employer under Section 414(b) or (c) of the Code.
"CONSOLIDATED SUBSIDIARY" means, with respect to any Person, at any date,
any Subsidiary or other entity the accounts of which would be consolidated with
those of such Person in its consolidated financial statements if such statements
were prepared as of such date; unless otherwise specified, "CONSOLIDATED
SUBSIDIARY" means a Consolidated Subsidiary of either Borrower.
"CREDIT EXPOSURE" for any Lender at any time means the sum of (i) such
Lender's Revolving Commitment at such time or, if the Revolving Commitments
shall have been terminated, the sum, determined at such time, of (x) the
aggregate outstanding principal amount of such Lender's Revolving Loans plus (y)
such Lender's Percentage of the outstanding principal amount of the Swing Loans
plus (z) such Lender's Letter of Credit Liabilities plus (ii) the aggregate
outstanding principal amount of such Lender's Term Loans at such time.
"DEBT" of any Person means at any date, without duplication, (i) all
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments, (iii)
all obligations of such Person to pay the deferred purchase price of property or
services, except trade accounts payable arising in the ordinary course of
business, (iv) all obligations of such Person as lessee which are capitalized in
accordance with generally accepted accounting principles (including without
limitation any such obligations under Sale-Leaseback Transactions to the extent
that such obligations are capitalized in accordance with generally accepted
accounting principles), (v) all non-contingent obligations (and, for purposes of
Sections 5.09, 6.01(e) and 6.01(f), all contingent obligations) of such Person
to reimburse any Lender or other Person in respect of amounts paid under a
letter of credit or similar instrument, (vi) all Debt secured by a Lien on any
asset of such Person, whether or not such Debt is otherwise an obligation of
such Person and (vii) all Debt of others Guaranteed by such Person; provided
however, that (x) the "DEBT" of any Person does not include any (A) commitments
of such Person in connection with the development, production, acquisition,
distribution, exhibition
7
<PAGE>
or exploitation of Films, (B) guaranteed payment obligations of such Person of a
nature customary in the film industry of such Person under license agreements
with respect to the development, production, acquisition, distribution,
exhibition or exploitation of Films, (C) obligations of such Person in respect
of Profit Participations, Residuals and Deferred Payments payable to other
Persons in connection with the development, production, acquisition,
distribution, exhibition, exploitation or financing of Films, (D) obligations of
such Person in the nature of progress or installment payment obligations with
respect to a Film owed to the owner of such Film or cast, crew, writers,
distributors, directors, producers, owners of rights, bond companies or similar
Persons for such Film, in respect of the deferred purchase price of such Film or
rights to such Film, or services in, or in connection with, such Film (in the
case of each of (A), (B), (C) and (D) above, to the extent entered into in the
ordinary course of business of such Person and not otherwise constituting "DEBT"
of a type referred to in clauses (i) or (ii) above), (E) obligations of such
Person under performance or completion bonds which have been posted in the
ordinary course of business in connection with the development or production of
Films or (F) any Guarantee of any obligation referred to in clause (A), (B),
(C), (D) or (E) and (y) for purposes of Section 5.10 and the determination of
Total Borrowed Funds, the amount of "DEBT" of any MGM/Orion Company which
constitutes "DEBT" solely pursuant to clause (vii) of this definition because
such MGM/Orion Company is a partner in a partnership, shall be equal to the
principal or face amount of such Debt multiplied by such MGM/Orion Company's
percentage interest in such partnership, so long as such partnership is solvent
and paying and capable of paying its obligations as they become due.
"DEFAULT" means any condition or event which constitutes an Event of
Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.
"DEFERRED PAYMENTS" means deferred payments for services payable to cast,
crew, writers, distributors, directors, producers, owners of rights, bond
companies or similar Persons or payments to producers or investors, in
connection with the development, production, acquisition, distribution or
exploitation of Films or Film Related Assets, the amount or payment of which is
contingent upon the performance of such Films or Film Related Assets or deferred
to a fixed time, tied to the performance of such Film or Film Related Assets or
to the achievements of such Person with respect to such Film or Film Related
Asset.
"DEFERRED TRANCHE B UNSCHEDULED PREPAYMENT DATE" has the meaning set forth
in Section 2.04(f)(ii).
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"DERIVATIVES OBLIGATIONS" of any Person means all obligations of such
Person in respect of any rate swap transaction, basis swap, forward rate
transaction, commodity swap, commodity option, equity or equity index swap,
equity or equity index option, bond option, interest rate option, foreign
exchange transaction, cap transaction, floor transaction, collar transaction,
currency swap transaction, cross-currency rate swap transaction, currency option
or any other similar transaction (including any option with respect to any of
the foregoing transactions) or any combination of the foregoing transactions.
"DOMESTIC BUSINESS DAY" means any day except a Saturday, Sunday or other
day on which commercial banks in New York City or Los Angeles are authorized by
law to close.
"DOMESTIC LENDING OFFICE" means, as to each Lender, its office located at
its address set forth in its Administrative Questionnaire (or identified in its
Administrative Questionnaire as its Domestic Lending Office) or such other
office as such Lender may hereafter designate as its Domestic Lending Office by
notice to the Borrowers and the Agent.
"EFFECTIVE DATE" means the date this Agreement becomes effective in
accordance with Section 3.01.
"ENVIRONMENTAL LAWS" means any and all federal, state, local and foreign
statutes, laws, judicial decisions, regulations, ordinances, rules, judgments,
orders, decrees, plans, injunctions, permits, concessions, grants, franchises,
licenses, agreements and other governmental restrictions relating to the
environment, the effect of the environment on human health or to emissions,
discharges or releases of pollutants, contaminants, Hazardous Substances or
wastes into the environment including, without limitation, ambient air, surface
water, ground water, or land, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of pollutants, contaminants, Hazardous Substances or wastes or the
clean-up or other remediation thereof.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"EURO-DOLLAR BUSINESS DAY" means any Domestic Business Day on which
commercial banks are open for international business (including dealings in
dollar deposits) in London.
"EURO-DOLLAR LENDING OFFICE" means, as to each Lender, its office, branch
or affiliate located at its address set forth in its Administrative
Questionnaire (or identified in its Administrative Questionnaire as its Euro-
Dollar
9
<PAGE>
Lending Office) or such other office, branch or affiliate of such Lender as it
may hereafter designate as its Euro-Dollar Lending Office by notice to the
Borrowers and the Agent.
"EURO-DOLLAR LOAN" means (i) a Loan which bears interest at a Euro-Dollar
Rate pursuant to the applicable Notice of Borrowing or Notice of Interest Rate
Election or (ii) an overdue amount which was a Euro-Dollar Loan immediately
before it became overdue.
"EURO-DOLLAR MARGIN" means a rate per annum determined in accordance with
the Pricing Schedule.
"EURO-DOLLAR RATE" means a rate of interest determined pursuant to Section
2.05(b) on the basis of an Adjusted London Interbank Offered Rate.
"EURO-DOLLAR RESERVE PERCENTAGE" has the meaning set forth in Section
2.05(b).
"EVENT OF DEFAULT" has the meaning set forth in Section 6.01.
"EXCESS CASH FLOW" means, for any Fiscal Year, (a) the sum of (x) the
amount set forth opposite the caption "NET CASH PROVIDED BY OPERATING
ACTIVITIES" plus (or minus) (y) the amount set forth opposite the caption "NET
CASH PROVIDED (USED) BY INVESTING ACTIVITIES", in each case as set forth in the
statement of cash flows of the Combined Companies for such Fiscal Year minus (b)
the aggregate amount of scheduled principal repayments of the Term Loans made
pursuant to Sections 2.04(b) and (c) during such Fiscal Year minus (c) the
aggregate amount of optional repayments of the Term Loans made pursuant to
Section 2.10 minus (d) the aggregate amount of principal repayments of the Loans
made pursuant to Section 2.04(d) with respect to Asset Sales or the receipt of
Major Casualty Proceeds to the extent that the proceeds of any such Asset Sale
or Major Casualty Proceeds were added in determining the amounts referred to in
clauses (a)(x) or (a)(y) above for such Fiscal Year, minus (e) the aggregate
amount of scheduled principal payments of other Debt made during such Fiscal
Year (including the portion of any payments of Debt described in clause (iv) of
the definition thereof that is allocable to principal).
"EXCESS LICENSING PROCEEDS" means, in respect of any Material New Film
Licensing Agreement, the amount by which payments (other than (i) any payment
calculated by reference to the production budget or negative cost of a Film (a
"PRODUCTION PAYMENT"), (ii) any payment calculated by reference to performance
of a Film (a "PERFORMANCE PAYMENT") and (iii) any payment which constitutes an
advance with respect to a Production Payment or Performance Payment to be
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earned within 12 months after the date such advance is paid) (all such
nonexcluded payments, "NONCONTINGENT PAYMENTS") received by the MGM/Orion
Companies in any transaction year under such Material New Film Licensing
Agreement exceeds the sum of (x) the amount of the Noncontingent Payments that
would be received by the MGM/Orion Companies in such transaction year if such
Noncontingent Payments were made reasonably pro-rata over the period of
availability of the Films which are subject to such Material New Film Licensing
Agreement plus (y) the greater of (1) 10% of the aggregate amount of all
Noncontingent Payments to be made under such Material New Film Licensing
Agreement during the term thereof and (2) $12,000,000. As used herein,
"MATERIAL NEW FILM LICENSING AGREEMENT" means any Licensing Agreement or series
of related Licensing Agreements with respect to Films (other than Library Films)
or Film Related Assets (considered as a single agreement for purposes hereof) if
the aggregate amount of all payments payable with respect to such Licensing
Agreement or series of related Licensing Agreements during the term thereof (in
the case of any Performance Payments, as estimated by the relevant Borrower or
Borrowers in accordance with their customary practices) exceeds $60,000,000.
"EXISTING LENDER" means a "Lender" (as such term is defined in the Original
Credit Agreement) that is a party to the Original Credit Agreement immediately
prior to the effectiveness of this Agreement on the Effective Date.
"FEDERAL FUNDS RATE" means, for any day, the rate per annum (rounded
upward, if necessary, to the nearest 1/100th of 1%) equal to the weighted
average of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers on such day, as
published by the Federal Reserve Bank of New York on the Domestic Business Day
next succeeding such day, provided that (i) if such day is not a Domestic
Business Day, the Federal Funds Rate for such day shall be such rate on such
transactions on the next preceding Domestic Business Day as so published on the
next succeeding Domestic Business Day, and (ii) if no such rate is so published
on such next succeeding Domestic Business Day, the Federal Funds Rate for such
day shall be the average rate quoted to Morgan Guaranty Trust Company of New
York on such day on such transactions as determined by the Agent.
"FILM RELATED ASSET" means any right in and to any motion picture,
television product, literary work, dramatic work or musical work prior to the
time any such asset becomes a "FILM".
"FILMS" means motion pictures including, without limitation, feature films,
shorts, television programs, animated programs or other similar product, and the
components thereof (whether or not now known or recognized) to which
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any MGM/Orion Company owns any right, title or interest including, without
limitation, (i) the Library Films, (ii) works in progress comprising feature
length theatrical motion picture or television projects in principal photography
and/or post-production, projects completed but not yet released, and unreleased
or completed but undelivered pick-ups, (iii) underlying rights in and to the
literary, musical and dramatic and other material associated with or related to
or necessary to the exploitation of the works or projects referred to in clauses
(i) or (ii) including, without limitation, copyrights pertaining thereto, (iv)
to the extent related to the works or projects referred to in clauses (i) or
(ii), sequel, prequel and remake rights, all rights to novelization,
merchandising, character, serialization, games and interactive video, (v) all
other ancillary and subsidiary rights throughout the universe related to such
works and projects, (vi) all negative and positive film, soundtracks, optical,
audio, video and advertising materials and supplies associated with any of such
works or projects, and (vii) all contractual and other rights associated with or
related to such works or projects and the related ancillary and subsidiary
rights whether in any media now known or hereafter developed.
"FIRST-RUN FEATURE FILMS" means at any date any Films which have not
completed their initial theatrical release in the United States at such date.
"FISCAL QUARTER" means, for either Borrower, a fiscal quarter of such
Borrower, each of which shall end on the same date for each Borrower.
"FISCAL YEAR" means, for either Borrower, a fiscal year of such Borrower,
each of which shall end on December 31 of the relevant calendar year.
"FOREIGN SUBSIDIARY" means any Subsidiary of either Borrower which is not
incorporated or organized in the United States or in any State thereof.
"GROUP OF LOANS" means at any time a group of Loans of the same Class of
Loans consisting of (i) all such Loans to the same Borrower that are Base Rate
Loans at such time or (ii) all such Loans to the same Borrower that are Euro-
Dollar Loans having the same Interest Period at such time; provided that, if a
Loan of any particular Lender is converted to or made as a Base Rate Loan
pursuant to Article 8, such Loan shall be included in the same Group or Groups
of Loans from time to time as it would have been in if it had not been so
converted or made.
"GUARANTEE" by any Person means any obligation, contingent or otherwise, of
such Person directly or indirectly guaranteeing any Debt or other obligation of
any other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such
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Person (i) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Debt or other obligation (whether arising by virtue of
partnership arrangements, by agreement to keep-well, to purchase assets, goods,
securities or services, to take-or-pay, or to maintain financial statement
conditions or otherwise) or (ii) entered into for the purpose of assuring in any
other manner the holder of such Debt or other obligation of the payment thereof
or to protect such holder against loss in respect thereof (in whole or in part),
provided that the term Guarantee shall not include endorsements for collection
or deposit in the ordinary course of business. The term "GUARANTEE" used as a
verb has a corresponding meaning.
"GUARANTOR" means each Person who has executed the Subsidiary Guaranty, or
a supplement thereto as provided in Section 5.23.
"GUARANTOR PLEDGE AGREEMENT" means the Amended and Restated Guarantor
Pledge Agreement dated as of the Effective Date between each Guarantor party
thereto and the Agent, substantially in the form of Exhibit D hereto, and as
further amended from time to time.
"HAZARDOUS SUBSTANCES" means any toxic, radioactive, caustic or otherwise
hazardous substance, including petroleum, its derivatives, by-products and other
hydrocarbons, or any substance having any constituent elements displaying any of
the foregoing characteristics.
"HEDGING OBLIGATIONS" means all obligations of either Borrower to any
Lender or any affiliate of a Lender under (i) any interest rate swap agreement,
interest rate cap agreement or interest rate collar agreement, (ii) any foreign
exchange contract or currency swap agreement or (iii) any similar agreement or
arrangement of a type designed to protect either Borrower against fluctuations
in interest rates or currency exchange rates.
"INDEMNITEE" has the meaning set forth in Section 10.03(b).
"INFORMATION MEMORANDUM" means the confidential descriptive memorandum
dated September 1997 furnished to the Lenders in connection with the
transactions contemplated by the Loan Documents.
"INSOLVENCY" means, with respect to any Multiemployer Plan, the condition
that such Plan is insolvent within the meaning of Section 4245 of ERISA.
"INSOLVENT" means pertaining to a condition of Insolvency.
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"INTEREST PERIOD" means, with respect to each Euro-Dollar Loan, the period
commencing on the date of borrowing specified in the applicable Notice of
Borrowing or on the date specified in the applicable Notice of Interest Rate
Election and ending one, two, three or six months thereafter, as the Borrower
delivering such notice may elect in the applicable notice; provided that:
(a) any Interest Period which would otherwise end on a day which is
not a Euro-Dollar Business Day shall be extended to the next succeeding
Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in
another calendar month, in which case such Interest Period shall end on the
next preceding Euro-Dollar Business Day;
(b) any Interest Period which begins on the last Euro-Dollar Business
Day of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest Period)
shall, subject to clauses (c) and (d) below, end on the last Euro-Dollar
Business Day of the calendar month at the end of such Interest Period;
(c) if any Interest Period with respect to any Euro-Dollar Term Loan
includes a date on which a scheduled payment of principal of such Term
Loans is required to be made under Sections 2.04(b) or 2.04(c) but does
not end on such date, then (i) the principal amount of each Euro-Dollar
Term Loan required to be repaid on such date shall have an Interest Period
ending on such date and (ii) the remainder (if any) of each such Euro-
Dollar Term Loan shall have an Interest Period determined as set forth
above; and
(d) any Interest Period with respect to any Loan which would
otherwise end after the Maturity Date (as in effect on the first day of
such Interest Period) with respect to such Loan shall end on such Maturity
Date.
"INVESTMENT" means, with respect to any Person, any investment by such
Person in any other Person (including an Affiliate) in the form of direct or
indirect loans, Guarantees of Debt or other payment obligations, advances or
capital contributions, purchases or other acquisitions for consideration of
Debt, equity interests or other securities or warrants, options or other rights
to acquire equity interests or other securities and all other items that are
classified as investments on the balance sheet of such Person in accordance with
generally accepted accounting principles as in effect from time to time or that
would be so classified on such balance sheet if such balance sheet were prepared
at the relevant time.
"INVESTORS" means Tracinda and Seven Network.
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"INVESTOR PREFERRED STOCK" means the preferred stock of MGM in an aggregate
amount of $500,000,000 purchased by Tracinda and Seven Network on the Original
Effective Date.
"IPO REGISTRATION STATEMENT" means the Registration Statement of MGM for
the initial public offering of its common stock (including the exhibits
thereto), in the form filed with the Securities and Exchange Commission and as
the same may be amended from time to time prior to the Effective Date.
"L/C ISSUER" means Morgan Guaranty Trust Company of New York and any other
Revolving Lender that may agree with the Borrowers to issue letters of credit
hereunder (and shall have notified the Agent thereof), in each case as issuer of
a letter of credit hereunder.
"LENDER" means a Term Lender, a Revolving Lender or the Swing Lender and
shall include, as the context may require, any L/C Issuer in such capacity.
"LETTER OF CREDIT" means a letter of credit to be issued hereunder by an
L/C Issuer.
"LETTER OF CREDIT COMMITMENT" means, at any time, the lesser of (x)
$25,000,000 and (y) the aggregate Available Revolving Commitments at such time.
"LETTER OF CREDIT FEE RATE" has the meaning set forth in the Pricing
Schedule.
"LETTER OF CREDIT LIABILITIES" means, for any Revolving Lender and at any
time, such Revolving Lender's Revolving Percentage of the sum of (x) the
aggregate unreimbursed amount then owing by the Borrowers in respect of amounts
drawn under all Letters of Credit and (y) the aggregate amount then available
for drawing under all Letters of Credit.
"LEVERAGE RATIO" means, on any date, the ratio of (i) Total Borrowed Funds
on such date to (ii) Combined Adjusted EBITDA for the period of four consecutive
Fiscal Quarters most recently ended on or prior to such date (or, if greater,
solely for any date prior to December 31, 1998 and solely in the case of any
determination required for purposes of Section 5.12 and the Pricing Schedule,
Combined Adjusted EBITDA for the period from and including January 1, 1998 to
and including the last day of the Fiscal Quarter most recently ended on or prior
to such date, annualized on a simple arithmetic basis).
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"LIBRARY CASH FLOWS" means for any period the aggregate amount of cash
received by the Combined Companies during such period (determined on a Combined
Basis) with respect to Films that were Library Films during such period and
either (i) were also Library Films on the Effective Date or (ii) have been
released by an MGM/Orion Company on or prior to August 31, 1997.
"LIBRARY FILMS" means the films listed on Schedule 1.01 and all other Films
other than (and only for so long as such Films are) First-Run Feature Films.
"LICENSING AGREEMENTS" means any licensing agreements now outstanding or
hereafter executed pursuant to which any MGM/Orion Company grants or licenses to
third parties any right, title or interest with respect to any Film Related
Asset, any Film or any group of Films, as the same may be amended, supplemented
or otherwise modified from time to time.
"LIEN" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind, or any other type of
preferential arrangement that has the practical effect of creating a security
interest, in respect of such asset. For the purposes of this Agreement, any
MGM/Orion Company shall be deemed to own subject to a Lien any asset which it
has acquired or holds subject to the interest of a vendor or lessor under any
conditional sale agreement, capital lease or other title retention agreement
relating to such asset.
"LOAN" means a Base Rate Loan or a Euro-Dollar Loan and "LOANS" means Base
Rate Loans or Euro-Dollar Loans or any combination of the foregoing.
"LOAN DOCUMENTS" means this Agreement, the Notes, the MGM Agreement, the
Capital Call Agreement, the Subsidiary Guaranty and the Collateral Documents.
"LONDON INTERBANK OFFERED RATE" has the meaning set forth in Section
2.05(b).
"MAJOR CASUALTY PROCEEDS" means (i) the aggregate insurance proceeds
received in connection with one or more related events by any MGM/Orion Company
under any insurance policy maintained by either Borrower or any of their
respective Subsidiaries covering casualty losses with respect to tangible real
or personal property or improvements or (ii) any award or other compensation
with respect to any condemnation of property (or any transfer or disposition of
property in lieu of condemnation) received by either Borrower or any of their
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respective Subsidiaries, in either case only if the amount of such aggregate
proceeds or award or other compensation exceeds $10,000,000.
"MANAGEMENT STOCK INCENTIVE PLAN" means the 1996 Management Stock Option
and Bonus Plan of MGM as in effect on the Original Effective Date, and as the
same may be amended or replaced on terms substantially as disclosed in the IPO
Registration Statement and otherwise substantially as made available to the
Lenders prior to the Effective Date.
"MANCUSO EMPLOYMENT AGREEMENT" means the employment agreement between
Frank G. Mancuso and MGM Studios as in effect on the Original Effective Date,
and as the same may be amended or replaced on terms substantially as disclosed
in the IPO Registration Statement and otherwise substantially as made available
to the Lenders prior to the Effective Date.
"MATERIAL ADVERSE EFFECT" means (i) any material adverse effect upon the
assets or liabilities, or the business, financial position or results of
operations of the Borrowers and their respective Subsidiaries, taken as a whole;
(ii) prior to the Effective Date, a material adverse effect on the ability of
either Borrower or any other Person to consummate the transactions contemplated
hereby to occur on the Effective Date; (iii) a material adverse effect on the
ability of the Obligors to perform their obligations under this Agreement and
the Notes and the other Loan Documents, taken as a whole; or (iv) an adverse
effect on the rights and remedies of the Agents and the Lenders under this
Agreement and the Notes and the other Loan Documents.
"MATERIAL SUBSIDIARY" means at any date any Subsidiary of either Borrower,
other than (a) any such Subsidiary which has (i) aggregate assets with a fair
market value of less than $1,000,000 and (ii) annual revenues of less than
$1,000,000, in each case calculated on the basis of the latest financial
statements delivered by the Borrowers to the Lenders pursuant to Section
4.04(b), 5.01(a) or 5.01(b), as the case may be and (b) any Bond Film Sale-
Leaseback Company.
"MATURITY DATE" means, (i) with respect to the Tranche A Loans, March 31,
2005, (ii) with respect to the Tranche B Loans, March 31, 2006, (iii) with
respect to the Revolving Loans, the Revolver Maturity Date, (iv) with respect to
the Swing Loans, the Swing Termination Date and (v) with respect to the Letters
of Credit, the Revolver Maturity Date (or, if any such day is not a Euro-Dollar
Business Day, the next succeeding Euro-Dollar Business Day).
"MGM" means Metro-Goldwyn-Mayer Inc. (formerly known as P&F Acquisition
Corp.), a Delaware corporation, and its successors.
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"MGM AGREEMENT" means the Amended and Restated Holdings Agreement dated as
of the Effective Date between MGM and the Agent, substantially in the form of
Exhibit C hereto, and as further amended from time to time.
"MGM DEBT" means any Debt issued by MGM.
"MGM DEBT INCURRENCE" means the incurrence by MGM of any MGM Debt, other
than (i) the incurrence by MGM of any MGM Debt the proceeds of which are applied
to refinance other MGM Debt outstanding immediately prior to the incurrence
thereof, (ii) the incurrence by MGM of any MGM Debt owed to either Borrower, but
solely to the extent the proceeds of such MGM Debt are applied to pay MGM
Expenses permitted by Section 5.17(d) and (iii) the incurrence by MGM of any MGM
Debt pursuant to the MGM Management Notes.
"MGM EXPENSES" has the meaning set forth in Section 5.17(d).
"MGM MANAGEMENT NOTES" has the meaning set forth in the MGM Agreement.
"MGM/ORION COMPANY" means either Borrower or any of their respective
Subsidiaries, and "MGM/ORION COMPANIES" means all or any combination of the
foregoing, as the context may require.
"MGM STUDIOS" means Metro-Goldwyn-Mayer Studios Inc. (formerly known as
Metro-Goldwyn-Mayer Inc.), a Delaware corporation, together with its successors.
"MULTIEMPLOYER PLAN" means a Plan which is a multiemployer plan as defined
in Section 4001(a)(3) of ERISA.
"NET CASH PROCEEDS" means, with respect to any Reduction Event, an amount
equal to the cash proceeds received by any MGM/Orion Company or MGM from or in
respect of such Reduction Event (including any cash proceeds received as income
or other proceeds of any noncash proceeds of any Asset Sale), less (x) any
expenses reasonably incurred by such Person in respect of such Reduction Event
(including, without limitation, if such Reduction Event constitutes the issuance
and sale of securities, underwriters' discounts or commissions and expenses) and
(y) if such Reduction Event is an Asset Sale or the receipt of Major Casualty
Proceeds, (i) the amount of any Debt secured by a Lien on any asset disposed of
in such Asset Sale or in respect of which such Major Casualty Proceeds are
received and discharged or required to be repaid (and
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actually so repaid) from the proceeds thereof and (ii) any taxes actually paid
or to be payable by such Person (as estimated by a senior financial or
accounting officer of the relevant Borrower or Borrowers, giving effect to the
overall tax position of the Borrowers) in respect of such Asset Sale.
"NOTES" means promissory notes of either Borrower, substantially in the
form of Exhibit A hereto, evidencing the obligation of such Borrower to repay
the Loans made to it, and "NOTE" means any one of such promissory notes issued
hereunder.
"NOTICE OF BORROWING" has the meaning set forth in Section 2.02(a).
"NOTICE OF INTEREST RATE ELECTION" has the meaning set forth in Section
2.08(a).
"NOTICE OF ISSUANCE" has the meaning set forth in Section 2.14(b).
"OBLIGOR" means each Borrower and each Guarantor.
"ORIGINAL CREDIT AGREEMENT" has the meaning set forth in the introductory
paragraphs hereof.
"ORIGINAL EFFECTIVE DATE" means October 10, 1996.
"ORION" means Orion Pictures Corporation, a Delaware corporation, together
with its successors.
"ORION CREDIT AGREEMENT" means the Credit Agreement dated as of July 10,
1997 among Orion, the lenders from time to time party thereto, the "L/C Issuers"
named therein and Morgan Guaranty Trust Company of New York, as agent, as in
effect immediately prior to the Effective Date.
"PARENT" means, with respect to any Lender, any Person controlling such
Lender.
"PARTICIPANT" has the meaning set forth in Section 10.06(b).
"PBGC" means the Pension Benefit Guaranty Corporation established pursuant
to Subtitle A of Title IV of ERISA.
"PERSON" means an individual, a corporation, a limited liability company, a
partnership, an association, a trust or any other entity or organization,
including a government or political subdivision or an agency or instrumentality
thereof.
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"PLAN" means, at any time, any employee benefit plan which is covered by
ERISA and in respect of which MGM or a Commonly Controlled Entity is (or, if
such plan were terminated at such time, would under Section 4069 of ERISA be
deemed to be) an "EMPLOYER" as defined in Section 3(5) of ERISA.
"PLEDGE AGREEMENT" means the Borrower Pledge Agreement or any Guarantor
Pledge Agreement.
"PRICING SCHEDULE" means the Schedule attached hereto identified as such.
"PRIME RATE" means the rate of interest publicly announced by Morgan
Guaranty Trust Company of New York in New York City from time to time as its
Prime Rate.
"PROFIT PARTICIPATION" means the amount, as customarily determined by the
Borrowers or either of them, of all obligations (other than Residuals and
Deferred Payments) payable by any MGM/Orion Company as compensation for talent
or to producers and for similar services in connection with the development,
acquisition, production, financing, distribution, exhibition or exploitation of
Films or rights with respect thereto, the payment of which is contingent upon or
triggered by and payable only to the extent of the receipt by any MGM/Orion
Company, as the case may be, of revenues from the exploitation of such Film or
such rights.
"QUALIFYING EQUITY ISSUANCE" means one or more issuances of common stock
by, or contributions to the common equity capital of, MGM after the Effective
Date to or by a Person other than any MGM/Orion Company, the gross cash proceeds
of which are at least $250,000,000 and all of the net cash proceeds of which
(determined by deducting from gross cash proceeds only reasonable fees and
expenses of such issuance, including reasonable underwriters' or placement
agents' discounts, if applicable) are forthwith contributed to the equity
capital of one or both Borrowers (which contribution is represented solely by an
increase in the equity capital account of MGM or by the issuance to MGM of
additional common stock of the Borrowers), and which are represented solely by
the increase of the equity capital account of each Person in MGM, or by the
issuance of MGM common stock or preferred stock that does not provide for
payment of any cash dividends or rights of redemption at the option of the
holder thereof prior to 2007.
"QUALIFYING EQUITY ISSUANCE DATE" means the date of consummation of a
Qualifying Equity Issuance.
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"QUARTERLY DATES" means each March 31, June 30, September 30 and
December 31.
"RECEIVABLES FINANCING" means any receivables securitization program or
other type of accounts receivable financing transaction by a Person.
"REDUCTION AMOUNT" means:
(i) in respect of any Asset Sale, 100% of the Net Cash Proceeds
thereof;
(ii) in respect of any incurrence by any MGM/Orion Company of any
Debt that constitutes a Reduction Event or the receipt of Major Casualty
Proceeds that constitutes a Reduction Event, 100% of the Net Cash Proceeds
thereof;
(iii) in respect of any MGM Debt Incurrence, (x) to the extent that
the aggregate amount of Net Cash Proceeds with respect to such MGM Debt
Incurrence and all other MGM Debt Incurrences consummated prior to or
contemporaneously therewith and prior to the earlier of (A) the second
anniversary of the Original Effective Date and (B) the Qualifying Equity
Issuance Date do not exceed $200,000,000, 50% of the Net Cash Proceeds
thereof (the 50% of any such Net Cash Proceeds not so paid solely pursuant
to this clause, the "UNPAID PROCEEDS"), (y) if such MGM Debt Incurrence is
on or after the Qualifying Equity Issuance Date, an amount equal to the
excess (if any) of (I) the aggregate Net Cash Proceeds thereof and of all
other MGM Debt Incurrences consummated prior to or contemporaneously
therewith and on or after the Qualifying Equity Issuance Date over (II) the
Remaining Excluded Amount and (z) in every other instance, 100% of the Net
Cash Proceeds thereof (as used in this clause (iii), "REMAINING EXCLUDED
AMOUNT" means with respect to any MGM Debt Incurrence, $250,000,000 minus
the aggregate Unpaid Proceeds of all previous MGM Debt Incurrences governed
by clause (x) above);
(iv) in respect of Excess Cash Flow (a) for any of the 1997 Fiscal
Year, 1998 Fiscal Year or 1999 Fiscal Year (any such Fiscal Year, an "EARLY
FISCAL YEAR"), the Applicable Percentage of the amount of Excess Cash Flow
for such Early Fiscal Year (any such amount, the "SWEEP AMOUNT") but only
if, and solely to the extent that, the Sweep Amount for such Early Fiscal
Year plus the positive difference (if any) between (I) the Sweep Amount for
each prior Early Fiscal Year (if any) and (II) the aggregate principal
amount of the Loans prepaid pursuant to Section
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2.04(d)(i)(B) (if any) in respect of such prior Early Fiscal Years, exceeds
$50,000,000 and (b) for any Fiscal Year thereafter, the Applicable
Percentage of Excess Cash Flow for such Fiscal Year (as used in this clause
(iv), "APPLICABLE PERCENTAGE" in respect of any Fiscal Year means 75% or,
if the Leverage Ratio on the last day of such Fiscal Year was not greater
than 4.5 to 1, 50%); and
(v) in respect of any certification as to anticipated reinvestment
of Major Casualty Proceeds set forth in any Proceeds Certificate being no
longer true, 100% of the Net Cash Proceeds from the relevant receipt of
Major Casualty Proceeds not invested prior to such date to repair or
replace affected assets and (vi) in respect of receipt of Excess Licensing
Proceeds, 100% of the amount thereof.
"REDUCTION EVENT" means (i) any Asset Sale, (ii) the incurrence of any Debt
by any MGM/Orion Company (other than Debt permitted under Section 5.10), (iii)
any MGM Debt Incurrence, (iv) receipt of Major Casualty Proceeds, unless, within
5 Domestic Business Days after receipt thereof, the Borrower receiving such
Major Casualty Proceeds shall have delivered to the Agent a certificate (a
"PROCEEDS CERTIFICATE") of the chief financial officer or the chief accounting
officer of such Borrower, certifying as to (x) the aggregate amount of such
Major Casualty Proceeds and (y) the fact that the MGM/Orion Companies shall
invest such Major Casualty Proceeds to repair or replace affected assets with
180 days after receipt thereof, (v) the first day on which any certification
made pursuant to any Proceeds Certificate shall cease to be true and (vi)
receipt of Excess Licensing Proceeds. The description of any transaction as
falling within the above definition does not affect any limitation on such
transaction imposed by Article 5 of this Agreement or any rights of any Lender
upon the occurrence of an Event of Default under Article 6 of this Agreement.
"REFERENCE LENDERS" means the principal London offices of Bank of America
National Trust and Savings Association, Societe Generale and Morgan Guaranty
Trust Company of New York, and "REFERENCE LENDER" means any one of such
Reference Lenders.
"REFUNDED SWING LOANS" has the meaning set forth in Section 2.01(c).
"REGULATION U" means Regulation U of the Board of Governors of the Federal
Reserve System, as in effect from time to time.
"REPORTABLE EVENT" means any of the events set forth in Section 4043(b) of
ERISA, other than those events as to which the thirty day notice period is
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waived under subsections .13, .14, .16, .18, .19 or .20 of PBGC Reg. Section
2615.
"REQUIRED LENDERS" means at any time Lenders having in the aggregate
greater than 50% of the aggregate Credit Exposures at such time.
"RESIDUALS" means the amount, as reasonably determined by the Borrowers, or
either of them, of all obligations (other than Profit Participations and
Deferred Payments) payable by any MGM/Orion Company pursuant to guild agreements
or other collective bargaining agreements in connection with the development,
acquisition, production, financing, distribution, exhibition or exploitation of
Films or rights with respect thereto.
"RESPONSIBLE OFFICER" means, with respect to either Borrower, any senior
vice president of such Borrower, and any more senior corporate officer of such
Borrower, in any case appointed to such office by the Board of Directors of such
Borrower or any committee thereof.
"RESTRICTED PAYMENT" means (i) any dividend or other distribution on any
shares of either Borrower's capital stock (except dividends payable solely in
shares of such Borrower's capital stock) or (ii) any payment by any MGM/Orion
Company on account of the purchase, redemption, retirement or acquisition of (a)
any shares of either Borrower's capital stock or (b) any option, warrant or
other right to acquire shares of either Borrower's capital stock (but not
including payments of principal, premium (if any) or interest made pursuant to
the terms of convertible debt securities prior to conversion).
"REVOLVER MATURITY DATE" means September 30, 2003 or such later date to
which the Revolver Maturity Date shall have been extended pursuant to Section
2.04(a)(ii) (or, if any such day is not a Euro-Dollar Business Day, the next
preceding Euro-Dollar Business Day).
"REVOLVING COMMITMENT" means, (i) with respect to each Revolving Lender
listed on the Commitment Schedule, the amount set forth opposite the name of
such Revolving Lender on the Commitment Schedule under the heading "REVOLVING
COMMITMENTS" and (ii) with respect to each Assignee that becomes a Revolving
Lender pursuant to Section 10.06(c), the amount of the Revolving Commitment
thereby assumed by it, in each case as such amount may be increased or reduced
from time to time pursuant to Section 10.06(c) or reduced from time to time
pursuant to Sections 2.04(d) and 2.07.
"REVOLVING CREDIT PERIOD" means the period from and including the Original
Effective Date to but not including the Revolver Maturity Date.
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"REVOLVING EXPOSURE" means, with respect to each Revolving Lender, at any
time, an amount equal to the sum of (i) the aggregate principal amount of the
Revolving Loans of such Revolving Lender outstanding at such time, (ii) such
Revolving Lender's Revolving Percentage of the aggregate principal amount of the
Swing Loans outstanding at such time and (iii) such Revolving Lender's Letter of
Credit Liabilities at such time.
"REVOLVING LENDER" means each Lender identified as a Revolving Lender on
the Commitment Schedule, each Assignee which becomes a Revolving Lender pursuant
to Section 10.06(c), and their respective successors.
"REVOLVING LOAN" means a loan made by a Revolving Lender pursuant to
Section 2.01(c).
"REVOLVING PERCENTAGE" means, with respect to each Revolving Lender, at any
time, the percentage that such Revolving Lender's Revolving Commitment
constitutes of the aggregate amount of the Revolving Commitments at such time.
"SALE-LEASEBACK TRANSACTION" means the sale by any MGM/Orion Company of all
of its right, title and interest in and to a Film and the retention by, or
concurrent reconveyance to such Borrower or such Subsidiary of distribution
rights to such Film and an option to repurchase such Film, in consideration of
one or more payments by such Borrower or such Subsidiary of amounts having an
aggregate discounted present value that is less than the purchase price paid by
the purchaser thereof; provided that, concurrently with such reconveyance, such
Borrower or such Subsidiary has defeased its obligation to make the aggregate
amount of such payments.
"SECURITY AGREEMENT" means the Amended and Restated Borrower and Guarantor
Security Agreement dated as of the Effective Date among the Obligors party
thereto and the Agent, substantially in the form of Exhibit E hereto, and as
further amended from time to time.
"SEVEN NETWORK" means Seven Network Limited ("SNL"), an Australian
corporation and, for so long as it is a wholly-owned subsidiary of SNL,
Miltonstar Pty Ltd., an Australian corporation, and their respective successors.
"SINGLE EMPLOYER PLAN" means any Plan which is covered by Title IV of
ERISA, but which is not a Multiemployer Plan.
"SINGLE PURPOSE SUBSIDIARY" means at any date any Subsidiary of a Borrower
(other than a Foreign Subsidiary) (i) that has been established for the sole
purpose of, and does not engage in any business or conduct any activities
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other than, the development, production, financing, acquisition, distribution or
exploitation of any one Film or slate of Films (other than Films that are
Library Films determined for this purpose solely at the time of transfer thereof
to such Subsidiary) or any Film Related Asset and (ii) no Debt or other
obligation of which Subsidiary is Guaranteed or otherwise supported by either
Borrower or any other Subsidiary (other than any other Single Purpose
Subsidiary) or subjects any asset of either Borrower or any other Subsidiary
(other than any other Single Purpose Subsidiary) directly or indirectly,
contingently or otherwise, to the satisfaction thereof.
"SPECIFIED NON-CASH CHARGES" means any non-cash charges with respect to
stock options and "BONUS INTERESTS", in each case granted pursuant to the
Management Stock Incentive Plan or with respect to stock issued to Frank G.
Mancuso under the Mancuso Employment Agreement.
"SUBSIDIARY" means, as to any Person, any corporation or other entity of
which securities or other ownership interests having ordinary voting power to
elect a majority of the board of directors or other persons performing similar
functions are at the time directly or indirectly owned by such Person; unless
otherwise specified, "SUBSIDIARY" means a Subsidiary of either Borrower.
"SUBSIDIARY GUARANTY" means the Amended and Restated Subsidiary Guaranty
Agreement dated as of the Effective Date between each Guarantor party thereto
and the Agent, substantially in the form of Exhibit F hereto, and as further
amended from time to time.
"SWING CREDIT PERIOD" means the period from and including the first
Domestic Business Day after the Original Effective Date to but not including the
Swing Termination Date.
"SWING LENDER" means Morgan Guaranty Trust Company of New York, in its
capacity as the Swing Lender under the swing loan facility described in Section
2.01(d), and its successors in such capacity.
"SWING LOAN" means a Loan made by the Swing Lender pursuant to Section
2.01(d).
"SWING LOAN COMMITMENT" means $10,000,000 or, if less, the aggregate amount
of the Available Revolving Commitments.
"SWING TERMINATION DATE" means the earlier of (i) August 31, 2003 or such
later date to which the Swing Termination Date shall have been extended pursuant
to Section 2.04(a)(ii) (or, if such day is not a Domestic Business Day, the
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next preceding Domestic Business Day) and (ii) the date of termination of
the Revolving Commitments in their entirety.
"SWING LOAN REFUND AMOUNT" has the meaning set forth in Section 2.01(e).
"SYNDICATION AGENT" means Bank of America National Trust and Savings
Association in its capacity as syndication agent for the Lenders under the Loan
Documents, and its successors in such capacity.
"TARGET DATE" means the first date on which the Leverage Ratio at the last
day of each of the two Fiscal Quarters most recently ended on or prior to such
date does not exceed 2.5 to 1.
"TEMPORARY CASH INVESTMENT" means any Investment in (i) direct obligations
of the United States or any agency thereof, or obligations guaranteed by the
United States or any agency thereof, (ii) commercial paper rated at least A-2 by
Standard & Poor's Ratings Services or P-2 by Moody's Investors Service, Inc.,
(iii) time deposits with, including certificates of deposit issued by, any
office located in the United States of any bank or trust company which is
organized under the laws of the United States or any state thereof and has
capital, surplus and undivided profits aggregating at least $500,000,000 or (iv)
repurchase agreements with respect to securities described in clause (i) above
entered into with an office of any bank or trust company meeting the criteria
specified in clause (iii) above, provided in each case that such Investment
matures within one year from the date of acquisition thereof by any MGM/Orion
Company.
"TERM COMMITMENT" means a Tranche A Commitment or a Tranche B Commitment.
"TERM LENDER" means a Tranche A Lender or a Tranche B Lender.
"TERM LOAN" means a Tranche A Loan or a Tranche B Loan.
"TERMINATING LENDER" means each Lender that is an Existing Lender but is
not a Lender upon the effectiveness of this Agreement on the Effective Date.
"TOTAL BORROWED FUNDS" means at any date the aggregate amount of Debt of
the Combined Companies described in clauses (i) and (ii) and (iv) of the
definition of Debt (but excluding (a) any obligations under Sale-Leaseback
Transactions which constitute Debt under clause (iv) of the definition thereof,
(b) Debt of any Single Purpose Subsidiary, so long as such Debt complies with
the
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<PAGE>
provisions of clause (ii) of the definition of Single Purpose Subsidiary and
(c) the MGM Management Notes), determined on a Combined Basis at such date.
"TRACINDA" means Tracinda Corporation, a Nevada corporation, and its
successors.
"TRANCHE A COMMITMENT" means, (i) with respect to each Tranche A Lender
listed on the Commitment Schedule, the amount set forth opposite the name of
such Tranche A Lender on the Commitment Schedule under the heading "TRANCHE A
COMMITMENTS" and (ii) with respect to each Assignee that becomes a Tranche A
Lender pursuant to Section 10.06(c), the amount of the Tranche A Commitment
thereby assumed by it, in each case as such amount may be increased or reduced
from time to time pursuant to Section 10.06(c) or reduced from time to time
pursuant to Section 2.04(d) and 2.07.
"TRANCHE A LENDER" means each Lender identified as a Tranche A Lender on
the Commitment Schedule, each Assignee which becomes a Tranche A Lender pursuant
to Section 10.06(c), and their respective successors.
"TRANCHE A LOAN" means a loan made by a Tranche A Lender pursuant to
Section 2.01(a).
"TRANCHE B COMMITMENT" means, (i) with respect to each Tranche B Lender
listed on the Commitment Schedule, the amount set forth opposite the name of
such Tranche B Lender on the Commitment Schedule under the heading "TRANCHE B
COMMITMENTS" and (ii) with respect to each Assignee that becomes a Tranche B
Lender pursuant to Section 10.06(c), the amount of the Tranche B Commitment
thereby assumed by it, in each case as such amount may be increased or reduced
from time to time pursuant to Section 10.06(c) or reduced from time to time
pursuant to Sections 2.04(d) and 2.07.
"TRANCHE B LENDER" means each Lender identified as a Tranche B Lender on
the Commitment Schedule, each Assignee which becomes a Tranche B Lender pursuant
to Section 10.06(c), and their respective successors.
"TRANCHE B LOAN" means a loan made by a Tranche B Lender pursuant to
Section 2.01(b).
"TRANCHE B PREPAYMENT NOTICE" has the meaning set forth in Section
2.04(f)(i).
"TRANCHE B UNSCHEDULED PREPAYMENT" has the meaning set forth in Section
2.04(f)(i).
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<PAGE>
Each of "TRANCHE C", "TRANCHE C COMMITMENT", "TRANCHE C LOANS" and "TRANCHE
C REQUEST" has the meaning set forth in Section 2.01(i).
"TV DISTRIBUTION VENTURE" means a Person (other than a Subsidiary of either
Borrower) (i) the common stock or other equity interests of which are owned at
least 20% but not more than 50% by the MGM/Orion Companies and (ii) that is
principally engaged in the distribution, exhibition or exploitation of Films and
other motion pictures, feature films, shorts, televisions programs and animated
programs.
"TYPE" has the meaning set forth in Section 1.03.
"UIP" means United International Pictures B.V., a Netherlands entity, and
its successors.
"UNSCHEDULED PREPAYMENT DATE" has the meaning set forth in Section
2.04(f)(i).
"UNITED STATES" means the United States of America, including the States
and the District of Columbia, but excluding its territories and possessions.
"WHV" means Warner Home Video, a division of Time Warner Entertainment,
L.P., and its successors.
"WHV AGREEMENT" means the Video Rights Agreement between MGM Studios and
WHV, dated as of November 1, 1990, as amended up to but excluding the Effective
Date, a true and correct copy of which as in effect on the Effective Date has
been delivered to the Agent, and as may be further amended from time to time on
terms that are in the aggregate not materially less favorable to the MGM/Orion
Companies or to the interests of the Lenders under the Loan Documents (in each
case as determined in good faith by a senior officer of MGM Studios) than the
terms thereof as in effect on the Effective Date.
Section 1.02. Accounting Terms and Determinations. Unless otherwise
specified in the immediately succeeding sentence or otherwise herein, all
accounting terms used herein shall be interpreted, all accounting determinations
hereunder shall be made, and all financial statements required to be delivered
hereunder shall be prepared in accordance with generally accepted accounting
principles as in effect from time to time, applied on a basis consistent (except
for changes concurred in by the Borrowers' independent public accountants) with
the most recent financial statements of the Combined Companies delivered to the
Lenders ("GAAP"); provided that, if the Borrowers notify the Agent that the
Borrowers wish to amend any covenant in Article 5 or any related definition to
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<PAGE>
eliminate the effect of any change in generally accepted accounting principles
on the operation of such covenant (or if the Agent notifies the Borrowers that
the Required Lenders wish to amend Article 5 or any related definition for such
purpose), then the Borrowers' compliance with such covenant shall be determined
on the basis of generally accepted accounting principles in effect immediately
before the relevant change in generally accepted accounting principles became
effective, until either such notice is withdrawn or such covenant or definition
is amended in a manner satisfactory to the Borrowers and the Required Lenders.
The term "COMBINED BASIS", when used with respect to the determination of any
amount, means that such amount is to be determined by combining (i) the relevant
amount determined with respect to MGM Studios and its Consolidated Subsidiaries
on a consolidated basis and (ii) the relevant amount determined with respect to
Orion and its Consolidated Subsidiaries on a consolidated basis, all in
accordance with GAAP. Unless the context otherwise requires, whenever an amount
herein is expressly to be determined with respect to the Combined Companies,
such amount shall be determined on a Combined Basis.
Section 1.03. Classes and Types of Loans and Borrowings. The term
"BORROWING" denotes the aggregation of Loans of one or more Lenders to be made
to a single Borrower pursuant to Article 2 on the same date, all of which Loans
are of the same Class and Type (subject to Article 8) and, except in the case
of Base Rate Loans, have the same initial Interest Period. Loans hereunder are
distinguished by "CLASS" and by "TYPE". The "CLASS" of a Loan (or of a
Commitment to make such a Loan or of a Borrowing comprised of such Loans or of a
Group of such Loans) refers to the determination whether such Loan is a Tranche
A Loan, Tranche B Loan, a Revolving Loan or a Swing Loan, each of which
constitutes a Class. The "TYPE" of a Loan refers to the determination whether
such Loan is a Euro-Dollar Loan or a Base Rate Loan. Identification of a Loan
(or a Borrowing) by both Class and Type (e.g., a "TRANCHE B EURO-DOLLAR LOAN")
indicates that such Loan is both a Tranche B Loan and a Euro-Dollar Loan (or
that such Borrowing or Group of Loans is comprised of such Loans).
ARTICLE 2
The Credits
Section 2.01. Commitments to Lend. (a) Tranche A Loans. Each Tranche A
Lender severally agrees, on the terms and conditions set forth in this
Agreement, to make a single loan to each Borrower on the Effective Date in an
aggregate amount (after giving effect to any simultaneous repayments of such
Lender's Tranche A Loans on the Effective Date) not to exceed such Tranche A
Lender's Tranche A Commitment. The Borrowings of each Borrower pursuant to
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<PAGE>
this subsection shall be made from the several Tranche A Lenders ratably in
proportion to their respective Tranche A Commitments; provided, that the failure
of any Tranche A Lender to fulfill its obligation to make a Tranche A Loan on
the terms and conditions set forth in this Agreement shall not excuse any other
Tranche A Lender from its obligation to make a Tranche A Loan in an amount up to
the amount of such Tranche A Lender's Tranche A Commitment. Loans made pursuant
to this subsection are not revolving in nature and amounts of such loans repaid
or prepaid may not be reborrowed.
(b) Tranche B Loans. Each Tranche B Lender severally agrees, on the terms
and conditions set forth in this Agreement, to make a single loan to each
Borrower on the Effective Date in an aggregate amount (after giving effect to
any simultaneous repayments of such Lender's Tranche B Loans on the Effective
Date) not to exceed such Tranche B Lender's Tranche B Commitment. The
Borrowings of each Borrower pursuant to this subsection shall be made from the
several Tranche B Lenders ratably in proportion to their respective Tranche B
Commitments; provided, that the failure of any Tranche B Lender to fulfill its
obligation to make a Tranche B Loan on the terms and conditions set forth in
this Agreement shall not excuse any other Tranche B Lender from its obligation
to make a Tranche B Loan in an amount up to the amount of such Tranche B
Lender's Tranche B Commitment. Loans made pursuant to this subsection are not
revolving in nature and amounts of such loans repaid or prepaid may not be
reborrowed.
(c) Revolving Loans. During the Revolving Credit Period, each Revolving
Lender severally agrees, on the terms and conditions set forth in this
Agreement, to make revolving loans to the Borrowers from time to time in amounts
such that the Revolving Exposure of such Revolving Lender at such time shall not
exceed the amount of its Available Revolving Commitment at such time. Each
Borrowing under this subsection shall be in an aggregate principal amount of
$5,000,000 or any larger multiple of $1,000,000 (except that any such Borrowing
may be in the aggregate amount available in accordance with Section 3.03(c)) and
shall be made from the several Revolving Lenders ratably in proportion to their
respective Revolving Commitments; provided, that the failure of any Revolving
Lender at any time to fulfill its obligation to make a Revolving Loan on the
terms and conditions set forth in this Agreement shall not in itself excuse any
other Revolving Lender from its obligation to make a Revolving Loan. Within the
foregoing limits, the Borrowers may borrow under this subsection, prepay
Revolving Loans to the extent permitted by Section 2.10 and reborrow at any time
during the Revolving Credit Period under this subsection.
(d) Swing Loans. During the Swing Credit Period, the Swing Lender agrees,
on the terms and conditions set forth in this Agreement, to make loans to
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the Borrowers pursuant to this subsection from time to time in amounts such that
at any time (i) the aggregate principal amount of Swing Loans outstanding at
such time does not exceed the Swing Loan Commitment and (ii the aggregate
Revolving Exposure at such time does not exceed the aggregate amount of the
Available Revolving Commitments at such time. Each Borrowing under this
subsection shall be in an aggregate principal amount of $1,000,000 or any larger
multiple thereof (except that any such Borrowing may be in the aggregate amount
of the Swing Loan Commitment available in accordance with the immediately
preceding sentence). Within the foregoing limits, the Borrowers may borrow under
this subsection, prepay Swing Loans to the extent permitted by Section 2.10 and
reborrow at any time during the Swing Credit Period under this subsection.
(e) Conversion of Swing Loans to Revolving Loans. The Swing Lender, at
any time and from time to time in its sole and absolute discretion may, on
behalf of either Borrower (each of which hereby irrevocably directs the Swing
Lender to act on its behalf), on notice given by the Swing Lender no later than
10:30 A.M. (New York City time) on the proposed date of Borrowing for the
Revolving Loans referred to below, request each Revolving Lender to make, and
each Revolving Lender hereby agrees to make, a Revolving Loan, in an amount
(such amount with respect to each Lender, its "SWING LOAN REFUND AMOUNT") equal
to such Revolving Lender's Revolving Percentage of the aggregate principal
amount of the Swing Loans (the "REFUNDED SWING LOANS") outstanding on the date
of such notice and with respect to which such notice relates, to repay the Swing
Lender. Unless any of the events described in clause (g) or (h) of Section 6.01
with respect to the relevant Borrower shall have occurred and be continuing (in
which case the procedures of Section 2.01(f) shall apply), each Revolving Lender
shall make such Revolving Loan available to the Agent at its address specified
in or pursuant to Section 10.01 in immediately available funds, not later than
12:00 Noon (New York City time), on the date specified in such notice. Each such
Revolving Loan shall initially be made as a Base Rate Loan. The Agent shall pay
the proceeds of such Revolving Loans to the Swing Lender, which shall
immediately apply such proceeds to repay Refunded Swing Loans. Effective on the
day such Revolving Loans are made, the portion of the Swing Loans so paid shall
no longer be outstanding as Swing Loans, shall no longer be due as Swing Loans
under the Notes held by the Swing Lender, and shall be due as Revolving Loans
under the respective Notes issued to the Revolving Lenders (including the Swing
Lender) in accordance with their respective Revolving Percentages.
(f) Purchase of Participations in Swing Loans. If prior to the time
Revolving Loans would have otherwise been made pursuant to Section 2.01(e), one
of the events described in clause (g) or (h) of Section 6.01 with respect to the
relevant Borrower shall have occurred and be continuing, each Revolving Lender
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<PAGE>
shall, on the date such Revolving Loans were to have been made pursuant to the
notice referred to in Section 2.01(e) (the "REFUNDING DATE"), purchase an
undivided participating interest in the Swing Loans in an amount equal to such
Revolving Lender's Swing Loan Refund Amount. On the Refunding Date, each
Revolving Lender shall transfer to the Swing Lender, in immediately available
funds, such Lender's Swing Loan Refund Amount, and upon receipt thereof the
Swing Lender shall deliver to such Revolving Lender a Swing Loan participation
certificate dated the date of the Swing Lender's receipt of such funds and in
the Swing Loan Refund Amount of such Revolving Lender.
(g) Payments on Participated Swing Loans. Whenever, at any time after the
Swing Lender has received from any Revolving Lender such Revolving Lender's
Swing Loan Refund Amount pursuant to Section 2.01(f), the Swing Lender receives
any payment on account of the Swing Loans in which the Revolving Lenders have
purchased participations pursuant to Section 2.01(f), the Swing Lender will
promptly distribute to each such Revolving Lender its ratable share (determined
on the basis of the Swing Loan Refund Amounts of all of the Revolving Lenders)
of such payment (appropriately adjusted, in the case of interest payments, to
reflect the period of time during which such Revolving Lender's participating
interest was outstanding and funded); provided, however, that in the event that
such payment received by the Swing Lender is required to be returned, such
Revolving Lender will return to the Swing Lender any portion thereof previously
distributed to it by the Swing Lender.
(h) Obligations to Refund or Purchase Participations in Swing Loans
Absolute. Each Revolving Lender's obligation to transfer the amount of a
Revolving Loan to the Swing Lender as provided in Section 2.01(e) or to purchase
a participating interest pursuant to Section 2.01(f) shall be absolute and
unconditional and shall not be affected by any circumstance, including, without
limitation, (i) any set-off, counterclaim, recoupment, defense or other right
which such Revolving Lender, either Borrower or any other Person may have
against the Swing Lender or any other Person, (ii the occurrence or continuance
of a Default or an Event of Default or the termination or reduction of any
Commitments, (ii any adverse change in the condition (financial or otherwise) of
either Borrower or any other Person, (iv any breach of this Agreement by either
Borrower, any other Lender or any other Person or (v) any other circumstance,
happening or event whatsoever, whether or not similar to any of the foregoing.
(i) Amendment to Provide for Tranche C Loans. (i) At any time after the
Effective Date, if no Default shall then have occurred and be continuing, the
Borrowers may in their sole discretion request an amendment of this Agreement to
add a new tranche of term loans to be made to one or both Borrowers under this
Agreement as "Loans" (such tranche, loans and request, respectively, "TRANCHE
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<PAGE>
C", the "TRANCHE C LOANS" and the "TRANCHE C REQUEST"). Any proposed Tranche C
would provide for not more than $200,000,000 aggregate principal amount of
Tranche C Loans, with a final maturity date not earlier than the Maturity Date
of the Tranche B Loans and de minimis amortization prior to the final maturity
date of such Tranche C Loans, and would provide for payments or offers of
payment with respect to Reduction Events that are ratable with or subsequent to
payments or offers of payment with respect to Tranche B Loans. The Tranche C
Loans would otherwise be pari passu with and treated similarly (including with
respect to Collateral) to the other Loans.
(ii) To make a Tranche C Request, the Borrowers shall send a written
notice thereof to the Agent not less than 30 days prior to the proposed
effective date of the amendments with respect thereto, setting forth in
reasonable detail the proposed aggregate amount of Tranche C Loans,
relevant margins with respect thereto, maturity date and amortization
schedule and other material information with respect thereto. Upon receipt
of such Tranche C Request, the Agent shall cooperate with the Borrowers to
prepare a proposed amendment or amendments to this Agreement and any other
relevant Loan Document reflecting such Tranche C Request and shall
distribute such proposed amendment or amendments to the Lenders, together
with an offer to each Lender at such time to assume a commitment with
respect to Tranche C Loans (a "TRANCHE C COMMITMENT") ratably in accordance
with their respective Credit Exposures at such time (its "PRO RATA SHARE").
If, within the time period specified in such distribution, which shall not
in any event be less than five Domestic Business Days, Lenders holding at
least 66 2/3% of the aggregate Credit Exposures (or, if at the time of any
such request the Leverage Ratio was less than 4.5 to 1 on the last day of
the two consecutive Fiscal Quarters then most recently ended, the Required
Lenders) approve such proposed amendments (which approval by any Lender
may, but shall not be required to, include an agreement by such Lender to
assume a Tranche C Commitment in an amount specified in such approval),
this Agreement and the relevant Loan Documents will be amended as provided
in such proposed amendment or amendments to add Tranche C, and each Lender
agreeing to accept a Tranche C Commitment shall be assigned such a
commitment in an amount no less than the lesser of (i) its offer and (ii)
its Pro Rata Share. If one or more of the existing Lenders declines so to
participate, the Borrowers may offer the remaining amounts of the Tranche C
Commitments to existing Lenders or new financial institutions (each of
which new financial institutions is subject to the prior written approval
of the Agent, which shall not be unreasonably withheld), which shall, upon
execution by such financial institution and effectiveness of the amendments
with respect to Tranche C, become Lenders with a Tranche C
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<PAGE>
Commitment in the amount provided in such acceptance. No Lender that does
not agree to accept a Tranche C Commitment and execute and deliver any such
amendments with respect to Tranche C shall have any obligation to make any
Tranche C Loan.
Section 2.02. Method of Borrowing. (a) The relevant Borrower shall give
the Agent notice (a "NOTICE OF BORROWING") (x) not later than 12:00 Noon (New
York City time) on (1) the date of each Base Rate Borrowing (other than a Swing
Borrowing or a Revolving Borrowing the proceeds of which are to be applied to
repay Refunded Swing Loans) and (2) the third Euro-Dollar Business Day before
each Euro-Dollar Borrowing and (y) not later than 12:00 Noon (New York City
time) on the date of each Swing Borrowing, specifying:
(i) the date of such Borrowing, which shall be a Domestic Business
Day in the case of a Base Rate Borrowing or a Euro-Dollar Business Day in
the case of a Euro-Dollar Borrowing;
(ii) the aggregate amount of such Borrowing;
(iii) whether the Loans comprising such Borrowing are to bear
interest initially at a rate based on the Base Rate or at a Euro-Dollar
Rate; provided that all Swing Loans shall bear interest at a rate based on
the Base Rate; and
(iv) in the case of a Euro-Dollar Borrowing, the duration of the
initial Interest Period applicable thereto, subject to the provisions of
the definition of Interest Period.
In no event shall (i) the total number of Groups of Loans at any one time
outstanding exceed 20 or (ii) the total number of Swing Borrowings made in any
one calendar week exceed 3.
(b) Upon receipt of a Notice of Borrowing, the Agent shall promptly notify
each Lender of the contents thereof and of such Lender's ratable share of such
Borrowing (if any) and such Notice of Borrowing shall not thereafter be
revocable by such Borrower.
(c) Not later than 12:00 Noon (New York City time) on the date of each
Borrowing (or, solely in the case of either a Base Rate Borrowing or a Swing
Borrowing, 1:00 P.M. (New York City time)), each Lender (or, in the case of a
Swing Borrowing, the Swing Lender) shall make available its ratable share of
such Borrowing, in Federal or other funds immediately available in New York
City, to the Agent at its address referred to in Section 10.01. Unless the
Agent
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<PAGE>
determines that any applicable condition specified in Article 3 has not
-
been satisfied, the Agent will make the funds so received from the Lenders
available to such Borrower by crediting an account of such Borrower maintained
with the Agent and specified by such Borrower prior to the date of such
Borrowing or, if no such account has been specified, at the Agent's aforesaid
address.
(d) Unless the Agent shall have received notice from a Lender prior to the
date of any Borrowing that such Lender will not make available to the Agent such
Lender's share of such Borrowing, the Agent may assume that such Lender has made
such share available to the Agent on the date of such Borrowing in accordance
with subsection (c) of this Section and the Agent may, in reliance upon such
assumption, make available to such Borrower on such date a corresponding amount.
If and to the extent that such Lender shall not have so made such share
available to the Agent, such Lender and such Borrower severally agree to repay
to the Agent forthwith on demand such corresponding amount together with
interest thereon, for each day from the date such amount is made available to
such Borrower until the date such amount is repaid to the Agent, at (i) in the
case of such Borrower, a rate per annum equal to the higher of the Federal Funds
Rate and the interest rate applicable thereto pursuant to Section 2.05 and
(ii) in the case of such Lender, the Federal Funds Rate. If such Lender shall
repay to the Agent such corresponding amount, such amount so repaid shall
constitute such Lender's Loan included in such Borrowing for purposes of this
Agreement.
Section 2.03. Notes. (a) The Loans of each Lender to each Borrower shall
be evidenced by a single Note of such Borrower payable to the order of such
Lender for the account of its Applicable Lending Office in an amount equal to
the aggregate unpaid principal amount of such Lender's Loans.
(b) Each Lender may, by notice to either Borrower and the Agent, request
that its Loans of a particular Type or Class to such Borrower be evidenced by a
separate Note in an amount equal to the aggregate unpaid principal amount of
such Loans. Each such Note shall be in substantially the form of Exhibit A
hereto with appropriate modifications to reflect the fact that it evidences
solely Loans of the relevant Type or Class. Each reference in this Agreement to
the "NOTE" of such Lender shall be deemed to refer to and include any or all of
such Notes, as the context may require.
(c) Upon receipt of each Lender's Notes pursuant to Section 3.01, the
Agent shall forward such Notes to such Lender. Each Lender shall record the
date, amount, Type and Class of each Loan made by it to each Borrower and the
date and amount of each payment of principal made with respect thereto, and may,
if such Lender so elects in connection with any transfer or enforcement of its
Note of either Borrower, endorse on the schedule forming a part thereof
appropriate
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notations to evidence the foregoing information with respect to each such Loan
to such Borrower then outstanding; provided that the failure of any Lender to
make any such recordation or endorsement shall not affect the obligations of
either Borrower hereunder or under the Notes or any other Loan Document. Each
Lender is hereby irrevocably authorized by each Borrower so to endorse its Notes
and to attach to and make a part of any Note a continuation of any such schedule
as and when required.
Section 2.04. Maturity of Loans; Mandatory Prepayments; Certain Commitment
Reductions. (a) Maturity of Loans.
(i) Final Maturity. Each Loan of each Class shall mature, and the
outstanding principal amount thereof shall be due and payable (together
with accrued interest thereon), on the Maturity Date for such Class of
Loans.
(ii) Extension of Revolving Credit Period and Swing Credit Period.
The Revolver Maturity Date and the Swing Termination Date may each be
extended, in the manner set forth in this subsection, on September 30, 2003
and on the first anniversary of such date (an "EXTENSION DATE") for a
period of one year after the then current Revolver Maturity Date and Swing
Termination Date; provided that the Swing Termination Date shall not be
extended on any Extension Date unless the Revolver Maturity Date shall also
be extended, in the manner set forth herein, on such Extension Date. If
the Borrowers wish to request an extension of the Revolver Maturity Date
and Swing Termination Date on any Extension Date, they shall give written
notice to that effect to the Agent not less than 90 nor more than 120 days
prior to such Extension Date, whereupon the Agent shall notify each of the
Revolving Lenders and the Swing Lender of such notice. Each Revolving
Lender will respond to such request, whether affirmatively or negatively,
within 30 days; provided that any Lender which does not respond to such
request within such period shall be deemed to have responded to such
request negatively. If all Revolving Lenders and the Swing Lender respond
affirmatively, then, subject to receipt by the Agent prior to such
Extension Date of counterparts of an Extension Agreement in substantially
the form of Exhibit K duly completed and signed by all of the parties
hereto, the Revolver Maturity Date and the Swing Termination Date shall
each be extended, effective on such Extension Date, for a period of one
year to the date stated in such Extension Agreement.
(b) Tranche A Scheduled Amortization. In addition, the Borrowers shall
repay, and there shall become due and payable, on each date set forth below, an
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aggregate principal amount of the Tranche A Loans equal to the amount set forth
below opposite such date (as such amount may be reduced pursuant to Section
2.04(e) and Section 2.10(d)):
<TABLE>
<CAPTION>
DATE AMOUNT
---- ------
<S> <C>
09/30/01 $ 15,000,000
12/31/01 $ 15,000,000
03/31/02 $ 17,500,000
06/30/02 $ 17,500,000
09/30/02 $ 17,500,000
12/31/02 $ 17,500,000
03/31/03 $ 25,000,000
06/30/03 $ 25,000,000
09/30/03 $ 25,000,000
12/31/03 $ 25,000,000
03/31/04 $ 25,000,000
06/30/04 $ 25,000,000
09/30/04 $ 25,000,000
12/31/04 $ 25,000,000
03/31/05 $100,000,000
</TABLE>
(c) Tranche B Scheduled Amortization. In addition, the Borrowers shall
repay, and there shall become due and payable, on each date set forth below an
aggregate principal amount of the Tranche B Loans equal to the amount set forth
below opposite such date (as such amount may be reduced pursuant to Section
2.04(e) and Section 2.10(d)):
<TABLE>
<CAPTION>
DATE AMOUNT
----------------- -----------
<S> <C>
Each Quarterly Date
from and including
09/30/01 through and
including 12/31/05 $ 750,000
3/31/06 $286,500,000
</TABLE>
(d) Mandatory Prepayments and Revolving Commitments Reduction.
(i) In addition, the Loans shall be prepaid and the Revolving
Commitments shall be reduced in the following amounts:
(A) in the event that any Reduction Event shall occur, an amount
equal to the Reduction Amount with respect thereto; and
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<PAGE>
(B) an amount, for each Fiscal Year ending after December 31,
1996, equal to the Reduction Amount of Excess Cash Flow for such
Fiscal Year.
(ii) Subject to Section 2.04(f) in the case of a prepayment of the
Term Loans in part, the prepayments and reductions required by Section
2.04(d)(i)(A) shall be made forthwith upon receipt by any MGM/Orion
Company, as the case may be, of such Net Cash Proceeds (or, solely in the
case of an incurrence of MGM Debt, upon receipt by MGM of such Net Cash
Proceeds); provided that if the Reduction Amount in respect of any
Reduction Event is less than $1,000,000, such prepayment or reduction shall
be made upon receipt of proceeds such that, together with all other such
amounts not previously applied, the Reduction Amount is equal to at least
$1,000,000 and provided further, that, at the election of the Borrowers, if
the amount of any such prepayment to be made exceeds the amount of Base
Rate Loans then outstanding, such excess amount shall be deposited in
escrow pursuant to arrangements in form and substance satisfactory to the
Agent, and such excess shall not be required to be prepaid until the last
day of the Interest Periods relating to outstanding Euro-Dollar Loans in an
aggregate principal amount equal to or greater than such excess amount
unless an Event of Default has occurred and is continuing or the Required
Lenders otherwise determine in their sole discretion and so notify the
Borrowers. Subject to Section 2.04(f), the prepayments and reductions
required by clause (i)(B) of this subsection shall be made on or before the
105th day after the end of the related fiscal year. The Borrowers shall
give the Agent at least five Euro-Dollar Business Days' notice of each
prepayment required pursuant to this subsection.
(e) Application of Prepayments, Repayments and Revolving Commitment
Reductions.
(i) The prepayments and reductions required pursuant to subsection
(d) shall be effected in the following order: first, the Borrowers shall
prepay the Term Loans until the Term Loans have been paid in full (subject
to Section 2.04(f) in the case of a prepayment of the Term Loans in part),
second, the Revolving Commitments shall be reduced and third, solely if
such prepayment is to be made after the Revolving Credit Period, the
Borrowers shall prepay Revolving Loans until the Revolving Loans have been
paid in full.
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<PAGE>
(ii) Subject to Section 2.04(f), each prepayment of the Term Loans
made by the Borrowers pursuant to subsection (d) shall be allocated pro
rata on the basis of principal amount between the then outstanding Tranche
A Loans and Tranche B Loans.
(iii) If on the date of any reduction of the Revolving Commitments
pursuant to subsection (d) the aggregate Revolving Exposure on such date
exceeds the aggregate Available Revolving Commitments on such date, the
Borrowers shall apply an amount equal to such excess to prepay the
Revolving Credit Loans or Swing Loans (or both) and/or cash collateralize
Letters of Credit so that after giving effect thereto the Revolving
Exposure of each Revolving Lender does not exceed its Revolving Credit
Commitment as then reduced. Amounts to be applied pursuant to the
preceding sentence shall be applied first to repay the principal amount of
the Swing Loans then outstanding until all such Swing Loans shall have been
repaid in full, second to repay the principal amount of the Revolving
Credit Loans then outstanding until all such Revolving Credit Loans shall
have been repaid in full and third if any excess then remains such excess
shall be deposited in the Cash Collateral Account established pursuant to
Section 6(C) of the Security Agreement to be held, applied or released for
application as provided in the Security Agreement. In determining Revolving
Exposure for purposes of this clause (iii), Letter of Credit Liabilities
shall be reduced to the extent that they are cash collateralized as
contemplated by the previous sentence.
(iv) Subject to clause (ii) of this subsection, each repayment or
prepayment of Loans of any Class made by either Borrower pursuant to this
Section shall be applied to such Group or Groups of Loans of such Class as
such Borrower may designate in the applicable Notice of Borrowing or Notice
of Interest Rate Election (or, failing such designation, as determined by
the Agent), and, except as provided in subsection (f) with respect to
Tranche B Loans, shall be applied to repay ratably the Loans of such Class
of the several Lenders included in such Group or Groups.
(v) The amount of any prepayment of the Term Loans made by the
Borrowers pursuant to subsection (d) (other than as a result of any event
set forth clause (i), (iv), (v) or (vi) of the definition of "Reduction
Event") shall be applied to reduce the amount of subsequent scheduled
repayments of the Term Loans pursuant to subsections (b) or (c) above, as
the case may be, in inverse order of maturity. The amount of any prepayment
of the Term Loans made by the Borrowers pursuant to subsection (d) as a
result of any event set forth clause (i), (iv), (v) or (vi) of the
definition of "Reduction Event" shall be applied to reduce the amount
39
<PAGE>
of subsequent scheduled repayments of the Term Loans pursuant to
subsections (b) or (c) above, as the case may be, ratably to all remaining
amortization payments.
(f) Option of Tranche B Lenders Not to Accept Prepayments.
(i) The Borrowers shall (x) at least one Domestic Business Day
prior to any date (an "UNSCHEDULED PREPAYMENT DATE") on which any
prepayment of the Tranche B Loans (a "TRANCHE B UNSCHEDULED PREPAYMENT"),
other than a prepayment of the Tranche B Loans in whole, would, but for the
provisions of this subsection (f), otherwise have been made pursuant to
Section 2.04(d) or 2.10(a), deliver a notice conforming to the
requirements of subsection (f)(ii) (a "TRANCHE B PREPAYMENT NOTICE") to the
Agent and (y) on or prior to such Unscheduled Prepayment Date, deposit in
the Tranche B Prepayment Account established pursuant to Section 6(A) of
the Security Agreement an amount equal to the principal amount that would
have been payable by the Borrowers pursuant to Section 2.04(d) or 2.10(a)
on such Unscheduled Prepayment Date in respect of such Tranche B
Unscheduled Prepayment. Such Tranche B Unscheduled Prepayment shall not
occur on such Unscheduled Payment Date but shall instead be deferred as
hereinafter provided in this subsection (f). Upon receipt of any Tranche B
Prepayment Notice, the Agent shall promptly notify each Tranche B Lender of
the contents hereof.
(ii) Each Tranche B Prepayment Notice shall be in writing, shall
refer to this Section 2.04(f) and shall (w) set forth the amount of the
Tranche B Unscheduled Prepayment and the prepayment that the applicable
Tranche B Lender will be entitled to receive if it accepts prepayment of
its Tranche B Loans in accordance with this subsection, (x) contain an
offer to prepay on a specified date (each such date, a "DEFERRED TRANCHE B
UNSCHEDULED PREPAYMENT DATE"), which shall not be less than 20 days or more
than 25 days after the date of such Tranche B Prepayment Notice, the
Tranche B Loans of such Tranche B Lender by an aggregate principal amount
equal to such Tranche B Lender's ratable share of such Tranche B
Unscheduled Prepayment (determined by reference to the outstanding
principal amount of such Lender's Tranche B Loan as a proportion of the
aggregate outstanding principal amount of the Tranche B Loans of all of the
Tranche B Lenders), (y) request such Tranche B Lender to notify the
Borrowers and the Agent in writing, no later than the fifth Domestic
Business Day prior to the Deferred Tranche B Unscheduled Prepayment Date,
of such Tranche B Lender's acceptance or rejection (in each case, in whole
and not in part) of such offer of prepayment and (z) inform such Tranche B
Lender that the failure by such Tranche B Lender
40
<PAGE>
to reject such offer in writing on or before the fifth day prior to such
Deferred Tranche B Unscheduled Prepayment Date shall be deemed an
acceptance of such prepayment offer. Each Tranche B Prepayment Notice
shall be given by telecopy, confirmed hand delivery or overnight courier
service, in each case addressed to the Agent and each Tranche B Lender as
provided in Section 10.01.
(iii) On each Deferred Tranche B Unscheduled Prepayment Date, the
Agent shall withdraw from the Tranche B Prepayment Account the aggregate
amount required to prepay the Tranche B Loans of each of the Tranche B
Lenders that shall have accepted (or been deemed to have accepted)
prepayment in accordance with the related Tranche B Prepayment Notice
(each, an "ACCEPTING TRANCHE B LENDER") and shall cause such amount to be
applied on behalf of the Borrowers to prepay the outstanding Tranche B
Loans of the Accepting Tranche B Lenders.
(iv) Any amount remaining in the Tranche B Prepayment Account on any
Deferred Tranche B Unscheduled Prepayment Date after giving effect to the
prepayments required by clause (iii) above (exclusive of any interest or
profits with respect to amounts held in the Tranche B Prepayment Account)
shall be withdrawn and applied by the Agent (x) to prepay the principal of
the then outstanding Tranche B Loans of the Accepting Tranche B Lenders
and, if the Borrowers so elect, the then outstanding Tranche A Loans, in
each case ratably in proportion to their then outstanding principal amounts
(including the Tranche A Loans only if the Borrowers so elect), and/or (y)
after all Term Loans have been repaid, to reduce the Revolving Credit
Commitments, all in accordance with subsection (d) above or Section
2.10(a), as applicable.
Section 2.05. Interest Rates. (a) Each Base Rate Loan shall bear interest
on the outstanding principal amount thereof, for each day from and including the
date such Loan is made to but excluding the date it becomes due or is converted
into a Euro-Dollar Loan, at a rate per annum equal to the sum of (x) the Base
Rate Margin plus (y) the Base Rate for such day. Such interest shall be payable
quarterly in arrears on each Quarterly Date. Any overdue principal of or
interest on any Base Rate Loan shall bear interest, payable on demand, for each
day until paid at a rate per annum equal to the sum of 2% plus the rate
otherwise applicable to Base Rate Loans for such day.
(b) Each Euro-Dollar Loan shall bear interest on the outstanding principal
amount thereof, for each day during each Interest Period applicable thereto,
from and including the first day thereof to but excluding the last day thereof,
at a rate per annum equal to the sum of the Euro-Dollar Margin for such
41
<PAGE>
day plus the Adjusted London Interbank Offered Rate applicable to such Interest
Period. Such interest shall be payable for each Interest Period on the last day
thereof and, if such Interest Period is longer than three months, at intervals
of three months after the first day thereof and, with respect to the principal
amount of any Euro-Dollar Loan converted to a Base Rate Loan, on each date a
Euro-Dollar Loan is so converted.
The "ADJUSTED LONDON INTERBANK OFFERED RATE" applicable to any Interest
Period means a rate per annum equal to the quotient obtained (rounded upward, if
necessary, to the next higher 1/100 of 1%) by dividing (i) the applicable London
Interbank Offered Rate by (ii) 1.00 minus the Euro-Dollar Reserve Percentage.
The Adjusted London Interbank Offered Rate shall be adjusted automatically on
and as of the effective date of any change in the Euro-Dollar Reserve
Percentage.
The "LONDON INTERBANK OFFERED RATE" applicable to any Interest Period means
the average (rounded upward, if necessary, to the next higher 1/16 of 1%) of the
respective rates per annum at which deposits in dollars are offered to each of
the Reference Lenders in the London interbank market at approximately 11:00 A.M.
(London time) two Euro-Dollar Business Days before the first day of such
Interest Period in an amount approximately equal to the principal amount of the
Euro-Dollar Loan of such Reference Lender to which such Interest Period is to
apply and for a period of time comparable to such Interest Period.
"EURO-DOLLAR RESERVE PERCENTAGE" means for any day that percentage
(expressed as a decimal) which is in effect on such day, as prescribed by the
Board of Governors of the Federal Reserve System (or any successor) for
determining the maximum reserve requirement for a member Lender of the Federal
Reserve System in New York City with deposits exceeding five billion dollars in
respect of "EUROCURRENCY LIABILITIES" (or in respect of any other category of
liabilities which includes deposits by reference to which the interest rate on
Euro-Dollar Loans is determined or any category of extensions of credit or other
assets which includes loans by a non-United States office of any Lender to
United States residents).
(c) Any overdue principal of or interest on any Euro-Dollar Loan shall
bear interest, payable on demand, for each day until paid at a rate per annum
equal to the higher of (i) the sum of 2% plus the Euro-Dollar Margin for such
day plus the quotient obtained (rounded upward, if necessary, to the next higher
1/100 of 1%) by dividing (x) the average (rounded upward, if necessary, to the
next higher 1/16 of 1%) of the respective rates per annum at which one day (or,
if such amount due remains unpaid more than three Euro-Dollar Business Days,
then for such other period of time not longer than three months as the Agent may
select)
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<PAGE>
deposits in dollars in an amount approximately equal to such overdue payment due
to each of the Reference Lenders are offered to such Reference Lender in the
London interbank market for the applicable period determined as provided above
by (y) 1.00 minus the Euro-Dollar Reserve Percentage (or, if the circumstances
described in Section 8.01(a) or 8.01(b) shall exist, at a rate per annum equal
to the sum of 2% plus the rate applicable to Base Rate Loans for such day) and
(ii the sum of 2% plus the Euro-Dollar Margin for such day plus the Adjusted
London Interbank Offered Rate applicable to such Loan at the date such payment
was due.
(d) The Agent shall determine each interest rate applicable to the Loans
hereunder. The Agent shall give prompt notice to the Borrowers and the
participating Lenders of each rate of interest so determined, and its
determination thereof shall be conclusive in the absence of manifest error.
(e) Each Reference Lender agrees to use its best efforts to furnish
quotations to the Agent as contemplated by this Section. If any Reference
Lender does not furnish a timely quotation, the Agent shall determine the
relevant interest rate on the basis of the quotation or quotations furnished by
the remaining Reference Lender or Lenders or, if none of such quotations is
available on a timely basis, the provisions of Section 8.01 shall apply.
Section 2.06. Fees. (a) During the Revolving Credit Period, the Borrowers
shall pay to the Agent for the account of each Revolving Lender a commitment fee
at the Commitment Fee Rate (determined daily in accordance with the Pricing
Schedule) on the daily amount by which such Revolving Lender's Revolving
Commitment exceeds the sum of (x) the aggregate outstanding principal amount of
its Revolving Loans and (y) its Letter of Credit Liabilities. Such commitment
fee shall accrue from and including the Effective Date to but excluding the date
of termination of the Revolving Commitments in their entirety.
(b) The Borrowers shall pay to the Agent (i) for the account of the
Revolving Lenders ratably in proportion to their Revolving Commitments a letter
of credit fee accruing daily on the aggregate amount then available for drawing
under all Letters of Credit at the Letter of Credit Fee Rate (determined in
accordance with the Pricing Schedule) and (ii for the account of each L/C Issuer
a letter of credit fronting fee accruing daily on the aggregate amount then
available for drawing under all Letters of Credit issued by such L/C Issuer at a
rate per annum equal to 1/4 of 1%.
(c) Accrued fees under Sections 2.06(a) and (b) shall be payable quarterly
in arrears on each March 31, June 30, September 30 and December 31 and on the
date of termination of the Revolving Commitments in their entirety
43
<PAGE>
(and, if later, the date on which the aggregate Letter of Credit Liabilities
shall have been reduced to $0).
Section 2.07. Optional Termination or Reduction of Commitments. During the
Revolving Credit Period the Borrowers may, upon at least three Domestic Business
Days' notice to the Agent, (i) terminate the Revolving Commitments at any time,
if no Revolving Loans, no Swing Loans or Letter of Credit Liabilities are
outstanding at such time or (ii ratably reduce from time to time by an aggregate
amount of $5,000,000 or a larger multiple of $1,000,000, the aggregate amount of
the Revolving Commitments in excess of the aggregate Revolving Exposure at such
time.
Section 2.08. Method of Electing Interest Rates. (a) The Loans included in
each Borrowing shall initially be of the Type specified by the relevant Borrower
in the applicable Notice of Borrowing, subject to the limitations set forth in
Section 2.02. Thereafter, the relevant Borrower may from time to time elect to
change or continue the Type of Loans in each Group of Loans (other than any
Group of Loans which are Swing Loans), subject in each case to the provisions of
Article 8, as follows:
(i) if such Loans are Base Rate Loans, such Borrower may elect to
convert such Loans to Euro-Dollar Loans as of any Euro-Dollar Business Day;
provided that no Base Rate Loans shall be converted to Euro-Dollar Loans if
at the time such conversion is to be effective, an Event of Default has
occurred and is continuing; and
(ii) if such Loans are Euro-Dollar Loans, such Borrower may elect to
convert such Loans to Base Rate Loans as of any Domestic Business Day or to
continue such Loans as Euro-Dollar Loans for an additional Interest Period
as of any Euro-Dollar Business Day, subject to Section 2.12 in the case of
any such conversion or continuation effective on any day other than the
last day of the then current Interest Period applicable to such Loans;
provided that no Euro-Dollar Loans shall be continued as Euro-Dollar Loans
if at the time such continuation is to be effective, an Event of Default
has occurred and is continuing.
Each such election shall be made by delivering a notice (a "NOTICE OF INTEREST
RATE ELECTION") to the Agent not later than 12:00 Noon (New York City time) on
the third Euro-Dollar Business Day before the conversion or continuation
selected in such notice is to be effective. A Notice of Interest Rate Election
may, if it so specifies, apply to only a portion of the aggregate principal
amount of the relevant Group of Loans; provided that (i) such portion is
allocated ratably among the Loans comprising such Group and (ii) the portion to
which such Notice applies,
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<PAGE>
and the remaining portion to which it does not apply, are each $5,000,000 or any
larger multiple of $1,000,000. If no Notice of Interest Election is timely
received prior to the end of an Interest Period for any Group of Loans, such
Borrower shall be deemed to have elected that such Group of Loans be converted
to Base Rate Loans as of the last day of such Interest Period. In no event shall
the total number of Groups of Loans at any time outstanding exceed 20.
(b) Each Notice of Interest Rate Election shall specify:
(i) the Group of Loans (or portion thereof) to which such notice
applies;
(ii) the date on which the conversion or continuation selected in
such notice is to be effective, subject to the provisos set forth in
Sections 2.08(a(i) and 2.08(a)(ii);
(iii) if the Loans comprising such Group are to be converted, the new
Type of Loans and, if the Loans being converted are to be Euro-Dollar
Loans, the duration of the next succeeding Interest Period applicable
thereto; and
(iv) if such Loans are to be continued as Euro-Dollar Loans for an
additional Interest Period, the duration of such additional Interest
Period.
Each Interest Period specified in a Notice of Interest Rate Election shall
comply with the provisions of the definition of Interest Period.
(c) Upon receipt of a Notice of Interest Rate Election from either
Borrower pursuant to Section 2.08(a), the Agent shall promptly notify each
Lender of the contents thereof and such notice shall not thereafter be revocable
by such Borrower.
(d) An election by either Borrower to change or continue the rate of
interest applicable to any Group of Loans pursuant to this Section shall not
constitute a "BORROWING" subject to the provisions of Section 3.03.
Section 2.09. Mandatory Termination of Commitments. (a) Term Commitments.
The Tranche A Commitments and Tranche B Commitments shall terminate at the close
of business on the Effective Date.
(b) Revolving Commitments. The Revolving Commitments shall terminate on
the Revolver Maturity Date.
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<PAGE>
(c) Swing Loan Commitment. The Swing Loan Commitment shall terminate on
the Swing Termination Date.
Section 2.10. Optional Prepayments. (a) Subject, in the case of any
Borrowing of Euro-Dollar Loans to Section 2.12 and, in the case of any Borrowing
of Tranche B Loans, to Section 2.04(f), either Borrower may, upon at least one
Domestic Business Day's notice to the Agent, prepay any Group of Base Rate Loans
or upon at least three Euro-Dollar Business Days' notice to the Agent, prepay
any Group of Euro-Dollar Loans, in each case in whole at any time, or from time
to time in part in amounts aggregating $5,000,000 (or, solely in the case of any
Group of Loans which are Swing Loans, $1,000,000) or any larger multiple of
$1,000,000, by paying the principal amount to be prepaid together with, in the
case of a prepayment of Euro-Dollar Loans, accrued interest thereon to the date
of prepayment. Each such optional prepayment shall be applied to prepay ratably
the Loans of the several Lenders included in such Group.
(b) Upon receipt of a notice of prepayment pursuant to this Section, the
Agent shall promptly notify each Lender of the contents thereof and of such
Lender's ratable share of such prepayment and such notice shall not thereafter
be revocable by such Borrower.
(c) Subject to Section 2.04(f), each prepayment of the Term Loans made by
either Borrower pursuant to this Section 2.10 shall be allocated pro rata on the
basis of principal amount between the then outstanding Tranche A Loans and
Tranche B Loans.
(d) Each prepayment of the Term Loans of either Class made by either
Borrower pursuant to this Section shall be applied as follows: first, to reduce
the amount of the subsequent scheduled repayments of the Term Loans (if any) of
such Class to be made within 180 days of the date such prepayment is made in
forward order until such amount shall have been paid in full and thereafter to
reduce the amount of subsequent scheduled repayments to the Term Loans of such
Class in inverse order of maturity.
Section 2.11. General Provisions as to Payments. (a) The Borrowers shall
make each payment of principal of, and interest on, the Loans and of Letter of
Credit Liabilities and of fees hereunder (other than fees payable directly to
any L/C Issuer), not later than 1:00 P.M. (New York City time) on the date when
due, in Federal or other funds immediately available in New York City, to the
Agent at its address referred to in Section 10.01. The Agent will promptly
distribute to each Lender its ratable share of each such payment received by the
Agent for the account of the Lenders. Whenever any payment of principal of, or
interest on, the Base Rate Loans or of Letter of Credit Liabilities or of fees
shall be due on a day
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<PAGE>
which is not a Domestic Business Day, the date for payment thereof shall be
extended to the next succeeding Domestic Business Day. Whenever any payment of
principal of, or interest on, the Euro-Dollar Loans shall be due on a day which
is not a Euro-Dollar Business Day, the date for payment thereof shall be
extended to the next succeeding Euro-Dollar Business Day unless such Euro-Dollar
Business Day falls in another calendar month, in which case the date for payment
thereof shall be the next preceding Euro-Dollar Business Day. If the date for
any payment of principal is extended by operation of law or otherwise, interest
thereon shall be payable for such extended time.
(b) Unless the Agent shall have received notice from the relevant Borrower
prior to the date on which any payment is due from such Borrower to the Lenders
hereunder that such Borrower will not make such payment in full, the Agent may
assume that such Borrower has made such payment in full to the Agent on such
date and the Agent may, in reliance upon such assumption, cause to be
distributed to each Lender on such due date an amount equal to the amount then
due such Lender. If and to the extent that such Borrower shall not have so made
such payment, each Lender shall repay to the Agent forthwith on demand such
amount distributed to such Lender together with interest thereon, for each day
from the date such amount is distributed to such Lender until the date such
Lender repays such amount to the Agent, at the Federal Funds Rate.
Section 2.12. Funding Losses. If either Borrower makes any payment of
principal with respect to any Euro-Dollar Loan or any Euro-Dollar Loan is
converted (pursuant to Article 2, 6 or 8 or otherwise) on any day other than
the last day of an Interest Period applicable thereto, or the last day of an
applicable period fixed pursuant to Section 2.05(c), or if either Borrower
fails to borrow, prepay, convert or continue any Euro-Dollar Loans after notice
has been given to any Lender in accordance with Section 2.02(a), 2.04(d), 2.08
or 2.10, such Borrower shall reimburse each Lender within 15 days after demand
for any resulting loss or expense incurred by it (or, without duplication, by an
existing or prospective Participant in the related Loan), including (without
limitation) any loss incurred in obtaining, liquidating or employing deposits
from third parties, but excluding loss of margin for the period after any such
payment or conversion or failure to borrow, prepay, convert or continue,
provided that such Lender shall have delivered to such Borrower a certificate as
to the amount of such loss or expense, which certificate shall be conclusive in
the absence of manifest error.
Section 2.13. Computation of Interest and Fees. Interest based on the
Prime Rate hereunder shall be computed on the basis of a year of 365 days (or
366 days in a leap year) and paid for the actual number of days elapsed
(including the first day but excluding the last day). All other interest and
fees shall be computed
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<PAGE>
on the basis of a year of 360 days and paid for the actual number of days
elapsed (including the first day but excluding the last day).
Section 2.14. Letters of Credit. (a) Subject to the terms and conditions
hereof, each L/C Issuer agrees to issue letters of credit hereunder from time to
time before the tenth day before the Revolver Maturity Date upon the request of
either Borrower (the "LETTERS OF CREDIT"); provided that, immediately after each
Letter of Credit is issued, (i) the aggregate amount of the Letter of Credit
Liabilities shall not exceed the Letter of Credit Commitment and (ii the
aggregate amount of the Revolving Exposures shall not exceed the aggregate
amount of the Available Revolving Commitments. Upon the date of issuance by an
L/C Issuer of a Letter of Credit, the L/C Issuer shall be deemed, without
further action by any party hereto, to have sold to each Revolving Lender, and
each Revolving Lender shall be deemed, without further action by any party
hereto, to have purchased from the L/C Issuer, a participation in such Letter of
Credit and all of the related Letter of Credit Liabilities pro rata to their
respective Revolving Percentages.
(b) The relevant Borrower shall give the L/C Issuer notice at least three
Domestic Business Days prior to the requested issuance of a Letter of Credit
specifying the date such Letter of Credit is to be issued, and describing the
terms of such Letter of Credit and the nature of the transactions to be
supported thereby (such notice, including any such notice given in connection
with the extension or renewal of a Letter of Credit, a "NOTICE OF ISSUANCE").
Upon receipt of a Notice of Issuance, the L/C Issuer shall promptly notify the
Agent, and the Agent shall promptly notify each Revolving Lender of the contents
thereof and of the amount of such Revolving Lender's participation in such
Letter of Credit. The issuance by the L/C Issuer of each Letter of Credit
shall, in addition to the conditions precedent set forth in Section 3.03, be
subject to the conditions precedent that such Letter of Credit shall be in such
form and contain such terms as shall be satisfactory to the L/C Issuer and that
such Borrower shall have executed and delivered such other instruments and
agreements relating to such Letter of Credit as the L/C Issuer shall have
reasonably requested. Such Borrower shall also pay to the L/C Issuer for its
own account issuance, drawing, amendment and extension charges in the amounts
and at the times as agreed between such Borrower and the L/C Issuer. The
extension or renewal of any Letter of Credit shall be deemed to be an issuance
of such Letter of Credit, and if any Letter of Credit contains a provision
pursuant to which it is deemed to be extended unless notice of termination is
given by the L/C Issuer, the L/C Issuer shall timely give such notice of
termination unless it has theretofore timely received a Notice of Issuance and
the other conditions to issuance of a Letter of Credit have also theretofore
been met with respect to such extension. No Letter of Credit shall have a term
extending or be extendible beyond the date which is ten days prior to the
Revolver Maturity Date.
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(c) Upon receipt from the beneficiary of any Letter of Credit of any
notice of a drawing under such Letter of Credit, the L/C Issuer shall notify the
Agent and the Agent shall promptly give notice (a "DRAW NOTICE") to such
Borrower and each Revolving Lender as to the amount to be paid as a result of
such demand or drawing and the payment date. Upon receipt of a Draw Notice by
such Borrower, such Borrower shall be irrevocably and unconditionally obligated
to reimburse the L/C Issuer for any amounts paid by the L/C Issuer upon any
drawing under any Letter of Credit, without presentment, demand, protest or
other formalities of any kind on the second Domestic Business Day following the
date of receipt. Regardless of if and when a Draw Notice is given to or
received by such Borrower, all such amounts paid by the L/C Issuer and remaining
unpaid by such Borrower shall bear interest, payable on demand, for each day
from and including the date of payment by the L/C Issuer until paid at a rate
per annum equal to (x) to but not including the due date determined in
accordance with the preceding sentence, the rate applicable to Base Rate Loans
for such day and (y) on and after such due date, the sum of 2% plus the rate
applicable to Base Rate Revolving Loans for such day. In addition, each
Revolving Lender will pay to the Agent, for the account of the L/C Issuer,
immediately upon the L/C Issuer's demand at any time during the period
commencing after such drawing until reimbursement therefor in full by such
Borrower, an amount equal to such Lender's ratable share of such drawing (in
proportion to its participation therein), together with interest on such amount
for each day from the date of the L/C Issuer demand for such payment (or, if
such demand is made after 12:00 Noon (New York City time) on such date, from the
next succeeding Domestic Business Day) to the date of payment by such Lender of
such amount at the Federal Funds Rate. The L/C Issuer will pay to each Revolving
Lender ratably all amounts received from such Borrower for application in
payment of its reimbursement obligations in respect of any Letter of Credit, but
only to the extent such Revolving Lender has made payment to the L/C Issuer in
respect of such Letter of Credit pursuant hereto.
(d) The obligations of the Borrowers and each Revolving Lender under
subsection (c) above shall be absolute, unconditional and irrevocable, and shall
be performed strictly in accordance with the terms of this Agreement, under all
circumstances whatsoever, including without limitation the following
circumstances:
(i) any lack of validity or enforceability of this Agreement or any
Letter of Credit or any document related hereto or thereto;
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(ii) any amendment or waiver of or any consent to departure from all
or any of the provisions of this Agreement or any Letter of Credit or any
document related hereto or thereto;
(iii) the use which may be made of the Letter of Credit by, or any
acts or omission of, a beneficiary of a Letter of Credit (or any Person for
whom the beneficiary may be acting);
(iv) the existence of any claim, set-off, defense or other rights
that either Borrower may have at any time against a beneficiary of a Letter
of Credit (or any Person for whom the beneficiary may be acting), the
Lenders (including the L/C Issuer) or any other Person, whether in
connection with this Agreement or the Letter of Credit or any document
related hereto or thereto or any unrelated transaction;
(v) any statement or any other document presented under a Letter of
Credit proving to be forged, fraudulent or invalid in any respect or any
statement therein being untrue or inaccurate in any respect whatsoever;
(vi) payment under a Letter of Credit against presentation to the
L/C Issuer of a draft or certificate that does not comply with the terms of
the Letter of Credit; or
(vii) any other act or omission to act or delay of any kind by any
Lender (including the L/C Issuer ), any Agent or any other Person, but for
the provisions of this subsection (vii), constitute a legal or equitable
discharge of either Borrower's or the Lender's obligations hereunder.
Nothing in this subsection (d) is intended to limit the right of either
Borrower to make a claim against the L/C Issuer for damages as contemplated by
the proviso to the first sentence of subsection (e).
(e) Each Borrower hereby indemnifies and holds harmless each L/C Issuer
and the Agents (and, to the extent any other Lender shall have contributed
toward or indemnified against any such claim, damage, loss, liability, cost or
expense, incurred by an L/C Issuer or the Agents, each such other Lender) from
and against any and all claims, damages, losses, liabilities, costs or expenses
which it may incur (including, without limitation, any claims, damages, losses,
liabilities, costs or expenses which the L/C Issuer may incur by reason of or in
connection with the failure of any other Lender to fulfill or comply with its
obligations to such L/C Issuer hereunder), and none of the Lenders (including an
L/C Issuer) nor the Agents nor any of their officers or directors or employees
or agents shall be liable or responsible, by reason of or in connection with the
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execution and delivery or transfer of or payment or failure to pay under any
Letter of Credit, including without limitation any of the circumstances
enumerated in subsection (d) above, as well as (i) any error, omission,
interruption or delay in transmission or delivery of any messages, by mail,
cable, telegraph, telex or otherwise, (ii any error in interpretation of
technical terms, (ii any loss or delay in the transmission of any document
required in order to make a drawing under a Letter of Credit, (iv any
consequences arising from causes beyond the control of the L/C Issuer, including
without limitation any government acts, or (v) any other circumstances
whatsoever in making or failing to make payment under such Letter of Credit;
provided that no Borrower shall be required to indemnify any Lender for any
claims, damages, losses, liabilities, costs or expenses, and each Borrower shall
have a claim against the L/C Issuer for direct (but not consequential) damage
suffered by it, to the extent found by a court of competent jurisdiction to have
been caused by (x) the willful misconduct or gross negligence of the L/C Issuer
in determining whether a request presented under any Letter of Credit complied
with the terms of such Letter of Credit or (y) the L/C Issuer's failure to pay
under any Letter of Credit after the presentation to it of a request strictly
complying with the terms and conditions of the Letter of Credit. Nothing in
this subsection (e) is intended to limit the obligations of either Borrower
under any other provision of this Agreement. To the extent the Borrowers do not
indemnify an L/C Issuer as required by this subsection, the Revolving Lenders
agree to do so ratably in accordance with their Revolving Commitments.
ARTICLE 3
Conditions
Section 3.01. Effective Date. This Agreement shall become effective on
the date when each of the following conditions shall have been satisfied:
(a) the Agent shall have received from each of the parties listed on the
signature pages hereof either a counterpart hereof signed by such party or
facsimile or other written confirmation satisfactory to the Agent confirming
that such party has signed a counterpart hereof;
(b) the Agent shall have received a duly executed Note of each Borrower
for the account of each Lender dated on or before the Effective Date and
complying with the provisions of Section 2.03;
(c) the Agent shall have received an opinion of Gibson Dunn & Crutcher
LLP, special counsel for the Obligors, substantially in the form of Exhibit G
and dated the Effective Date;
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(d) the Agent shall have received an opinion of each of (i) Davis Polk &
Wardwell, special counsel for the Agents, substantially in the form of Exhibit
H-1 hereto and dated the Effective Date and (ii) Amster, Rothstein & Ebenstein,
special counsel for the Agents, substantially in the form of Exhibit H-2 hereto
and dated the Effective Date;
(e) the Agent shall have received duly executed counterparts of each of
the Collateral Documents, in each case dated the Effective Date, together with
duly executed financing statements on Form UCC-1 or UCC-3 in form sufficient for
filing in all jurisdictions in which such filing is necessary to continue or
perfect Liens created by the Collateral Documents, including without limitation
any appropriate assignments of security interests under the Orion Credit
Agreement as the Agent may reasonably request, and all necessary documents for
filing with the U.S. Patent and Trademark Office and the U.S. Copyright Office,
and the delivery of any promissory notes and stock certificates comprising the
Collateral;
(f) MGM Studios shall have made arrangements satisfactory to the Agent for
payment in full on the Effective Date (including with proceeds of the Loans made
on the Effective Date) of all Loans outstanding under the Original Credit
Agreement, all interest and fees accrued under the Original Credit Agreement to
but excluding the Effective Date, and all other amounts (if any) due and payable
thereunder for which a demand for payment has been made (except that costs
payable pursuant to Section 2.12 of the Original Credit Agreement incurred as a
result of prepaying the Loans of such Existing Lenders pursuant to this clause
(f) may be paid within 15 days after demand therefor);
(g) the Agent shall have received evidence satisfactory to it that (i)
Orion shall have paid in full (or made arrangements satisfactory to the Agent
for paying in full) on the Effective Date all loans outstanding under the Orion
Credit Agreement, all interest and fees accrued under the Orion Credit Agreement
to but excluding the Effective Date and all other amounts (if any), then due and
payable by Orion thereunder for which a demand for payment has been made (except
that costs payable pursuant to Section 2.12 of the Orion Credit Agreement
incurred as a result of prepaying the loans thereunder may be paid within 15
days after demand therefor), (ii) all commitments under the Orion Credit
Agreement shall have been terminated and (iii) all Liens securing such
obligations and all guarantees thereof have been released (or assigned to the
Agent for the benefit of the Lenders hereunder) or provision made for release
(or assignment) thereof that is satisfactory to the Agent (all Lenders hereunder
which are also Lenders under the Orion Credit Agreement hereby waive any notice
requirement with respect to
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any such prepayment under the Orion Credit Agreement, subject to Section 2.12
thereof);
(h) the Agent shall have received evidence satisfactory to it that, after
consummation of the transactions contemplated by the Loan Documents to occur on
the Effective Date, the Borrowers and their respective Subsidiaries shall have
no Debt outstanding (other than the Loans and Debt permitted pursuant to
Sections 5.10(b) through 5.10(k), inclusive);
(i) the Agent shall have received the pro forma financial statements
referred to in Section 4.04(c), together with a certificate of the chief
financial officer or the chief accounting officer of each Borrower setting forth
in reasonable detail the calculations required to establish that the Borrowers
are in compliance with the requirements of Section 5.15 on the Effective Date;
(j) the Agent shall have received evidence satisfactory to it of the
insurance coverage required by Section 5.03 and the Collateral Documents;
(k) the Agents and the Arrangers shall have received payment in full of
all fees, expenses and other amounts due and payable hereunder (including fees
and expenses payable pursuant to Section 10.03) or pursuant to any letter
agreement between either Borrower and any Agent or any Arranger relating to the
transactions contemplated by the Loan Documents;
(l) the Agent shall have received all documents the Agent may reasonably
request relating to the existence of the Obligors, the corporate authority for
and the validity of the Loan Documents, and any other matters relevant hereto,
all in form and substance reasonably satisfactory to the Agent;
(m) since the respective dates as of which information is stated in the
Information Memorandum, no event has occurred and no condition has come into
existence which would have caused the projections set forth therein to be
materially misleading;
(n) receipt of all consents and approvals necessary in connection with the
transactions contemplated hereby;
(o) the Lenders' satisfaction that, except for (i) any change resulting
from general economic, financial or market conditions or (ii) any change
resulting from conditions or circumstances generally affecting the business in
which the Borrowers and/or their respective Subsidiaries operate (including
losses resulting from the release of films in the ordinary course of business),
since June 30, 1997 there has been no material adverse change in the assets or
liabilities or in the
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business, financial condition or results of operations of the Borrowers and
their respective Subsidiaries taken as a whole;
(p) the absence of any pending or threatened litigation or other
proceedings which could reasonably be expected to have a material adverse effect
on the assets or liabilities or the business, financial position or results of
operations of the Borrowers and their respective Subsidiaries, taken as a whole,
or which in any manner draws into question the validity or enforceability of
this Agreement or any other Loan Documents or the consummation of the
transactions contemplated thereby;
(q) the fact that each Borrower shall be a direct, wholly-owned Subsidiary
of MGM; and
(r) the fact that the Effective Date shall have occurred on or prior to
December 31, 1997.
Section 3.02. Consequences of Effectiveness. (a) On the Effective Date,
without further action by any of the parties thereto, (i) the Original Credit
Agreement will be automatically amended and restated to read as this Agreement
reads and (ii) the rights and obligations of the Terminating Lenders under the
Original Credit Agreement will terminate, provided that their rights under
Sections 2.12, 8.04 and 10.03(b) of the Original Credit Agreement will survive.
(b) On and after the Effective Date, the rights and obligations of the
parties hereto shall be governed by the provisions hereof. The rights and
obligations of the parties to the Original Credit Agreement with respect to the
period prior to the Effective Date shall continue to be governed by the
provisions thereof as in effect prior to the Effective Date, except that all
interest and fees accrued under the Original Credit Agreement to but excluding
the Effective Date shall be paid on the Effective Date.
Section 3.03. Borrowings and Issuances of Letters of Credit. The
obligation of any Lender to make a Loan on the occasion of any Borrowing (other
than the obligation of any Lender to make a Refunding Swing Loan), and the
obligation of an L/C Issuer to issue (which shall include, for purposes of this
Section, any renewal or extension of the term of) any Letter of Credit are each
subject to the satisfaction of the following conditions:
(a) receipt by the Agent of a Notice of Borrowing as required by Section
2.01 or receipt by the L/C Issuer of a Notice of Issuance as required by Section
2.14(b);
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(b) solely in the case of a Revolving Borrowing, a Swing Borrowing or
issuance of a Letter of Credit the fact that, immediately after such Borrowing
or the issuance of such Letter of Credit, as the case may be, the aggregate
Revolving Exposure will not exceed the aggregate amount of the Available
Revolving Commitments;
(c) the fact that, immediately before and after such Borrowing or issuance
of a Letter of Credit, as the case may be, no Default shall have occurred and be
continuing; and
(d) the fact that the representations and warranties of the Obligors
contained in the Loan Documents shall be true in all material respects on and as
of the date of such Borrowing.
Each Borrowing and issuance of a Letter of Credit hereunder shall be deemed
to be a representation and warranty by the Borrowers on the date of such
Borrowing or issuance of a Letter of Credit, as the case may be, as to the facts
specified in clauses (b), (c) and (d) of this Section.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
Each Borrower represents and warrants that:
Section 4.01. Corporate Existence and Power. Each Obligor is a
corporation duly incorporated, validly existing and in good standing under the
laws of the jurisdiction of its incorporation, and has all corporate powers and
all material governmental licenses, authorizations, consents and approvals
required to carry on its business as now conducted, except to the extent that
the failure to have such licenses, authorizations, consents and approvals could
not in the aggregate reasonably be expected to have a Material Adverse Effect.
Section 4.02. Corporate and Governmental Authorization; No Contravention.
The execution, delivery and performance by each Obligor of the Loan Documents to
which it is a party (i) are within the corporate powers of such Obligor and have
been duly authorized by all necessary corporate action, (ii) require no action
by or in respect of, or filing with, any governmental body, agency or official,
other than actions or filings which have been taken or made on or prior to the
Effective Date or, solely with respect to filings necessary to perfect any
security interest created under any of the Collateral Documents, will be made on
or prior to 5 Domestic Business Days after the Effective Date, (iii) do not
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contravene, or constitute a default under, any provision (A) of applicable law
or regulation, (B) of the articles or certificate of incorporation or by-laws of
such Obligor, (C) of any agreement or instrument under which Debt has or may be
incurred binding upon MGM or any of its Subsidiaries, (D) of any other agreement
or instrument binding upon MGM or any of its Subsidiaries which contravention or
default could reasonably be expected to have a Material Adverse Effect or (E) of
any judgment, injunction, order or decree binding upon MGM or any of its
Subsidiaries or (iv) result in the creation or imposition of any Lien on any
material asset of MGM or any of its Subsidiaries.
Section 4.03. Binding Effect. The Loan Documents (other than the Notes)
to which each Obligor is a party constitute valid and binding agreements of such
Obligor and each Note of each Borrower, when executed and delivered in
accordance with this Agreement, will constitute a valid and binding obligation
of such Borrower, in each case enforceable in accordance with its terms except
(i) as may be limited by bankruptcy, insolvency or similar laws affecting
creditors' rights generally and (ii) as may be limited by equitable principles
of general applicability.
Section 4.04. Financial Information; Information Memorandum. (a) The
consolidated balance sheets of each of MGM Studios and its Consolidated
Subsidiaries and Orion and its Consolidated Subsidiaries as of December 31, 1996
and the related consolidated statements of income and cash flows for the fiscal
year then ended, reported on by Arthur Andersen LLP, a copy of which has been
delivered to each of the Lenders, fairly present, in conformity with generally
accepted accounting principles, the consolidated financial position of each of
MGM Studios and its Consolidated Subsidiaries and Orion and its Consolidated
Subsidiaries, respectively, as of such date and their respective consolidated
results of operations and cash flows for such fiscal year.
(b) The unaudited consolidated balance sheets of each of MGM Studios and
its Consolidated Subsidiaries and Orion and its Consolidated Subsidiaries as of
June 30, 1997 and the related unaudited consolidated statements of income and
cash flows for the six-month period then ended fairly present, in conformity
with generally accepted accounting principles applied on a basis consistent with
the financial statements referred to in Section 4.04(a), the consolidated
financial position of each of MGM Studios and its Consolidated Subsidiaries and
Orion and its Consolidated Subsidiaries, respectively, as of such date and their
respective consolidated results of operations and cash flows for such six-month
period (subject to normal year-end adjustments).
(c) The pro forma combined balance sheet of MGM Studios and its
Consolidated Subsidiaries and Orion and its Consolidated Subsidiaries as of June
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30, 1997, copies of which have been delivered to each of the Lenders prior to
the date hereof, fairly presents, in conformity with generally accepted
accounting principles applied on a basis consistent with the financial
statements referred to in Section 4.04(a), the consolidated financial position
of MGM Studios and its Consolidated Subsidiaries and Orion and its Consolidated
Subsidiaries on a Combined Basis, as of such date, adjusted to give effect (as
if such events had occurred on such date) to (i) the transactions contemplated
by the Loan Documents to occur on the Effective Date, (ii) the application of
the proceeds therefrom as contemplated by this Agreement, (iii) the payment of
all legal, accounting and other fees related thereto and (iv) the MGM
acquisition of Orion on July 10, 1997 pursuant to the Stock Purchase Agreement
dated as of May 2, 1997 by and among Orion, MGM and Metromedia International
Group, Inc. As of the date of such balance sheet and the Effective Date, the
Borrowers and their respective Subsidiaries had and have no material
liabilities, contingent or otherwise, including liabilities for taxes, long-term
leases or forward or long-term commitments, which are not properly reflected on
such balance sheet in accordance with generally accepted accounting principles
or the footnotes relating thereto.
(d) The projections set forth in the Information Memorandum were prepared
in good faith on assumptions believed to be reasonable at the time of
preparation thereof.
(e) Since June 30, 1997 there has been no material adverse change in the
assets or liabilities or the business, financial position or results of
operations of the Combined Companies, considered as a whole, except for any such
change as a result of (x) any change resulting from general economic, financial
or market conditions not specific to the Borrowers and their respective
Subsidiaries or the business in which they operate or (y) any change resulting
from conditions or circumstances generally affecting the business in which the
Borrowers and their respective Subsidiaries operate (including losses from the
release of Films in the ordinary course of business).
Section 4.05. Litigation. Except as set forth in Schedule 4.05, there is
no action, suit or proceeding pending against, or to the knowledge of either
Borrower threatened against or affecting, MGM or any of its Subsidiaries before
any court or arbitrator or any governmental body, agency or official which could
reasonably be expected to have a Material Adverse Effect or which questions the
validity or enforceability of the Loan Documents.
Section 4.06. Compliance with ERISA. Neither a Reportable Event nor an
"ACCUMULATED FUNDING DEFICIENCY" (within the meaning of Section 412 of the Code
or Section 302 of ERISA) has occurred during the five-year period prior to
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the date on which this representation is made or deemed made with respect to any
Plan, and each Plan has complied in all material respects with the applicable
provisions of ERISA and the Code, except in each case to the extent that the
same could not reasonably be expected to have a Material Adverse Effect. No
termination of a Single Employer Plan has occurred, and no Lien in favor of the
PBGC or a Plan has arisen, during such five-year period, except to the extent
that the same could not reasonably be expected to have a Material Adverse
Effect. The present value of all accrued benefits under each Single Employer
Plan (based on those assumptions used to fund such Plans) did not, as of the
last annual valuation date prior to the date on which this representation is
made or deemed made, exceed the value of the assets of such Plan allocable to
such accrued benefits, except to the extent that the same could not reasonably
be expected to have a Material Adverse Effect. Neither MGM nor any Commonly
Controlled Entity has had a complete or partial withdrawal from any
Multiemployer Plan, and neither MGM nor any Commonly Controlled Entity would
become subject to any liability under ERISA if MGM or any such Commonly
Controlled Entity were to withdraw completely from all Multiemployer Plans as of
the valuation date most closely preceding the date on which this representation
is made or deemed made, except in each case to the extent that the same could
not reasonably be expected to have a Material Adverse Effect. No such
Multiemployer Plan is in Reorganization or Insolvent. Neither MGM nor any of
its Subsidiaries has any liability for any post-retirement welfare benefits.
Section 4.07. Environmental Compliance. In the ordinary course of its
business, each Borrower conducts an ongoing review of the effect of
Environmental Laws on the business, operations and properties of such Borrower
and its Subsidiaries, in the course of which it identifies and evaluates
associated liabilities and costs (including, without limitation, any capital or
operating expenditures required for clean-up or closure of properties presently
or previously owned, any capital or operating expenditures required to achieve
or maintain compliance with environmental protection standards imposed by law or
as a condition of any license, permit or contract, any related constraints on
operating activities, including any periodic or permanent shutdown of any
facility or reduction in the level of or change in the nature of operations
conducted thereat, any costs or liabilities in connection with off-site disposal
of wastes or Hazardous Substances, and any actual or potential liabilities to
third parties, including employees, and any related costs and expenses). On the
basis of this review, each Borrower has reasonably concluded that such
associated liabilities and costs, including the costs of compliance with
Environmental Laws, are unlikely to have a Material Adverse Effect.
Section 4.08. Taxes. MGM and its Subsidiaries have filed all United
States Federal income tax returns and all other material tax returns which are
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required to be filed by them and have paid all taxes due pursuant to such
returns or pursuant to any assessment received by MGM or any Subsidiary (other
than any such taxes being contested in good faith by appropriate proceeding and
with respect to which appropriate reserves in accordance with generally accepted
accounting principles have been taken). The charges, accruals and reserves on
the books of MGM and its Subsidiaries in respect of taxes or other governmental
charges are, in the opinion of the Borrowers, adequate.
Section 4.09. Subsidiaries. (a) Each of the Material Subsidiaries of
either Borrower is a corporation or other business entity duly incorporated or
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation or organization, and has all corporate or other
powers and all material governmental licenses, authorizations, consents and
approvals required to carry on its business as now conducted, except to the
extent that the failure of such Material Subsidiaries to maintain their
respective good standing or to have such licenses, authorizations, consents and
approvals could not in the aggregate reasonably be expected to have a Material
Adverse Effect (or its existence has been terminated as permitted under Section
5.04 or it has merged or consolidated with another Person as permitted under
Section 5.07(a)).
(b) Schedule 4.09 lists all of the Material Subsidiaries of each Borrower
(including any Material Subsidiary the existence of which has been terminated as
permitted under Section 5.04 or which has merged or consolidated with another
Person as permitted under Section 5.07(a)). Each Material Subsidiary of a
Borrower (other than Foreign Subsidiaries and Single Purpose Subsidiaries) is a
Guarantor. Each Guarantor is a direct or indirect wholly-owned Subsidiary of a
Borrower.
Section 4.10. Regulatory Restrictions on Borrowing. None of the Borrowers
is an "INVESTMENT COMPANY" within the meaning of the Investment Company Act of
1940, as amended, a "HOLDING COMPANY" within the meaning of the Public Utility
Holding Company Act of 1935, as amended, or otherwise subject to any regulatory
scheme which restricts its ability to incur debt.
Section 4.11. Full Disclosure. No information heretofore or hereafter
furnished by any Obligor to any Agent or any Lender for purposes of or in
connection with the Loan Documents or any transaction contemplated thereby
contains or, taken together with all information so furnished will contain, any
untrue statement of a material fact or omits or will omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
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Section 4.12. Intellectual Property. Each of the Borrowers and their
respective Subsidiaries owns, or is a licensed to use, all trademarks,
tradenames, copyrights (including without limitation any copyrights relating to
Library Films), technology, know-how and processes necessary for the conduct of
their respective businesses as currently conducted (the "INTELLECTUAL
PROPERTY"), except to the extent that the failure to own or be licensed to use
any such Intellectual Property could not in the aggregate reasonably be expected
to have a Material Adverse Effect. No claim has been asserted and is pending by
any Person challenging or questioning the use of any Intellectual Property or
the validity or effectiveness of any such Intellectual Property, nor does either
Borrower know of any valid basis for any such claim, except, in each case, for
claims which could not in the aggregate reasonably be expected to have a
Material Adverse Effect. The use of Intellectual Property by any MGM/Orion
Company does not infringe on the rights of any Person, except to the extent that
such infringements could not in the aggregate reasonably be expected to have a
Material Adverse Effect.
Section 4.13. Collateral Documents. The representations and warranties
made by the Obligors in the Collateral Documents are true and correct in all
material respects.
Section 4.14. Solvency. As of the Effective Date after giving effect to
the transactions contemplated hereby to occur on the Effective Date, and at all
times thereafter: (i) the aggregate fair market value of the business and/or
assets of each Borrower, and of the Obligors, taken as a whole, will in each
case exceed its or their respective liabilities (including contingent,
subordinated, unmatured and unliquidated liabilities), (ii) each Borrower will,
and the Obligors, taken as a whole, will, have sufficient cash flow to enable it
or them (as the case may be) to pay its or their debts as they mature and (iii)
the MGM/Orion Companies will not have unreasonably small capital for the
business in which the MGM/Orion Companies are engaged.
ARTICLE 5
Covenants
Each Borrower agrees that, so long as any Lender has any Commitment
hereunder or any amount payable under any Note or any Letter of Credit Liability
remains unpaid:
Section 5.01. Information. The Borrowers will deliver to the Agent, with
sufficient copies for all Lenders (and the Agent shall deliver promptly upon
receipt to the Syndication Agent and to the Lenders):
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(a) as soon as available and in any event within 105 days after the end of
each Fiscal Year, (i) an audited combined balance sheet of the Combined
Companies as of the end of such Fiscal Year and the related audited combined
statements of operations and cash flows for such Fiscal Year, setting forth in
each case in comparative form the figures for the previous Fiscal Year, all
reported on without material qualification by independent public accountants of
nationally recognized standing and (ii an unaudited combined statement of cash
flows of the Combined Companies for such Fiscal Year, setting forth (x) in
reasonable detail a calculation of combined cash flows from operations of the
Combined Companies for such Fiscal Year (determined in a manner consistent with
the statements of cash flows included in the Information Memorandum) and (y) in
comparative form the projected figures for such statements for such Fiscal Year
set forth in the Information Memorandum;
(b) as soon as available and in any event within 45 days after the end of
each of the first three Fiscal Quarters of each Fiscal Year, (i) a combined
balance sheet of the Borrowers and their respective Consolidated Subsidiaries as
of the end of such Fiscal Quarter and the related combined statements of
operations and cash flows for such Fiscal Quarter and for the portion of the
Fiscal Year ended at the end of such Fiscal Quarter, setting forth in the case
of such statements of operations and cash flows, in comparative form the figures
for the corresponding Fiscal Quarter and the corresponding portion of the
previous Fiscal Year, all certified (subject to normal year-end adjustments) as
to fairness of presentation, generally accepted accounting principles and
consistency by the chief financial officer or the chief accounting officer of
each Borrower and (ii an unaudited combined statement of cash flows of the
Combined Companies for such Fiscal Quarter and the portion of the Fiscal Year
ended at the end of such Fiscal Quarter, setting forth (x) in reasonable detail
a calculation of combined cash flows from operations of Combined Companies for
such Fiscal Quarter and the portion of the Fiscal Year ended at the end of such
Fiscal Quarter (determined in a manner consistent with the statements of cash
flows included in the Information Memorandum) and (y) in comparative form the
figures for such statements for the corresponding Fiscal Quarter and the
corresponding portion of the previous Fiscal Year set forth in the Information
Memorandum;
(c) simultaneously with the delivery of each set of financial statements
referred to in Sections 5.01(a) and 5.01(b), (A) a certificate of the chief
financial officer or the chief accounting officer of each Borrower, (i) setting
forth in reasonable detail the calculations required to establish whether the
Borrowers were in compliance with the requirements of Sections 5.10 to 5.18,
inclusive, on the date of such financial statements, (ii) listing all new
Material Subsidiaries of either Borrower since the date of the previous
certificate delivered pursuant to this Section 5.01(c), (iii) solely in the
case of each set of financial statements referred
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<PAGE>
to in Section 5.01(a), setting forth in reasonable detail the calculations
required to determine Excess Cash Flow for the related Fiscal Year and (iv
stating whether, to his or her knowledge, any Default exists on the date of such
certificate and, if any Default then exists, setting forth the details thereof
and the action which the Borrowers are taking or propose to take with respect
thereto and (B) from the chief financial officer or the chief accounting officer
of each Borrower, a report setting forth in reasonable detail a discussion and
analysis of the Borrowers' financial condition and results of operations for the
Fiscal Quarter then ended;
(d) simultaneously with the delivery of each set of financial statements
referred to in Section 5.01(a)(i), a statement of the firm of independent public
accountants which reported on such statements (i) whether anything has come to
their attention to cause them to believe that any Default under Sections 5.11 to
5.16, inclusive, existed on the date of such statements and (ii confirming the
accuracy of the calculations set forth in the officer's certificate delivered
simultaneously therewith pursuant to Section 5.01(c) (other than the
calculations relating to the determination of Excess Cash Flow);
(e) reasonably promptly after any Responsible Officer obtains knowledge of
any Default, if such Default is then continuing, a certificate of the chief
financial officer or the chief accounting officer of the relevant Borrower
setting forth the details thereof and the action which the Borrowers are taking
or propose to take with respect thereto;
(f) as soon as reasonably practicable after any Responsible Officer
obtains knowledge thereof, notice of any event or condition which has had or
could reasonably be expected to have a Material Adverse Effect and the nature of
such Material Adverse Effect;
(g) as soon as reasonably practicable after any Responsible Officer
obtains knowledge of the commencement of, or of a threat of the commencement of,
an action, suit or proceeding against MGM or any of its Subsidiaries before any
court or arbitrator or any governmental body, agency or official which could
reasonably be expected to have a Material Adverse Effect or which questions the
validity or enforceability of the Loan Documents, a certificate of a senior
financial officer of each Borrower setting forth the nature of such pending or
threatened action, suit or proceeding and such additional information with
respect thereto as may be reasonably requested by any Lender;
(h) promptly upon the filing thereof, copies of all registration
statements (other than the exhibits thereto and any registration statements on
Form S-8 or its equivalent) and reports on Forms 10-K, 10-Q and 8-K (or their
equivalents) (if
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<PAGE>
any) which either Borrower or MGM shall have filed with the Securities and
Exchange Commission;
(i) written notice of the following events, as soon as possible and in any
event within 30 days after any of the appropriate officers or employees of MGM
with responsibility for MGM's Plans and the compliance by such Plans with ERISA
and the Code knows or has reason to know thereof: (i) the occurrence or expected
occurrence of any Reportable Event with respect to any Plan, the filing of an
application for a waiver of the minimum funding standard with respect to a Plan
under Section 412 of the Code, the creation of any Lien in favor of PBGC or a
Plan or any withdrawal from, or the termination, reorganization or Insolvency
of, any Multiemployer Plan or (ii the institution of proceedings or the taking
of any other action by the PBGC or MGM or any Commonly Controlled Entity or any
Multiemployer Plan with respect to the withdrawal from, or the terminating,
reorganization or Insolvency of, any Plan;
(j) from time to time at the request of the Required Lenders (but no more
frequently than once in any 24-month period), an appraisal made by a qualified
independent appraiser selected by the Borrowers and reasonably satisfactory to
the Agent, as to value of the Library Films or any portion thereof and as of
such date as shall each be specified in the relevant request made by the
Required Lenders, performed using the methods and procedures used in, and
prepared in a form substantially consistent with, the appraisal of the Library
Films of MGM Studios prepared by Furman Selz LLC and dated August 1996;
(k) within 30 days prior to the end of each Fiscal Year, the operating and
capital expenditure budgets and cash flow forecasts of each of the Borrowers and
their respective Consolidated Subsidiaries and the Combined Companies for the
immediately succeeding Fiscal Year, which budgets and forecasts shall be in
format and scope reasonably consistent with the projections, budgets and
forecasts set forth in the Information Memorandum; and
(l) from time to time such additional information regarding the financial
position or business of the Borrowers and their respective Subsidiaries or any
other Obligor as the Agent, at the request of any Lender, may reasonably
request.
Section 5.02. Payment of Obligations. Each Borrower will pay and
discharge, and will cause each of its Material Subsidiaries to pay and
discharge, at or before maturity, all their respective material obligations and
liabilities (including, without limitation, tax liabilities and claims of
materialmen, warehousemen and the like which if unpaid might by law give rise to
a Lien), except (i) where the same may be contested in good faith by appropriate
proceedings, and will maintain, and will cause each Material Subsidiary to
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<PAGE>
maintain, in accordance with generally accepted accounting principles,
appropriate reserves for the accrual of any of the same and (ii) where the
failure to pay or discharge such obligations and liabilities could not
reasonably be expected to have a Material Adverse Effect.
Section 5.03. Maintenance of Property; Insurance. (a) Each Borrower will
keep, and will cause each of its Material Subsidiaries to keep, all property
useful and necessary in its business in good working order and condition,
ordinary wear and tear excepted, except where the failure to do so could not, in
the aggregate, reasonably be expected to have a Material Adverse Effect.
(b) Each Borrower will, and will cause each of its Material Subsidiaries
to, maintain (in the name of such Borrower or such Subsidiary) with financially
sound and responsible insurance companies, insurance on their respective
properties in at least such amounts, against at least such risks and with such
risk retention as are usually maintained, insured against or retained, as the
case may be, in the same general area by companies of established repute engaged
in the same or a similar business (but including in any event public liability
insurance and "ERRORS AND OMISSIONS" insurance); and will furnish to the
Lenders, upon request from the Agent, information presented in reasonable detail
as to the insurance so carried.
Section 5.04. Conduct of Business and Maintenance of Existence. Each
Borrower will continue, and will cause each of its Material Subsidiaries to
continue, to engage in business of the same general type as now conducted by
such Borrower and its Material Subsidiaries and other businesses reasonably
incidental thereto and will preserve, renew and keep in full force and effect,
and will cause each of its Material Subsidiaries to preserve, renew and keep in
full force and effect their respective corporate existence and their respective
rights, privileges and franchises necessary or desirable in the normal conduct
of business, except to the extent that the failure to keep in full force and
effect such rights, privileges and franchises could not in the aggregate
reasonably be expected to have a Material Adverse Effect; provided that (i)
either Borrower may liquidate or terminate the corporate existence of any of its
Material Subsidiaries if, prior to or contemporaneously with such liquidation or
termination, substantially all of the assets of such Material Subsidiary are
distributed, contributed or otherwise transferred to a Borrower or a Guarantor
and (ii) nothing in this Section 5.04 shall prohibit any transaction explicitly
permitted by the proviso set forth in Section 5.07(a).
Section 5.05. Compliance with Laws. Each Borrower will comply, and will
cause each of its Material Subsidiaries to comply, in all material respects with
all applicable laws, ordinances, rules, regulations, and requirements of
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<PAGE>
governmental authorities (including, without limitation, Environmental Laws and
ERISA and the rules and regulations thereunder) except (i) where the necessity
of compliance therewith is contested in good faith by appropriate proceedings or
(ii) to the extent that failure to so comply could not in the aggregate
reasonably be expected to have a Material Adverse Effect.
Section 5.06. Inspection of Property, Books and Records. Each Borrower
will keep, and will cause each of its Subsidiaries to keep, proper books of
record and account in which full, true and correct entries shall be made of all
dealings and transactions in relation to its business and activities; and will
permit, and will cause each of its Subsidiaries to permit, representatives of
the Agent, at the Agent's or the Lenders' expense, to visit and inspect any of
their respective properties, to examine and make abstracts from any of their
respective books and records and to discuss their respective affairs, finances
and accounts with their respective officers, employees and independent public
accountants, all at such reasonable times during normal business hours and upon
reasonable prior notice, and as often as may reasonably be desired.
Section 5.07. Mergers and Sales of Assets; Licensing Agreements. (a) Each
Borrower will not, and will not permit any of its Material Subsidiaries to,
consolidate or merge with or into any other Person; provided that (i) either
Borrower may merge with another Person if such Borrower is the corporation
surviving such merger and immediately after giving effect to such merger, no
Default shall have occurred and be continuing and (ii any Material Subsidiary
may merge with any other Person if the corporation surviving the merger is a
Borrower or a Guarantor and immediately after giving effect to such merger, no
Default shall have occurred and be continuing.
(b) Each Borrower will not, and will not permit any of its Subsidiaries
to, make any Asset Sale in any Fiscal Year, other than (i) Asset Sales the fair
market value of which, when combined with all other such Asset Sales previously
made during such Fiscal Year, does not exceed $11,000,000 and (ii any Asset Sale
in which (x) the consideration therefor is not less than the fair market value
of the related asset (as determined in good faith by the chief financial officer
or chief accounting officer of each Borrower), (y) the consideration received
therefor consists solely of cash payable at the closing thereof and (z) after
giving effect to such Asset Sale, the aggregate fair market value of the assets
disposed of in all Asset Sales in such Fiscal Year does not exceed $30,000,000.
Notwithstanding the foregoing, each Borrower will not, and will not permit any
of its Subsidiaries to, enter into any Receivable Financing after the Original
Effective Date.
(c) Without limitation of the foregoing, each Borrower will not, and will
not permit its Subsidiaries to, sell, lease or otherwise transfer, directly or
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<PAGE>
indirectly, all or substantially all of the assets of such Borrower and its
Subsidiaries, taken as a whole, to any other Person; provided that nothing in
this subsection (c) shall prohibit any Subsidiary from distributing,
contributing or otherwise transferring its assets to a Borrower or a Guarantor.
(d) Without limitation of the foregoing, each Borrower will not, and will
not permit its Subsidiaries to, enter into any Licensing Agreement or series of
related Licensing Agreements with respect to any Library Films if:
(i) the aggregate amount of payments under such Licensing Agreement
or series of related Licensing Agreements exceeds $175,000,000; or
(ii) such Borrower or such Subsidiary conveys, sells, assigns,
transfers or otherwise disposes of, with or without recourse, its rights to
receive payments under any such Licensing Agreement or series of related
Licensing Agreements; or
(iii) the aggregate amount of payments under such Licensing Agreement
or series of related Licensing Agreements exceeds $17,500,000 and the
aggregate amount of payments under all such Licensing Agreement or series
of related Licensing Agreements that are not to be made reasonably pro rata
over the period of availability of the Films which are the subject of such
Licensing Agreement or series of related Licensing Agreements would exceed
the greater of (x) 10% of the aggregate amount of all payments under such
Licensing Agreement or series of related Licensing Agreements and (y)
$17,500,000.
(e) Without limitation of the foregoing, each Borrower will not, and will
not permit its Subsidiaries to, enter into any Licensing Agreement or series of
related Licensing Agreements with respect to any Films (other than Library
Films) or Film Related Assets if such Borrower or such Subsidiary conveys,
sells, assigns, transfers or otherwise disposes of, with or without recourse,
its rights to receive payments under any such Licensing Agreement or series of
related Licensing Agreements.
Section 5.08. Use of Proceeds. The proceeds of the Term Loans and the
Revolving Loans made on the Effective Date will be used by each Borrower to (i)
in the case of such Loans made to MGM Studios, refinance in full all amounts due
under the Original Credit Agreement and (ii) in the case of such Loans made to
Orion, to repay in full all amounts due under the Orion Credit Agreement and
(iii) in the case of Loans made to either Borrower, other general corporate
purposes. The Letters of Credit and the proceeds of the Revolving Loans made
after the
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<PAGE>
Effective Date and the Swing Loans will be used for general corporate purposes.
None of such proceeds and none of the Letters of Credit will be used, directly
or indirectly, for the purpose, whether immediate, incidental or ultimate, of
buying or carrying any "MARGIN STOCK" within the meaning of Regulation U.
Section 5.09. Negative Pledge. Neither Borrower nor any Subsidiary will
create, assume or suffer to exist any Lien on any asset now owned or hereafter
acquired by it, except:
(a) any Lien existing on any asset of any Person at the time such Person
becomes a Subsidiary and not created in contemplation of such event;
(b) any Lien on any fixed or capital asset securing Debt incurred or
assumed for the purpose of financing all or any part of the cost of acquiring
such asset; provided that such Lien attaches to such asset concurrently with or
within 90 days after the acquisition thereof;
(c) any Lien on any asset of any Person existing at the time such Person
is merged or consolidated with or into a Borrower or a Subsidiary and not
created in contemplation of such event;
(d) any Lien existing on any asset prior to the acquisition thereof by a
Borrower or a Subsidiary and not created in contemplation of such acquisition;
(e) any Lien on assets of a Foreign Subsidiary securing Debt permitted
under Section 5.10(e);
(f) any Lien arising out of the refinancing, extension, renewal or
refunding of any Debt secured by any Lien permitted by any of the foregoing
clauses of this Section, provided that such Debt is not increased and is not
secured by any additional assets;
(g) any Lien securing Profit Participations, Residuals and Deferred
Payments and other obligations that do not constitute Debt by operation of
clause (x) of the proviso in the definition of "DEBT"; provided that such Lien
attaches solely to cash deposits and the Film or Films or Film Related Assets
that are the subject of such arrangements;
(h) Liens (other than Liens securing Debt) consisting of rights of
licensees under access agreements pursuant to which such licensees have access
to duplicating material for the purpose of making prints of Films licensed to
them, and rights of distributors, exhibitors, licensees and other Persons in
Films created
67
<PAGE>
in connection with the distribution and exploitation of such Films in the
ordinary course of business;
(i) Liens securing Debt permitted by Sections 5.10(h) or (i) or securing
obligations of any MGM/Orion Company incurred in connection with acquiring
rights to Films in the ordinary course of business, provided that (x) the
agreement to grant such Liens shall be created substantially simultaneously with
the acquisition, development, production or postproduction of such Films and (y)
such Liens do not at any time encumber any property other than the Films being
produced, developed or acquired;
(j) Liens (other than Liens securing Debt) incurred in the ordinary course
of business on any Film or any Film Related Asset constituting negotiation
rights with respect to such Film or Film Related Asset, options to develop such
Film or Film Related Asset or similar rights with respect to such Film or Film
Related Asset;
(k) Liens on cash and cash equivalents arising under the escrow
arrangements referred to in the proviso to the definition of Sale-Leaseback
Transactions and Liens consisting of the rights and interests of the lessor with
respect to Films subject to Sale-Leaseback Transactions permitted under Section
5.10(i) hereof;
(l) Liens arising out of Licensing Agreements or security agreements
entered into pursuant to such Licensing Agreements in respect of Films or Film
Related Assets permitted under Section 5.07(d) or Section 5.07(e) hereof,
consisting of such licensing rights and attaching solely to the Film or Films or
Film Related Assets so licensed;
(m) Liens in existence on the Effective Date and reflected in Schedule
5.09 hereto;
(n) Liens for taxes not yet due or which are being contested in good faith
by appropriate proceedings, provided that adequate reserves with respect thereto
are maintained on the books of any MGM/Orion Company, as the case may be, in
conformity with generally accepted accounting principles (or, in the case of
Foreign Subsidiaries, generally accepted accounting principles in effect from
time to time in their respective jurisdictions of incorporation);
(o) carriers', warehousemen's, mechanics', materialmen's, repairmen's or
other like Liens arising in the ordinary course of business which are not
overdue for a period of more than 60 days or which are being contested in good
faith by appropriate proceedings;
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<PAGE>
(p) pledges or deposits in connection with workers' compensation,
unemployment insurance or other social security legislation and deposits
securing liability to insurance carriers under insurance or self-insurance
arrangements;
(q) Liens on deposits to secure obligations to acquire Films or Film
Related Assets or the performance of bids, trade contracts (other than contracts
under which Debt may be incurred), leases, performance or completion bonds and
other obligations of a like nature incurred in the ordinary course of business;
provided that any such Liens securing the obligation of any MGM/Orion Company to
acquire Films or Film Related Assets shall encumber only cash;
(r) easements, rights-of-way, restrictions and other similar encumbrances
incurred in the ordinary course of business which, in the aggregate, are not
substantial in amount and which do not in any case materially detract from the
value of the property subject thereto or materially interfere with the ordinary
conduct of the business of any MGM/Orion Company;
(s) Liens (other than Liens permitted by any of the foregoing clauses)
arising in the ordinary course of its business which (i) do not secure Debt or
Derivatives Obligations, (ii do not secure any obligation in an amount exceeding
$5,000,000 and (ii do not in the aggregate materially detract from the value of
its assets or materially impair the use thereof in the operation of its
business; and
(t) Liens created by the Collateral Documents.
Section 5.10. Limitation on Debt. Each Borrower will not, and will not
permit any of its Subsidiaries to, incur or at any time be liable with respect
to any Debt except:
(a) Debt under this Agreement;
(b) Debt owed to WHV under the WHV Agreement;
(c) Debt owed to UIP (or any successor thereto) under agreements between
UIP (or such successor) and any MGM/Orion Company in an aggregate principal
amount not in excess of $20,000,000 at any one time;
(d) Debt secured by Liens permitted by Section 5.09(a), 5.09(b), 509(c),
5.09(d) or 5.09(f);
(e) Debt of any Foreign Subsidiary owed to a Person other than either
Borrower, any Guarantor or any other Foreign Subsidiary incurred for working
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<PAGE>
capital purposes in an aggregate principal amount not in excess of $10,000,000
at any time;
(f) (i) Debt of a Borrower owed to the other Borrower or to a Guarantor,
or Debt of a Guarantor owed to a Borrower or to another Guarantor, or Debt of a
Foreign Subsidiary owed to another Foreign Subsidiary or (ii) Debt of a Foreign
Subsidiary owed to a Borrower or to a Guarantor and incurred in the ordinary
course of business to finance operating expenditures of such Foreign Subsidiary
and evidenced by a note (which may be a grid note) constituting Collateral under
any Collateral Document;
(g) Debt of any MGM/Orion Company incurred to finance any acquisition of
fixed or capital assets permitted pursuant to Section 5.14 and any Debt of the
relevant obligor refinancing such Debt; provided that the principal amount
thereof is not increased;
(h) (i) Debt (other than Debt of a Single Purpose Subsidiary) incurred in
connection with the financing or refinancing of the development, production,
acquisition, distribution, exhibition or exploitation of a Film or Film Related
Assets or a slate of Films, but solely to the extent that under the terms of
such Debt the obligations of the Borrowers and their respective Subsidiaries
with respect to such Debt may be satisfied by recourse only to such Film or
slate of Films and rights pertaining thereto and, in each case, to the proceeds
thereof and (ii Debt of a Single Purpose Subsidiary, so long as such Debt
complies with the provisions of clause (ii) of the definition of Single Purpose
Subsidiary;
(i) Debt in respect of Sale-Leaseback Transactions;
(j) Debt outstanding on the Effective Date and listed on Schedule 5.10;
and
(k) Debt not otherwise permitted by the foregoing clauses of this Section
in an aggregate principal or face amount not in excess of $15,000,000 at any
time.
Section 5.11. Adjusted EBITDA to Cash Interest Expense. As of last day
of any Fiscal Quarter set forth below, the ratio of (i) Combined Adjusted EBITDA
to (ii Combined Cash Interest Expense, in each case for the period of four
consecutive Fiscal Quarters then ended (or, solely as of the last day of any
Fiscal Quarter ended on or prior to September 30, 1998, for the period from and
including January 1, 1998 to and including the last day of such Fiscal Quarter)
shall not be less than the ratio set forth below opposite such Fiscal Quarter:
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<PAGE>
<TABLE>
<CAPTION>
FISCAL QUARTER ENDING RATIO
--------------------- -----
<S> <C>
03/31/98 1.50:1
06/30/98 1.50:1
09/30/98 1.50:1
12/31/98 1.50:1
03/31/99 1.50:1
06/30/99 1.50:1
09/30/99 1.75:1
12/31/99 1.75:1
03/31/00 1.75:1
06/30/00 1.75:1
09/30/00 1.75:1
12/31/00 1.75:1
03/31/01 2.00:1
06/30/01 2.00:1
09/30/01 2.00:1
12/31/01 2.00:1
03/31/02 2.75:1
06/30/02 2.75:1
09/30/02 2.75:1
12/31/02 2.75:1
Thereafter 3.50:1
</TABLE>
Section 5.1. Total Borrowed Funds to Adjusted EBITDA. At no time during
any Fiscal Quarter set forth below shall the Leverage Ratio be greater than the
ratio set forth below opposite such Fiscal Quarter:
<TABLE>
<CAPTION>
FISCAL QUARTER ENDING RATIO
--------------------- -----
<S> <C>
03/31/98 6.50:1
06/30/98 6.50:1
09/30/98 6.50:1
12/31/98 6.50:1
03/31/99 6.50:1
06/30/99 6.50:1
09/30/99 6.50:1
12/31/99 6.50:1
03/31/00 6.25:1
06/30/00 6.25:1
09/30/00 6.25:1
12/31/00 6.25:1
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
FISCAL QUARTER ENDING RATIO
--------------------- -----
<S> <C>
03/31/01 5.50:1
06/30/01 5.50:1
09/30/01 5.50:1
12/31/01 5.50:1
03/31/02 4.00:1
06/30/02 4.00:1
09/30/02 4.00:1
12/31/02 4.00:1
Thereafter 3.50:1
</TABLE>
Section 5.13. Total Borrowed Funds/Library Cash Flow. At all times during
any Fiscal Quarter set forth below the ratio of (i) Total Borrowed Funds at such
date to (ii) Library Cash Flows for the period of four consecutive Fiscal
Quarters then most recently ended, will not be greater than the ratio set forth
below opposite such Fiscal Quarter:
<TABLE>
<CAPTION>
FISCAL QUARTER ENDING RATIO
--------------------- -----
<S> <C>
12/31/97 2.75:1
03/31/98 4.25:1
06/30/98 4.25:1
09/30/98 4.25:1
12/31/98 4.25:1
03/31/99 5.50:1
06/30/99 5.50:1
09/30/99 5.50:1
12/31/99 5.50:1
03/31/00 6.75:1
06/30/00 6.75:1
09/30/00 6.75:1
12/31/00 6.75:1
03/31/01 6.75:1
06/30/01 6.75:1
09/30/01 6.75:1
12/31/01 6.75:1
03/31/02 5.50:1
06/30/02 5.50:1
09/30/02 5.50:1
12/31/02 5.50:1
03/31/03 4.50:1
06/30/03 4.50:1
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
FISCAL QUARTER ENDING RATIO
--------------------- -----
<S> <C>
09/30/03 4.50:1
12/31/03 4.50:1
Thereafter 3.50:1
</TABLE>
Section 5.14. Maximum Capital Expenditures. Combined Capital Expenditures
for any Fiscal Year will not exceed the amount set forth below opposite such
Fiscal Year:
<TABLE>
<CAPTION>
COMBINED
CAPITAL
FISCAL YEAR EXPENDITURES
----------- ------------
<S> <C>
1997 $10,250,000
1998 $15,000,000
Thereafter $10,250,000
</TABLE>
provided that, if and to the extent that the amount of Combined Capital
Expenditures for any Fiscal Year is less than the amount for such Fiscal Year
set forth above, the maximum amount of Combined Capital Expenditures in any
subsequent Fiscal Year shall be increased by such excess amount.
Section 5.15. Minimum Combined Adjusted Net Worth. Combined Adjusted Net
Worth will at no time be less than an amount equal to the sum of (i)
$960,000,000 plus (ii) an amount equal to 50% of Combined Net Income for each
Fiscal Year ending on or after December 31, 1997 but prior to the date of
determination, in each case, for which such Combined Net Income is positive (but
with no deduction on account of negative Combined Net Income for any Fiscal
Year), plus (iii) 80% of the aggregate net proceeds, including the fair market
value of property other than cash (as determined in good faith by the Board of
Directors of MGM) received by MGM from the issuance and sale after September 30,
1997 of any capital stock of MGM or in connection with the conversion or
exchange of any Debt of MGM into capital stock of MGM after June 30, 1997
(including without limitation any contribution to capital) (an "EQUITY
ISSUANCE"), but excluding an amount of such net proceeds of up to $100,000,000
in the aggregate from up to two equity issuances, which equity issuances have
been specified by the Borrowers by notice to the Agent at the consummation of
such equity issuance to be excepted from the increase otherwise required under
this clause (iii).
Section 5.16. Operating Lease Payments. Each Borrower will not, and will
not permit any of its Subsidiaries to, incur or assume (whether pursuant to a
Guarantee or otherwise) any liability for rental payments under a lease with a
73
<PAGE>
lease term (as defined in Financial Accounting Standards Board Statement No. 13,
as in effect on the date hereof) of one year or more (other than in connection
with any Sale-Leaseback Transaction) if, after giving effect thereto, the
aggregate amount of minimum lease payments that the Combined Companies have so
incurred or assumed will exceed, on a Combined Basis, $20,000,000 for any Fiscal
Year under all such leases (excluding any lease which is to be accounted for as
a capital lease on the balance sheet of either Borrower and its respective
Consolidated Subsidiaries).
Section 5.17. Restricted Payments. Neither Borrower nor any Subsidiary
will declare or make any Restricted Payment; provided that the foregoing shall
not restrict or prohibit dividends or distributions to MGM at such times and in
such amounts as are necessary to permit:
(a) (i) purchases of shares of (or options to purchase shares of) capital
stock of MGM from employees of either Borrower or MGM (including without
limitation Frank G. Mancuso), or any spouse or lineal descendant of any such
employee or any trust for the benefit of any of the foregoing (A) upon their
death, disability, termination or retirement, (B) in accordance with the terms
of the Management Stock Incentive Plan (including without limitation stock
option agreements issued in substantially the forms attached to the Management
Stock Incentive Plan or the Stockholders Agreement dated as of the Original
Effective Date among MGM, MGM Studios, the Investors and certain other
stockholders party thereto from time to time, as the same may be amended or
replaced on terms substantially as disclosed in the IPO Registration Statement
and otherwise substantially as made available to the Lenders prior to the
Effective Date), or (C) which shares have been issued to Frank G. Mancuso
pursuant to the Mancuso Employment Agreement or (ii payments of principal of and
interest on the MGM Management Notes, so long as, in each of cases (i)(A), (i)
(B), (i) (C) and (ii) of this subsection (a), immediately before and after
giving effect to any such dividend or distribution for such purpose, (x) no
Default shall have occurred and be continuing and (y) at any date prior to the
Second Target Date, the aggregate amount of dividends or distributions made by
the Borrowers to MGM pursuant to this clause (a) during the period from and
including the Original Effective Date to and including such date (after giving
effect to all dividends and distributions to be made on such date) shall not
exceed (1) if such date occurs prior to the Target Date, $15,000,000 and (2) if
such date occurs on or after the Target Date and prior to the Second Target
Date, $35,000,000.
For purposes of this subsection (a):
"BORROWER TOTAL BORROWED FUNDS" means, at any date, the aggregate amount of
Debt of the Combined Companies described in clauses (i) and (ii) and
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(iv) of the definition of Debt (but excluding (a) any obligations under Sale-
Leaseback Transactions which constitute Debt under clause (iv) of the definition
thereof and (b) Debt of any Single Purpose Subsidiary, so long as such Debt
complies with the provisions of clause (ii) of the definition of Single Purpose
Subsidiary), determined in each case on a Combined Basis at such date.
"SECOND TARGET DATE" means the first date on or after the Target Date on
which (i) Combined Adjusted EBITDA for the period from October 1, 1996 to and
including the last day of the Fiscal Quarter most recently ended on or prior to
such date (treated, for this purpose, as a single accounting period) is at least
equal to $850,000,000 and (ii) Borrower Total Borrowed Funds at such date does
not exceed $150,000,000; provided that on such date the conditions set forth in
the definition of Target Date are met.
(b) purchases of shares of capital stock of MGM from Frank G. Mancuso or
his spouse or lineal descendant or any trust for the benefit of any of the
foregoing, which shares have been issued to Frank G. Mancuso pursuant to the
Mancuso Employment Agreement, so long as (x) immediately before and after giving
effect to any such dividend or distribution for such purpose, no Default shall
have occurred and be continuing and (y) immediately after giving effect to any
such dividend or distribution for such purpose, the aggregate amount of
dividends or distributions made by the Borrowers to MGM pursuant to this
subsection (b) during the period from and including the Original Effective Date
to and including such date (after giving effect to all dividends and
distributions to be made on such date) shall not exceed the Basket Amount.
"BASKET AMOUNT" means, at any date, (i) the aggregate amount applied by Frank G.
Mancuso under the Mancuso Employment Agreement on or prior to such date to the
purchase of P&F Stock Units (as defined in the Mancuso Employment Agreement)
pursuant to Section 6(a)(2) of the Mancuso Employment Agreement minus (ii the
aggregate amount of dividends or distributions made by the Borrowers to MGM
pursuant to this subsection (b) for the period from and including the Original
Effective Date to and including such date (after giving effect to all dividends
and distributions to be made pursuant to this subsection (b) on such date);
(c) at any time after the fifth anniversary of the Original Effective
Date, (x) payments of interest on MGM Debt to the extent that such interest is
then payable in cash in accordance with the terms thereof, (y) payment of cash
dividends (1) on the Investor Preferred Stock and on any additional preferred
stock of the same class as the Investor Preferred Stock and issued as payment-
in-kind of dividends with respect to the Investor Preferred Stock, (2) on any
preferred stock issued pursuant to the Capital Call Agreement having
substantially the same terms as the Investor Preferred Stock (including, without
limitation, no payment of cash dividends with respect to such preferred stock
for a term of at
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least five years from the Original Effective Date) and on any additional
preferred stock of the same class as such preferred stock issued as payment-in-
kind of dividends with respect to such preferred stock and (3) on any preferred
stock of the same class as the Investor Preferred Stock issued pursuant to the
exercise of stock options granted pursuant to the Management Stock Incentive
Plan, in each case only so long as, immediately before and after giving effect
to any such dividend or distribution for such purpose, no Default shall have
occurred and be continuing; and
(d) payments in the ordinary course of business of MGM of legal fees, tax
preparation fees, franchise taxes and other overhead and general expenses items,
to the extent attributable and properly allocable to the MGM/Orion Companies and
their businesses (collectively, "MGM EXPENSES"); provided that the sum of (i)
the aggregate amount of distributions made by the Borrowers pursuant to this
clause (d) and (ii the aggregate amount of Investments made by the Borrowers
pursuant to Section 5.18(j) will not exceed in the aggregate $1,000,000 in any
Fiscal Year.
Section 5.18. Investments. Neither Borrower nor any Subsidiary will hold,
make or acquire any Investment in any Person other than:
(a) Investments by either Borrower in the form of equity interests of
Persons which are Guarantors or which, within 30 days after consummation of such
Investment, become Guarantors;
(b) Investments constituting intercompany loans permitted under Section
5.10(f);
(c) Investments made by either Borrower or any Subsidiary in the ordinary
course of business pursuant to arm's length transactions in Persons (other than
either Borrower or any Subsidiary) for the development, production, acquisition,
distribution, exhibition or exploitation of Films, copyrights or trademarks in
connection with co-production deals, split-rights deal, overhead deals or
similar arrangements (as such terms are generally understood in the movie
industry on the date hereof), provided that such Investments for the
development, production, acquisition, distribution, exhibition or exploitation
involving payment obligations owing to such Borrower or such Subsidiary (other
than advances against contractual rights to payment or other compensation made
to talent in the ordinary course of business) of Films will be secured, if such
Films are to be made in the United States, by Liens on such Films in favor of
such Borrower or such Subsidiary;
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(d) Investments constituting loans and advances by either Borrower or any
Subsidiary to directors, officers and employees of MGM, either Borrower, or any
Subsidiary, in the ordinary course of business aggregating not in excess of
$2,000,000 at any time outstanding;
(e) Investments (other than Investments permitted by any of the foregoing
clauses) in existence on either the Original Effective Date (with respect to MGM
Studios or any of its Subsidiaries) or July 10, 1997 (with respect to Orion or
any of its Subsidiaries) and listed on Schedule 5.18;
(f) Investments made after the Original Effective Date pursuant to a
commitment to make such Investments in existence on the Original Effective Date
and listed on Schedule 5.18;
(g) Investments (other than Investments permitted by any of the foregoing
clauses) by either Borrower or any Subsidiary in the form of equity interests of
Persons which are not Guarantors; provided that the aggregate net book value of
all Investments permitted by this clause (g) (determined, with respect to each
such Investment, at the time such Investment is made) does not exceed
$10,000,000;
(h) Investments (other than Investments permitted by any of the foregoing
clauses) on any date by either Borrower or any Subsidiary in Single Purpose
Subsidiaries; provided that the sum of the Invested Amount for all Single
Purpose Subsidiaries shall at no time exceed $25,000,000. For purposes of this
clause (h), "INVESTED AMOUNT" means at any date, for any Single Purpose
Subsidiary, the aggregate net book value of all Investments made in such Single
Purpose Subsidiary (determined, with respect to each such Investment, at the
time such Investment is made) minus the aggregate return on equity received by
the Borrowers and their respective Subsidiaries on or prior to such date with
respect to such Investments in such Single Purpose Subsidiary;
(i) Temporary Cash Investments;
(j) Investments constituting loans made by either Borrower to MGM but only
to the extent that the proceeds of such loans are applied by MGM to pay MGM
Expenses; provided that the sum of (x) the aggregate principal amount of such
loans made by the Borrowers pursuant to this clause (j) and (y) the aggregate
amount of distributions made by the Borrowers and permitted by Section 5.17(d)
will not exceed $1,000,000 in any Fiscal Year;
(k) after the Qualified Equity Issuance Date, Investments in TV
Distribution Ventures not otherwise permitted by the foregoing clauses of this
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Section; provided that the aggregate net book value of all Investments in TV
Distribution Ventures permitted by this clause (k) (determined, with respect to
each such Investment, at the time such Investment is made) shall not exceed
$125,000,000 at any time prior to the date (if any) on which the Leverage Ratio
is first less than or equal to 4.5 to 1; and
(l) any Investment (other than Investments in Single Purpose Subsidiaries)
not otherwise permitted by the foregoing clauses of this Section if, immediately
after such Investment is made or acquired, the aggregate net book value of all
Investments permitted by this clause (l) (determined, with respect to each such
Investment, at the time such Investment is made) does not exceed $25,000,000.
Section 5.19. Transactions with Affiliates. Each Borrower will not, and
will not permit any of its Subsidiaries to, directly or indirectly, pay any
funds to or for the account of, make any investment (whether by acquisition of
stock or indebtedness, by loan, advance, transfer of property, guarantee or
other agreement to pay, purchase or service, directly or indirectly, any Debt,
or otherwise) in, lease, sell, transfer or otherwise dispose of any assets,
tangible or intangible, to, or participate in, or effect, any transaction with,
any Affiliate except on an arms-length basis on terms at least as favorable to
such Borrower or such Subsidiary than could have been obtained from a third
party who was not an Affiliate; provided that the foregoing provisions of this
Section shall not prohibit (i) any such Person from declaring or paying any
lawful dividend or other payment ratably in respect of all of its capital stock
of the relevant class so long as, after giving effect thereto, no Default shall
have occurred and be continuing, (ii) the consummation of the transactions
contemplated by the Capital Call Agreement, (iii) the consummation of the
transactions contemplated by the agreements set forth on Schedule 5.19, as
amended to the Effective Date and substantially in the forms heretofore
distributed to each of the Lenders, (iv) customary indemnification arrangements
between either Borrower and the directors and officers of MGM, such Borrower,
and any Subsidiary of such Borrower, (v) customary tax sharing arrangements
between or among MGM, the Borrowers, and the Subsidiaries, (vi) dividends and
distributions to MGM permitted under Section 5.17, (vii) maintenance of "D&O",
"keyman" and similar insurance by any of the Borrowers or MGM, including with
respect to directors and officers of MGM, the Borrowers, and the Subsidiaries,
(viii) any disposition of a "disposed asset" to a Single Purpose Subsidiary as
described in clause (x) of the definition of "Asset Sale", to the extent that
such disposition complies with the requirements of such clause and (ix) MGM
Studios from entering into and performing the Mancuso Employment Agreement.
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Section 5.20. Limitation on Restrictions Affecting Subsidiaries. Neither
any Borrower nor any of its Subsidiaries (other than any Single Purpose
Subsidiary) will enter into, or suffer to exist, any agreement with any Person,
other than this Agreement, which prohibits or limits the ability of any
Subsidiary to (a) pay dividends or make other distributions or pay any Debt owed
to either Borrower or any Subsidiary, (b) make loans or advances to either
Borrower or any Subsidiary, (c) transfer any of its properties or assets to
either Borrower or any Subsidiary or (d) create, incur, assume or suffer to
exist any Lien upon any of its property, assets or revenues, whether now owned
or hereafter acquired (other than with respect to assets subject to consensual
liens permitted under Section 5.09); provided that the foregoing shall not apply
to (i) provisions restricting assignment of any lease or other contract, (ii)
restrictions imposed by applicable law, (iii) restrictions under any agreement
relating to any property, asset or business acquired by any MGM/Orion Company,
which restrictions existed at the time of acquisition, (iv restrictions with
respect solely to a Subsidiary or a Borrower imposed pursuant to a binding
agreement (subject only to customary closing conditions and termination
provisions) that has been entered into for the sale or disposition of all or
substantially all of the capital stock or assets to be sold of such Subsidiary,
provided that such sale is permitted under Section 5.07(b) hereof, (v) customary
restrictions on transfer of Collateral imposed on such Collateral in connection
with Liens on such Collateral securing Debt, to the extent such Liens are
permitted under Section 5.09 hereof, (vi restrictions in effect on the Original
Effective Date contained in agreements governing Debt of Foreign Subsidiaries
outstanding on the Original Effective Date, and (vi restrictions ("NEW
RESTRICTIONS") set forth in replacements of agreements or instruments ("REPLACED
AGREEMENTS") containing restrictions described in clauses (iii) or (vi);
provided that such New Restrictions are no more restrictive in any material
respect than the restrictions set forth in the relevant Replaced Agreement and
do not apply to any additional property or assets.
Section 5.21. MGM Debt. Each Borrower will not, and will not permit any
of its Subsidiaries to, directly or indirectly, redeem, retire, purchase,
acquire, defease or otherwise make any payment in respect of the principal of
any MGM Debt.
Section 5.22. Hedging Facilities. Not later than 60 days after the
Effective Date the Borrowers will have entered into and thereafter maintain in
full force and effect interest rate agreements, swaps, caps or other appropriate
hedging arrangements in such amounts and on such terms as to convert to fixed
rate or otherwise limit, in a manner satisfactory to the Agent, the floating
interest rate risk on at least 66 2/3% in aggregate principal amount of all Term
Loans outstanding from time to time for a period of no less than three years
beginning on such date, all on terms and conditions reasonably satisfactory to
the Required Lenders.
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Section 5.23. Further Assurances. (a) Each Borrower will, and will cause
each Guarantor to, at such Borrower's sole cost and expense, do, execute,
acknowledge and deliver all such further acts, deeds, conveyances, mortgages,
assignments, notices of assignment and transfers as the Agent shall from time to
time request, which may be necessary in the reasonable judgment of the Agent
from time to time to assure, perfect, convey, assign and transfer to the Agent
the property and rights conveyed or assigned pursuant to the Collateral
Documents.
(b) All costs and expenses in connection with the grant of any security
interests under the Collateral Documents, including without limitation
reasonable legal fees and other reasonable costs and expenses in connection with
the granting, perfecting and maintenance of any security interests under the
Collateral Documents or the preparation, execution, delivery, recordation or
filing of documents and any other acts as the Agent may reasonably request in
connection with the grant of such security interests shall be paid by the
Borrowers promptly upon demand.
(c) Each Borrower will not, and will not permit any of its Subsidiaries
to, enter into or become subject to any agreement which would impair their
ability to comply, or which would purport to prohibit them from complying, with
the provisions of this Section.
(d) Each Borrower will cause each of its Material Subsidiaries acquired
after the Effective Date and each of its Subsidiaries which becomes a Material
Subsidiary after the Effective Date (in each case, other than a Foreign
Subsidiary or a Single Purpose Subsidiary) (i) to become a party to the
Subsidiary Guaranty as guarantor by executing a supplement thereof in form and
substance satisfactory to the Agent and (ii to enter into a Security Agreement
and any other agreements as may be necessary or desirable in order to grant
perfected first priority security interests upon all of its assets to secure its
obligations under the Subsidiary Guaranty. In addition, such Borrower will
pledge, or cause to be pledged, pursuant to a Pledge Agreement, all of the
capital stock or other equity interests of such Material Subsidiary owned
directly or indirectly by such Borrower (or, if such Material Subsidiary is a
Foreign Subsidiary, 66% of the capital stock or equity interests of such
Material Subsidiary, and excluding any such capital stock or other equity
interests owned directly by a Foreign Subsidiary). Such Borrower shall cause
each such Material Subsidiary to take such actions as may be necessary or
desirable to effect the foregoing within 30 days after such Material Subsidiary
is acquired or becomes a Material Subsidiary, as the case may be, including
without limitation causing such Material Subsidiary to (x) execute and deliver
to the Agent such number of copies as the Agent may specify of such supplements
and Security Agreement and other documents creating security interests and
(y) deliver such certificates, evidences of corporate action or other
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documents as the Agent may reasonably request, all in form and substance
satisfactory to the Agent, relating to the satisfaction of such Borrower's
obligations under this Section. Upon compliance by either Borrower with the
provisions of this subsection (d), Schedule 4.09 shall be deemed to have been
amended to reflect that such Material Subsidiary is a Guarantor.
(e) Each Borrower will, and will cause each of its Subsidiaries to, take
all action necessary in accordance with good business practices to (i) maintain
in full force and effect (x) all trademarks, service marks, trade names and
licenses and all material rights with respect to the foregoing, necessary for
the conduct of its business as now conducted (collectively, the "TRADEMARKS")
and (y) all copyrights (including without limitation any copyrights relating to
Library Films) and all material rights with respect thereto, necessary for the
conduct of its business as now conducted (collectively, the "COPYRIGHTS"), other
than such Trademarks and Copyrights which such Borrower reasonably determines
are, in the aggregate, of insignificant or non-material economic value, or where
the failure to maintain such Trademarks or Copyrights could not, in the
aggregate, reasonably be expected to have a Material Adverse Effect, and (ii
protect all Trademarks and all Copyrights against infringement by third parties,
other than such Trademarks and Copyrights which such Borrower reasonably
determines are, in the aggregate, of insignificant or non-material economic
value or where the failure to maintain such Trademarks or Copyrights could not,
in the aggregate, reasonably be expected to have a Material Adverse Effect.
(f) Each Borrower will, and will cause each of its Subsidiaries to, submit
to the United States Copyright Office or other applicable United States
governmental authority (with a copy to the Agent) as soon as reasonably
practicable but in any event, with respect to any Film, no later than 90
Domestic Business Days after the date of release of such Film and, with respect
to any screenplay, within 30 Domestic Business Days after commencement of
principal photography of the relevant Film (i) with respect to each screenplay
or Film which is unregistered and to which either Borrower or any Subsidiary
owns the copyright, a completed application for copyright registration and (ii
with respect to each screenplay and Film which is registered in the name of a
Person other than any MGM/Orion Company, and in which any MGM/Orion Company
acquires the copyright or any rights in the copyright, an assignment to such
Borrower or such Subsidiary of the interest owned by it.
(g) Each Borrower will, and will cause each other Obligor party to a
Security Agreement to, provide a Laboratory Pledgeholder Agreement (as defined
in a Security Agreement) with each laboratory which holds any material film
and/or sound materials, cause such Laboratory Pledgeholder Agreements to remain
in full force and effect during all times when such laboratory is in
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possession of such elements, and, pursuant to the Laboratory Pledgeholder
Agreements, with respect to each Film, deliver to the Agent a laboratory access
letter, substantially in the form of Exhibit B thereto, to each laboratory
holding any material film and/or sound materials.
Section 5.24. Minimum Number of Films. The number of feature Films
produced by the Borrowers and their respective Subsidiaries for general
theatrical release during any Fiscal Year beginning with Fiscal Year 1998 will
be at least nine.
ARTICLE 6
Defaults
Section 6.01. Events of Default. If one or more of the following events
("EVENTS OF DEFAULT") shall have occurred and be continuing:
(a) either Borrower (i) shall fail to pay when due any principal of any
Loan, (ii shall fail to reimburse when due any drawing under any Letter of
Credit or (ii shall fail to pay within 5 days after the due date thereof any
interest, any fees or any other amount payable hereunder;
(b) (i) either Borrower shall fail to observe or perform any covenant
contained in Article 5 (other than those contained in Sections 5.01 through
5.06, inclusive and Sections 5.23(a), (b), (c), (e), (f) and (g)) or (ii any
Obligor shall fail to observe or perform any covenant contained in Sections
4(A), (E) or (H) of the Security Agreement or (ii either Borrower shall fail to
observe or perform any covenant contained in Section 3(B) of the Borrower Pledge
Agreement or any other Obligor shall fail to observe or perform any covenant
contained in the Pledge Agreement to which such Obligor is a party containing
provisions substantially similar to those set forth in Section 3(B) of the
Borrower Pledge Agreement or (iv MGM shall fail to observe or perform any
covenant contained in Sections 2.1, 2.3, 2.3 or 2.5 of the MGM Agreement or (v)
except with or pursuant to the prior written consent or waiver of all Lenders,
Tracinda, Seven Network, MGM or either Borrower shall fail to perform any of its
obligations under the Capital Call Agreement (and, solely in the case of any
failure by either Investor to perform any of their respective obligations
thereunder, such obligations shall not have been fully performed in a timely
manner in accordance with the terms of the Capital Call Agreement by the other
Investor);
(c) any Obligor shall fail to observe or perform any covenant or agreement
contained in the Loan Documents (other than those covered by clause
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(a) or (b) above) for 30 days after notice thereof has been given to the
Borrowers by the Agent;
(d) any representation, warranty or certification made by any Obligor in
any Loan Document or by any Investor in the Capital Call Agreement or in any
certificate or other document delivered pursuant to any Loan Document or the
Capital Call Agreement shall prove to have been incorrect in any material
respect when made (or deemed made);
(e) MGM, either Borrower or any Subsidiary shall fail to make any payment
in respect of any Debt and/or payment or collateralization obligations in
respect of Derivatives Obligations of MGM or any of its Subsidiaries when due or
within any applicable grace period (other than any Single Purpose Subsidiary
with respect to Debt or Derivatives Obligations solely of such Single Purpose
Subsidiary), if the aggregate principal or face amount of Debt and/or payment or
collateralization obligations (regardless of whether such Debt and/or payment or
collateralization obligations arise in one or more related or unrelated
transactions) with respect to which such failure or failures shall have occurred
exceeds $5,000,000;
(f) any event or condition shall occur which results in the acceleration
of the maturity of any Debt (other than the Notes) of MGM or any of its
Subsidiaries or enables the holder of such Debt or any Person acting on such
holder's behalf to accelerate the maturity thereof (other than any Single
Purpose Subsidiary with respect to Debt or Derivatives Obligations solely of
such Single Purpose Subsidiary), if the aggregate principal amount of Debt
(regardless of whether such Debt arises in one or more related or unrelated
transactions) with respect to which such events or conditions shall have
occurred exceeds $5,000,000;
(g) MGM, either Borrower or any Material Subsidiary shall commence a
voluntary case or other proceeding seeking liquidation, reorganization or other
relief with respect to itself or its debts under any domestic or foreign
bankruptcy, insolvency or other similar law now or hereafter in effect or
seeking the appointment of a trustee, receiver, liquidator, custodian or other
similar official of it or any substantial part of its property, or shall consent
to any such relief or to the appointment of or taking possession by any such
official in an involuntary case or other proceeding commenced against it, or
shall make a general assignment for the benefit of creditors, or shall fail
generally to pay its debts as they become due, or shall take any corporate
action to authorize any of the foregoing;
(h) an involuntary case or other proceeding shall be commenced against
MGM, either Borrower or any Material Subsidiary seeking liquidation,
reorganization or other relief with respect to it or its debts under any
domestic or
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foreign bankruptcy, insolvency or other similar law now or hereafter in effect
or seeking the appointment of a trustee, receiver, liquidator, custodian or
other similar official of it or any substantial part of its property, and such
involuntary case or other proceeding shall remain undismissed and unstayed for a
period of 90 days; or an order for relief shall be entered against MGM, either
Borrower or any Material Subsidiary under any domestic or foreign bankruptcy
laws as now or hereafter in effect;
(i) (i) any Person shall engage in any "prohibited transaction" (as
defined in Section 406 of ERISA or Section 4975 of the Code) involving any Plan,
(ii any "accumulated funding deficiency" (as defined in Section 302 of ERISA),
whether or not waived, shall exist with respect to any Plan or any Lien in favor
of the PBGC or a Plan shall arise on the assets of MGM or any Commonly
Controlled Entity, (ii a Reportable Event shall occur with respect to, or
proceedings shall commence to have a trustee appointed, or a trustee shall be
appointed, to administer or to terminate, any Single Employer Plan, which
Reportable Event or commencement of proceedings or appointment of a trustee is,
in the reasonable opinion of the Required Lenders, likely to result in the
termination of such Plan for purposes of Title IV of ERISA, (iv notice of intent
to terminate a Single Employer Plan shall be filed under Title IV of ERISA by
MGM or a Commonly Controlled Entity, (v) MGM or any Commonly Controlled Entity
shall, or in the reasonable opinion of the Required Lenders is likely to, incur
any liability in connection with a withdrawal from, or the Insolvency or
Reorganization of, a Multiemployer Plan or (vi any other event or condition
shall occur or exist with respect to a Plan; and in each case in clauses (i)
through (vi) above, such event or condition, together with all other such events
or conditions, if any, could reasonably be expected to have a Material Adverse
Effect;
(j) judgments or orders for the payment of money in excess of $10,000,000
(net of any amount (x) covered by insurance and with respect to which the
relevant insurance carrier has acknowledged coverage or (y) covered by a third-
party indemnity from a solvent third party financially capable of making such
payments (as determined by the Required Lenders on the basis of information
provided by the Borrowers) and with respect to which such third party has
acknowledged a contractual obligation to make payment thereunder) shall be
rendered and properly entered against MGM, either Borrower or any Subsidiary and
such judgments or orders shall continue unsatisfied and unstayed for a period of
60 days;
(k) any Lien created by any of the Collateral Documents in respect of a
substantial portion of the Collateral shall at any time fail to constitute a
valid and (to the extent required by the Collateral Documents) perfected Lien
securing the
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obligations purported to be secured thereby, with the priority required by the
Loan Documents, or any Obligor shall so assert in writing;
(l) the Subsidiary Guaranty or the guaranty set forth in Article 9 shall
at any time fail to constitute a valid and binding agreement of each Obligor
party thereto, or any Obligor shall so assert in writing; or
(m) (i) MGM shall cease to legally and beneficially own 100% of the issued
and outstanding capital stock of either Borrower; or (ii) the Investors
(directly or through one or more Investment Vehicles) shall fail to legally and
beneficially own in the aggregate capital stock representing at least 35% of the
Voting Power of the stock of MGM; or (iii) any person or group of persons
(within the meaning of Section 13 or 14 of the Securities Exchange Act of 1934,
as amended) (other than the Investors and their Investment Vehicles) shall have
acquired beneficial ownership (within the meaning of Rule 13d-3 promulgated by
the Securities and Exchange Commission under said Act) having greater Voting
Power of the capital stock of MGM than the Voting Power of the capital stock of
MGM legally and beneficially owned in the aggregate by the Investors and their
Investment Vehicles at such date; or (iv) Frank G. Mancuso shall either (A)
cease to be chief executive officer of MGM Studios and a successor shall not
have been appointed by MGM Studios which successor is of reasonably comparable
stature in the entertainment industry or (B) cease to be chairman of the board
of Orion and a successor shall not have been appointed by Orion which successor
is of reasonably comparable stature in the entertainment industry; or (v),
during any period of 12 consecutive calendar months which period begins on or
after the completion of a Significant Public Offering (as defined in the
Management Stock Incentive Plan), individuals who were (x) directors of MGM on
the first day of such period, (y) elected to fill vacancies caused by the
ordinary course resignation (including without limitation any such resignation
effected by such director declining to stand for reelection), retirement, death
or disability of any other director and whose nomination or election was
approved by a vote of at least a majority of the directors then still in office
who were directors of MGM on the first day of such period or (z) appointed or
nominated for election by Frank G. Mancuso or an Investor or one of their
Investment Vehicles or by a majority of the directors described in clauses (x)
and (y), shall cease to constitute a majority of the board of directors of MGM;
(as used herein, "VOTING POWER" means, with respect to any outstanding capital
stock of MGM, the power (expressed as a percentage) represented by such capital
stock of the aggregate voting power of all outstanding shares of any class of
capital stock of MGM having ordinary voting power, including the power to vote
for election of the members of the board of directors of MGM (or, if any class
thereof has power to designate members of the board of directors of MGM or any
special committee thereof, the power to so designate); and "INVESTMENT VEHICLES"
shall mean, with respect to either Investor,
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any Subsidiary of such Investor not less than 95% of each class of capital stock
of which is owned by such Investor, directly or through one or more other
Investment Vehicles);
then, and in every such event, the Agent shall (i) if requested by Lenders
having more than 50% in aggregate amount of the Commitments, by notice to the
Borrowers terminate the Commitments and they shall thereupon terminate, and (ii)
if requested by Lenders holding more than 50% of the sum of (x) the aggregate
principal amount of the Loans then outstanding and (y) the Letter of Credit
Liabilities then outstanding, by notice to the Borrowers declare the Loans and
the Letter of Credit Liabilities (in each case together with accrued interest
thereon) to be, and the Loans and the Letter of Credit Liabilities shall
thereupon become, immediately due and payable without presentment, demand,
protest or other notice of any kind, all of which are hereby waived by each
Borrower; provided that in the case of any of the Events of Default specified in
clause (g) or (h) above with respect to either Borrower, without any notice to
either Borrower or any other act by the Agents or the Lenders, the Commitments
shall thereupon terminate and the Loans and the Letter of Credit Liabilities (
in each case together with accrued interest thereon) shall become immediately
due and payable without presentment, demand, protest or other notice of any
kind, all of which are hereby waived by each Borrower.
Section 6.02. Notice of Default. The Agent shall give notice to the
Borrowers under Section 6.01(c) promptly upon being requested to do so by the
Required Lenders and shall thereupon notify all the Lenders thereof.
Section 6.03. Cash Cover. Each Borrower agrees, in addition to the
provisions of Section 6.01 hereof, that upon the occurrence and during the
continuance of any Event of Default, it shall, if requested by the Agent upon
the instruction of the Lenders having more than 50% in aggregate amount of the
Revolving Exposure, pay to the Agent an amount in immediately available funds
(which funds shall be held as collateral and applied pursuant to the Security
Agreement) equal to the aggregate amount available for drawing under all Letters
of Credit then outstanding at such time, provided that, upon the occurrence of
any Event of Default specified in Section 6.01(g) or 6.01(h) with respect to
either Borrower, such Borrower shall pay such amount forthwith without any
notice or demand or any other act by the Agents or the Lenders.
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ARTICLE 7
The Agents
Section 7.01. Appointment and Authorization. Each Lender irrevocably
appoints and authorizes the Agent to enter into and act as its agent in
connection with the Collateral Documents and to take such action as agent on its
behalf and to exercise such powers under the Loan Documents as are delegated to
the Agent by the terms hereof or thereof, together with all such powers as are
reasonably incidental thereto.
Section 7.02. Agents and Affiliates. Each of Morgan Guaranty Trust
Company of New York and Bank of America National Trust and Savings Association
shall have the same rights and powers under the Loan Documents as any other
Lender and may exercise or refrain from exercising the same as though it were
not the Agent or the Syndication Agent, as the case may be, and each of Morgan
Guaranty Trust Company of New York and its affiliates and Bank of America
National Trust and Savings Association and its affiliates may accept deposits
from, lend money to, and generally engage in any kind of business with either
Borrower or any Subsidiary or affiliate of either Borrower as if it were not the
Agent or the Syndication Agent, as the case may be.
Section 7.03. Action by Agents. The obligations of the Agents hereunder
are only those expressly set forth herein. Without limiting the generality of
the foregoing, the Agents shall not be required to take any action with respect
to any Default, except as expressly provided in Article 6.
Section 7.04. Consultation with Experts. The Agents may consult with
legal counsel (who may be counsel for any Obligor), independent public
accountants and other experts selected by it and shall not be liable for any
action taken or omitted to be taken by it in good faith in accordance with the
advice of such counsel, accountants or experts.
Section 7.05. Liability of Agents. Neither the Agents nor any of their
respective affiliates nor any of their respective directors, officers, agents or
employees shall be liable for any action taken or not taken by it in connection
herewith (a) with the consent or at the request of the Required Lenders (or,
when expressly required hereby, such different number of Lenders required to
consent to or to request such action or inaction) or (b) in the absence of its
own gross negligence or willful misconduct. Neither the Agents nor any of their
respective affiliates nor any of their respective directors, officers, agents or
employees shall be responsible for or have any duty to ascertain, inquire into
or verify (i) any statement, warranty or representation made in connection with
the Loan Documents or any borrowing hereunder; (ii) the performance or
observance of any
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of the covenants or agreements of any Obligor; (iii) the satisfaction of any
condition specified in Article 3, except receipt of items required to be
delivered to the Agent; (iv the validity, effectiveness or genuineness of the
Loan Documents or any other instrument or writing furnished in connection
herewith or (v) the existence or the value of any of the Collateral. The Agents
shall not incur any liability by acting in reliance upon any notice, consent,
certificate, statement, or other writing (which may be a bank wire, telex,
facsimile transmission or similar writing) believed by them to be genuine or to
be signed by the proper party or parties. Without limiting the generality of
the foregoing, the use of the term "agent" in the Loan Documents with reference
to the Agents is not intended to connote any fiduciary or other implied (or
express) obligations arising under agency doctrine or any applicable law.
Instead, such term is used merely as a matter of market custom and is intended
to create or reflect only an administrative relationship between independent
contracting parties.
Section 7.06. Indemnification. Each Lender shall, ratably in accordance
with its Commitment (or, if the Commitments of the relevant Class shall have
terminated, with the aggregate outstanding principal amount of the Loans of such
Class held by such Lender) indemnify the Agents, their respective affiliates and
their respective directors, officers, agents and employees (to the extent not
reimbursed by the Borrowers) against any cost, expense (including counsel fees
and disbursements), claim, demand, action, loss or liability (except such as
result from such indemnitees' gross negligence or willful misconduct) that such
indemnitees may suffer or incur in connection with the Loan Documents or any
action taken or omitted by such indemnitees thereunder.
Section 7.07. Credit Decision. Each Lender acknowledges that it has,
independently and without reliance upon any Agent or any other Lender, and based
on such documents and information as it has deemed appropriate, made its own
credit analysis and decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance upon any Agent or
any other Lender, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking any action under the Loan Documents.
Section 7.08. Successor Agents. Any Agent may resign at any time by
giving notice thereof to the Lenders and the Borrowers. Upon any such
resignation, the Required Lenders shall have the right to appoint a successor
Agent with, so long as no Default has occurred and is continuing, the consent of
the Borrowers (which consent shall not be unreasonably withheld). If no
successor Agent shall have been so appointed by the Required Lenders, and shall
have accepted such appointment, within 30 days after the retiring Agent gives
notice of resignation, then the retiring Agent may, on behalf of the Lenders,
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appoint a successor Agent, which shall be a commercial Lender organized or
licensed under the laws of the United States of America or of any State thereof
and having a combined capital and surplus of at least $100,000,000. Upon the
acceptance of its appointment as Agent hereunder by a successor Agent, such
successor Agent shall thereupon succeed to and become vested with all the rights
and duties of the retiring Agent, and the retiring Agent shall be discharged
from its duties and obligations hereunder. After any retiring Agent's
resignation hereunder as Agent, the provisions of this Article shall inure to
its benefit as to any actions taken or omitted to be taken by it while it was
Agent.
Section 7.09. Agents' Fees. The Borrowers shall pay to each of the Agents
for its own account fees in the amounts and at the times previously agreed upon
between the Borrowers and such Agent.
Section 7.10. Arrangers. The Arrangers, in their respective capacities as
such, shall have no duties or obligations under the Loan Documents and shall not
have a fiduciary relationship with any Lender.
ARTICLE 8
Change in Circumstances
Section 8.01. Basis for Determining Interest Rate Inadequate or Unfair. If
on or prior to the first day of any Interest Period for any Euro-Dollar Loan:
(a) the Agent is advised by the Reference Lenders that deposits in dollars
(in the applicable amounts) are not being offered to the Reference Lenders in
the London interbank market for such Interest Period, or
(b) Lenders having 50% or more of the aggregate principal amount of the
affected Loans advise the Agent that the Adjusted London Interbank Offered Rate
as determined by the Agent will not adequately and fairly reflect the cost to
such Lenders of funding their Euro-Dollar Loans for such Interest Period,
the Agent shall forthwith give notice thereof to the Borrowers and the Lenders,
whereupon until the Agent notifies the Borrowers that the circumstances giving
rise to such suspension no longer exist, (i) the obligations of the Lenders to
make Euro-Dollar Loans or to continue or convert outstanding Loans as or into
Euro-Dollar Loans shall be suspended and (ii each outstanding Euro-Dollar Loan
shall be converted into a Base Rate Loan on the last day of the then current
Interest Period applicable thereto. Unless the Borrowers notify the Agent at
least two Domestic Business Days before the date of any Euro-Dollar Borrowing
for which
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a Notice of Borrowing has previously been given that it elects not to borrow on
such date, such Borrowing shall instead be made as a Base Rate Borrowing.
Section 8.02. Illegality. If, on or after the Effective Date, the
adoption of any applicable law, rule or regulation, or any change in any
applicable law, rule or regulation, or any change in the interpretation or
administration thereof by any governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof, or compliance
by any Lender (or its Euro-Dollar Lending Office) with any request or directive
(whether or not having the force of law) of any such authority, central bank or
comparable agency shall make it unlawful or impossible for any Lender (or its
Euro-Dollar Lending Office) to make, maintain or fund its Euro-Dollar Loans and
such Lender shall so notify the Agent, the Agent shall forthwith give notice
thereof to the other Lenders and the Borrowers, whereupon until such Lender
notifies the Borrowers and the Agent that the circumstances giving rise to such
suspension no longer exist, the obligation of such Lender to make Euro-Dollar
Loans, or to convert outstanding Loans into Euro-Dollar Loans, shall be
suspended. Before giving any notice to the Agent pursuant to this Section, such
Lender shall designate a different Euro-Dollar Lending Office if such
designation will avoid the need for giving such notice and will not, in the
judgment of such Lender, be otherwise disadvantageous to such Lender. If such
notice is given, each Euro-Dollar Loan of such Lender then outstanding shall be
converted to a Base Rate Loan either (a) on the last day of the then current
Interest Period applicable to such Euro-Dollar Loan if such Lender may lawfully
continue to maintain and fund such Loan to such day or (b) immediately if such
Lender shall determine that it may not lawfully continue to maintain and fund
such Loan to such day.
Section 8.03. Increased Cost and Reduced Return. (a) If on or after the
Effective Date, the adoption of any applicable law, rule or regulation, or any
change in any applicable law, rule or regulation, or any change in the
interpretation or administration thereof by any governmental authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or compliance by any Lender (or its Applicable Lending Office) with any
request or directive (whether or not having the force of law) of any such
authority, central bank or comparable agency shall impose, modify or deem
applicable any reserve (including, without limitation, any such requirement
imposed by the Board of Governors of the Federal Reserve System, but excluding
any such requirement included in an applicable Euro-Dollar Reserve Percentage),
special deposit, insurance assessment or similar requirement against assets of,
deposits with or for the account of, or credit extended by, any Lender (or its
Applicable Lending Office) or shall impose on any Lender (or its Applicable
Lending Office) or the London interbank market any other condition affecting its
Euro-Dollar Loans, its Notes or its obligation to make Euro-Dollar Loans or its
obligations hereunder
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with respect to Letters of Credit and the result of any of the foregoing is to
increase the cost to such Lender (or its Applicable Lending Office) of making or
maintaining any Euro-Dollar Loan or of issuing or participating in any Letter of
Credit, or to reduce the amount of any sum received or receivable by such Lender
(or its Applicable Lending Office) under this Agreement or under its Notes with
respect thereto, by an amount deemed by such Lender to be material, then, within
15 days after demand by such Lender (with a copy to the Agent), the Borrowers
shall pay to such Lender such additional amount or amounts as will compensate
such Lender for such increased cost or reduction.
(b) If any Lender shall have determined that, after the Effective Date,
the adoption of any applicable law, rule or regulation regarding capital
adequacy, or any change in any such law, rule or regulation, or any change in
the interpretation or administration thereof by any governmental authority,
central bank or comparable agency charged with the interpretation or
administration thereof, or any request or directive regarding capital adequacy
(whether or not having the force of law) of any such authority, central bank or
comparable agency, has or would have the effect of reducing the rate of return
on capital of such Lender (or its Parent) as a consequence of such Lender's
obligations hereunder to a level below that which such Lender (or its Parent)
could have achieved but for such adoption, change, request or directive (taking
into consideration its policies with respect to capital adequacy) by an amount
deemed by such Lender to be material, then from time to time, within 15 days
after demand by such Lender (with a copy to the Agent), the Borrowers shall pay
to such Lender such additional amount or amounts as will compensate such Lender
(or its Parent) for such reduction.
(c) Each Lender will promptly notify the Borrowers and the Agent of any
event of which it has knowledge, occurring after the Effective Date, which will
entitle such Lender to compensation pursuant to this Section and will designate
a different Lending Office if such designation will avoid the need for, or
reduce the amount of, such compensation and will not, in the judgment of such
Lender, be otherwise disadvantageous to such Lender. A certificate of any
Lender claiming compensation under this Section and setting forth in reasonable
detail the additional amount or amounts to be paid to it hereunder and the
method of calculation thereof shall be conclusive in the absence of manifest
error. In determining such amount, such Lender may use any reasonable averaging
and attribution methods.
Section 8.04. Taxes. (a) For the purposes of this Section 8.04, the
following terms have the following meanings:
"TAXES" means any and all present or future taxes, duties, levies,
imposts, deductions, charges or withholdings with respect to any payment
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by any Obligor pursuant to this Agreement or under any Note, and all
liabilities with respect thereto, excluding (i) in the case of each Lender
and each Agent, taxes imposed on its income, and franchise or similar taxes
imposed on it, by a jurisdiction under the laws of which such Lender or
such Agent (as the case may be) is organized or in which its principal
executive office is located or, in the case of each Lender, in which its
Applicable Lending Office is located and (ii in the case of each Lender,
any United States withholding tax imposed on such payments but only to the
extent that such Lender is subject to United States withholding tax at the
time such Lender first becomes a party to this Agreement.
"OTHER TAXES" means any present or future stamp or documentary taxes
and any other excise or property taxes, or similar charges or levies, which
arise from any payment made pursuant to this Agreement or under any Note or
from the execution or delivery of, or otherwise with respect to, any Loan
Document.
(b) Any and all payments by any Obligor to or for the account of any
Lender or any Agent hereunder or under any Note shall be made without deduction
for any Taxes or Other Taxes; provided that, if any Obligor shall be required by
law to deduct any Taxes or Other Taxes from any such payments, (i) the sum
payable shall be increased as necessary so that after making all required
deductions (including deductions applicable to additional sums payable under
this Section) such Lender or such Agent (as the case may be) receives an amount
equal to the sum it would have received had no such deductions been made, (ii
such Obligor shall make such deductions, (ii such Obligor shall pay the full
amount deducted to the relevant taxation authority or other authority in
accordance with applicable law and (iv such Obligor shall furnish to the Agent,
at its address referred to in Section 10.01, the original or a certified copy of
a receipt evidencing payment thereof.
(c) Each Borrower agrees to indemnify each Lender and each Agent for the
full amount of Taxes or Other Taxes (including, without limitation, any Taxes or
Other Taxes imposed or asserted by any jurisdiction on amounts payable under
this Section) paid by such Lender or such Agent (as the case may be) and any
liability (including penalties, interest and expenses) arising therefrom or with
respect thereto. This indemnification shall be paid within 15 days after such
Lender or such Agent (as the case may be) makes demand therefor.
(d) Each Lender organized under the laws of a jurisdiction outside the
United States, on or prior to the date of its execution and delivery of this
Agreement in the case of each Lender listed on the signature pages hereof and on
or prior to the date on which it becomes a Lender in the case of each other
Lender,
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and from time to time thereafter if requested in writing by the Borrowers (but
only so long as such Lender remains lawfully able to do so), shall provide the
Borrowers and the Agent with either (i) Internal Revenue Service Form 1001 or
4224, as appropriate, or any successor form prescribed by the Internal Revenue
Service, certifying that such Lender is entitled to benefits under an income tax
treaty to which the United States is a party which exempts the Lender from
United States withholding tax or reduces the rate of withholding tax on payments
of interest for the account of such Lender or certifying that the income
receivable pursuant to this Agreement is effectively connected with the conduct
of a trade or business in the United States or (ii if such Lender is not a
"BANK" within the meaning of Section 881(c)(3)(A) of the Code and cannot deliver
either Internal Revenue Service Form 1001 or 4224 pursuant to clause (i) above,
(x) a certificate substantially in the form of Exhibit L and (y) two accurate
and complete original signed copies of Internal Revenue Service Form W-8 or any
successor form prescribed by the Internal Revenue Service) certifying to such
Lender's entitlement to a complete exemption from United States withholding tax
with respect to payments of interest and fees (if applicable) made under this
Agreement and under any Note.
(e) For any period with respect to which a Lender has failed to provide
the Borrowers or the Agent with the appropriate form pursuant to Section 8.04(d)
(unless such failure is due to a change in treaty, law or regulation occurring
subsequent to the date on which such form originally was required to be
provided), such Lender shall not be entitled to indemnification under Section
8.04(b) or (c) with respect to Taxes imposed by the United States. In addition,
for any period with respect to which a Lender described in clause (ii) of
Section 8.04(d) has delivered Internal Revenue Service Form W-8 (or any
successor form prescribed by the Internal Revenue Service) pursuant to such
Section but such form does not establish a complete exemption from deduction of
withholding or similar taxes imposed by the United States, such Lender shall not
be entitled to indemnification under Section 8.04(b) or (c) with respect to
Taxes imposed by the United States with respect to payments made under this
Agreement or any Note (other than with respect to any such payments constituting
payments of interest). If a Lender which is otherwise exempt from or subject to
a reduced rate of withholding tax, becomes subject to Taxes because of its
failure to deliver a form required hereunder, the Borrowers shall take, at the
cost of such Lender, such steps as such Lender shall reasonably request to
assist such Lender to recover such Taxes.
(f) If any Obligor is required to pay additional amounts to or for the
account of any Lender pursuant to this Section, then such Lender will change the
jurisdiction of its Applicable Lending Office if, in the judgment of such
Lender,
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such change (i) will eliminate or reduce any such additional payment which may
thereafter accrue and (ii is not otherwise disadvantageous to such Lender.
Section 8.05. Base Rate Loans Substituted for Affected Euro-Dollar Loans.
If (a) the obligation of any Lender to make, or convert outstanding Loans to,
Euro-Dollar Loans has been suspended pursuant to Section 8.02 or (b) any Lender
has demanded compensation under Section 8.03 or 8.04 with respect to its Euro-
Dollar Loans and the Borrowers shall, by at least five Euro-Dollar Business
Days' prior notice to such Lender through the Agent, have elected that the
provisions of this Section shall apply to such Lender, then, unless and until
such Lender notifies the Borrowers that the circumstances giving rise to such
suspension or demand for compensation no longer exist:
(i) all Loans which would otherwise be made by such Lender as (or
continued as or converted into) Euro-Dollar Loans shall instead be Base Rate
Loans (on which interest and principal shall be payable contemporaneously with
the related Euro-Dollar Loans of the other Lenders); and
(ii) after each of its Euro-Dollar Loans has been repaid (or converted
to a Base Rate Loan), all payments of principal which would otherwise be applied
to repay such Euro-Dollar Loans shall be applied to repay its Base Rate Loans
instead.
If such Lender notifies the Borrowers that the circumstances giving rise to
such notice no longer apply, the principal amount of each such Base Rate Loan
shall be converted into a Euro-Dollar Loan on the first day of the next
succeeding Interest Period applicable to the related Euro-Dollar Loans of the
other Lenders.
Section 8.06. Substitution of Lender. If (a) the obligation of any Lender
to make or convert Euro-Dollar Loans has been suspended pursuant to Section 8.02
or (b) any Lender has demanded compensation under Section 8.03 or 8.04, the
Borrowers shall have the right, with the assistance of the Agent, to seek a
mutually satisfactory substitute lender or lenders (which may be one or more of
the Lenders) to purchase the Notes and assume the outstanding Loans, the
Commitment (if any) and the Letter of Credit Liabilities (if any) of such
Lender. Each such Lender agrees to assign all of its outstanding Loans, its
Commitment (if any), its Notes and its Letter of Credit Liabilities (if any) to
any such substitute lender, without recourse or warranty other than title and
outstanding amount; provided that such substitute lender shall have paid to such
Lender in immediately available funds the principal of and accrued interest to
the date of such payment on its outstanding Loans and Letter of Credit
Liabilities (if any) and all fees owed to it hereunder.
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ARTICLE 9
Guaranty
Section 9.01. The Guaranty. Each Borrower hereby unconditionally
guarantees the full and punctual payment (whether at stated maturity, upon
acceleration or otherwise) of all amounts payable by the other Borrower under
this Agreement and any other Loan Document and all Hedging Obligations. Upon
failure by such other Borrower to pay punctually any such amount, each Borrower
agrees that it shall forthwith on demand pay the amount not so paid at the place
and in the manner specified in this Agreement, the other relevant Loan Document
or the document with respect to any Hedging Obligations (which shall be included
in the definition of "Loan Documents" for purposes of Section 9.02 hereof), as
the case may be.
Section 9.02. Guaranty Unconditional. The obligations of each Borrower
under this Article shall be unconditional and absolute and, without limiting the
generality of the foregoing, shall not be released, discharged or otherwise
affected by:
(a) any extension, renewal, settlement, compromise, waiver or release in
respect of any obligation of the other Borrower, any other Obligor or any other
Person under any Loan Document, by operation of law or otherwise;
(b) any modification or amendment of or supplement to this Agreement, any
Note or any other Loan Document;
(c) any release, impairment, non-perfection or invalidity of any direct or
indirect security for any obligation of the other Borrower, any other Obligor or
any other Person under any Loan Document;
(d) any change in the corporate existence, structure or ownership of the
other Borrower, any other Obligor or any other Person or any of their respective
Subsidiaries, or any insolvency, bankruptcy, reorganization or other similar
proceeding affecting the other Borrower, any other Obligor or any other Person
or any of their assets or any resulting release or discharge of any obligation
of the other Borrower, any other Obligor or any other Person contained in any
Loan Document;
(e) the existence of any claim, set-off or other rights which such
Borrower may have at any time against the other Borrower, any other Obligor, any
Agent, any Lender or any other Person, whether in connection herewith or
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any unrelated transactions, provided that nothing herein shall prevent the
assertion of any such claim by separate suit or compulsory counterclaim;
(f) any invalidity or unenforceability relating to or against the other
Borrower, any other Obligor or any other Person for any reason of this
Agreement, any Note or any other Loan Document, or any provision of applicable
law or regulation purporting to prohibit the payment by the other Borrower, any
other Obligor or any other Person of the principal of or interest on any Note or
any other amount payable by the other Borrower under any Loan Document; or
(g) any other act or omission to act or delay of any kind by the other
Borrower, any other Obligor, any Agent, any other Party to any Loan Document,
any Lender or any other Person or any other circumstance whatsoever which might,
but for the provisions of this paragraph, constitute a legal or equitable
discharge of or defense to either Borrower's obligations under this Article.
Section 9.03. Discharge Only upon Payment in Full; Reinstatement In
Certain Circumstances. Each Borrower's obligations under this Article shall
remain in full force and effect so long as any Lender shall have any Commitment
or any outstanding Letter of Credit under this Agreement or any principal of or
interest on any Loan or any Note or any reimbursement obligation with respect to
any Letter of Credit issued pursuant to this Agreement or any other amount
payable under this Agreement or any other Loan Document or any Hedging
Obligations shall remain unpaid. If at any time any payment of any amount
payable by the other Borrower under this Agreement, any other Loan Document or
any document in respect of Hedging Obligations is rescinded or must be otherwise
restored or returned upon the insolvency or receivership of the other Borrower
or otherwise, each Borrower's obligations under this Article with respect to
such payment shall be reinstated as though such payment had been due but not
made at such time.
Section 9.04. Waiver by the Borrowers. Each Borrower irrevocably waives
acceptance hereof, presentment, demand, protest and any notice not provided for
herein, as well as any requirement that at any time any action be taken by any
corporation or person against the other Borrower or any other Person.
Section 9.05. Subrogation. Upon making any payment with respect to the
other Borrower under this Article, each Borrower shall be subrogated to the
rights of the payee against such other Borrower with respect to such payment;
provided that the Borrower making such payment pursuant to this Article shall
not enforce any payment by way of subrogation, or by reason of contribution
against
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any other guarantor of such other Borrower's obligations guaranteed under this
Article, until (x) all amounts of principal of and interest on the Loans, (y)
all reimbursement obligations with respect to any Letter of Credit and all
interest thereon and (y) all other amounts payable by such other Borrower under
this Agreement and any other Loan Documents and (z) all Hedging Obligations have
been paid in full, all outstanding Letters of Credit have been canceled or
expired and the Commitments of each Lender have been terminated.
Section 9.06. Stay of Acceleration. If acceleration of the time for
payment of any amount payable by either Borrower under this Agreement or any
other Loan Document or of any Hedging Obligation is stayed by reason of the
insolvency or receivership of such Borrower or otherwise, all such amounts
otherwise subject to acceleration under the terms of this Agreement, any other
Loan Document or document in respect of Hedging Obligations shall nonetheless be
payable by the other Borrower under this Article forthwith on demand by the
Agent made at the request of the Required Lenders.
Section 9.07. Limitation on the Obligations. The obligations of each
Borrower solely as a "guarantor" of the obligations of the other Borrower under
this Article shall be limited to an aggregate amount that is equal to the
largest amount that would not render such obligations of such Borrower under
this Article subject to avoidance under Section 548 of the United States
Bankruptcy Code or any comparable provisions of applicable law.
ARTICLE 10
Miscellaneous
Section 10.01. Notices. All notices, requests and other communications to
any party hereunder shall be in writing (including bank wire, telex, facsimile
transmission (with a copy by Unites States mail) or similar writing) and shall
be given to such party: (a) in the case of either Borrower or any Agent, at its
address, facsimile number or telex number set forth on the signature pages
hereof, (b) in the case of any Guarantor, in care of MGM Studios, (c) in the
case of any Lender, at its address, facsimile number or telex number set forth
in its Administrative Questionnaire or (d) in the case of any party, such other
address, facsimile number or telex number as such party may hereafter specify
for the purpose by notice to the Agent and the Borrowers. Each such notice,
request or other communication shall be effective (i) if given by telex, when
such telex is transmitted to the telex number specified in this Section and the
appropriate answerback is received, (ii) if given by facsimile transmission,
when transmitted to the facsimile number specified in this Section and
confirmation of receipt is received, (iii) if given by
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mail, 72 hours after such communication is deposited in the mails with first
class postage prepaid, addressed as aforesaid or (iv if given by any other
means, when delivered at the address specified in this Section; provided that
notices to any Agent under Article 2 or Article 8 shall not be effective until
received.
Section 10.02. No Waivers. No failure or delay by any Agent or any Lender
in exercising any right, power or privilege hereunder or under any other Loan
Document shall operate as a waiver thereof nor shall any single or partial
exercise thereof preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. The rights and remedies herein provided
shall be cumulative and not exclusive of any rights or remedies provided by law.
Section 10.03. Expenses; Indemnification. (a) The Borrowers shall pay (i)
all out-of-pocket expenses of each Agent and each Arranger, including reasonable
fees and disbursements of each special counsel for the Agents, in connection
with the preparation and administration of the Loan Documents, any waiver or
consent thereunder, any Tranche C Request with respect thereto or any amendment
thereof or any Default or alleged Default thereunder, (ii) the reasonable fees
and expenses of consultants and other experts retained by any Agent or the
Required Lenders with the consent of the Borrowers (which consent shall not be
unreasonably withheld); provided that, if such consultants or other experts
shall have been retained in connection with any Default under the Loan
Documents, no such consent shall be required and (ii if an Event of Default
occurs, all out-of-pocket expenses incurred by each Agent and each Lender,
including (without duplication) the reasonable fees and disbursements of outside
counsel and the allocated cost of inside counsel, in connection with such Event
of Default and collection, bankruptcy, insolvency and other enforcement
proceedings resulting therefrom.
(b) Each Borrower agrees to indemnify each Agent and each Lender, their
respective affiliates and the respective directors, officers, trustees, agents
and employees of the foregoing (each an "INDEMNITEE") and hold each Indemnitee
harmless from and against any and all liabilities, losses, damages, costs and
expenses of any kind, including, without limitation, the reasonable fees and
disbursements of counsel and settlement costs, which may be incurred by such
Indemnitee in connection with any investigative, administrative or judicial
proceeding (whether or not such Indemnitee shall be designated a party thereto)
brought or threatened relating to or arising out of the Loan Documents or any
actual or proposed use of proceeds of Loans hereunder; provided that no
Indemnitee shall have the right to be indemnified hereunder for such
Indemnitee's own gross negligence or willful misconduct as determined by a court
of competent jurisdiction.
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Section 10.04. Sharing of Set-offs. Each Lender agrees that if it shall,
by exercising any right of set-off or counterclaim or otherwise, receive payment
of a proportion of the aggregate amount of principal and interest then due with
respect to any Note and any Letter of Credit Liabilities held by it which is
greater than the proportion received by any other Lender in respect of the
aggregate amount of principal and interest then due with respect to any Note and
Letter of Credit Liabilities held by such other Lender, the Lender receiving
such proportionately greater payment shall purchase such participations in the
Notes held by the other Lenders, and such other adjustments shall be made, as
may be required so that all such payments of principal and interest then due
with respect to the Notes and Letter of Credit Liabilities held by the Lenders
shall be shared by the Lenders pro rata; provided that nothing in this Section
shall impair the right of any Lender to exercise any right of set-off or
counterclaim it may have and to apply the amount subject to such exercise to the
payment of indebtedness of any Obligor other than its indebtedness hereunder.
Each Obligor agrees, to the fullest extent it may effectively do so under
applicable law, that any holder of a participation in a Note or Letter of Credit
Liabilities, whether or not acquired pursuant to the foregoing arrangements, may
exercise rights of set-off or counterclaim and other rights with respect to such
participation as fully as if such holder of a participation were a direct
creditor of such Obligor in the amount of such participation.
Section 10.05. Amendments and Waivers; Release of Guarantors or
Collateral. Any provision of this Agreement or the Notes may be amended or
waived if, but only if, such amendment or waiver is in writing and is signed by
each Borrower and the Required Lenders (and, if the rights or duties of any
Agent or any L/C Issuer are affected thereby, by such Agent or such L/C Issuer,
as relevant); provided that no such amendment or waiver shall:
(a) unless signed by all the Lenders with a Commitment of any Class,
increase or decrease the Commitments of such Class (except for a ratable
decrease in all the Commitments of such Class), subject any such Lender to any
additional obligation, or postpone the date fixed for the scheduled termination
of any Commitment of such Class;
(b) unless signed by all Lenders holding Loans of any Class, reduce the
principal of or rate of interest on any Loans of, or fees with respect to, such
Class, postpone the date fixed for any scheduled payment of such fees or the
principal of or interest on any such Loans, or decrease the aggregate amount by
which such Loans are required to be repaid on any date scheduled pursuant to
Section 2.04 or postpone any date for such repayment;
(c) unless signed by all Revolving Lenders, reduce the amount to be
reimbursed in respect of any Letter of Credit or of any interest with respect to
any
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Letter of Credit Liabilities or any fees payable by reference to the Letters
of Credit hereunder, postpone the date fixed for any payment of the amount to be
reimbursed in respect of any Letter of Credit or any interest thereon or any
fees payable by reference to the Letters of Credit hereunder or (except as
expressly provided in Section 2.14) expiry date of any Letter of Credit;
(d) unless signed by the Swing Lender and each other Lender affected
thereby, increase the Swing Loan Commitment, postpone the date fixed for the
termination of the Swing Loan Commitment or otherwise affect any of its rights
or obligations hereunder;
(e) unless signed by all the Lenders, (i) except as provided in Section
2.01(i) hereof, add any new tranche or class of commitments or loans under this
Agreement or (ii) change the percentage of the Commitments or of the aggregate
unpaid principal amount of the Notes or the Letter of Credit Liabilities or the
number of Lenders, which shall be required for the Lenders or any of them to
take any action under this Section or any other provision of this Agreement.
Any provision of the Loan Documents (other than this Agreement and the Notes)
may be amended or waived if, but only if, such amendment or waiver is in writing
and is signed by the relevant Obligor and the Agents with the consent of the
Required Lenders; provided that no such amendment or waiver shall, unless signed
by all the Lenders, effect or permit (i) a release of all or substantially all
of the Collateral or, except as provided in Section 2.01(i) hereof, provide for
the sharing of such Collateral with additional obligations, (ii a release of all
or substantially all of the Guarantors from their obligations under the
Subsidiary Guaranty or (ii a release of any Investor (as defined in Section
6.01(b)) or MGM from its respective obligations under the Capital Call
Agreement. Notwithstanding the foregoing, Collateral shall be released from the
Lien of the Collateral Documents from time to time as necessary to effect any
sale or pledge of assets permitted by the Loan Documents, and the Agent shall
execute and deliver all release documents reasonably requested to evidence such
release.
Section 10.06. Successors and Assigns. (a) The provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns, except that no Obligor may assign
or otherwise transfer any of its rights under this Agreement and the other Loan
Documents without the prior written consent of all Lenders.
(b) Any Lender may at any time grant to one or more Lenders or other
institutions (other than a Competitor) (each a "PARTICIPANT") participating
interests in its Commitment or any or all of its Loans or Letter of Credit
Liabilities. In the event of any such grant by a Lender of a participating
interest to
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a Participant, whether or not upon notice to the Borrowers and the Agent, such
Lender shall remain responsible for the performance of its obligations
hereunder, and the Borrowers and the Agent shall continue to deal solely and
directly with such Lender in connection with such Lender's rights and
obligations under this Agreement. Any agreement pursuant to which any Lender may
grant such a participating interest shall provide that such Lender shall retain
the sole right and responsibility to enforce the obligations of the Borrowers
hereunder including, without limitation, the right to approve any amendment,
modification or waiver of any provision of this Agreement; provided that such
participation agreement may provide that such Lender will not agree to any
modification, amendment or waiver of this Agreement described in clause (a),
(b), (c), or (d) of, or in the proviso in the penultimate sentence of, Section
10.05 without the consent of the Participant. Each Borrower agrees that, without
duplication of amounts payable to the relevant Lender, each Participant shall,
to the extent provided in its participation agreement, be entitled to the
benefits of Article 8 with respect to its participating interest. An assignment
or other transfer which is not permitted by subsection (c) or (d) below shall be
given effect for purposes of this Agreement only to the extent of a
participating interest granted in accordance with this subsection (b).
(c) Any Lender may at any time assign to one or more Lenders or other
institutions (including any fund that regularly engages in making, purchasing or
investing in loans) (each an "ASSIGNEE") all, or a proportionate part of all,
of its rights and obligations under this Agreement and the Notes with respect to
its Commitment of any Class or its outstanding Loans of any Class or its letter
of Credit Liabilities, and such Assignee shall assume such rights and
obligations, pursuant to an Assignment and Assumption Agreement in substantially
the form of Exhibit I hereto executed by such Assignee and such transferor
Lender, with (and subject to) the subscribed consent of each Borrower, which
shall not be unreasonably withheld, the Agent and, solely with respect to any
assignment of the Revolving Commitments, Revolving Loans or Letter of Credit
Liabilities, the L/C Issuers and the Swing Lender; provided that (i) if an
Assignee is an affiliate of such transferor Lender or was a Lender immediately
prior to such assignment, no such consent shall be required, (ii) if such
transferor Lender pursuant to such assignment assigns to an Assignee a part (but
not all) of its Commitment or Loans of any Class or its Letter of Credit
Liabilities, then the sum of (x) the aggregate amount of the Commitments of all
Classes (if any), (y) the aggregate outstanding principal amount of the Loans of
all Classes (if any) and (z) the aggregate Letter of Credit Liabilities (if any)
held by such Assignee immediately after giving effect to such assignment and
retained by the transferor Lender immediately after giving effect to such
assignment shall each be at least $5,000,000 and (iii) no Lender shall enter
into any assignment with a Competitor. Upon execution and delivery of such
instrument and payment by such Assignee to such transferor Lender of an amount
equal to the purchase price agreed between such transferor Lender and
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<PAGE>
such Assignee, such Assignee shall be a Lender party to this Agreement and shall
have all the rights and obligations of a Lender with a Commitment as set forth
in such instrument of assumption, and the transferor Lender shall be released
from its obligations hereunder to a corresponding extent, and no further consent
or action by any party shall be required. Upon the consummation of any
assignment pursuant to this subsection (c), the transferor Lender, the Agent and
the Borrowers shall make appropriate arrangements so that, if required, new
Notes are issued to the Assignee. In connection with any such assignment, the
transferor Lender shall pay to the Agent an administrative fee for processing
such assignment in the amount of $3,500. If the Assignee is not incorporated
under the laws of the United States of America or a state thereof, it shall
deliver to the Borrowers and the Agent certification as to exemption from
deduction or withholding of any United States federal income taxes in accordance
with Section 8.04.
(d) For the avoidance of doubt, the parties to this Agreement acknowledge
that the provisions of this Section 10.06 concerning assignments of Loans and
Notes relate only to absolute assignments and that such provisions do not
purport to regulate assignments creating security interests, including, without
limitation, any pledge or assignment by a Lender of any Loan or Note to any
Federal Reserve Bank in accordance with applicable law. No such assignment
shall release the transferor Lender from its obligations hereunder.
(e) No Assignee, Participant or other transferee of any Lender's rights
shall be entitled to receive any greater payment under Section 8.03 or 8.04 than
such Lender would have been entitled to receive with respect to the rights
transferred, unless such transfer is made (x) with each Borrower's prior written
consent or (y) by reason of the provisions of Section 8.02, 8.03 or 8.04
requiring such Lender to designate a different Applicable Lending Office under
certain circumstances or (z) at a time when the circumstances giving rise to
such greater payment did not exist.
(f) For purposes of this Section 10.06, "COMPETITOR" means any Person
whose primary line of business is the entertainment industry (any such Person,
an "ENTERTAINMENT PERSON"), or any Person controlled by, or under common control
with, any Entertainment Person.
(g) Each Borrower hereby designates the Agent to serve as such Borrower's
agent, solely for purposes of this subsection 10.06(g), to maintain a register
(the "REGISTER") on which the Agent will record the Commitments from time to
time of each Lender, the Loans made by each Lender and each repayment in respect
of the principal amount of the Loans of each Lender and to retain a copy of each
Assignment and Assumption Agreement delivered to the Agent pursuant to this
Section. Failure to make any such recordation, or any error in such
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<PAGE>
recordation, shall not affect either Borrower's obligation in respect of such
Loans. The entries in the Register shall be conclusive, in the absence of
manifest error, and the Borrowers, the Agents and the Lenders shall treat each
Person in whose name a Loan and the Notes evidencing the same is registered as
the owner thereof for all purposes of this Agreement, notwithstanding notice or
any provision herein to the contrary. With respect to any Lender, the assignment
or other transfer of the Commitments of such Lender and the rights to the
principal of, and interest on, any Loan made and any Note issued pursuant to
this Agreement shall not be effective until such assignment or other transfer is
recorded on the Register and, except to the extent provided in this subsection
10.06, otherwise complies with Section 10.06(g), and prior to such recordation
all amounts owing to the transferor Lender with respect to such Commitments,
Loans and Notes shall remain owing to the transferor Lender. The registration
of assignment or other transfer of all or part of any Commitments, Loans and
Notes for a Lender shall be recorded by the Agent on the Register only upon the
acceptance by the Agent of a properly executed and delivered Assignment and
Assumption Agreement. The Register shall be available at the offices where kept
by the Agent for inspection by the Borrowers and any Lender at any reasonable
time upon reasonable prior notice to the Agent. The Borrowers may not replace
any Lender pursuant to Section 8.06, unless, with respect to any Notes held by
such Lender, the requirements of subsection 10.06(c) have been satisfied.
Section 10.07. Collateral. Each of the Lenders represents to each Agent
and each of the other Lenders that it in good faith is not relying upon any
"MARGIN STOCK" (as defined in Regulation U) as collateral in the extension or
maintenance of the credit provided for in this Agreement.
Section 10.08. Governing Law; Submission to Jurisdiction. This Agreement
and each Note shall be governed by and construed in accordance with the laws of
the State of New York. Each Obligor hereby submits to the nonexclusive
jurisdiction of the United States District Court for the Southern District of
New York and of any New York State court sitting in New York City for purposes
of all legal proceedings arising out of or relating to this Agreement or the
transactions contemplated hereby. Each Obligor irrevocably waives, to the
fullest extent permitted by law, any objection which it may now or hereafter
have to the laying of the venue of any such proceeding brought in such a court
and any claim that any such proceeding brought in such a court has been brought
in an inconvenient forum.
Section 10.09. Counterparts; Integration. This Agreement may be signed in
any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement constitutes the entire agreement and understanding among the
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parties hereto and supersedes any and all prior agreements and understandings,
oral or written, relating to the subject matter hereof.
Section 10.10. Waiver of Jury Trial. EACH OF THE BORROWERS, THE AGENTS
AND THE LENDERS HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN
ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
Section 10.11. Confidentiality. Each Agent and each Lender agrees to keep
any information delivered or made available by any Obligor pursuant to the Loan
Documents confidential from anyone other than persons employed or retained by
such Lender who are engaged in evaluating, approving, structuring or
administering the credit facility contemplated hereby; provided that nothing
herein shall prevent any Agent or any Lender from disclosing such information
(a) to any other Lender or to any other Agent, (b) to any other Person if
reasonably incidental to the administration of the credit facility contemplated
hereby, (c) upon the order of any court or administrative agency, (d) upon the
request or demand of any regulatory agency or authority, (e) which had been
publicly disclosed other than as a result of a disclosure by any Agent or any
Lender prohibited by this Agreement, (f) in connection with any litigation to
which any Agent, any Lender or its subsidiaries or Parent may be a party, (g) to
the extent necessary in connection with the exercise of any remedy hereunder,
(h) to such Lender's or such Agent's legal counsel and independent auditors and
(i) subject to provisions substantially similar to those contained in this
Section, to either (A) any actual or proposed Participant or Assignee or (B) any
direct or indirect contractual counterparties in swap agreements or to the
professional advisors of such swap counterparties.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
METRO-GOLDWYN-MAYER
STUDIOS INC.
By:_________________________________
Name:
Title:
Address: 2500 Broadway Street
Santa Monica, CA 90404
Telex: 310-449-3601
Facsimile: 310-449-3090
ORION PICTURES CORPORATION
By:_________________________________
Name:
Title:
Address: 2500 Broadway Street
Santa Monica, CA 90404
Telex: 310-449-3601
Facsimile: 310-449-3090
MORGAN GUARANTY TRUST
COMPANY OF NEW YORK
By:_________________________________
Name:
Title:
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<PAGE>
BANK OF AMERICA NATIONAL
TRUST AND SAVINGS
ASSOCIATION
By:_________________________________
Name:
Title:
CO-DOCUMENTATION AGENTS
-----------------------
THE CHASE MANHATTAN BANK
By:_________________________________
Name:
Title:
SOCIETE GENERALE
By:_________________________________
Name:
Title:
106
<PAGE>
SENIOR MANAGING AGENTS
----------------------
THE BANK OF NOVA SCOTIA
By:_________________________________
Name:
Title:
VAN KAMPEN AMERICAN CAPITAL
PRIME RATE INCOME TRUST
By:_________________________________
Name:
Title:
MANAGING AGENTS
---------------
FLEET NATIONAL BANK
By:_________________________________
Name:
Title:
ING BANK N.V.
By:_________________________________
Name:
Title:
107
<PAGE>
ING HIGH INCOME PRINCIPAL
PRESERVATION OFFERING, L.P.
By ING Capital Advisors, Inc., as
Investment Advisor
By:_________________________________
Name:
Title:
KZH-ING-1 CORPORATION
By:_________________________________
Name:
Title:
KZH-ING-2 CORPORATION
By:_________________________________
Name:
Title:
CIBC INC.
By:_________________________________
Name:
Title:
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<PAGE>
KZH HOLDING CORPORATION III
By:_________________________________
Name:
Title:
CO-AGENTS
---------
MERRILL LYNCH SENIOR FLOATING
RATE FUND, INC.
By:_________________________________
Name:
Title:
SENIOR HIGH INCOME PORTFOLIO, INC.
By:_________________________________
Name:
Title:
DEBT STRATEGIES FUND, INC.
By:_________________________________
Name:
Title:
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<PAGE>
THE BANK OF NEW YORK
By:_________________________________
Name:
Title:
BANK OF SCOTLAND
By:_________________________________
Name:
Title:
THE INDUSTRIAL BANK OF JAPAN,
LIMITED, LOS ANGELES AGENCY
By:_________________________________
Name:
Title:
THE LONG-TERM CREDIT BANK OF
JAPAN, LTD., LOS ANGELES
AGENCY
By:_________________________________
Name:
Title:
110
<PAGE>
UNION BANK OF CALIFORNIA
By:_________________________________
Name:
Title:
PARTICIPANTS
------------
GENERAL ELECTRIC CAPITAL
CORPORATION
By:_________________________________
Name:
Title:
MORGAN STANLEY SENIOR
FUNDING, INC.
By:_________________________________
Name:
Title:
For ARAB BANKING CORPORATION
NEW YORK BRANCH
By:_________________________________
Name:
Title:
111
<PAGE>
BANK OF HAWAII
By:_________________________________
Name:
Title:
PARAMOUNT COMPANY
By Pilgrim America Investments,
Inc., as its Investment Manager
By:_________________________________
Name:
Title:
PILGRIM AMERICA PRIME RATE
TRUST
By:_________________________________
Name:
Title:
SANWA BUSINESS CREDIT
CORPORATION
By:_________________________________
Name:
Title:
112
<PAGE>
BDC FINANCE LLC
By:_________________________________
Name:
Title:
GULF INTERNATIONAL BANK B.S.C.
By:_________________________________
Name:
Title:
MASSACHUSETTS MUTUAL LIFE
INSURANCE COMPANY
By:_________________________________
Name:
Title:
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<PAGE>
BANQUE WORMS CAPITAL
CORPORATION
By:_________________________________
Name:
Title:
By:_________________________________
Name:
Title:
CITY NATIONAL BANK, a National
Banking Association
By:_________________________________
Name:
Title:
FIRST HAWAIIAN BANK
By:_________________________________
Name:
Title:
114
<PAGE>
INDOSUEZ CAPITAL FUNDING III,
LIMITED
By Indosuez Capital, as Portfolio Advisor
By:______________________________________
Name:
Title:
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
By:______________________________________
Name:
Title:
115
<PAGE>
BANKERS LIFE AND CASUALTY
INSURANCE COMPANY
By: ____________________________________
Name:
Title:
CITIBANK, N.A.
By:____________________________________
Name:
Title:
CONTINENTAL ASSURANCE COMPANY
SEPARATE ACCOUNT (E)
By TCW Asset Management Company, as
its Attorney-in-Fact
By:____________________________________
Name:
Title:
By:____________________________________
Name:
Title:
PACIFIC LIFE INSURANCE COMPANY
By:____________________________________
Name:
Title:
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<PAGE>
PFL LIFE INSURANCE COMPANY
By:______________________________________
Name:
Title:
PRIME INCOME TRUST
By:________________________________________
Name:
Title:
THOROUGHBRED LIMITED PARTNERSHIP I
By Appaloosa Management, L.P., its
General Partner
By Appaloosa Partners Inc., its General
Partner
By:______________________________________
Name:
Title:
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<PAGE>
MORGAN GUARANTY TRUST
COMPANY OF NEW YORK, as Agent
By:______________________________________
Name:
Title:
Address: 60 Wall Street
New York, NY 10260-0060
Attention:
Facsimile number: 212-648-5348
BANK OF AMERICA NATIONAL
TRUST AND SAVINGS
ASSOCIATION, as Syndication Agent
By:______________________________________
Name:
Title:
Address:
Attention:
Facsimile number:
118
<PAGE>
PRICING SCHEDULE
As used herein:
"BASE RATE MARGIN" means, for any Loan and for any day, (i) if such day is
on or prior to the Qualifying Equity Issuance Date (if any), the rate per annum
set forth in Grid I below in the applicable row corresponding to the Type of
such Loan and under the column corresponding to the Status that exists on such
day and (ii) for any day after the Qualifying Equity Issuance Date, the rate per
annum set forth in Grid II below in the applicable row corresponding to the Type
of such Loan and under the column corresponding to the Status that exists on
such day.
"EURO-DOLLAR MARGIN" means, for any Loan and for any day, (i) if such day
is on or prior to the Qualifying Equity Issuance Date (if any), the rate per
annum set forth in Grid I below in the applicable row corresponding to the Type
of such Loan and under the column corresponding to the Status that exists on
such day and (ii) for any day after the Qualifying Equity Issuance Date, the
rate per annum set forth in Grid II below in the applicable row corresponding to
the Type of such Loan and under the column corresponding to the Status that
exists on such day.
"COMMITMENT FEE RATE" means for any day (i) if such day is on or prior to
the Qualifying Equity Issuance Date (if any), the rate per annum set forth in
Grid I below in the applicable row under the column corresponding to the Status
that exists on such day and (ii) if such day is after the Qualifying Equity
Issuance Date, the rate per annum set forth in Grid II below in the applicable
row under the column corresponding to the Status that exists on such day.
"LETTER OF CREDIT FEE RATE" means for any day (i) if such day is on or
prior to the Qualifying Equity Issuance Date (if any), the rate per annum set
forth in Grid I below in the applicable row under the column corresponding to
the Status that exists on such day and (ii) if such day is after the Qualifying
Equity Issuance Date, the rate per annum set forth in Grid II below in the
applicable row under the column corresponding to the Status that exists on such
day.
* * * * *
"APPLICABLE LEVERAGE RATIO" means, at any date, the Leverage Ratio on the
last day of the Fiscal Quarter ended most recently prior to such date and for
which Fiscal Quarter the Borrowers have delivered the financial statements
required to be delivered by them pursuant to Sections 5.01(a) or (b), as the
case may be; provided that if either Borrower shall fail to timely deliver any
financial
1
<PAGE>
statements required to be delivered by it pursuant to Sections 5.01(a) or (b),
as the case may be, with respect to any Fiscal Quarter, the Applicable Leverage
Ratio for each day from and including the day on which such Borrower is required
to deliver such financial statements to but excluding the day on which such
Borrower delivers such financial statements shall be deemed to be 6 to 1.
"LEVEL I STATUS" exists at any date if, at such date, the Applicable
Leverage Ratio is less than 3 to 1.
"LEVEL II STATUS" exists at any date if, at such date (i) the Applicable
Leverage Ratio is less than 4 to 1 and (ii) Level I Status does not exist.
"LEVEL III STATUS" exists at any date if, at such date, (i) the Applicable
Leverage Ratio is less than 5 to 1 and (ii) neither Level I Status nor Level II
Status exists.
"LEVEL IV STATUS" exists (a) at any date on or prior to September 30, 1998
if, at such date, none of Level I Status, Level II Status or Level III Status
exists and (b) at any date thereafter if, at such date, (i) the Applicable
Leverage Ratio is less than 6 to 1 and (ii) none of Level I Status, Level II
Status and Level III Status exists.
"LEVEL V STATUS" exists at any date if, at such date, no other Status
exists.
"STATUS" refers to the determination of which of Level I Status, Level II
Status, Level III Status, Level IV Status or Level V Status exists at any date.
GRID I
<TABLE>
<CAPTION>
=============================================================================================
STATUS LEVEL I LEVEL II LEVEL III LEVEL IV LEVEL V
=============================================================================================
<S> <C> <C> <C> <C> <C>
Base Rate Margin
Tranche A Loans................. 0.750% 1.000% 1.250% 1.500% 1.750%
Tranche B Loans................. 1.500% 1.500% 1.500% 1.750% 2.000%
Revolver Loans.................. 0.750% 1.000% 1.250% 1.500% 1.750%
- ---------------------------------------------------------------------------------------------
Euro-Dollar Margin
Tranche A Loans................. 1.750% 2.000% 2.250% 2.500% 2.750%
Tranche B Loans................. 2.500% 2.500% 2.500% 2.750% 3.000%
Revolver Loans.................. 1.750% 2.000% 2.250% 2.500% 2.750%
- ---------------------------------------------------------------------------------------------
Commitment Fee Rate............... 0.375% 0.375% 0.500% 0.500% 0.500%
- ---------------------------------------------------------------------------------------------
Letter of Credit Fee Rate......... 1.750% 2.000% 2.250% 2.500% 2.750%
=============================================================================================
</TABLE>
2
<PAGE>
GRID II
<TABLE>
<CAPTION>
=======================================================================================
STATUS LEVEL I LEVEL II LEVEL III LEVEL IV LEVEL V
=======================================================================================
<S> <C> <C> <C> <C> <C>
Base Rate Margin
Tranche A Loans............ 0.500% 0.750% 1.000% 1.250% 1.500%
Tranche B Loans............ 1.250% 1.250% 1.250% 1.500% 1.750%
Revolver Loans............. 0.500% 0.750% 1.000% 1.250% 1.500%
- ---------------------------------------------------------------------------------------
Euro-Dollar Margin
Tranche A Loans............ 1.500% 1.750% 2.000% 2.250% 2.500%
Tranche B Loans............ 2.250% 2.250% 2.250% 2.500% 2.750%
Revolver Loans............. 1.500% 1.750% 2.000% 2.250% 2.500%
- ---------------------------------------------------------------------------------------
Commitment Fee Rate........... 0.375% 0.375% 0.375% 0.500% 0.500%
- --------------------------------------------------------------------------------
Letter of Credit Fee Rate..... 1.500% 1.750% 2.000% 2.250% 2.500%
======================================================================================
</TABLE>
3
<PAGE>
COMMITMENT SCHEDULE
-------------------
<TABLE>
<CAPTION>
TRANCHE A TRANCHE B REVOLVING
LENDER COMMITMENT COMMITMENT COMMITMENT TOTAL
------ ---------- ---------- ---------- -----
<S> <C> <C> <C> <C>
Morgan Guaranty Trust Company of New York................. $ 56,000,000 $127,500,000 $ 84,000,000 $ 267,500,000
Van Kampen American Capital Prime Rate Income Trust....... 24,000,000 37,500,000 36,000,000 97,500,000
Bank of America National Trust and Savings Association.... 32,000,000 7,500,000 48,000,000 87,500,000
Societe Generale.......................................... 28,000,000 0 42,000,000 70,000,000
The Chase Manhattan Bank.................................. 28,000,000 0 42,000,000 70,000,000
The Bank of Nova Scotia................................... 24,000,000 0 36,000,000 60,000,000
ING Bank N.V.............................................. 22,000,000 0 33,000,000 55,000,000
Fleet National Bank....................................... 22,000,000 0 33,000,000 55,000,000
Union Bank of California.................................. 16,000,000 0 24,000,000 40,000,000
The Long-Term Credit Bank of Japan, Ltd., Los Angeles
Agency................................................... 16,000,000 0 24,000,000 40,000,000
Merrill Lynch Senior Floating Rate Fund, Inc.............. 12,000,000 10,000,000 18,000,000 40,000,000
The Bank of New York...................................... 16,000,000 0 24,000,000 40,000,000
Bank of Scotland.......................................... 16,000,000 0 24,000,000 40,000,000
The Industrial Bank of Japan, Limited, Los Angeles
Agency.................................................... 16,000,000 0 24,000,000 40,000,000
General Electric Capital Corporation...................... 14,000,000 0 21,000,000 35,000,000
Bank of Hawaii............................................ 10,000,000 0 15,000,000 25,000,000
Arab Banking Corporation, New York Branch................. 10,000,000 0 15,000,000 25,000,000
Sanwa Business Credit Corporation......................... 10,000,000 0 15,000,000 25,000,000
KZH Holding Corporation III............................... 2,000,000 12,500,000 3,000,000 17,500,000
CIBC Inc.................................................. 0 15,000,000 0 15,000,000
Gulf International Bank B.S.C............................. 6,000,000 0 9,000,000 15,000,000
Massachusetts Mutual Life Insurance Company............... 0 15,000,000 0 15,000,000
ING High Income Principal Preservation Offering, L.P...... 0 10,000,000 0 10,000,000
KZH-ING-1 Corporation..................................... 4,000,000 0 6,000,000 10,000,000
Pilgrim America Prime Rate Trust.......................... 0 10,000,000 0 10,000,000
Indosuez Capital Funding III, Limited..................... 0 10,000,000 0 10,000,000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TRANCHE A TRANCHE B REVOLVING
LENDER COMMITMENT COMMITMENT COMMITMENT TOTAL
------ ---------- ---------- ---------- -----
<S> <C> <C> <C> <C>
Banque Worms Capital Corporation.......................... 4,000,000 0 6,000,000 10,000,000
City National Bank........................................ 4,000,000 0 6,000,000 10,000,000
First Hawaiian Bank....................................... 4,000,000 0 6,000,000 10,000,000
Continental Assurance Company, Separate Account (E)....... 0 7,500,000 0 7,500,000
PFL Life Insurance Company................................ 0 7,500,000 0 7,500,000
Bankers Life and Casualty Insurance Company............... 0 7,500,000 0 7,500,000
Citibank, N.A............................................. 0 7,500,000 0 7,500,000
Pacific Life Insurance Company............................ 0 7,500,000 0 7,500,000
Prime Income Trust........................................ 0 7,500,000 0 7,500,000
Senior High Income Portfolio, Inc......................... 2,000,000 0 3,000,000 5,000,000
Debt Strategies Fund, Inc................................. 2,000,000 0 3,000,000 5,000,000
TOTAL.................................................. $400,000,000 $300,000,000 $600,000,000 $1,300,000,000
============ ============ ============ ==============
</TABLE>
2
<PAGE>
EXHIBIT A
NOTE
New York, New York
October __, 1997
For value received, [Metro-Goldwyn-Mayer Studios Inc. (formerly known as
Metro-Goldwyn-Mayer Inc.)][Orion Pictures Corporation], a Delaware corporation
(the "BORROWER"), promises to pay to the order of ______________________ (the
"LENDER"), for the account of its Applicable Lending Office, the unpaid
principal amount of each Loan made by the Lender to the Borrower pursuant to the
Credit Agreement referred to below on the Maturity Date provided for in the
Credit Agreement. The Borrower promises to pay interest on the unpaid principal
amount of each such Loan on the dates and at the rate or rates provided for in
the Credit Agreement. All such payments of principal and interest shall be made
in lawful money of the United States in Federal or other immediately available
funds at the office of Morgan Guaranty Trust Company of New York, 60 Wall
Street, New York, New York.
All Loans made by the Lender, the respective Types and Classes thereof and
all repayments of the principal thereof shall be recorded by the Lender and, if
the Lender so elects in connection with any transfer or enforcement hereof,
appropriate notations to evidence the foregoing information with respect to each
such Loan then outstanding may be endorsed by the Lender on the schedule
attached hereto, or on a continuation of such schedule attached to and made a
part hereof; provided that the failure of the Lender to make any such
recordation or endorsement shall not affect the obligations of the Borrower
hereunder or under the Credit Agreement.
This note is one of the Notes referred to in the Amended and Restated
Credit Agreement dated as of October 15, 1997 among the Borrower, [Metro-
Goldwyn-Mayer Studios Inc. ("MGM STUDIOS")][Orion Pictures Corporation
("ORION")], the lenders listed on the signature pages thereof, the L/C Issuers
named therein, Morgan Guaranty Trust Company of New York, as Agent and Bank of
America National Trust and Savings Association, as Syndication Agent (as the
same may be amended from time to time, the "CREDIT AGREEMENT"). Terms defined in
the Credit Agreement are used herein with the same meanings. Reference is made
to the Credit Agreement for provisions for the prepayment hereof and the
acceleration of the maturity hereof and the basis upon which this note is
secured. Payment of principal and interest on this note is unconditionally
A-1
<PAGE>
guaranteed by each of (i) [MGM Studios][Orion], pursuant to the Credit
Agreement, and (ii) the Guarantors, pursuant to the Subsidiary Guaranty.
This note shall be governed by and construed in accordance with the laws of
the State of New York.
[METRO-GOLDWYN-MAYER STUDIOS
INC.]
[ORION PICTURES CORPORATION]
By:_________________________________
Name:
Title:
A-2
<PAGE>
EXHIBIT I
ASSIGNMENT AND ASSUMPTION AGREEMENT
AGREEMENT dated as of _______ __, ____ among (NAME OF ASSIGNOR) (the
"ASSIGNOR"), (NAME OF ASSIGNEE) (the "ASSIGNEE"), METRO-GOLDWYN-MAYER STUDIOS
INC. ("MGM STUDIOS"), ORION PICTURES CORPORATION ("ORION", and together with MGM
Studios, the "BORROWERS"), MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent
(the "AGENT").
WHEREAS, this Assignment and Assumption Agreement (the "AGREEMENT") relates
to the Amended and Restated Credit Agreement dated as of October 15, 1997 among
the Borrowers, the Assignor and the other Lenders party thereto, as Lenders,
the L/C Issuers party thereto, the Agent and Bank of America National Trust and
Savings Association, as Syndication Agent (as amended from time to time, the
"CREDIT AGREEMENT");
[WHEREAS, as provided under the Credit Agreement, the Assignor has a
Tranche A Commitment to make Tranche A Loans to the Borrowers in an aggregate
principal amount outstanding not to exceed $__________;]
[WHEREAS, Tranche A Loans under the Credit Agreement made by the Assignor
to (i) MGM Studios in the aggregate principal amount of $__________ are
outstanding at the date hereof and (ii) Orion in the aggregate principal amount
of $__________ are outstanding at the date hereof;]
[WHEREAS, as provided under the Credit Agreement, the Assignor has a
Tranche B Commitment to make Tranche B Loans to the Borrowers in an aggregate
principal amount outstanding not to exceed $__________;]
[WHEREAS, Tranche B Loans under the Credit Agreement made by the Assignor
to (i) MGM Studios in the aggregate principal amount of $__________ are
outstanding at the date hereof and (ii) Orion in the aggregate principal amount
of $__________ are outstanding at the date hereof;]
[WHEREAS, as provided under the Credit Agreement, the Assignor has a
Revolving Commitment to make Revolving Loans to the Borrowers and participate in
Letters of Credit in an aggregate principal amount at any time outstanding not
to exceed $__________;]
I-1
<PAGE>
[WHEREAS, Revolving Loans under the Credit Agreement made by the Assignor
to (i) MGM Studios in the aggregate principal amount of $__________ are
outstanding at the date hereof and (ii) Orion in the aggregate principal amount
of $__________ are outstanding at the date hereof;]
[WHEREAS, Letters of Credit with a total amount available for drawing
thereunder of $__________ are outstanding at the date hereof;]
[WHEREAS, as provided under the Credit Agreement, the Assignor has a Swing
Commitment to make Swing Loans to the Borrowers in an aggregate principal amount
at any time outstanding not to exceed $__________;]
[WHEREAS, Swing Loans made to the Borrowers by the Assignor under the
Credit Agreement in the aggregate principal amount of $__________ are
outstanding at the date hereof;] and
WHEREAS, the Assignor proposes to assign to the Assignee all of the rights
of the Assignor under the Credit Agreement in respect of a portion of its
[Tranche A] [Tranche B] [Revolving] [Swing] Commitment thereunder in an amount
equal to $__________ (the "ASSIGNED AMOUNT"), [together with a corresponding
portion of its outstanding [Tranche A] [Tranche B] [Revolving] [Swing] Loans
[and Letter of Credit Liabilities], and the Assignee proposes to accept
assignment of such rights and assume the corresponding obligations from the
Assignor on such terms;
NOW, THEREFORE, in consideration of the foregoing and the mutual agreements
contained herein, the parties hereto agree as follows:
Section 1. Definitions. All capitalized terms not otherwise defined
herein shall have the respective meanings set forth in the Credit Agreement.
Section 2. Assignment. The Assignor hereby assigns and sells to the
Assignee all of the rights of the Assignor under the Credit Agreement to the
extent of the Assigned Amount, and the Assignee hereby accepts such assignment
from the Assignor and assumes all of the obligations of the Assignor under the
Credit Agreement to the extent of the Assigned Amount, including the purchase
from the Assignor of the corresponding portion of the principal amount of the
[Tranche A] [Tranche B] [Revolving] [Swing] Loans made by, [and Letter of Credit
Liabilities of,] the Assignor outstanding at the date hereof. Upon the
execution and delivery hereof by the Assignor, the Assignee, the Borrowers, the
L/C Issuers and the Agent and the payment of the amounts specified in Section 3
-
required to be paid on the date hereof (i) the Assignee shall, as of the date
hereof, succeed to the rights and be obligated to perform the obligations of a
Lender under the Credit
I-2
<PAGE>
Agreement with a [Tranche A] [Tranche B] [Revolving] [Swing] Commitment in an
amount equal to the Assigned Amount, and (ii) the [Tranche A] [Tranche B]
[Revolving] [Swing] Commitment of the Assignor shall, as of the date hereof, be
reduced by a like amount and the Assignor released from its obligations under
the Credit Agreement to the extent such obligations have been assumed by the
Assignee. The assignment provided for herein shall be without recourse to the
Assignor.
Section 3. Payments. As consideration for the assignment and sale
contemplated in Section 2 hereof, the Assignee shall pay to the Assignor on the
date hereof in Federal funds the amount heretofore agreed between them./1/ It
is understood that commitment fees accrued to the date hereof are for the
account of the Assignor and such fees accruing from and including the date
hereof are for the account of the Assignee. Each of the Assignor and the
Assignee hereby agrees that if it receives any amount under the Credit Agreement
which is for the account of the other party hereto, it shall receive the same
for the account of such other party to the extent of such other party's interest
therein and shall promptly pay the same to such other party.
Section 4. Consent of the Borrowers, the L/C Issuers and the Agent. This
Agreement is conditioned upon the consent of the Borrowers, the L/C Issuers and
the Agent pursuant to Section 10.06(c) of the Credit Agreement. The execution
of this Agreement by the Borrowers, the L/C Issuers and the Agent is evidence of
this consent. Pursuant to Section 10.06(c), each Borrower agrees to execute and
deliver a Note payable to the order of the Assignee to evidence the assignment
and assumption provided for herein.
Section 5. Non-Reliance on Assignor. The Assignor makes no representation
or warranty in connection with, and shall have no responsibility with respect
to, the solvency, financial condition, or statements of any Obligor, or the
validity and enforceability of the obligations of any Obligor in respect of the
Credit Agreement or any Note or any other Loan Document. The Assignee
acknowledges that it has, independently and without reliance on the Assignor,
and based on such documents and information as it has deemed appropriate, made
its own credit analysis and decision to enter into this Agreement and will
continue to be responsible for making its own independent appraisal of the
business, affairs and financial condition of the Obligors.
- ------------------
/1/ Amount should combine principal together with accrued interest and
breakage compensation, if any, to be paid by the Assignee, net of any portion of
any upfront fee to be paid by the Assignor to the Assignee. It may be
preferable in an appropriate case to specify these amounts generically or by
formula rather than as a fixed sum.
I-3
<PAGE>
Section 6. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
Section 7. Counterparts. This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
IN WITNESS WHEREOF, the parties have caused t his Agreement to be executed
and delivered by their duly authorized officers as of the date first above
written.
(NAME OF ASSIGNOR)
By:_________________________________
Name:
Title:
(NAME OF ASSIGNEE)
By:_________________________________
Name:
Title:
METRO-GOLDWYN-MAYER STUDIOS
INC.
By:_________________________________
Name:
Title:
ORION PICTURES CORPORATION
By:_________________________________
Name:
Title:
I-4
<PAGE>
MORGAN GUARANTY TRUST
COMPANY OF NEW YORK, as Agent
By:_________________________________
Name:
Title:
(NAME OF L/C ISSUER)
By:_________________________________
Name:
Title:
I-5
<PAGE>
EXHIBIT K
EXTENSION AGREEMENT
Metro-Goldwyn-Mayer Studios Inc.
2500 Broadway Street
Santa Monica, CA 90404
Orion Pictures Corporation
2500 Broadway Street
Santa Monica, CA 90404
Morgan Guaranty Trust Company
of New York, as Agent
under the Credit Agreement
referred to below
60 Wall Street
New York, NY 10260
Gentlemen:
The undersigned hereby agree to extend, effective [Extension Date], the
Revolver Maturity Date [and the Swing Termination Date]/1/ under the Amended and
Restated Credit Agreement dated as of October 15, 1997 among Metro-Goldwyn-Mayer
Studios Inc., Orion Pictures Corporation, the Lenders listed therein, the L/C
Issuers named therein, Morgan Guaranty Trust Company of New York, as Agent and
Bank of America National Trust and Savings Association, as Syndication Agent
(the "CREDIT AGREEMENT") for one year to [date to which the Revolver Maturity
Date [and the Swing Termination Date]/2/ are extended]. Terms defined in the
Credit Agreement are used herein as therein defined.
This Extension Agreement shall be construed in accordance with and governed
by the law of the State of New York.
- -------------------
/1/ To be included only for Swing Lenders who are extending the Swing
Termination Date.
/2/ To be included only for Swing Lenders who are extending the Swing
Termination Date.
K-1
<PAGE>
[NAME OF BANK]
By:_________________________________
Name:
Title:
Agreed and accepted:
METRO-GOLDWYN-MAYER
STUDIOS INC.
By:_______________________________
Name:
Title:
ORION PICTURES CORPORATION
By:_______________________________
Name:
Title:
MORGAN GUARANTY TRUST
COMPANY OF NEW YORK, as
Agent
By:_______________________________
Name:
Title:
BANK OF AMERICA NATIONAL
TRUST AND SAVINGS
ASSOCIATION, as Syndication
Agent
By:_______________________________
Name:
K-2
<PAGE>
EXHIBIT L
SECTION 8.04(d) CERTIFICATE
Reference is made to the Amended and Restated Credit Agreement dated as of
October 15, 1997 among Metro-Goldwyn-Mayer Studios Inc. (together with its
successors, "MGM STUDIOS"), Orion Pictures Corporation (together with its
successors, "ORION" and Orion together with MGM Studios, the "BORROWERS"), the
Lenders listed therein, the L/C Issuers named therein, Morgan Guaranty Trust
Company of New York, as Agent and Bank of America National Trust and Savings
Association, as Syndication Agent (as amended, the "CREDIT AGREEMENT"). Pursuant
to the provisions of Section 8.04(d) of the Credit Agreement, the undersigned
hereby certifies that (a) it is not a "bank" as such term is used in Section
881(c)(3)(A) of the Internal Revenue Code of 1986, as amended (the "CODE"), or
any successor provision, (b) it is not a 10-percent shareholder (within the
meaning of Section 871(h)(3)(B) of the Code, or any successor provision) of
either Borrower and (c) it is not a controlled foreign corporation related to
either Borrower (within the meaning of Section 864(d)(4) of the Code, or any
successor provision).
[NAME OF LENDER]
By:________________________________
Name:
Title:
L-1
<PAGE>
EXHIBIT 10.7
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
This Amended and Restated Employment Agreement (this "Agreement") is
entered into as of August __, 1997 among Metro-Goldwyn-Mayer Studios Inc., a
Delaware corporation ("MGM Studios"), Metro-Goldwyn-Mayer Inc., a Delaware
corporation and the corporate parent of MGM Studios (the "Company"), and Frank
G. Mancuso ("Executive").
W I T N E S S E T H:
WHEREAS, MGM Studios and the Company currently employ Executive as their
Chairman and Chief Executive Officer and wish to be assured of Executive's
continued services and loyalty as such on the terms and conditions hereinafter
set forth;
WHEREAS, the parties hereto are parties to an Employment Agreement (the
"Original Agreement") dated as of October 10, 1996 (the "Original Effective
Date"), and wish to amend and restate such employment agreement as herein set
forth;
WHEREAS, the Company plans to effect an initial public offering of its
stock (the "Offering");
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein as well as the parties' rights pursuant to those documents
referred to in Section 11, the parties, intending to be legally bound, agree as
follows:
1. Employment and Title. Each of the Company and MGM Studios will
--------------------
continue to employ Executive as, and Executive agrees to continue to serve as,
Chairman and Chief Executive Officer of the Company, MGM Studios, and each
Subsidiary (as hereinafter defined) thereof, all upon the terms and conditions
set forth in this Agreement. In such capacities, Executive shall devote his
full and undivided business time and attention to his responsibilities as Chief
Executive Officer of the Company, MGM Studios and such Subsidiaries. During his
employment hereunder, Executive shall not engage in any other business activity;
provided, however, that so long as such activities do not interfere in any
- -------- -------
material respect with the performance of Executive's duties hereunder, nothing
in this
-1-
<PAGE>
Section 1 shall prevent Executive from engaging in civic and charitable
activities, serving on the board directors of a non-profit organization or
managing his personal investments (except that in managing his personal
investments Executive may not (x) invest in securities of any entity that
Executive knows or has reason to know competes with the Company, MGM Studios or
any subsidiary of either or (y) acquire in excess of one percent of the
outstanding voting stock of any company the securities of which are publicly
traded; provided, however, that nothing contained in this parenthetical shall
(i) require Executive to dispose of any securities beneficially owned by him on
the Original Effective Date, and Executive's continued holding of such
securities shall not constitute a breach of this Agreement or (ii) prevent
Executive from investing in or holding securities of an entity in which the
business competing with the Company, MGM Studios or any subsidiary of either of
them, as applicable, constitutes less than 5% of such entity's assets). With
the consent and approval of the Company's Board of Directors (the "Board"),
Executive may serve on the board of directors of (but in no other capacity with)
other corporations or business entities conducting businesses that do not
compete with the businesses conducted by the Company, MGM Studios or any of
their subsidiaries.
2. Term. The term of Executive's employment hereunder (the "Term") shall
----
be for a period of five years commencing on the Original Effective Date and
ending, unless sooner terminated as provided herein below, on the fifth
anniversary of the Original Effective Date (the "Employment Period. ") Any
employment agreement, severance agreement or similar agreement or arrangement
(collectively, the "Existing Agreements") between MGM Studios and Executive in
effect on the Original Effective Date was terminated and is no longer in effect.
Shares of Company capital stock purchased by Executive pursuant to this
Agreement and/or the Original Agreement shall be issued promptly upon receipt by
the Company of payment therefor and shall be subject to the Amended and Restated
Investors Shareholder Agreement, dated as of August 4, 1997 between the parties
hereto and certain other parties, as amended from time to time (the "Investors
Shareholder Agreement") and the Amended and Restated Shareholders Agreement,
dated as of August 4, 1997, between the parties hereto and certain other
parties, as amended from time to time (the "Shareholders Agreement").
3. Powers and Authority.
--------------------
(a) Subject to the policies and directives of the Board (to the extent
consistent with the terms of this Agreement and applicable law) and except for
those actions requiring the approval of the Board and/or the MGM Studios Board
(as hereinafter defined) and except as required by law, during the Term,
Executive shall have full power and authority to operate the business, affairs
and
-2-
<PAGE>
operations of MGM Studios, the Company, and their respective Subsidiaries,
including, without limitation, the power to:
(1) hire and enter into employment contracts on behalf of MGM Studios,
the Company and their respective Subsidiaries with officers and employees of MGM
Studios, the Company, and their respective Subsidiaries, provided, however, that
-------- -------
(x) with respect to employees or executives with a staff position of Executive
Vice President or any similar position or position with comparable
responsibilities or (y) employees or officers having an annual salary of
$500,000 or more, the hiring of such employees and/or the terms of any such
employment contracts, including, without limitation, the amount of compensation,
will require Board approval.
(2) discharge any officer or employee of MGM Studios, the Company or
any of their respective Subsidiaries; provided, however, that discharging any
--------- -------
employee or officer which would result in such employee or officer receiving an
aggregate severance package, taking into account all benefits due upon, or as a
result of, such termination, including, without limitation, the vesting of
options, with a value of $500,000 or more, or any settlement with respect
therewith, shall require Board approval;
(3) greenlight any single film or other single production with
aggregate budgeted direct negative costs not greater than $85,000,000;
(4) incur Indebtedness (as hereinafter defined) not requiring Board
approval as specified herein; and
(5) acquire, sell, transfer, license or otherwise dispose of any
assets not requiring Board approval as specified herein.
(b) All employees of the Company MGM Studios and their Subsidiaries shall
report to, and only to, Executive (directly or through such channels as
Executive may designate) (except that this sentence shall not be construed as
limiting access by the Board to any officer or employee of the Company, MGM
Studios or their Subsidiaries; provided, however, that Executive shall be
notified of contact between the Board and any officer or employee except in
cases where such contact relates to or involves acts of dishonesty or disloyalty
by Executive). Executive shall report directly to, and only to, the Board and
the Board of Directors of MGM Studios (the "MGM Studios Board") and neither MGM
Studios nor the Company shall interpose any person between either such Board and
Executive nor shall any individual or individuals be given power and authority
in derogation of that given to Executive hereunder; provided, however,
-3-
<PAGE>
that in the event Executive is incapacitated or otherwise unavailable to act
(after reasonable attempts to contact Executive in such regard have been made),
the Executive Committee of the Board and the MGM Studios Board, as applicable,
may act on Executive's behalf.
(c) Notwithstanding anything to the contrary in this Agreement, the
following actions shall require Board approval and, Executive shall not cause,
authorize or fail to take reasonable steps to prevent the Company, MGM Studios
or any of their respective Subsidiaries to take any of the following actions, or
engage in any of the following transactions, without Board approval:
(1) incur any Indebtedness (other than (a) Film Financing Indebtedness
(as hereinafter defined) or (b) Indebtedness which is (x) incurred under or
permitted by the Credit Agreement (as hereinafter defined) and (y) is within the
limitations on Indebtedness set forth in a business plan approved by the Board)
if the amount of such Indebtedness is in an amount of $5,000,000 or more or, if
the amount of such Indebtedness (other than Indebtedness excluded by reason of
the immediately preceding parenthetical phrase), in the aggregate, incurred by
the Company and its Subsidiaries for the period from the Original Effective Date
until the fifth anniversary of the Original Effective Date exceeds $25,000,000;
(2) incur any film financing indebtedness ("Film Financing
Indebtedness") as described in Section 5.10(h) of the Credit Agreement (as
hereinafter defined), as such provisions and the related definitions were in
effect on the Original Effective Date, in excess of $25 million at any one time
outstanding;
(3) issue or sell any capital stock or equity securities, or
securities convertible into capital stock or equity securities, or options,
warrants or stock appreciation rights or similar interests with respect to
capital stock or other equity securities, or other rights to acquire capital
stock or other equity securities, in each case, with respect to, or of, the
Company, MGM Studios or any of their respective Subsidiaries, other than (t) in
connection with the Offering, (u) the issuance of Common Stock upon the
conversion of the Preferred Stock (as defined in the Investors Shareholder
Agreement), (v) the issuance of shares upon exercise of options granted to
employees of the Company, MGM Studios and their subsidiaries pursuant to, the
Metro-Goldman-Mayer Inc. and Metro-Goldwyn-Mayer Studios Inc. Amended and
Restated 1996 Stock Option, Restricted Stock and Stock Appreciation Rights Plan,
as amended from time to time (the "Management Incentive Plan"), (w) the issuance
of shares to Executive pursuant to this Agreement or (x) the granting of options
pursuant to those certain stock option
-4-
<PAGE>
agreements dated as of October 10, 1996 relating to the purchase of up to 7,500
shares of Common Stock and the exercise of such options;
(4) repurchase or redeem any of the capital stock of the Company,
except pursuant to the terms of the Management Incentive Plan and the option
agreements executed pursuant thereto or the Shareholders Agreement;
(5) Subject to the provisions of the Investors Shareholder Agreement,
enter into any transaction or take any action which would result in the Company
or any of its Subsidiaries conducting or engaging in any business that is
material to the Company and its Subsidiaries, taken as a whole, that is other
than (x) the business being conducted by MGM Studios and its Subsidiaries as of
the Original Effective Date or (y) as provided in a business plan approved by
the Board;
(6) approve an annual business plan and budget or such other business
plan or budget as the Board shall wish to adopt from time to time, or any other
business plan and budget approved by the Board and then in effect or approve any
material amendment or material change to such annual business plan and budget,
or approve any material variances from such annual business plan and budget or
any other business plan and budget approved by the Board and then in effect;
(7) enter into any agreement or transaction, other than an agreement
or transaction entered into pursuant to the First Right of Negotiation Agreement
dated as of October 10, 1996, between MGM Studios and Amalgamated Television
Services Pty Limited, with any person known by Executive to be an Affiliate (as
defined in the Investors Shareholder Agreement) of MGM Studios or the Company;
(8) enter into or extend any film library licensing arrangement not
contemplated by a business plan approved by the Board if such arrangement
together with related arrangements (x) in the case of a new licensing
arrangement, provides for payments to or by the Company, MGM Studios and their
respective Subsidiaries reasonably forecast by Executive to be more than $25
million or (y) in the case of an extension of an existing licensing arrangement,
provides for payments in respect of such extension to or by the Company, MGM
Studios and their respective Subsidiaries reasonably forecast by Executive to be
more than $25 million;
(9) amend, supplement, modify or waive (x) the provisions or terms of
any employment or other agreement between the Company and/or
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MGM Studios, on the one hand, and Executive, on the other hand, including, this
Agreement or (y) the provisions or terms of any employment agreement with the
chief financial officer of the Company and/or MGM Studios;
(10) make any decisions required to be made by the boards of directors
of the Company and/or MGM Studios pursuant to the terms of the 1996 Management
Incentive Plan or the Metro-Goldwyn-Mayer Inc. and Metro-Goldwyn-Mayer Studios
Inc. Senior Management Bonus Plan, as amended from time to time (the "Bonus
Plan"), including any decision relating to any amendment to the Management
Incentive Plan or the Bonus Plan or the waiver of any provision of the
Management Incentive Plan, or the Bonus Plan;
(11) greenlight any single film or other single production with
aggregate budgeted direct negative costs greater than $85,000,000;
(12) enter into any agreement or transaction relating to the
acquisition or disposition or the purchase or sale of any asset having a value
reasonably forecast by Executive to be in excess of $25 million or involving a
purchase price reasonably forecast by Executive to be in excess of $25 million;
(13) enter into any agreement or transaction outside the ordinary
course of business relating to any joint venture or licensing agreement not
contemplated by a business plan approved by the Board if such joint venture or
licensing agreement provides for payments to or by the Company, MGM Studios and
their respective Subsidiaries reasonably forecast by Executive to be more than
$25 million; or
(14) establish committees of the Board of Directors of the
Company or MGM Studios.
(d) If, during the Term, (x) MGM Studios fails to satisfy any of the
covenants set forth in Sections 5.11, 5.12, 5.13, 5.15 and 5.25 of the Credit
Agreement dated as of October 10, 1996, among MGM Studios, the Lenders listed
therein and Morgan Guaranty Trust Company of New York, as Agent (the "Credit
Agreement") or comparable provisions in any replacement or amended credit
related agreement or (y) the Company and/or MGM Studios fails to satisfy (and
does not cure such failure within the grace period provided) any other covenant
set forth in the Credit Agreement or comparable provisions in any replacement or
amended credit related agreement, then Executive shall promptly prepare and
deliver to the Board a revised budget which takes into account the then
financial condition of the Company and MGM Studios and the applicable default.
Such business plan and budget, when approved by the Board, with such variations
as the
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Board shall determine, shall then become the business plan and budget of
the Company and MGM Studios.
(e) No less than 60 days prior to the commencement of each fiscal
year, Executive shall cause to be submitted to the respective boards of
directors of the Company and MGM Studios a proposed business plan and annual
budget for the ensuing calendar year for the Company and MGM, as applicable, and
their respective Subsidiaries. Each such business plan and annual budget shall
be subject to approval by the applicable board of directors. Such business plan
and budget, when approved by the Board and/or the MGM Studios Board, as
applicable, with such variations as the Board and the MGM Studios Board, as
applicable, shall approve, shall be the business plan and budget of the Company
and MGM Studios, as applicable.
(f) As used in this Agreement, the following terms shall have the
following meanings:
"Guarantee": shall mean any obligation, contingent or otherwise, of
any Person (the "guarantor") guaranteeing or having the economic effect of
guaranteeing any Indebtedness or other obligation of any other Person (the
"primary obligor") in any manner, whether directly or indirectly, and including,
without limitation, any obligation of such guarantor, direct or indirect, (i) to
purchase or pay for (or advance or supply funds for the purchase or payment of)
such Indebtedness or other obligation or to purchase (or to advance or supply
funds for the purchase of) any security for the payment of such Indebtedness or
other obligation, (ii) to purchase property, securities, or services for the
purpose of assuring the owner of such Indebtedness or other obligation of the
payment of such Indebtedness or other obligation, or (iii) to maintain working
capital, equity capital or other financial statement condition or liquidity of
the primary obligor so as to enable the primary obligor to pay such Indebtedness
or other obligation; provided that the term Guarantee shall not include
--------
endorsements for collection or deposit, in either case in the ordinary course of
business.
"Indebtedness": with respect to any Person, without duplication, (i)
all obligations of such Person for borrowed money, or with respect to deposits
or advances of any kind (including repurchase obligations), (ii) all obligations
of such person evidenced by bonds, debentures, notes or similar instruments,
(iii) all obligations of such Person upon which interest charge are customarily
paid, (iv) all obligations of such Person under any conditional sale or other
title retention agreement relating to property purchased by such Person, (v) all
obligations of such Person issued or assumed as the deferred purchase price of
property or services (other than accounts payable to suppliers incurred in the
ordinary course
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of business and paid when due), (vi) all capitalized lease obligations (as
determined in accordance with generally accepted accounting principles in the
United States) of such person, (vii) all obligations of others secured by any
lien on property or assets owned or acquired by such Person, whether or not the
obligations secured thereby have been assumed, (viii) all Guarantees of such
Person, (ix) all obligations of such Person as a counterparty to any rate swap,
currency hedge or other similar type agreement and (x) all obligations of such
Person as an account party in respect of letters of credit and in respect of
bankers' acceptances.
"Person": shall mean any natural person, corporation, partnership,
limited liability company, limited liability partnership, firm, association,
trust, government, governmental agency or other entity, whether acting in an
individual, fiduciary or other capacity.
"Subsidiary": of any Person shall mean any corporation or other legal
entity of which such Person (either alone or through or together with any other
Subsidiary) owns, directly or indirectly, 50% or more of the stock or other
equity interests, the holders of which are generally entitled to vote for the
election of the board of directors or other governing body of such corporation
or other legal entity.
4. Location. The location of Executive's principal place of employment
--------
and his office shall be in the greater Los Angeles, California area, provided,
however, that Executive shall perform such services outside of Los Angeles as
are, in his reasonable determination, reasonably required for the proper
performance of his duties under this Agreement.
5. Authority. Each party represents and warrants to the other that it has
---------
the full power and authority to enter into and perform its obligations under
this Agreement and that the execution of and performance of such party's
obligations under this Agreement shall not constitute a default under or breach
of the terms of any other agreement or order of any court or governmental
authority to which it is a party or under which it is bound. Each party shall
defend and hold harmless the other from and against any and all claims, demands,
losses or damages (including reasonable attorneys' fees) arising from any action
against such other party based on facts that are inconsistent with the
representation and warranty contained in this Section or based upon any
allegations of interference with contractual obligations or the like relating to
the negotiation or execution of this Agreement.
6. Compensation.
------------
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(a) Salary. In full consideration for the services to be rendered by
------
Executive, and in full discharge of the salary obligations of the Company, MGM
Studios and their subsidiaries, MGM Studios shall pay to Executive and Executive
shall accept:
(1) An annual base salary of $2 million during each year of the
Term, payable monthly in equal installments of $166,667 each (reduced by the
amount of any federal, state and local income tax withholding contemplated by
Section 6(f) and other appropriate deductions) in arrears on the first day of
each month of the Term commencing with the second month of the Term (amounts
payable for less than a full month to be prorated based on the number of days in
such month included in the Term as a percentage of the total number of days in
such month).
(2) A stock purchase payment in the amount of $3 million for each
Contract Year (as hereinafter defined) of the Term, payable in advance on the
IPO Closing Date (as defined in the Investors Shareholder Agreement) and each
annual anniversary thereof to occur during the Term (each a "Payment Date")
(reduced by the amount of any federal, state and local income tax withholding
contemplated by Section 6(f) and other appropriate deductions); provided,
--------
however, that the stock purchase payment payable for the last Contract Year of
- -------
the Term shall be reduced on a pro-rata basis to reflect the fact that the last
Contract Year of the Term is less than 365 days. As used herein, the term
"Contract Year" shall mean the period from the IPO Closing Date through the
close of business on the day immediately succeeding the first annual anniversary
of the IPO Closing Date and, thereafter, each period commencing with the annual
anniversary of the IPO Closing Date and ending with the close of business on the
day which is the last day prior to the next annual anniversary of the IPO
Closing Date, provided, that the last Contract Year of the Term shall commence
--------
with the last annual anniversary of the IPO Closing Date to occur during the
Term and end on the last day of the Term.
(3) During the Term, Executive shall apply on each Payment Date
the amount of the net stock purchase payments to be paid to him pursuant to
Clause (2) above (less the additional amount, if any, by which $3 million
multiplied by Executive's estimated marginal federal and state income tax rate
for the year in question (based on a certificate (including calculations)
prepared in good faith by Executive's tax advisor) exceeds the amount withheld
from clause (2) payments pursuant to Section 6(f)) to the purchase of Company
Common Stock, which the Company shall deliver on each such date to Executive
free and clear of all liens, other then the liens and restrictions specified in
the Shareholders Agreement and the Investor Shareholder Agreement (to which such
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<PAGE>
shares shall be subject). The purchase price for Company Common Stock purchased
by Executive pursuant to this Clause (3) shall be $1,000 per share of Common
Stock so purchased on the IPO Closing Date, and thereafter, the Fair Market
Value of a share of Common Stock determined as of the appropriate
Determination Date as specified below. The $1,000.00 purchase price specified
in the immediately preceding sentence shall be adjusted to reflect any stock
split since the Original Effective Date. As used in this Agreement "Fair Market
Value" of the Company Common Stock on any Determination Date shall be equal to
(i) if the Company Common Stock is then traded on a national security exchange,
the average of the closing prices per share of Company Common Stock on such
national security exchange(s) on the twenty (20) business days immediately
preceding the Determination Date, as reported in the Wall Street Journal,
Western Edition, (ii) if the Company Common Stock is not then traded on a
national security exchange but the Company Common Stock is then quoted in the
over-the-counter market, the average of the average high bid and low asked
prices per share of Company Common Stock for the twenty (20) business days
immediately preceding the Determination Date in the over-the-counter market, as
reported by the National Association of Securities Dealers, Inc. Automated
Quotations System or such other system then in use or (iii) if the Company
Common Stock is then neither traded on a national securities exchange or quoted
in the over-the-counter market, as determined pursuant to Section [1.4(a)(iii)]
of the Executive's stock option agreement entered into pursuant to the
Management Incentive Plan. If Fair Market Value is determined pursuant to
clause (iii) of the immediately preceding sentence, the Determination Date shall
be December 31 of the calendar year preceding the applicable Payment Date, and
if Fair Market Value is determined pursuant to clauses (i) or (ii) of the
immediately preceding sentence, the Determination Date shall be the applicable
Payment Date. If Fair Market Value is determined pursuant to clause (iii) of
the next preceding sentence, Executive shall have the independent right to
arbitrate the Fair Market Value determination in accordance with [Section 18] of
Executive's stock option agreement entered into pursuant to the Management
Incentive Plan if he disagrees with the appraised value set thereunder but only
if a Majority in Interest (as defined therein) does not seek such an arbitration
for purposes of the Management Incentive Plan.
(b) Management Incentive Plan. Executive shall be entitled to
-------------------------
participate in the Management Incentive Plan and the Bonus Plan.
(c) Other Benefits. The Company and/or MGM Studios will provide, or
--------------
pay or reimburse Executive for the reasonable costs of operating and
maintaining, an office, an executive assistant and the existing screening room
in Executive's residence, and will reimburse the reasonable travel expenses
incurred by Executive's spouse when accompanying Executive on travel to the
extent, in
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Executive's reasonable judgment, her presence is required or advisable in the
Company's and/or MGM Studios' interest in the discharge of Executive's duties.
Additionally, Executive shall be entitled to vacations, sick leave and other
benefits customarily afforded to executives of similar stature in the motion
picture industry.
(d) Business Expenses. During the Term, the Company and/or MGM
-----------------
Studios shall pay or reimburse Executive promptly for all reasonable and
documented business expenses incurred by Executive in the performance of his
duties under this Agreement.
(e) Insurance.
---------
(1) During the Term, Executive shall be entitled to and shall be
accorded all rights and benefits under any disability insurance, health and
major medical insurance policy or policies, which the Company and/or MGM Studios
provides for its senior officers. Nothing in this paragraph shall require the
Company and/or MGM Studios to retain any particular policy or plan, but some
reasonable policy or plan shall be maintained.
(2) MGM Studios has purchased and, provided that Executive
continues to be medically and otherwise insurable at standard rates, shall
maintain until the end of the Term, a five year, reducing-term life insurance
policy on Executive's life in the initial face amount of $25 million, the
proceeds of which shall be payable to Executive's estate or such other person or
persons as Executive shall designate. In the event Executive becomes no longer
medically or otherwise insurable at standard rates, at Executive's election,
Executive may cause the Company and/or MGM Studios to obtain such insurance, in
which event Executive shall pay, at his sole cost and expense, the excess of the
rates being charged over standard rates, with MGM Studios and/or the Company
paying toward such insurance the standard rates therefor. The face amount of the
policy shall reduce from time to time while this Agreement is in effect by an
amount equal to the gross salary paid to Executive under Section 6(a)(1) above
(including any amounts withheld from such payments pursuant to Section 6(f)
hereof). The Company and/or MGM Studios shall not be required to maintain such
insurance after termination of Executive's employment.
(f) Tax Withholding. The Company and/or MGM Studios shall be
---------------
authorized to withhold from any payments made to Executive hereunder (including
by reason of the purchase of Company Common Stock) amounts the Company and/or
MGM Studios is required to withhold under any federal, state or local tax
statute, rule or regulation with respect to any compensation paid to Executive.
Executive agrees that the withholding and payment of any such
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<PAGE>
amounts by the Company and/or MGM Studios to the relevant taxing authority shall
constitute full satisfaction of the Company and/or MGM Studios' obligation to
pay such compensation or other amounts to Executive. Executive shall indemnify
MGM Studios and the Company and hold them harmless from and against any federal,
state or local withholding tax liability (including interest and penalties) that
results from any compensation paid to Executive, including the purchase of
Company Common Stock, except to the extent that (i) any such penalties result
from the failure of the Company and/or MGM Studios to make a good faith
determination of the amounts to withhold from Executive or (ii) any such
liabilities, interest or penalties result from the failure of the Company and/or
MGM Studios to pay over to the relevant taxing authorities any sums withheld
from, or paid to the Company and/or MGM Studios by, Executive to satisfy any
withholding liability.
7. Expiration/Termination of Employment.
------------------------------------
(a) Expiration at End of Term. Unless the Term is extended by a
-------------------------
written instrument executed by both parties, Executive's employment and the
Employment Period shall expire at the end of the Term.
(b) Termination at Will. The parties acknowledge and agree that
-------------------
Executive's employment hereunder is an employment at will. Notwithstanding any
other provision contained in this Agreement, either Executive, the Company or
MGM Studios may terminate Executive's employment hereunder at any time with or
without Cause (as defined in Section 7(c)) or Good Reason (as defined in Section
7(c)) at his or its election upon not less than thirty (30) days prior written
notice (a "Termination Notice") to the other. A Termination Notice shall be
effective upon delivery to the other party and the termination shall be
effective as of the date set forth in such Termination Notice.
(c) Effect of Expiration or Termination. Upon the expiration or
-----------------------------------
termination of this Agreement pursuant to subsection 7(a) or 7(b) hereof or
otherwise, Executive shall be entitled to payment of: (i) the base salary set
forth in Section 6(a)(1) through such termination date and (ii) amounts accrued
under benefit plans in which Executive is participant as of such termination
date. In addition, to the extent provided in the Management Incentive Plan
and/or the Bonus Plan, Executive shall be entitled to his vested interest in
such plans at the date of termination, upon the terms and subject to the
conditions set forth in such plans. Executive's right and obligation to
purchase Company Common Stock pursuant to Section 6(a)(3) shall terminate
immediately prior to the termination of Executive's employment hereunder. Upon
the expiration or termination of this Agreement pursuant to subsection 7(a) or
7(b) hereof or otherwise (other than a
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<PAGE>
termination of this Agreement by Executive for Good Reason or by the Company or
MGM Studios without Cause or the expiration of this Agreement at the end of the
Term), Executive shall be required to promptly repay MGM Studios a pro-rata
portion (or in the case of death or disability 50% of a pro-rata portion) of the
gross stock purchase payment paid to Executive on the Payment Date immediately
preceding such date of termination, to reflect the period from the date of
termination through the end of the then applicable Contract Year during which
Executive will not be employed pursuant to this Agreement.
If Executive's employment hereunder is terminated by the Company and/or MGM
Studios without Cause or if Executive terminates his employment hereunder for
Good Reason (which termination by Executive for Good Reason must occur within 90
days after he knows or should have known that Good Reason for termination
exists), the Company and/or MGM Studios shall in addition to the sums specified
in the preceding paragraph pay to Executive a lump sum amount equal to the
present value of the sum of (i) Executive's base salary specified in Section
6(a)(1) and (ii) the stock purchase payment amount specified in Section 6(a)(2)
for the entire remaining Term, discounted at a rate per annum equal to the Prime
Rate (as hereinafter defined) as then in effect. In addition, as provided in
the Management Incentive Plan and the Bonus Plan, Executive's account under such
plans shall vest immediately with the effect therein provided.
If Executive's employment is terminated as the result of his death or
disability (as hereinafter defined), in addition to the amounts specified in the
first paragraph of this Section 7(c), as provided in the Management Incentive
Plan and the Bonus Plan, Executive's account under such plans shall vest
immediately with the effect provided in such plans, and, in the case of
disability, Executive shall continue to receive 50% of the sum of (i) his base
salary specified in Section 6(a)(1) and (ii) the stock purchase payment amount
specified in section 6(a)(2) for the remainder of the Term. Disability shall
mean Executive's inability, due to a physical, mental or emotional illness or
injury, to substantially perform his duties hereunder for 90 consecutive days or
for 120 days in any 12 month period, whether or not consecutive.
If Executive's employment is terminated as a result of disability, by the
Company or MGM Studios without Cause or by Executive with Good Reason, the
Company and/or MGM Studios shall, during the remaining Term, continue to pay
premiums for health and disability insurance as was provided to Executive
immediately prior to such termination.
"Prime Rate" means the rate published from time to time by Morgan Guaranty
Trust Company of New York as its prime commercial lending rate.
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<PAGE>
As used in this Agreement, "Cause" shall mean (i) the failure of Executive
to substantially perform his duties with MGM Studios, the Company or any
Subsidiary of either of them (other than any such failure resulting from
illness, temporary absence, vacation, legal incapacity or disability), which
failure continues 30 days after a demand for substantial performance is
delivered in writing to Executive by the Board, which specifically identities
the manner in which Executive has not substantially performed his duties; (ii)
Executive's failure to follow reasonable and lawful directives (consistent with
the terms of this Agreement and the Investors Shareholder Agreement) of the
Board, which failure continues 30 days after a demand for Executive to follow
directives is delivered in writing to Executive by the Board, which specifically
identifies the manner in which Executive has not followed such directives, (iii)
the engaging by Executive in willful, reckless or grossly negligent misconduct
in connection with his employment, unless Executive ceases such misconduct
within 10 days, and remedies the adverse effect of such misconduct within 30
days, after a demand to cease engaging in such misconduct is delivered in
writing to Executive by the Board, which specifically identifies such
misconduct, (iv) Executive's conviction of an offense involving moral turpitude
or a felony or (v) material breach by Executive of this Agreement, and failure
to cure such breach within 30 days of delivery of a written notice to Executive
by the Board, which notice specifically identifies the breach. If Executive's
failure under (i) or (ii) above or his failure to cease misconduct under clause
(iii) above would, if continued unabated for the respective periods specified
therein, be reasonably expected to cause the Company and/or MGM Studios severe
and irreparable harm, and if the Company's said notice so specifies, the Company
may shorten the period within which such failure must cease to a reasonable
period specified in its notice, but not, in any event, less than 10 days in the
case of clauses (i) and (ii) or 5 days in the case of clause (iii). Except in
the circumstances described in the preceding sentence, if the remedy, cure or
cessation of an act or omission which is the subject of a notice under this
paragraph would reasonably require more than 30 days to complete and Executive
commences such remedy, cure or cessation within 30 days after receipt of such
notice and diligently pursues the same to completion, said act or omission shall
not constitute "Cause," unless said remedy, cure or cessation is not completed
within 60 days from the Company's notice. If any event, action or failure to act
specified in clauses (i) through (v) above shall occur, the Company's right to
terminate Executive for "Cause" as the result of such occurrence shall continue
for a period of 90 days after the date of such occurrence (or, if notice thereof
is required and is given within such 90-day period, 60 days after the expiration
of the cure period specified).
As used in this Agreement "Good Reason" shall mean
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<PAGE>
(i) a substantial and adverse change in Executive's status or position as
the Chief Executive Officer and a key employee of MGM Studios or the Company, or
a substantial reduction in the duties and responsibilities as contemplated by
this Agreement;
(ii) a reduction (other than for Cause) by the Company and/or MGM Studios
in Executive's compensation as provided in Section 6(a)(1) of this Agreement, or
any other material breach by MGM Studios or the Company of this Agreement that
is not cured within 30 days of written notice thereof to the Company from
Executive; or
(iii) the occurrence of a Designated Change of Control (as hereinafter
defined);
If any event, action or failure to act specified in clauses (i) through
(iii) above shall occur, Executive's right to terminate his employment hereunder
for "Good Reason" as the result of such occurrence shall continue for a period
of 90 days after the date of such occurrence (or, if notice thereof is required
and is given within such 90-day period, 60 days after the expiration of the cure
period specified).
Except as provided in this Section 7(c) and in Section 13, neither MGM
Studios, the Company nor any Subsidiary of either shall have any further
liability under this Agreement to Executive upon the expiration or termination
of Executive's employment, and no further payments shall be made to or for the
benefit of Executive under this Agreement.
As used in this Agreement, "designated Change of Control" shall mean if
there shall occur or there shall be consummated (i) any merger or consolidation
of the Company with or into any other person, as the result of which Tracinda
Corporation, a Nevada corporation ("Tracinda"), and Seven Network Limited, a
--------
corporation organized under the laws of the Commonwealth of Australia ("Seven")
beneficially own, in the aggregate, less than 50.1% of the combined voting power
of the then outstanding voting securities of the surviving corporation entitled
to vote generally in the election of directors of the surviving corporation
immediately upon completion of the transaction and any other person beneficially
owns 30.0% or more of the combined voting power of the then outstanding voting
securities of the surviving corporation entitled to vote generally in the
election of directors, (ii) any sale, transfer or other conveyance whether
direct or indirect, of all or substantially all of the property and assets of
the Company, on a consolidated basis, in one transaction or a series of related
transactions; provided, however, that this clause (ii) shall not apply to any
sale, transfer or any other conveyance to the
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Company, by any wholly owned direct or indirect subsidiary of the Company, by
any wholly owned direct or indirect subsidiary of the Company to any other such
wholly owned direct or indirect subsidiary of the Company or by the Company to
one or more wholly owned direct or indirect subsidiaries of the Company; or
(iii) any transaction or event that results in Tracinda and Seven ceasing, in
the aggregate, to beneficially own 50.1% or more of the combined voting power of
the then outstanding voting securities of the Company entitled to vote generally
in the election of directors and any other person beneficially owns 30.0% or
more of the combined voting power of the then outstanding voting securities of
the Company entitled to vote generally in the election of directors. As used
herein the terms "beneficial owner" and "beneficially owned" shall have the
meanings set forth in Rule 13d-3 under the Securities Exchange Act of 1934, as
amended, whether or not applicable to the Company. Notwithstanding the
foregoing, a Designated Change in Control shall not be deemed to have occurred
under clauses (i) or (iii) if the acquirer, purchaser or 50.1% owner is an
employee benefit plan (or related trust) sponsored or maintained by the Company
or any corporation controlled by the Company.
8. Delegation of Duties and Assignment of Rights.
---------------------------------------------
(a) Executive may not delegate the performance of any of his duties or
obligations as Chief Executive Officer hereunder, or assign any rights
hereunder, without the prior written consent of the Board. Any such purported
delegation or assignment in the absence of such written consent shall be null
and void with no force or effect.
(b) Neither the Company nor MGM Studios may assign this Agreement
except with the prior written consent of Executive, except that the Company and
MGM Studios, without such consent, may assign this Agreement to any person or
entity that acquires a majority of the capital stock or assets of MGM Studios or
the Company (by purchase, merger, consolidation or otherwise). In the event of
such an assignment by MGM Studios or the Company, each reference in this
Agreement to MGM Studios or the Company shall include the assignee from and
after the date of such assignment.
(c) In the event of a valid assignment pursuant to this Section 8,
this Agreement shall be binding on and inure to the benefit of the parties
hereto and their respective heirs, representatives, successors and permitted
assigns and any receiver, trustee in bankruptcy or representative of the
creditors of each such person.
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9. Survival of Covenants. Notwithstanding anything contained in this
---------------------
Agreement, upon the expiration of the Term or in the event Executive's
employment is terminated for any reason whatsoever, the covenants and agreements
of Executive contained in Section 12 and the covenants of the Company and/or MGM
Studios contained in Sections 7(c), 13 and 14(e) hereof shall survive any such
expiration or termination and shall not lapse.
10. Warranty. Executive hereby represents and warrants that he has not
--------
taken any action, and covenants that during the Term of this Agreement he shall
take no such action, that constitutes or will constitute a breach of any
agreement concerning confidential information and trade secrets,
confidentiality, solicitation or non-competition to which he is bound as a party
where such action would have a material adverse effect on the Company, MGM
Studios or any Subsidiary of either of them. Executive hereby agrees to
indemnify and hold harmless MGM Studios and the Company from and against any
claim, loss, cost or expense (including reasonable attorneys' fees) incurred by
MGM Studios and/or the Company as a result of actions by Executive in violation
of the immediately preceding sentence.
11. Entire Agreement/amendment. This Agreement, the Investors Shareholder
--------------------------
Agreement, the Non-Competition Agreement, the Shareholders Agreement, the
agreements entered into pursuant to the Management Incentive Plan and/or the
Bonus Plan, the Indemnity Agreement among Executive, the Company and MGM Studios
referred to in Section 14(e) hereof, the Management Incentive Plan and the Bonus
Plan contain the entire understanding and agreement between the parties relating
to the subject matter hereof. Neither this Agreement nor any provisions hereof
may be waived, modified, amended, changed, discharged or terminated, except by
an agreement in writing signed by the party against whom enforcement of any
waiver, modification, change, amendment, discharge or termination is sought;
provided, however, any such writing shall not be enforceable against MGM Studios
unless also signed by the Company.
12. No Mitigation. Without limiting any other provision hereof, any
-------------
income and any other employment benefits received by Executive from any and all
sources other than MGM Studios or the Company before or after the expiration or
termination of this Agreement for any reason whatsoever shall in no way reduce
or otherwise affect MGM Studios' or the Company's obligation to make payments
and afford benefits hereunder.
13. Insurance. To the extent available at a reasonable cost, the Company
---------
and/or MGM Studios shall procure and maintain a policy of officers' and
directors' insurance in a mutually acceptable amount with Executive as a named
-17-
<PAGE>
insured thereunder. Such policy shall cover Executive during the Term and for
so long thereafter as he shall have liability for his actions or omissions
during the Term in his capacity as a director or officer of the Company and/or
MGM Studios, and their subsidiaries, but not longer than six years after the end
of the Term. Further, the Company and/or MGM Studios shall cause Executive to
be added as a named insured under any and all of their other liability policies,
to the extent such addition is customary in respect of such policies.
14. Miscellaneous.
-------------
(a) Certain Fees and Costs. The Company and/or MGM Studios shall
----------------------
reimburse Executive for the reasonable and documented fees and costs of his
legal counsel and tax accountants utilized in connection with the negotiation
and preparation of this Agreement.
(b) Arbitration. Any controversy or claim arising out of or relating
-----------
to this Agreement or any breach of this Agreement shall be settled by
arbitration. Any such arbitration shall be held in Los Angeles, California and
shall be conducted in accordance with the Commercial Arbitration rules of the
American Arbitration Association. The Special New Procedures for Large, Complex
Issues shall apply. The arbitration panel shall consist of three (3)
arbitrators to be selected pursuant to such Commercial Arbitration Rules.
(c) Applicable Law and Venue. This Agreement and any disputes or
------------------------
claims arising hereunder shall be construed in accordance with, governed by and
enforced under the laws of the State of California without regard to any rules
of conflicts of law (except as to the corporate governance matters set forth in
Sections 3(a) and 3(c) and the indemnities provided Executive in Section 14(e),
which shall be subject to the laws of Delaware applicable to companies
incorporated therein). Except with respect to matters governed by Delaware law,
the state and federal courts (or arbitrators appointed as described herein)
located in Los Angeles, California shall be the sole and exclusive forum for any
action for relief arising out of or pursuant to, or to enforce or interpret,
this Agreement; provided, however, that actions in such state or federal courts
shall be limited to actions or petitions to confirm or set aside an arbitration
award. Each party to this Agreement consents to the personal jurisdiction and
arbitration in any such forum and each party hereto covenants not to, and waives
any right to, seek a transfer of venue from such jurisdiction on any grounds.
(d) Interpretation. The provisions of this Agreement were negotiated
--------------
by each of the parties hereto and this Agreement shall not be deemed to have
been drafted by either party.
-18-
<PAGE>
(e) Indemnification. The Company and/or MGM Studios shall indemnify
---------------
Executive through their respective Certificate of Incorporation, By-laws, the
Indemnification Agreement entered into pursuant to Section 14(e) of the Original
Agreement or otherwise to the fullest extent permitted by the Delaware General
Corporation Law (including the reimbursement of defense costs as incurred), as
such law exists and may hereafter be amended. Such indemnification shall apply,
but not be limited to, any actions taken or omissions by Executive, including,
without limitation, furnishing information, during the period from and after
January 1, 1996 until the Original Effective Date in connection with the
potential sale of MGM Studios and Executive's efforts to assemble a bid group to
purchase MGM Studios. Such indemnification shall not apply to any matters
arising under (x) the Amended Agreement as of July 25, 1993 between Executive
and Credit Lyonnaise, S.A., (y) the Senior Executive Incentive Plan of MGM
Holdings Corporation adopted as of 16 December 1994 and (z) the Senior Executive
Pool Plan of MGM Holdings Corporation adopted as of 15 December 1995.
(f) Representations of MGM Studios and the Company. Each of the
----------------------------------------------
Company and MGM Studios represents and warrants that (1) this Agreement has been
approved by the Board and MGM Studios Board, as applicable and is binding on MGM
Studios and the Company, as applicable and (2) this Agreement will not violate
the corporate charter or bylaws of MGM Studios and/or the Company, as
applicable.
(g) No Waivers. The failure of either party to enforce any provision
----------
of this Agreement shall not be construed as a waiver of any such provision, nor
prevent such party thereafter from enforcing such provision or any other
provision of this Agreement. Rights granted the parties hereto herein are
cumulative and the election of one shall not constitute a waiver of such party's
right to assert all other legal remedies available under the circumstances.
(h) Notices. Any notice to be given under the terms of this Agreement
-------
shall be in writing and may be delivered personally, by telecopy, telex or other
form of written electronic transmission, by overnight courier or by registered
or certified mail, postage prepaid, and shall be addressed as follows:
TO THE COMPANY OR MGM STUDIOS:
Board of Directors
c/o Jerome York
Tracinda Corporation
4835 Koval Lane
-19-
<PAGE>
Las Vegas, Nevada 89109
Telecopier: (702) 737-1177
WITH A COPY TO:
Richard E. Sobelle
Tracinda Corporation
4835 Koval Lane
Las Vegas, Nevada 89109
Telecopier: (702) 737-1177
and
Michael R. Gleason
Culmen Group, L.P.
201 Main Street, Suite 1955
Fort Worth, Texas 76102
Telecopier: (817) 870-1384
-20-
<PAGE>
TO THE EXECUTIVE:
Mr. Frank G. Mancuso
1201 Bel Air Road
Los Angeles, California 90077
Telecopier: (310) 471-0175
WITH COPIES TO:
Bertram Fields, Esq.
Greenberg Glusker Fields Claman & Machtinger LLP
1900 Avenue of the Stars
Suite 2000
Los Angeles, California 90067
Telecopier: (310) 553-0687
Either party may hereafter notify the other in writing of any change in address.
Any notice hereunder shall be deemed duly given when received by the person to
whom it was sent.
(i) Severability. The provisions of this Agreement are severable and
------------
if any provision of this Agreement shall be held to be invalid or otherwise
unenforceable, in whole or in part, the remainder of the provisions, or
enforceable parts thereof, shall not be affected thereby unless as a result of
such severing the remaining provisions or enforceable parts do not substantially
reflect the intention of the parties in entering into this Agreement.
(j) Confidentiality and Publicity. This Agreement shall remain
-----------------------------
confidential and the terms shall not be divulged to any person except to the
extent required by law or legal process. Any press release or announcement of
or relating to this Agreement and the timing of any such announcement shall only
be made with the agreement of Executive and the Company.
(k) Attorneys' Fees and Costs. If any arbitration proceeding or any
-------------------------
action at law or in equity is commenced to enforce this Agreement, the
prevailing party shall receive its attorneys' fees, costs and disbursements in
addition to any other relief granted.
(l) Effective Date. This Agreement shall become effective on the IPO
--------------
Closing Date.
-21-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
METRO-GOLDWYN-MAYER INC.
By:
-----------------------------
Name:
Title:
METRO-GOLDWYN-MAYER
STUDIOS INC.
By:
-----------------------------
Name:
Title:
--------------------------------
FRANK G. MANCUSO
-22-
<PAGE>
EXHIBIT 10.8
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is entered into as of October
10, 1996 between Metro-Goldwyn-Mayer Inc., a Delaware corporation (the
"Company") and A. Robert Pisano ("Executive").
The parties agree as follows:
1. Employment and Title. Effective as of October 10, 1996, the Company
--------------------
employs Executive as, and Executive accepts employment to serve as, Vice
Chairman, all upon the terms and conditions set forth in this Agreement
including the powers and authority set forth in Paragraph 2 below.
2. Powers and Authority.
--------------------
a. Title. During the Term, as defined in Paragraph 6 below,
------
Executive shall be Vice Chairman. Executive shall have all the powers and
duties typically exercised by chief operating officers at companies in the
entertainment industry of similar size and nature as the Company and, subject to
the direction of the Chief Executive Officer of the Company, shall be in charge
of all aspects of the business
<PAGE>
activities and operations of the Company, including, but not limited to,
business and legal affairs, corporate communications, strategy and development,
human resources, finance and administration, the Home Entertainment,
Telecommunications, Consumer Products, and Interactive divisions, all joint
ventures, and all other such aspects of the business activities of the Company,
except those matters related to, or executives exercising, creative decisions.
b. Services. Executive's services shall be exclusive to the Company and
--------
its subsidiaries. Executive shall devote his best efforts and substantially his
full business time (except as provided in the following sentence) to the
services to be performed hereunder. Executive may serve on the boards of
directors of (but in no other capacity for) other companies and non-profit
organizations, may manage the investment of his personal assets, and may make
new investment of his personal assets in other companies so long as such
activities do not materially interfere with Executive's duties hereunder and
(other than investments not to exceed 1% of the total outstanding in publicly
traded securities) such companies do not directly compete with the Company.
3. Location. The location of Executive's principal place of employment shall
---------
be in his office at the Company's headquarters, both of which shall be in the
greater
2
<PAGE>
Los Angeles, California area, provided, however, that Executive shall perform
such services outside of Los Angeles as are, in his and the Chairman and Chief
Executive Officer of the Company's reasonable determination, reasonably required
for the proper performance of his duties under this Agreement.
4. Reporting. Executive shall report to, and only to, the Chairman
---------
and Chief Executive Officer of the Company.
5. Availability. Each party represents and warrants to the other
------------
that it has the full power and authority to enter into and perform its
obligations under this Agreement and that its execution of and performance under
this Agreement shall not constitute a default under or breach of the terms of
any other agreement or order of any court or governmental authority to which it
is a party or under which it is bound. Each party shall defend and hold harmless
the other for any and all claims, demands, losses or damages (including
reasonable attorneys' fees) arising from any action against any such party due
to a breach of any representation and warranty contained in the Paragraph or
based upon any allegations of interference with contractual obligations or the
like based upon any allegations of interference with contractual obligations or
the like relating to the negotiation or execution of this Agreement.
6. Term. Subject to the provisions for earlier termination set forth
----
in Paragraph 11, the term of Executive's employment hereunder shall commence on
the effective date and continue through October 9, 2001 (the "Term"), provided
Executive's
3
<PAGE>
employment may be terminated on the occurrence of an event described in
Paragraph 11. Neither the Company nor Executive will have any obligation to
renew or extend this Agreement beyond the Term.
7. Compensation.
------------
a. Salary and Bonus. In full consideration for the services to be
-----------------
rendered by Executive, and in full discharge of the Company's salary
obligations, Company shall pay to Executive and Executive shall accept:
i. an annualized base salary of $950,000 (less appropriate
deductions) during each year of the Term, payable bi-weekly in arrears
commencing on the first regular bi-weekly payment date; and
ii. an annual guaranteed bonus (or such applicable prorated portion
thereof in the first and last years of the Term) of $750,000 (less
appropriate deductions), payable on or before January 10 following the
expiration of each calendar year (or pro rata portion thereof) and payable
at the end of the Term for the last year of the Term; and
iii. an annual bonus (or such applicable pro-rated portion thereof in
the first and last years of the Term) (less appropriate deductions) to be
4
<PAGE>
determined in the sole discretion of the Chairman and Chief Executive
Officer of the Company, payable on the first day of the second month
following the completion of each fiscal year of the Term; and
iv. participation in the P&F Acquisition Corp. and
Metro-Goldwyn-Mayer Inc. 1996 Management Stock Option and Bonus Plans
(the "1996 Management Incentive Plan") in the amounts designated
therein.
b. Other Benefits. Executive shall be entitled to such
--------------
additional benefits as are made available to executives in comparable positions
in the Company, including, without limitation, a car allowance, an executive
assistant, reimbursement of reasonable travel expenses, including first class
airfare, for Executive and Executive's spouse, when accompanying Executive on
travel, to the extent, in Executive's reasonable judgment, her presence is
required or advisable in the Company's interest in the discharge of Executive's
duties, and four (4) weeks vacation per year.
c. Business Expenses. During the Term, the Company shall pay
-----------------
or reimburse Executive promptly for all reasonable and necessary business
expenses incurred by Executive in the performance of this duties under this
Agreement, with the requirements of reporting and verification as may be
applicable to other senior executives of the Company.
5
<PAGE>
d. Insurance.
---------
i. During the Term, Executive shall be entitled to and
shall be accorded all rights and benefits under any disability
insurance, health and major medical insurance policy or policies,
which the Company provides for its senior officers or employees
generally. Nothing in this paragraph shall require the Company to
retain any particular policy or plan, but some reasonable policy or
plan shall be maintained.
ii. The Company shall purchase a term life insurance policy
on Executive's life in the face amount of $5 Million, the proceeds of
which shall be payable to Executive's estate or such other person or
persons as Executive shall designate.
e. Employee Benefit Plans. Executive shall be entitled to
----------------------
participate in and/or receive all other employee benefits under any 401(k) Plan,
a Savings Plan, and such other similar plan or program which the Company
provides for its senior officers or employees generally, all subject to the
terms and conditions of the various benefit plans.
6
<PAGE>
8. Compensation in the Event of Termination.
----------------------------------------
a. If the Executive's employment is terminated under Paragraph 11(a),
Executive or his estate shall receive the compensation provided in Paragraphs
7(a)(i) and 7(a)(ii) through such termination date and a pro rata portion of the
amount set forth in Paragraph 7(a)(iii), if any, discounted to present value at
the 30-day LIBOR rate in effect at the date of termination, and payable within
ten (10) days of termination, and all amounts accrued under benefit plans in
which Executive is a participant as of such termination date, including without
limitation, the benefits provided in Paragraph 7(a)(iv) in accordance with the
provisions of the 1996 Management Incentive Plan, which Plan benefits shall vest
immediately.
b. If the Executive's employment is terminated under Paragraph 11(b),
Executive shall receive the amounts and benefits set forth in Paragraph 8(a),
plus 50% of the compensation provided in Paragraphs 7(a)(i) and 7(a)(ii) through
what would be the remainder of the Term, without regard to such termination.
c. If the Executive's employment is terminated under Paragraph 11(c)
or 11(e) below, or expires pursuant to its terms, Executive shall receive:
i. the net present value, discounted at the 30-day LIBOR rate in
effect at the date of termination, and payable within ten (10) days of
7
<PAGE>
termination, of the difference between (x) $8.5 Million, and (y) the sum of all
amounts paid to the date of the termination pursuant to Paragraphs 7(a)(i) and
7(a)(ii); and
(ii) the benefits specified in Paragraph 7(d) for what would be the
remainder of the Term without regard to such termination (provided, however,
that if prior to the expiration of said remainder of the Term, Executive
receives any of the types of benefits specified in Paragraph 7(d) from a
subsequent employer, the Company shall immediately cease to provide such types
of benefits received from the subsequent employer).
8
<PAGE>
d. If the Employment is terminated under Paragraph 11(d), Executive
shall not be entitled to receive any payment or benefits following the date of
termination, except as may be accrued to the date of termination, including the
pro rata portion of the guaranteed bonus pursuant to Paragraph 7(a)(ii), or
vested under the 1996 Management Incentive Plan, or any other plan or policies
of the Company.
9. Property Rights. Executive agrees that all the results and proceeds of
---------------
his services, including any ideas, programs, formats, plans and arrangements,
composed, conceived or created by him during the period of this employment,
solely or in collaboration with others, whether or not same is made at the
request or suggestion of the Company, or during or outside regular hours of
work, shall at all times be and remain the sole and exclusively property of the
Company. The Executive further agrees that he will, at the request of the
Company, executive and deliver to the Company, in the form satisfactory to the
Company, documents evidencing the Company's ownership to the foregoing, but
notwithstanding that no such documents are executed, the Company, as
Executive's employer, shall be deemed the owner thereof immediately upon
creation. All memoranda, notes, records and other documents made or compiled by
the Executive, or made available to him, during his employment by the Company
shall remain the sole and exclusive property of the Company. Employee shall not
use for himself, or others, any secret of confidential information, knowledge or
data of the Company obtained by Executive as a result of his employment by the
Company. Anything to this Agreement to
9
<PAGE>
the contrary notwithstanding, the provisions of this paragraph shall survive the
termination, for any reason, of this Agreement.
10. Existing Employment Agreement. Executive and the Company agree
-----------------------------
to terminate, as of the date of this Agreement, the current Employment Agreement
date as of August 6, 1993, between Executive and the Company. In full
satisfaction and settlement of all amounts due to Executive under the current
Employment Agreement, Executive shall receive, upon execution of the Agreement
(i) 360 units of P&F Capital Stock, consisting of 4/9 of a share of P&F Common
Stock and 5/9 of a share of P&F Series A convertible Preferred Stock; and (ii)
cash of $235,343, out of which the Company shall make the required withholdings
under applicable Federal, state and other tax laws, rules or regulations.
11. Termination. Executive's employment shall terminate:
-----------
a. Upon the death of Executive.
b. At the opinion of the Company, if Executive is disabled.
Disability shall mean Executive's inability to substantially perform his duties
hereunder due to a medically determinable physical or mental impairment that
can reasonably be expected to result in death within twelve (12) months, or
which has lasted or can be expected to last for a continuous period of not
less than twelve (12) months.
10
<PAGE>
c. After thirty (30) days' written notice by the Company to Executive
without "Cause".
d. Upon written notice by the Company to Executive for "Cause" which
shall be defined as set forth in Paragraph 1.1 of the 1996 Management Incentive
Plan.
e. Upon thirty (30) days' written notice by Executive to the Company
for "Good Reason" which shall include:
i. a substantial and adverse change in Executive's status or
position as Vice Chairman or a key employee of the Company, or a reduction in
the duties and responsibilities as contemplated by this Agreement, as set forth
in Paragraph 2; or
ii. a reduction (other than for "Cause" or as the result of a
lower payment under Paragraph 7(a)(iii) by the Company in Executive's
compensation as provided in Section 7 of this Agreement that is not cured
within thirty (30) days of written notice thereof to the Company from Executive;
or
11
<PAGE>
iii. Intentionally omitted.
iv. the occurrence of a Designated Change of Control
(as defined in Section 6(e) of the 1996 Management Incentive Plan).
v. Intentionally omitted.
f. At the expiration of the Term.
12. No Mitigation. Except as provided in Paragraph 8(c) regarding
-------------
benefits provided by a subsequent employer, and without limiting any other
provision hereof, any income and any other employment benefits received by
Executive from any and all sources other than the Company before or after the
expiration or termination of this Agreement for any reason whatsoever shall in
no way reduce or otherwise affect the Company's obligation to make payments and
afford benefits hereunder. Executive shall have no duty to seek employment. No
claim, including without limitation, a claim under Paragraph 9, the Company has
against Executive under this Agreement or otherwise shall be used to offset the
Company's obligation hereunder.
13. Intentionally omitted.
12
<PAGE>
14. Miscellaneous.
-------------
a. Arbitration. Any controversy or claim arising out of or
-----------
relating to this Agreement or any breach of this Agreement shall be settled by
arbitration. Any such arbitration shall be held in Los Angeles, California and
shall be conducted in accordance with the Commercial Arbitration Rules of the
American Arbitration Association. The Special New Procedures for Large, Complex
Issues shall apply. The arbitration proceedings shall be conducted in English.
The arbitration panel shall consist of three (3) arbitrators to be selected
pursuant to such Commercial Arbitration Rules. The arbitration proceedings, all
documents related thereto and all testimony, written or oral, and the
arbitration award shall be confidential, except with respect to any proceedings
commenced to compel arbitration or to enforce the arbitration award or as
otherwise required by law.
b. Applicable Law and Venue. This Agreement and any disputes
------------------------
or claims arising hereunder shall be construed in accordance with, governed by
and enforced under the laws of the State of California without regard for any
rules or conflicts of law. The State and federal courts (or arbitrators
appointed as described herein) located in Los Angeles, California shall be the
sole fora for any action for relief arising out of or pursuant to, or to enforce
or interpret, this Agreement. Each party to this Agreement consents to the
personal jurisdiction and arbitration in such fora and
13
<PAGE>
courts and each party hereto convenants not to, and waives any right to seek a
transfer of venue from such jurisdiction on any grounds.
c. Interpretation. The provisions of this Agreement were
--------------
negotiated by each of the parties hereto and this Agreement shall be deemed to
have been drafted by each party.
d. Representations of the Company. The Company represents and
------------------------------
warrants that this Agreement is validly binding and enforceable in accordance
with its Terms on the Company.
e. No waivers. The failure of either party to enforce any
----------
provision of this Agreement shall not be construed as a waiver of any such
provision, nor prevent such party thereafter from enforcing much provision or
any other provision of this Agreement. Rights granted the parties hereto herein
are cumulative and the election of one shall not constitute a waiver of such
party's right to assert all other legal remedies available under the
circumstances.
f. Notices. Any notice to be given under the terms of this
-------
Agreement shall be in writing and may be delivered personally, be telecopy,
telex or
14
<PAGE>
other form of written electronic transmission, by overnight courier or by
registered or certified mail, postage prepaid, and shall be addressed as
follows:
TO THE COMPANY:
Metro-Goldwyn-Mayer Inc.
2500 Broadway Street
Santa Monica, California 90404-3061
Attention: Director of Human Resources
WITH A COPY TO:
Metro-Goldwyn-Mayer Inc.
2500 Broadway Street
Santa Monica, California 90404-3061
Attention: Legal Department
TO THE EXECUTIVE:
Mr. A. Robert Pisano
526 Amalfi Drive
Pacific Palisades, California 90272
WITH A COPY TO:
Simpson, Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017-3909
Attention: Thomas Lewyn, Esq.
Telecopier: 212/455-2502
Either party may hereafter notify the other in writing of any change in address.
Any notice hereunder shall be deemed duly given when received by the person to
whom it was sent.
15
<PAGE>
g. Severability. The provisions of the Agreement are severable
------------
and if any provision of the Agreement shall be held to be invalid or otherwise
unenforceable, in whole or in part, the remainder of the provision, or
enforceable parts thereof, shall not be affected thereby unless as a result of
such severing the remaining provisions or enforceable parts do not substantially
reflect the intention of the parties in entering into this Agreement.
h. Successors and Assigns. The rights and obligations of the
----------------------
parties under this Agreement shall inure to the benefit of and be binding upon
their successors and assigns, including the survivor upon any merger,
consolidation or combination of the Company with any other entity.
i. Entire Agreement. This Agreement supersedes all prior
----------------
agreements and understanding between the parties hereto, oral or written, and
may not be modified or terminated orally. No modification, termination or
attempted waiver shall be valid unless in writing, signed by the party against
whom such modification, termination or waiver is sought to be enforced.
j. Survival. The provisions of Paragraphs 8, 9, 10, 11, 12,
--------
and 14 of this Agreement shall survive the Term, it being understood that the
foregoing shall not limit Executive's rights with respect to amounts due him and
unpaid at, or after, the expiration of the Term.
16
<PAGE>
k. Confidential and Publicity. This Agreement shall remain
--------------------------
confidential and the terms shall not be divulged to any person except to the
extent required by law or legal process. Any press release or announcement or
relating to this Agreement and the timing of any such announcement shall only
be made with the agreement of Executive and the Company.
l. Attorneys' Fees and Costs. If any arbitration proceeding or any
-------------------------
action at law or in equity is commenced hereunder, the prevailing party shall
receive its attorneys' fees, costs and disbursements in addition to any other
relief granted. Each party may be represented by counsel of its choice even
though such counsel may have represented the other party in matters related to
the business of the Company, and each party agrees to execute an appropriate
waiver to effectuate this clause.
m. Indemnification. The Company shall indemnify Executive through
---------------
its Certificate of Incorporation, By-laws, indemnification agreements or
otherwise to the fullest extent permitted by the Delaware General Corporation
Law (including the reimbursement of defense costs as incurred), as the same
exists and may hereafter be amended. Such indemnification shall apply, but not
be limited to, any actions taken or omissions by Executive, including, without
limitation, furnishing information, during the period from and after January 1,
1996 until the Closing Date in
17
<PAGE>
connection with the potential sale of the Company and Executive's efforts to
assemble a bid group to purchase the Company.
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date first above written.
METRO-GOLDWYN-MAYER INC.
By /s/ Frank G. Mancuso
------------------------
Its Chairman CEO
------------------------
/s/ A. Robert Pisano
------------------------
A. Robert Pisano
18
<PAGE>
EXHIBIT 10.9
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is entered into as of
July 1, 1997 between Metro-Goldwyn Mayer Inc., a Delaware corporation (the
"Company"), and Michael G. Corrigan ("Executive").
The parties agree as follows:
1. Employment and Title. Effective as of the Commencement Date (as
--------------------
defined below), the Company employs Executive as, and Executive accepts
employment to serve as, Senior Executive Vice President and Chief Financial
Officer, all upon the terms and conditions set forth in this Agreement,
including the powers and authority set forth in Paragraph 2 below.
2. Powers and Authority.
--------------------
(a) During the Term, as defined in Paragraph 6 below, Executive
shall be Senior Executive Vice President and Chief Financial Officer, and shall
have such duties and responsibilities as may be assigned to Executive by the
Chief Executive Officer of
<PAGE>
the Company (the "CEO"), which duties and responsibilities shall include
responsibility for and authority over finance, accounting, MIS, tax and business
planning functions of the Company.
(b) Executive's services shall be exclusive to the Company and its
subsidiaries. Executive shall devote Executive's best efforts and Executive's
full business time (except as provided in the following sentence) to the
services to be performed hereunder. Executive may serve on the boards of
directors of (but in no other capacity for) other companies and non-profit
organizations, may manage the investment of Executive's personal asset, and may
make new investments of Executive's personal assets in other companies so long
as such activities do not materially interfere with Executive's duties hereunder
and (other than investments not to exceed 1% of the total outstanding in
publicly traded securities) such companies do not directly compete with the
Company.
(c) Executive agrees to comply with the Company's policies and
procedures as in effect from time to time to the extent that such policies are
furnished to Executive.
3. Location. The location of Executive's principal place of employment
--------
shall be in the Company's principal executive offices in the greater Los
Angeles, California area; provided, however, that Executive shall perform such
occasional services outside of Los Angeles as are, in the reasonable
determination of the Executive, the CEO or the Vice
2
<PAGE>
Chairman of the Company (the "VC"), reasonably required for the proper
performance of Executive's duties under this Agreement.
4. Reporting. Executive shall report jointly to the CEO and the VC.
---------
5. Availability. Each party represents and warrants to the other
------------
that it has the full power and authority to enter into and perform its
obligations under this Agreement and that its execution of and performance under
this Agreement shall not constitute a default under or breach of the terms of
any other agreement or order of any court or governmental authority to which it
is a party or under which it is bound. Each party shall defend and hold
harmless the other for any and all claims, demands, losses or damages (including
reasonable attorney's fees) arising from any action against any such party due
to a breach of any representation and warranty contained in this Paragraph or
based upon any allegations of interference with contractual obligations or the
like relating to the negotiation or execution of this Agreement.
6. Term. Subject to the provisions for earlier termination set
----
forth in Paragraph 11, the term of Executive's employment hereunder shall
commence on July 1, 1997 or such other date on or before August 1, 1997 as the
parties shall mutually agree (the "Commencement Date") and continue for five
years from and including such date (the "Term"). Neither the Company nor
Executive will have any obligation to renew or extend this Agreement beyond the
Term.
3
<PAGE>
7. Compensation.
------------
(a) Salary and Bonus. In full consideration for the services to
----------------
be rendered by Executive, and in full discharge of the Company's salary
obligations. Company shall pay to Executive and Executive shall accept:
(i) an annualized base salary of $700,000 during each of
the five twelve month periods of the Term (each amount less tax
withholdings required by law and other voluntary deductions authorized
by Executive), payable bi-weekly in arrears commencing on the first
regular bi-weekly payment date; and
(ii) intentionally omitted;
(iii) an annual discretionary bonus, or such applicable
prorated portion thereof for any partial Company fiscal year during
the Term (less tax withholdings required by law and other voluntary
deductions authorized by Executive), to be determined in the sole
discretion of the CEO, payable on the first day of the second month
following the completion of each Company fiscal year ending in the
Term (and within forthy-five days following the end of the Term with
respect to the last partial Company fiscal year); and
4
<PAGE>
(iv) participation in the P&F Acquisition Corp. and Metro-
Goldwyn-Mayer Inc. 1996 Management Stock Option and Bonus Plan(s) (the
"Plan") in the amounts designated on page A-9 of Exhibit A thereto (i.e.,
2,150 Series A Options (and Bonus Interests) and 2,360 Series B Options).
(b) Other Benefits. Executive shall be entitled to the
--------------
following additional benefits: a car allowance and vacation time in accordance
with Company policy applicable to employees of Executive's seniority, salary and
title; first-class air travel for Executive and Executive's spouse when
accompanying Executive on travel to the extent, in Executive's reasonable
judgment, the presence of Executive's spouse is required or advisable in the
Company's interest in the discharge of Executive's duties.
(c) Business Expenses. During the Term, the Company shall pay
-----------------
or reimburse Executive promptly for all reasonable business expenses incurred by
Executive in the performance of Executive's duties under this Agreement if
property substantiated and in accordance with the Company's policies and
procedures applicable to employees of Executive's seniority, salary and title.
(d) Insurance. During the Term, Executive shall be entitled to
---------
and shall be accorded all rights and benefits under any disability insurance,
health and major medical insurance policy or policies which the Company provides
for its senior officers or employees generally. Nothing in this paragraph shall
require the Company to retain any
5
<PAGE>
particular policy or plan, but a reasonable insurance benefit package shall be
maintained (i.e., a package which in the aggregate provides for substantially
equivalent coverage as that existing on the Commencement Date). Executive shall
also be included in the Company's director's and officers' liability insurance
policy.
(e) Employee Benefit Plans. Executive shall be entitled to
----------------------
participate in and/or receive all other employee benefits under any 401(k) plan,
savings plan, pension plan and other similar plan or program which the Company
provides for its senior officers or employees generally, all subject to the
terms and conditions of the various benefit plans.
8. Compensation in the Event of Termination.
----------------------------------------
(a) If the Agreement is terminated under Paragraph 11(a),
Executive or his estate shall receive the compensation provided in Paragraphs
7(a)(i) and 7(a)(iii), if any, prorated to the date of termination, and all
amounts accrued under benefit plan in which Executive is a participant as of
such termination date, including without limitation the benefits provided in
Paragraph 7(a)(iv) in accordance with the provisions of the Plan.
(b) If the Agreement is terminated under Paragraph 11(b),
Executive shall receive the same compensation and benefits set forth in
Paragraph 8(a), except that the benefits provided in Paragraph 7(d) shall
continue for what would be the
6
<PAGE>
remainder of the Term but for such termination (the "Full Term") in accordance
with the terms of each respective policy or plan (provided, however, that if
prior to the expiration of the Full Term Executive receives any of the types of
benefits specified in Paragraphs 7(d) from a subsequent employer, the Company
shall immediately cease to provide such types of benefits received from the
subsequent employer).
(c) If the Agreement is terminated under Paragraph 11(c) or 11(e)
below, or expires pursuant to its terms, Executive shall receive the net present
value of the compensation provided in Paragraph 7(a)(i) through the Full Term,
discounted at the 30-day LIBOR rate in effect at the date of termination and the
compensation provided in Paragraph 7(a)(iii), if any, pro rated as specified
therein, the benefits provided in Paragraph 7(a)(iv) in accordance with the
provisions of the Plan, and the benefits provided in Paragraph 7(d) for the Full
Term in accordance with the terms of each respective policy or plan (provided,
however, that if prior to the expiration of the Full Term Executive receives any
of the types of benefits specified in Paragraph 7(d) from a subsequent employer,
the Company shall immediately cease to provide such types of benefits received
from the subsequent employer).
(d) If the Agreement is terminated under Paragraph 11(d), Executive
shall not be entitled to receive any payment or benefits following the date of
termination, except as may be accrued to the date of termination, or vested
under the Plan, or any other plan or policies of the Company.
7
<PAGE>
9. Property Rights.
---------------
(a) Executive agrees that all results and proceeds of his
services, including any ideas, programs, formats, plans and arrangements,
composed, conceived or created by him during the period of this employment,
solely or in collaboration with others (collectively, the "Creations"), whether
or not same is made at the request or suggestion of the Company, or during or
outside regular hours of work, shall at all times be and remain the sole and
exclusive property of the Company. Executive further agrees that he will, at
the request of the Company, execute and deliver to the Company, in form
satisfactory to the Company, documents evidencing the Company's ownership to the
foregoing; but notwithstanding that no such documents are executed, the Company,
as Executive's employer, shall be deemed the owner thereof immediately upon
creation. Anything in this Agreement to the contrary notwithstanding, the
provisions of this paragraph shall survive the termination for any reason, of
this Agreement.
(b) Notwithstanding Paragraph 9(a) above, the Company shall not
own any Creations created by Executive prior to the Term or solely during
Executive's leisure hours during the Term, which Creation is not related in any
manner to, or derived in any manner from, any projects, concepts and/or
intellectual property of any nature of the Company or any of its affiliates.
Notwithstanding the foregoing, Executive agrees to submit to the Company any
such Creation which Executive desires to commercially exploit, and the Company
with notify Executive within ten (10) business days of receipt if the Company
8
<PAGE>
desires to start negotiations for rights thereto. If no agreement is reached
within thirty (30) days after the start of negotiations, then Executive will
make an offer to the Company for such rights and if the Company does not
accept, Executive may negotiate elsewhere the rights so offered.
10. Intentionally omitted.
11. Termination. Executive's employment shall terminate:
-----------
(a) Upon the death of Executive.
(b) At the option of the Company, if Executive is disabled.
Disability shall mean Executive's inability to substantially perform his duties
hereunder due to a medically determinable physical or mental impairment that can
reasonably be expected to result in death within twelve (12) months or which has
lasted or can be expected to last for a continuous period of not less than
twelve (12) months.
(c) After thirty (30) days written notice by the Company to
Executive without "Cause".
(d) Upon written notice by the Company to Executive for "Cause"
which shall include only:
9
<PAGE>
(i) the continued failure of Executive to substantially
perform his duties with the Company or any subsidiary of the Company (other than
any such failure resulting from illness, temporary absence, legal incapacity or
disability) for thirty (30) days after a demand for substantial performance is
delivered in writing to Executive by the Company which specifically identifies
the manner in which Executive has not substantially performed his duties:
(ii) Executive's continued failure to follow reasonable and
lawful directives (consistent with the terms of this Agreement) of the Board of
Directors of the Company (or, if applicable, the CEO) for thirty (30) days after
a demand for Executive to follow such directives is delivered in writing to
Executive by the Company that specifically identifies the manner in which
Executive has not followed such directives:
(iii) the engaging by Executive in willful, reckless or grossly
negligent misconduct in connection with his employment, unless Executive ceases
such misconduct within ten (10) days and remedies the adverse effect of such
misconduct within thirty (30) days, after a demand to cease engaging in such
misconduct is delivered in writing to Executive by Company that specifically
identifies such misconduct;
10
<PAGE>
(iv) Executive's conviction of an offense involving moral turpitude
or a felony (it being understood that the first conviction of Executive, if
any, after commencement of the Term, for driving under the influence of
alcohol shall not constitute Cause hereunder); or
(v) material breach by Executive of this Agreement and failure to
cure such breach within thirty (30) days of delivery of a written notice
to Executive by the Company that specifically identifies the breach.
If the remedy, cure or cessation of an act or omission which is the subject
of a notice under this Paragraph 11(d) would reasonably require more than thirty
(30) days to complete and Executive commences such remedy, cure or cessation
within thirty (30) days after receipt of such notice and diligently pursues the
same to completion, said act or omission shall not constitute "Cause." Cause
shall continue to exist with respect to Executive only for a period of ninety
(90) days after the event or action (and the expiration of any notice or cure
period specified) giving rise to Cause.
(e) Upon thirty (30) days written notice by Executive to the Company
for "Good Reason" which shall include:
(i) a substantial and adverse change in Executive's status or
position with the Company as the same existed on the commencement of
the Term
11
<PAGE>
hereof which is not cured within thirty (30) days aft written notice
thereof to the Company from Executive;
(ii) a reduction (other than for Cause) by the Company of
Executive's aggregate compensation under Paragraph 7(a)(i) above as in
effect on the commencement of the Term hereof or as in effect
thereafter if such compensation has been increased, unless such
reduction is restated retroactively not later than thirty (30) days
after written notice thereof to the Comany from Executive;
(iii) a material reduction by the Company in the overall value
of benefits provided to the Executive as in effect thereafter if such
benefits have been increased (as used in the preceding clause,
"benefits" shall include all profit-sharing, retirement, pension,
health, medical, dental, disability insurance, automobile and similar
benefits), unless such reduction is restated retroactively not later
than thirty (30) days after written notice thereof to the Company from
Executive;
(iv) a relocation of Executive's principal place of employment
to any place outside the greater Los Angeles area, except for
reasonable amounts of requierd travel by the Executive on the
Company's business;
12
<PAGE>
(v) any material breach by the Company of any provision of this
Agreement which is not cured within thirty (30) days after written notice
thereof to the Company from Executive; or
(f) At the expiration of the Term.
12. No Mitigation. Except as provided in Paragraphs 8(b) and 8(c)
-------------
regarding benefits provided by a subsequent employer, and without limiting any
other provision hereof, any income and any other employment benefits received by
Executive from any and all sources other than the Company before or after the
expiration or termination of this Agreement for any reason whatsoever shall in
no way reduce or otherwise affect the Company's obligation to make payments and
afford benefits hereunder. Executive shall have no duty to seek employment. No
claim the Company has against Executive shall be used to offset the Company's
obligation hereunder.
13. Confidential Material.
---------------------
(a) Disclosure. Executive acknowledges that, in the performance of
----------
duties on behalf of the Company, Executive shall have access to, receive and be
entrusted with confidential information, including but in no way limited to
development, marketing, organizational, financial, management, administrative,
production, distribution and sales information, data, specifications and
processes presently owned or at any time in the future
13
<PAGE>
developed by, the Company or its agents or consultants, or used presently or at
any time in the future in the course of its business that is not otherwise part
of the public domain (collectively, the "Confidential Material"). All such
Confidential Material is considered secret and will be available to Executive in
confidence. Except in the performance of Executive's duties on behalf of the
Company, Executive shall not, directly or indirectly for any reason whatsoever,
disclose or use any such Confidential Material, unless such Confidential
Material ceases (through no fault of Executive's) to be confidential because it
has become part of the public domain or as may be required by law or court
order. All records, files, drawings, documents, equipment and other tangible
items, wherever located, relating in any way to the Confidential Material or
otherwise to the Company's business, which Executive prepares, uses, or
encounters, shall be and remain the Company's sole and exclusive property and
shall be included in the Confidential Material. Upon termination of this
Agreement by any means, or whenever requested by the Company, Executive shall
promptly deliver to the Company any and all of the Confidential Material not
previously delivered to the Company that may be or at any previous time has been
in Executive's possession or under Executive's control; provided, however,
Executive may keep Executive's rolodex or other personal list of addresses and
telephone numbers.
(b) Unfair Competition. Executive hereby acknowledges that the sale or
-------------------
unauthorized use or disclosure of any of the Company's Confidential Material by
Executive by any means whatsoever at any time before, during or after
Executive's employment with the Company, except as provided in Paragraph 13(a),
shall constitute "Unfair Competition". Executive agrees that
14
<PAGE>
Executive shall not engage in Unfair Competition either during the time
Executive is employed by the Company or at any time thereafter.
(c) Other. In the event of the termination of Executive's employment for
-----
any reason, Executive (and any corporation or entity of which Executive is a
director, officer, employee or greater than five percent (5%) shareholder)
shall not, for a period of one (1) year:
(i) solicit for employment and then employ any employee of the
Company or any of its affiliates or subsidiaries: or
(ii) make any public statement concerning the Company, any of its
affiliates or subsidiaries, or Executive's employment unless previously
approved by the Company, except as may be required by law.
Notwithstanding the foregoing, it shall not be a breach of this Paragraph 13(c)
by Executive if an entity which Executive does not own (i.e., over 50% equity
ownership) or control violates such Paragraph and Executive is not materially
involved in such violation.
15
<PAGE>
14. Miscellaneous.
(a) Arbitration.
-----------
(i) Any and all disputes between Executive and the Company,
however significant, arising out of, relating in any way to or in
connection with this Agreement (including the validity, scope and
enforceability of this arbitration clause) shall be solely settled by
an arbitration conducted in accordance with the rules of the American
Arbitration Association or any similar successor body and to be held
in Los Angeles, California.
(ii) Any arbitration hereunder shall be held before a single
arbitrator mutually agreed to by the parties thereto, except that, if
the parties shall fail to agree to such an arbitrator within (20) days
from the date on which the claimant's request for arbitration is
delivered to the other party to the arbitration, such arbitration
shall be held before an arbitrator appointed by the American
Arbitration Association.
(iii) Discovery may be taken in the arbitration proceedings
pursuant to the provisions of California Code of Civil Procedure
Section 1283.05, which are incorporated herein by reference and made
applicable to any arbitration held pursuant to this Paragraph.
16
<PAGE>
(iv) The award of the arbitrator shall be made within ninety
(90) days from the date on which the arbitrator is selected. The award
of the arbitrator shall be final, and the parties agree to waive their
right to any form of appeal, to the greatest extent allowed by law.
The arbitrator shall award costs and fees, including the fees of the
arbitrator and reasonable attorneys' fees, to the prevailing party.
Judgment upon any award of the arbitrator may be entered in any court
having jurisdiction or application may be made to such court for the
judicial acceptance of the award and for order of enforcement.
(b) Applicable Law and Venue. This Agreement and any disputes
------------------------
or claims arising hereunder shall be construed in accordance with, governed by
and enforced under the laws of the State of California without regard for any
rules of conflicts of law. The arbitrator appointed as described above located
in Los Angeles, California shall be the sole fora for any action for relief
arising out of or pursuant to, or to enforce or interpret, this Agreement. Each
party to this Agreement consents to the personal jurisdiction and arbitration in
such fora and courts and each party hereto covenants not to, and waives any
right to, seek a transfer of venue from such jurisdiction on any grounds.
(c) Interpretation. The provisions of this Agreement were
--------------
negotiated by each of the parties hereto and this Agreement shall be deemed to
have been drafted by each party.
17
<PAGE>
(d) Representations of the Company. The Company represents and
---------------
warrants that this Agreement is validly binding on the Company and enforceable
in accordance with its terms.
(e) No Waivers. The failure of either party to enforce any
----------
provision of this Agreement shall not be construed as a waiver of any such
provision, nor prevent such party thereafter from enforcing such provision or
any other provision of this Agreement. Rights granted the parties hereto herein
are cumulative and the election of one shall not constitute a waiver of such
party's right to assert all other legal remedies available under the
circumstances.
(f) Notices. Any notice to be given under the terms of this
-------
Agreement shall be in writing and may be delivered personally, by telecopy,
telex or other form of written electronic transmission, by overnight courier or
by registered or certified mail, postage prepaid, and shall be addressed as
follows:
TO THE COMPANY:
Metro-Goldwyn-Mayer Inc.
2500 Broadway Street
Santa Monica, California 90404-3061
Attention: Director of Human Resources
18
<PAGE>
WITH A COPY TO:
Metro-Goldwyn-Mayer Inc.
2500 Broadway Street
Santa Monica, California 90404-3061
Attention: Legal Department
TO THE EXECUTIVE:
Mr. Michael G. Corrigan
Metro-Goldwyn-Mayer Inc.
2500 Broadway Street
Santa Monica, California 90404-3061
Either party may hereafter notify the other in writing of any change in address.
Any notice hereunder shall be deemed duly given when received by the person to
whom it was sent.
(g) Severability. The provisions of this Agreement are severable
------------
and if any provision of this Agreement shall be held to be invalid or otherwise
unenforceable, in whole or in part, the remainder of the provisions, or
enforceable parts thereof, shall not be affected thereby unless as a result of
such severing the remaining provisions or enforceable parts do not substantially
reflect the intention of the parties in entering into this Agreement.
(h) Successors and Assigns. The rights and obligations of the
----------------------
parties under this Agreement shall inure to the benefit of and be binding upon
their successors and assigns, including the survivor upon any merger,
consolidation or combination of the Company with any other entity.
19
<PAGE>
(i) Entire Agreement. This Agreement supersedes all prior
----------------
agreements and understandings between the parties hereto, oral or written, and
may not be modified or terminated orally. No modification, termination or
attempted waiver shall be valid unless in writing, signed by the party
against whom such modification, termination or waiver is sought to be enforced.
(j) Survival. The provisions of Paragraphs 8, 9, 10, 11, 12, 13,
--------
and 14 of this Agreement shall survive the Term, it being understood that the
foregoing shall not limit Executive's rights with respect to amounts due him and
unpaid at the expiration of the Term.
(k) Confidentiality and Publicity. This Agreement shall remain
-----------------------------
confidential and the terms shall not be divulged to any person (other than
Executive's professional advisors and family) except to the extent required by
law or legal process. Any press release or announcement of or relating to this
Agreement and the timing of any such announcement shall only be made with the
agreement of Executive and the Company.
(l) Attorneys. Each party may be represented by counsel of its
---------
choice even though such counsel may have represented the other party in matters
related to the business of the Company, and each party agrees to execute an
appropriate waiver to effectuate this clause.
20
<PAGE>
(m) Indemnification. The Company shall indemnify Executive through
---------------
its Certificate of Incorporation, By-laws, indemnification agreements or
otherwise to the fullest extent permitted by the Delaware General Corporation
Law (including the reimbursement of defense costs as incurred), as the same
exists and may hereafter be amended.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
METRO-GOLDWYN-MAYER INC.
By: /s/ ROBERT PISANO
-----------------------------
Its: Vice Chairman
/s/ MICHAEL G. CORRIGAN
---------------------------------
Michael G. Corrigan
21
<PAGE>
EXHIBIT 10.10
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is entered into as of
October 10, 1996 between Metro-Goldwyn-Mayer Inc., a Delaware corporation (the
"Company"), and David G. Johnson ("Executive").
The parties agree as follows:
1. Employment and Title. Effective as of October 10, 1996, the
--------------------
Company employs Executive as, and Executive accepts employment to serve as,
Senior Executive Vice President and General Counsel, all upon the terms and
conditions set forth in this Agreement, including the powers and authority set
forth in Paragraph 2 below.
2. Powers and Authority.
--------------------
(a) During the Term, as defined in Paragraph 6 below, Executive
shall be Senior Executive Vice President and General Counsel, and, subject to
the direction of the Chief Executive Officer of the Company (the "CEO"), shall
be the chief legal officer of the Company and its subsidiaries, and shall be in
charge of all legal matters (excluding matters under the purview of the
Theatrical Business Affairs Division of the Company).
<PAGE>
This shall include, in conjunction with the heads of the various operating units
of the Company, responsibility for business affairs and legal matters and all
lawyers and business affairs executives in the various operating units of the
Company and its subsidiaries (excluding matters and employees under the
purview of the Theatrical Business Affairs Division of the Company). Such
responsibility shall include the review of the hiring, performance, promotion
and compensation of any such employee, and the right to approve any counsel
retained by the Company or its subsidiaries (including counsel retained by any
operating unit of the Company and its subsidiaries, including the Theatrical
Business Affairs Division of the Company). The responsibilities of the Legal
Division of the Company shall include all corporate legal affairs, all
litigation matters, and entertainment legal affairs and certain business affairs
matters including those relating to film acquisitions, long term producer
arrangements, film financings, co-productions and similar arrangements. The
responsibilities of Executive shall also include the joint responsibility with
the Chief Financial Officer of the Company, if any, subject to the direction of
the Vice Chairman of the Company (the "VC"), for the identification, development
and negotiation of transactions including mergers, acquisitions, divestures,
investments, equity and debt financings, corporate restructuring, joint ventures
and strategic partnerships and participation in the Company's relationships with
existing and future creditors, investors and joint venture partners.
(b) Executive's services shall be exclusive to the Company and
its Subsidiaries, Executive shall devote Executive's best efforts and
Executive's full business
2
<PAGE>
time (except as provided in the following sentence) to the services to be
performed hereunder. Executive may serve on the boards of directors of (but in
no other capacity for) other companies and non-profit organizations, may manage
the investment of Executive's personal assets, and may make new investments of
Executive's personal assets in other companies so long as such activities do not
materially interfere with Executive's duties hereunder and (other than
investments not to exceed 10% of the total outstanding in publicly or privately
traded securities) such companies do not directly compete with the Company.
(c) Executive agrees to comply with the Company's policies and
procedures as in effect from time to time to the extent that such policies are
furnished to Executive and are not inconsistent with the terms hereof.
3. Location. The location of Executive's principal place of
--------
employment shall be in the Company's principal executive offices in the greater
Los Angeles, California area; provided, however, that Executive shall perform
such occasional services outside of Los Angeles as are, in the reasonable
determination of the Executive, the VC or the CEO, reasonably required for the
proper performance of his duties under this Agreement.
3. Reporting. Executive shall report to the VC (or, if such position
---------
ceases to exist, to the person with substantially the same responsibilities as
the VC, such as a chief operating officer).
3
<PAGE>
5. Availability. Each party represents and warrants to the other
------------
that it has the full power and authority to enter into and perform its
obligations under this Agreement and that its execution of and performance
under this Agreement shall not constitute a default under or breach of the terms
of any other agreement or order of any court or governmental authority to which
it is a party or under which it is bound. Each party shall defend and hold
harmless the other for any and all claims, demands, losses or damages (including
reasonable attorneys' fees) arising from any action against any such party due
to a breach of any representation and warranty contained in this Paragraph or
based upon any allegations of interference with contractual obligations or the
like relating to the negotiation or execution of this Agreement.
6. Term. Subject to the provisions for earlier termination set forth
----
in Paragraph 11, the term of Executive's employment hereunder shall commence on
the effective date and continue through October 9, 2001 (the "Term"). Neither
the Company nor Executive will have any obligations to renew or extend this
Agreement beyond the Term.
7. Compensation.
------------
(a) Salary and Bonus. In full consideration for the services to
----------------
be rendered by Executive, and in full discharge of the Company's salary
obligations, Company shall pay to Executive and Executive shall accept:
4
<PAGE>
(i) an annualized base salary of $550,000 during the first
twelve month period of the Term, $600,000 during the second twelve month
period, $650,000 during the third twelve month period, $700,000 during the
fourth twelve month period and $750,000 during the fifth twelve month
period (each amount less tax withholdings required by law and other
voluntary deductions authorized by Executive), payable bi-weekly in arrears
commencing on the first regular bi-weekly payment date; and
(ii) an annual guaranteed bonus of $100,000 (less tax
withholdings required by law and other voluntary deductions authorized by
Executive), payable on or before January 10 following the expiration of
each calendar year and payable at the end of the Term for the last year of
the Term; and
(iii) an annual discretionary bonus, or such applicable prorated
portion thereof for any partial Company fiscal year during the Term (less
tax withholdings required by law and other voluntary deductions authorized
by Executive), to be determined in the sole discretion of the CEO, payable
on the first day of the second month following the completion of each
Company fiscal year ending in the Term (and within forty-five days
following the end of the Term with respect to the last partial Company
fiscal year); and
5
<PAGE>
(iv) participation in the P&F Acquisition Corp. and
Metro-Goldwyn-Mayer Inc. 1996 Management Stock Option and Bonus Plan(s)
(the "Plan") in the amounts designated on page A-9 of Exhibit A thereto
(i.e., 2,150 Series A Options (and Bonus Interests) and 2,360 Series B
Options).
(b) Other Benefits. Executive shall be entitled to the
--------------
following additional benefits: a car allowance and four (4) weeks vacation in
accordance with Company policy applicable to employees of Executive's seniority,
salary and title; first-class air travel for Executive and Executive's spouse
when accompanying Executive on travel to the extent, in Executive's reasonable
judgement, the presence of Executive's spouse is required or advisable in the
Company's interest in the discharge of Executive's duties.
(c) Business Expenses. During the Term, the Company shall pay or
-----------------
reimburse Executive promptly for all reasonable business expenses incurred by
Executive in the performance of Executive's duties under this Agreement if
properly substantiated and in accordance with the Company's policies and
procedures applicable to employees of Executive's seniority, salary and title.
(d) Insurance. During the Term, Executive shall be entitled to
---------
and shall be accorded all rights and benefits under any disability insurance,
health and major medical insurance policy or policies which the Company provides
for its senior officers or
6
<PAGE>
employees generally. Nothing in this paragraph shall require the Company to
retain any particular policy or plan, but a reasonable insurance benefit package
shall be maintained.
(e) Employee Benefit Plans. Executive shall be entitled to
----------------------
participate in and/or receive all other employee benefits under any 401(k) plan,
savings plan, pension plan and other similar plan or program which the Company
provides for its senior officers or employees generally, all subject to the
terms and conditions of the various benefit plans.
For purposes of this Paragraph 9, and specifically Executive's entitlement to
the various benefits set forth herein, Executive's title shall be deemed to be
equivalent to that of a president of a division of the Company; provided,
however, Executive shall only be entitled to those benefits provided to division
presidents generally and not those provided to only specific division presidents
(e.g., Executive shall not be entitled to bonus payments based on film
performance which such bonuses may be made available to the presidents of the
film divisions of the Company).
8. Compensation in the Event of Termination.
----------------------------------------
(a) If the Agreement is terminated under Paragraph 11(a) or
11(g), Executive or his estate shall receive the compensation provided in
Paragraphs 7(a)(i), 7(a)(ii) and 7(a)(iii), if any, prorated to the date of
termination, and all amounts accrued under
7
<PAGE>
benefit plans in which Executive is a participant as of such termination date,
including without limitation the benefits provided in Paragraph 7(a)(iv) in
accordance with the provisions of the Plan.
(b) If the Agreement is terminated under Paragraph 11(b),
Executive shall receive the same compensation and benefits set forth in
Paragraph 8(a), except that the benefits provided in Paragraph 7(d) shall
continue for what would be the remainder of the Term but for such termination
(the "Full Term") in accordance with the terms of each respective policy or plan
(provided, however, that if prior to the expiration of the Full Term Executive
receives any of the types of benefits specified in Paragraph 7(d) from a
subsequent employer, the Company shall immediately cease to provide such types
of benefits received form the subsequent employer).
(c) If the Agreement is terminated under Paragraph 11(c) or
11(e) below, or expires pursuant to its terms, Executive shall receive within 30
days of the date of termination the net present value of the compensation
provided in Paragraphs 7(a)(i) and 7(a)(ii) through the Full Term, discounted at
the 30-day LIBOR rate in effect at the date of termination and the compensation
provided in Paragraph 7(a)(iii), if any, pro rated as specified therein, the
benefits provided in Paragraph 7(a)(iv) in accordance with the provisions of the
Plan, and the benefits provided in Paragraph 7(d) for the Full Term in
accordance with the terms of each respective policy or plan (provided, however,
that it prior to the expiration of the Full Term Executive receives any of the
types of benefits specified in
8
<PAGE>
Paragraph 7(d) from a subsequent employer, the Company shall immediately cease
to provide such types of benefits received from the subsequent employer).
(d) If the Agreement is terminated under Paragraph 11(d),
Executive shall not be entitled to receive any payment or benefits following the
date of termination, except as may be accrued to the date of termination, or
vested under the Plan, or any other plan or policies of the Company.
9. Property Rights.
---------------
(a) Executive agrees that all results and proceeds of his
services, including any ideas, programs, formats, plans and arrangements,
composed, conceived or created by him during the period of this employment,
solely or in collaboration with others (collectively, the "Creations"), whether
or not same is made at the request or suggestion of the Company, or during or,
subject to Paragraph 9(b), outside regular hours of work, shall at all times be
and remain the sole and exclusive property of the Company. Executive further
agrees that he will, at the request of the Company, execute and deliver to the
Company, in form satisfactory to the Company, documents evidencing the Company's
ownership to the foregoing; but notwithstanding that no such documents are
executed, the Company, as Executive's employer, shall be deemed the owner
thereof immediately upon creation. Anything in this Agreement to the contrary
notwithstanding, the provisions of this paragraph shall survive the termination,
for any reason, of this Agreement.
9
<PAGE>
(b) Notwithstanding Paragraph 9(a) above, the Company shall not
own any Creations created by Executive prior to the Term or solely during
Executive's leisure hours during the Term, which Creation is not related in any
manner to, or derived in any manner from, any projects, concepts and/or
intellectual property of any nature of the Company or any of its affiliates.
Notwithstanding the foregoing, Executive agrees to submit to the Company any
such Creation which Executive desires to commercially exploit, and the Company
will notify Executive within ten (10) business days of receipt if the Company
desires to start negotiations for rights thereto. If no agreement is reached
within thirty (30) days after the start of negotiations, then Executive will
make an offer to the Company for such rights and if the Company does not accept,
Executive may negotiate elsewhere the rights so offered.
10. Existing Employment Agreement. Executive and the Company agree to
-----------------------------
terminate, as of the date of this Agreement, the current Employment Agreement
dated as of November 3, 1994 between Executive and the Company. In full
satisfaction and settlement of all amounts due to Executive under the current
Employment Agreement, promptly following execution of this Agreement Executive
shall receive (i) 323 units of P&F Capital Stock, consisting of 4/9 of a share
of P&F Common Stock and 5/9 of a share of P&F Series A Convertible Preferred
Stock; and (ii) cash of $216,000, out of which the Company shall make tax
withholdings required by law and other voluntary deductions authorized by
Executive.
10
<PAGE>
11. Termination. Executive's employment shall terminate:
-----------
(a) Upon the death of Executive.
(b) At the option of the Company, if Executive is disabled.
Disability shall mean Executive's inability to substantially perform his duties
hereunder due to a medically determinable physical or mental impairment that can
reasonably be expected to result in death within twelve (12) months or which has
lasted or can be expected to last for a continuous period of not less than
twelve (12) months.
(c) After thirty (30) days written notice by the Company to
Executive without "Cause".
(d) Upon written notice by the Company to Executive for "Cause"
which shall include only:
(i) the continued failure of Executive to substantially perform
his duties with the Company or any subsidiary of the Company (other than
any such failure resulting from illness, temporary absence, legal
incapacity or disability) for thirty (30) days after a demand for
substantial performance is delivered in writing to Executive by the Company
which specifically identifies the manner in which Executive has not
substantially performed his duties;
11
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(ii) Executive's continued failure to follow reasonable and
lawful directives (consistent with the terms of this Agreement) of the
Board of Directors of the Company (or, if applicable, the CEO) for thirty
(30) days after a demand for Executive to follow such directives is
delivered in writing to Executive by the Company that specifically
identifies the manner in which Executive has not followed such directives;
(iii) the engaging by Executive in willful, reckless or grossly
negligent misconduct in connection with his employment, unless Executive
ceases such misconduct within ten (10) days and remedies the adverse effect
of such misconduct within thirty (30) days, after a demand to cease
engaging in such misconduct is delivered in writing to Executive by Company
that specifically identifies such misconduct;
(iv) Executive's conviction of an offense involving moral
turpitude or a felony (it being understood that the first conviction of
Executive, if any, after commencement of the Term, for driving under the
influence of alcohol shall not constitute Cause hereunder); or
(v) material breach by Executive of this Agreement and failure
to cure such breach within thirty(30) days of delivery of a written notice
to Executive by the Company that specifically identifies the breach.
12
<PAGE>
If the remedy, cure or cessation of an act or omission which is
the subject of a notice under this Paragraph 11(d) would reasonably require
more than thirty (30) days to complete and Executive commences such remedy, cure
or cessation within thirty (30) days after receipt of such notice and diligently
pursues the same to completion, said act or omission shall not constitute
"Cause." Cause shall continue to exist with respect to Executive only for a
period of ninety (90) days after the event or action (and the expiration of any
notice or cure period specified) giving rise to Cause.
(e) Upon thirty (30) days written notice by Executive to the
Company for "Good Reason" which shall include:
(i) a substantial and adverse change in Executive's status or
position with the Company, or a reduction in the duties and
responsibilities set forth in Paragraph 2(a), as the same existed on the
commencement of the Term hereof which is not cured within thirty (30) days
after written notice thereof to the Company from Executive;
(ii) a reduction (other than for Cause) by the Company of
Executive's aggregate compensation under Paragraphs 7(a)(i) and (ii) above
as in effect on the commencement of the Term hereof or as in effect
thereafter if such compensation has been increased, unless such reduction
is restated retroactively not later than thirty (30) days after written
notice thereof to the Company from Executive;
13
<PAGE>
(iii) a material reduction by the Company in the overall value of
benefits provided to the Executive as in effect on the commencement of the
Term hereof or as in effect thereafter if such benefits have been increased
(as used in the preceding clause, "benefits" shall include all profit-
sharing, retirement, pension, health, medical, dental, disability
insurance, automobile and similar benefits), unless such reduction is
restated retroactively not later than thirty (30) days after written notice
thereof to the Company from Executive;
(iv) a relocation of Executive's principal place of employment
to any place outside the greater Los Angeles area, except for reasonable
amounts of required travel by the Executive on the Company's business;
(v) any material breach by the Company of any provision of this
Agreement which is not cured within thirty (30) days after written notice
thereof to the Company from Executive; or
(vi) the occurrence of a Designated Change of Control (as
defined in Section 6(e) of the 1996 Management Incentive Plan).
(f) At the expiration of the Term.
14
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(g) Upon one hundred twenty (120) days written notice by
Executive to the Company solely for Executive to return to the practice of
law individually or with a law firm.
12. No Mitigation. Except as provided in Paragraphs 8(b) and 8(c)
-------------
regarding benefits provided by a subsequent employer, and without limiting any
other provision hereof, any income and any other employment benefits received by
Executive from any and all sources other than the Company before or after the
expiration or termination of this Agreement for any reason whatsoever shall in
no way reduce or otherwise affect the Company's obligation to make payments and
afford benefits hereunder. Executive shall have no duty to seek employment. No
claim the Company has against Executive shall be used to offset the Company's
obligation hereunder (including, without limitation, any income or other
benefits received by Executive from claims by Executive under Paragraphs 9 or
13).
13. Confidential Material.
---------------------
(a) Disclosure. Executive acknowledges that, in the performance
----------
of duties on behalf of the Company, Executive shall have access to, receive and
be entrusted with confidential information, including but in no way limited to
development, marketing, organizational, financial, management, administrative,
production, distribution and sales information, data, specifications and
processes presently owned or at any time in the future developed by, the Company
or its agents or consultants, or used presently or at any time in
15
<PAGE>
the future in the course of its business that is not otherwise part of the
public domain (collectively, the "Confidential Material"). All such Confidential
Material is considered secret and will be available to Executive in confidence.
Except in the performance of Executive's duties on behalf of the Company,
Executive shall not, directly or indirectly for any reason whatsoever, disclose
or use any such Confidential Material, unless such Confidential Material ceases
(through no fault of Executive's) to be confidential because it has become part
of the public domain or as may be required by law or court order. All records,
files, drawings, documents, equipment and other tangible items, wherever
located, relating in any way to the Confidential Material or otherwise to the
Company's business, which Executive prepares, uses, or encounters, shall be and
remain the Company's sole and exclusive property and shall be included in the
Confidential Material. Upon termination of this Agreement by any means, or
whenever requested by the Company, Executive shall promptly deliver to the
Company any and all of the Confidential Material not previously delivered to the
Company that may be or at any previous time has been in Executive's possession
or under Executive's control; provided, however, Executive may keep Executive's
rolodex or other personal list of addresses and telephone numbers.
(b) Unfair Competition. Executive hereby acknowledges that the
------------------
sale or unauthorized use or disclosure of any of the Company's Confidential
Material by Executive by any means whatsoever at any time before, during or
after Executive's employment with the Company, except as provided in Paragraph
13(a), shall constitute "Unfair Competition". Executive agrees that Executive
shall not engage in Unfair
16
<PAGE>
Competition either during the time Executive is employed by the Company or at
any time thereafter.
(c) Other. In the event of the termination of Executive's
-----
employment for any reason, Executive (and any corporation or entity of which
Executive is a director, officer, employee or greater than five percent (5%)
shareholder) shall not, for a period of one (1) year:
(i) solicit for employment and then employ any employee of the
Company or any of its affiliates or subsidiaries; or
(ii) make any public statement concerning the Company, any of its
affiliates or subsidiaries, or Executive's employment unless (aa)
previously approved by the Company, except as may be required by law, or
(bb) to respond to a public statement about Executive issued by the
Company.
Notwithstanding the foregoing, it shall not be a breach of this Paragraph 13(c)
by Executive if an entity which Executive does not own (i.e., over 50% equity
ownership) or control violates such Paragraph and Executive is not materially
involved in such violation.
17
<PAGE>
14. Miscellaneous.
-------------
(a) Arbitration.
-----------
(i) Any and all disputes between Executive and the Company,
however significant, arising out of, relating in any way to or in
connection with this Agreement (including the validity, scope and
enforceability of the arbitration clause) shall be solely settled by an
arbitration conducted in accordance with the rules of the American
Arbitration Association or any similar successor body and to be held in Los
Angeles, California.
(ii) Any arbitration hereunder shall be held before a single
arbitrator mutually agreed to by the parties thereto, except that, if the
parties shall fail to agree to such an arbitrator within twenty (20) days
from the date on which the claimant's request for arbitration is delivered
to the other party to the arbitration, such arbitration shall be held
before an arbitrator appointed by the Amereican Arbitration Association.
(iii)Discovery may be taken in the arbitration proceedings
pursuant to the provisions of California Code of Civil Procedure Section
1283.05, which are incorporated herein by reference and made applicable to
any arbitration held pursuant to this Paragraph.
18
<PAGE>
(iv) The award of the arbitrator shall be made within ninety (90) days
from the date on which the arbitrator is selected. The award of the
arbitrator shall be final, and the parties agree to waive their right to
any form of appeal, to the greatest extent allowed by law. The arbitrator
shall award costs and fees, including the fees of the arbitrator and
reasonable attorneys' fees, to the prevailing party. Judgment upon any
award of the arbitrator may be entered in any court having jurisdiction or
application may be made to such court for the judicial acceptance of the
award and for order of enforcement.
(b) Applicable Law and Venue. This Agreement and any disputes or
------------------------
claims arising hereunder shall be construed in accordance with, governed by and
enforced under the laws of the State of California without regard for any rules
of conflicts of law. The arbitrator appointed as described above located in Los
Angeles, California shall be the sole fora for any action for relief arising out
of or pursuant to, or to enforce or interpret, this Agreement. Each party to
this Agreement consents to the personal jurisdiction and arbitration in such
fora and courts and each party hereto covenants not to, and waives any right to,
seek a transfer of venue from such jurisdiction on any grounds.
(c) Interpretation. The provisions of this Agreement were negotiated
--------------
by each of the parties hereto and this Agreement shall be deemed to have been
drafted by each party.
19
<PAGE>
(d) Representations of the Company. The Company represents and
------------------------------
warrants that this Agreement is validly binding on the Company and enforceable
in accordance with its terms.
(e) No Waivers. The failure of either party to enforce any
----------
provision of this Agreement shall not be construed as a waiver of any such
provision, nor prevent such party thereafter from enforcing such provision or
any other provision of this Agreement. Rights granted the parties hereto herein
are cumulative and the election of one shall not constitute a waiver of such
party's right to assert all other legal remedies available under the
circumstances.
(f) Notices. Any notice to be given under the terms of this
-------
Agreement shall be in writing and may be delivered personally, by telecopy,
telex or other form of written electronic transmission, by overnight courier or
by registered or certified mail, postage prepaid, and shall be addressed as
follows:
TO THE COMPANY:
Metro-Goldwyn-Mayer Inc.
2500 Broadway Street
Santa Monica, California 90404-3061
Attention: Director of Human Resources
20
<PAGE>
WITH A COPY TO:
Metro-Goldwyn-Mayer Inc.
2500 Broadway Street
Santa Monica, California 90404-3061
Attention: Legal Department
TO THE EXECUTIVE:
David G. Johnson, Esq.
Metro-Goldwyn-Mayer Inc.
2500 Broadway Street
Santa Monica, California 90404-3061
WITH A COPY TO:
Thomas Lewyn, Esq.
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017-3909
Either party may hereafter notify the other in writing of any change in address.
Any notice hereunder shall be deemed duly given when received by the person to
whom it was sent.
(g) Severability. The provisions of this Agreement are severable and
------------
if any provision of this Agreement shall be held to be invalid or otherwise
unenforceable, in whole or in part, the remainder of the provisions, or
enforceable parts thereof, shall not be affected thereby unless as a result of
such severing the remaining provisions or enforceable parts do not substantially
reflect the intention of the parties in entering into this Agreement.
21
<PAGE>
(h) Successors and Assigns. The rights and obligations of the
----------------------
parties under this Agreement shall inure to the benefit of and be binding upon
their successors and assigns, including the survivor upon any merger,
consolidation or combination of the Company with any other entity.
(i) Entire Agreement. This Agreement supersedes all prior agreements
----------------
and understandings between the parties hereto, oral or written, and may not be
modified or terminated orally. No modification, termination or attempted waiver
shall be valid unless in writing, signed by the party against whom such
modification, termination or waiver is sought to be enforced.
(j) Survival. The provisions of Paragraphs 8, 9, 10, 11, 12, 13, and
--------
14 of this Agreement shall survive the Term, it being understood that the
foregoing shall not limit Executive's rights with respect to amounts due him and
unpaid at the expiration of the Term.
(k) Confidentiality and Publicity. This Agreement shall remain
-----------------------------
confidential and the terms shall not be divulged to any person (other than
Executive's professional advisors and family) except to the extent required by
law or legal process. Any press release or announcement of or relating to this
Agreement and the timing of any such announcement shall only be made with the
agreement of Executive and the Company.
22
<PAGE>
(l) Attorneys. Each party may be represented by counsel of its choice
---------
even though such counsel may have represented the other party in matters related
to the business of the Company, and each party agrees to execute an appropriate
waiver to effectuate this clause.
(m) Indemnification. The Company shall indemnify Executive through
---------------
its Certificate of Incorporation, By-laws, indemnification agreements or
otherwise to the fullest extent permitted by the Delaware General Corporation
Law (including the reimbursement of defense costs as incurred), as the same
exists and may hereafter be amended. Such indemnification shall apply, but not
be limited to, any actions taken or omissions by Executive, including, without
limitation, furnishing information, during the period from and after January 1,
1996 until the Closing Date (as defined in the sale transaction agreements) in
connection with the potential sale of the Company and Executive's efforts to
assemble a bid group to purchase the Company.
23
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
METRO-GOLDWYN-MAYER INC.
By: A. Robert Pisano
----------------------
Its: Vice Chairman
---------------------
/s/ David G. Johnson
-------------------------
David G. Johnson
24
<PAGE>
EXHIBIT 10.11
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is entered into as of
October 10, 1996 between Metro-Goldwyn-Mayer Inc., a Delaware corporation (the
"Company"), and William A. Jones ("Executive").
The parties agree as follows:
1. Employment and Title. Effective as of October 10, 1996, the
--------------------
Company employs Executive as, and Executive accepts employment to serve as,
Executive Vice President, all upon the terms and conditions set forth in this
Agreement, including the powers and authority set forth in Paragraph 2 below.
2. Powers and Authority.
--------------------
(a) During the Term, as defined in Paragraph 6 below, Executive
shall be an Executive Vice President of the Company. Subject to the direction of
the Chairman and Chief Executive Officer of the Company (the "CEO") and the
Vice Chairman of the Company (the "VC"), Executive shall have such duties and
responsibilities as set forth in the attached Job Description.
1
<PAGE>
(b) Executive's services shall be exclusive to the Company and
its subsidiaries. Executive shall devote Executive's best efforts and
Executive's full business time (except as provided in the following sentence) to
the services to be performed hereunder. Executive may serve on the boards of
directors (and committees thereof) of (but in no other capacity for) other
companies and non-profit organizations, may manage the investment of Executive's
personal assets, and may make new investments of Executive's personal assets in
other companies so long as such activities do not materially interfere with
Executive's duties hereunder and (other than investments not to exceed one
percent (1%) of the total outstanding in publicly traded securities) such
companies do not directly compete with the Company.
(c) Executive agrees to comply with the Company's policies and
procedures as in effect from time to time (and which are not inconsistent with
this Agreement) to the extent that such policies are furnished to Executive in
writing.
3. Location. The location of Executive's principal place of
--------
employment shall be in the Company's principal executive offices in the greater
Los Angeles, California area; provided, however, that Executive shall perform
such occasional services outside of Los Angeles as are, in the reasonable
determination of the Executive, the VC or the CEO, reasonably required for the
proper performance of Executive's duties under this Agreement.
2
<PAGE>
4. Reporting. Executive shall report jointly to the CEO and the VC
---------
(currently A. Robert Pisano); provided, however, that if Mr. Pisano shall no
longer serve as a senior executive of the Company. Executive shall report solely
to the CEO.
5. Availability. Each party represents and warrants to the other
------------
that it has the full power and authority to enter into and perform its
obligations under this Agreement and that its execution of and performance under
this Agreement shall not constitute a default under or breach of the terms of
any other agreement or order of any court or governmental authority to which it
is a party or under which it is bound. Each party shall defend and hold harmless
the other for any and all claims, demands, losses or damages (including
reasonable attorneys' fees) arising from any action against any such party due
to a breach of any representation and warranty contained in this Paragraph or
based upon any allegations of interference with contractual obligations or the
like relating to the negotiation or execution of this Agreement.
6. Term. Subject to the provisions for earlier termination set
----
forth in Paragraph 11, the term of Executive's employment hereunder shall
commence on the effective date and continue through October 9, 2001 (the
"Term"). Neither the Company nor Executive will have any obligation to renew or
extend this Agreement beyond the Term.
7. Compensation.
------------
3
<PAGE>
(a) Salary and Bonus. In full consideration for the services to
----------------
be rendered by Executive, and in full discharge of the Company's salary
obligations, Company shall pay to Executive and Executive shall accept:
(i) an annualized base salary of $525,000 during the first
twelve month period of the Term, $575,000 during the second twelve month
period, $625,000 during the third twelve month period, and an amount during
each of the fourth and fifth twelve month periods, respectively, to be
determined by the Company after a good faith review of Executive's base
salary and performance prior to the beginning of each such period, but in
no event less than the annualized base salary being paid to Executive as of
the date of such good faith review (each amount less tax withholdings
required by law and other voluntary deductions authorized by Executive),
payable bi-weekly in arrears commencing on the first regular bi-weekly
payment date; and
(ii) intentionally omitted;
(iii) an annual discretionary bonus, or such applicable prorated
portion thereof for any partial Company fiscal year during the Term (less
tax withholdings required by law and other voluntary deductions authorized
by Executive), to be determined in the sole discretion of the CEO, payable
on the first day of the second month following the completion of each
Company fiscal year
4
<PAGE>
ending in the term (and within forty-five days following the end of the
Term with respect to the last partial Company fiscal year): and
(iv) participation in the P&F Acquisition Corp. and
Metro-Goldwyn-Mayer Inc. 1996 Management Stock Option and Bonus Plan(s)
(the "Plan") in the amounts designated on page A-9 of Exhibit A thereto
(i.e., 1,395 Series A Options (and Bonus Interests) and 1,535 Series B
Options).
(b) Other Benefits. Executive shall be entitled to the
--------------
following additional benefits: a car allowance and vacation time in accordance
with Company policy applicable to employees of Executive's seniority, salary and
title; first-class air travel.
(c) Business Expenses. During the Term, the Company shall pay
-----------------
or reimburse Executive promptly for all reasonable business expenses incurred by
Executive in the performance of Executive's duties under this Agreement if
properly substantiated and in accordance with the Company's policies and
procedures applicable to employees of Executive's seniority, salary and title.
(d) Insurance. During the Term, Executive shall be entitled to
---------
and shall be accorded all rights and benefits under any life insurance,
disability insurance, health and major medical insurance policy or policies
which the Company provides for its senior officers or employees generally.
Nothing in this paragraph shall require the Company to
5
<PAGE>
retain any particular policy or plan, but a reasonable insurance benefit package
shall be maintained. Notwithstanding the foregoing, during the Term the Company
shall provide and pay for a five-year level term life insurance policy on
Executive's life (from any company which Company has regularly obtained life
insurance policies for its senior executives in the past five years or is
willing to do so now, and subject to Executive's reasonable approval, and at no
charge to Executive other than any applicable income taxes) which provides a
death benefit in the amount of $2,000,000. Further, at Executive's sole election
and sole expense, Executive may, from time to time, increase the term or amount
of such policy. Executive shall be entitled to designate the owner and
beneficiary or beneficiaries of such policy which may include a trust. Such
policy shall be in addition to, and not in lieu of, any life insurance benefit
which the Company provides for its senior officers or employees generally.
(e) Employee Benefit Plans. Executive shall be entitled to
----------------------
participate in and/or receive all other employee benefits under any 401(k) plan,
savings plan, pension plan and other similar plan or program which the Company
provides for its senior officers or employees generally, all subject to the
terms and conditions of the various benefit plans.
8. Compensation in the Event of Termination.
----------------------------------------
(a) If the Agreement is terminated under Paragraph 11(a),
Executive or his estate shall receive the compensation provided in Paragraph
7(a)(i) and 7(a)(iii), if
6
<PAGE>
any, prorated to the date of termination, and all amounts accrued under benefit
plans in which Executive is a participant as of such termination date, including
without limitation the benefits provided in Paragraph 7(a)(iv) in accordance
with the provisions of the Plan.
(b) If the Agreement is terminated under Paragraph 11(b),
Executive shall receive the same compensation and benefits set forth in
Paragraph 8(a), except that the benefits provided in Paragraph 7(d) shall
continue for what would be the remainder of the Term but for such termination
(the "Full Term") in accordance with the terms of each respective policy or plan
(provided, however, that if prior to the expiration of the Full Term Executive
receives any of the types of benefits specified in Paragraph 7(d) from a
subsequent employer, the Company shall immediately cease to provide such types
of benefits received from the subsequent employer; provided further, however,
that the individual term life insurance policy specified in Paragraph 7(d) shall
remain in effect pursuant to its terms unless a subsequent employer provides a
substantially equivalent policy).
(c) If the Agreement is terminated under Paragraph 11(c) or
11(e) below, or expires pursuant to its terms, Executive shall receive the net
present value of the compensation provided in Paragraphs 7(a)(i) and 7(a)(ii)
through the Full Term, discounted at the 30-day LIBOR rate in effect at the date
of termination, the compensation provided in Paragraph 7(a)(iii), if any, pro
rated as specified therein, the benefits provided in Paragraph 7(a)(iv) in
accordance with the provisions of the Plan, and the benefits provided in
Paragraph
7
<PAGE>
7(d) for the Full Term in accordance with the terms of each respective policy or
plan (provided, however, that if prior to the expiration of the Full Term
Executive receives any of the types of benefits specified in Paragraph 7(d) from
a subsequent employer, the Company shall immediately cease to provide such types
of benefits received from the subsequent employer; provided further, however,
that the individual term life insurance policy specified in Paragraph 7(d) shall
remain in effect pursuant to its terms unless a subsequent employer provides a
substantially equivalent policy).
(d) If the Agreement is terminated under Paragraph 11(d),
Executive shall not be entitled to receive any payment or benefits following the
date of termination, except as may be accrued to the date of termination, or
vested under the Plan, or any other plan or policies of the Company.
9. Property Rights.
---------------
(a) Executive agrees that all results and proceeds of his
services, including any ideas, programs, formats, plans and arrangements,
composed, conceived or created by him during the period of this employment,
solely or in collaboration with others (collectively, the "Creations"), whether
or not same is made at the request or suggestion of the Company, or during or
outside regular hours of work, shall at all times be and remain the sole and
exclusive property of the Company. Executive further agrees that he will, at the
request of the Company, execute and deliver to the Company, in form satisfactory
to the
8
<PAGE>
Company, documents evidencing the Company's ownership to the foregoing; but
notwithstanding that no such documents are executed, the Company, as Executive's
employer, shall be deemed the owner thereof immediately upon creation. Anything
in this Agreement to the contrary notwithstanding, the provisions of this
paragraph shall survive the termination, for any reason, of this Agreement.
(b) Notwithstanding Paragraph 9(a) above, the Company shall not
own any Creations created by Executive prior to the Term or solely during
Executive's leisure hours during the Term, which Creation is not related in any
manner to, or derived in any manner from, any projects, concepts and/or
intellectual property of any nature of the Company or any of its affiliates.
Notwithstanding the foregoing, Executive agrees to submit to the Company any
such Creation which Executive desires to commercially exploit, and the Company
will notify Executive within ten (10) business days of receipt if the Company
desires to start negotiations for rights thereto. If no agreement is reached
within thirty (30) days after the start of negotiations, then Executive will
make an offer to the Company for such rights and if the Company does not accept,
Executive may negotiate elsewhere the rights so offered.
10. Existing Employment Agreement. Executive and the Company agree
-----------------------------
to terminate, as of the date of this Agreement, the current Employment Agreement
dated as of November 30, 1994 between Executive and the Company. In full
satisfaction and settlement of all amounts due to Executive under the current
Employment Agreement, promptly
9
<PAGE>
following execution of this Agreement Executive shall receive (i) 625 units of
P&F Capital Stock, consisting of 4/9 of a share of P&F Common Stock and 5/9 of a
share of P&F Series A Convertible Preferred Stock; and (ii) cash of $416,178,
out of which the Company shall make tax withholdings required by law and other
voluntary deductions authorized by Executive.
11. Termination. Executive's employment shall terminate.
-----------
(a) Upon the death of Executive.
(b) At the option of the Company, if Executive is disabled.
Disability shall mean Executive's inability to substantially perform his duties
hereunder due to a medically determinable physical or mental impairment that can
reasonably be expected to result in death with twelve (12) months or which has
lasted or can be expected to last for a continuous period of not less than
twelve (12) months.
(c) After thirty (30) days' written notice by the Company to
Executive without "Cause".
(d) Upon written notice by the Company to Executive for "Cause"
which shall include only:
10
<PAGE>
(i) the continued failure of Executive to substantially
perform his duties with the Company or any subsidiary of the Company (other
than any such failure resulting from illness, temporary absence, legal
incapacity or disability) for thirty (30) days after a demand for
substantial performance is delivered in writing to Executive by the Company
which specifically identifies the manner in which Executive has not
substantially performed his duties;
(ii) Executive's continued failure to follow reasonable and
lawful directives (consistent with the terms of this Agreement) of the
Board of Directors of the Company (or, if applicable, the CEO or VC) for
thirty (30) days after a demand for Executive to follow such directives is
delivered in writing to Executive by the Company that specifically
identifies the manner in which Executive has not followed such directives;
(iii) the engaging by Executive in willful, reckless or grossly
negligent misconduct in connection with his employment, unless Executive
ceases such misconduct within ten (10) days and remedies the adverse effect
of such misconduct within thirty (30) days, after a demand to cease
engaging in such misconduct is delivered in writing to Executive by Company
that specifically identifies such misconduct;
11
<PAGE>
(iv) Executive's conviction of an offense involving moral
turpitude or a felony (it being understood that the first conviction of
Executive, if any, after commencement of the Term, for driving under the
influence of alcohol shall not constitute Cause hereunder); or
(v) material breach by Executive of this Agreement and failure
to cure such breach within thirty (30) days of delivery of a written notice
to Executive by the Company that specifically identifies the breach.
If the remedy, cure or cessation of an act or omission which is
the subject of a notice under this Paragraph 11(d) would reasonably require more
than thirty (30) days to complete and Executive commences such remedy, cure or
cessation within thirty (30) days after receipt of such notice and diligently
pursues the same to completion, said act or omission shall not constitute
"Cause." Cause shall continue to exist with respect to Executive only for a
period of ninety (90) days after the event or action (and the expiration of any
notice or cure period specified) giving rise to Cause.
(e) Upon thirty (30) days' written notice by Executive to the
Company for "Good Reason" which shall include:
(i) a substantial and adverse change in Executive's status or
position with the Company as the same existed on the commencement of the
Term
12
<PAGE>
hereof which is not cured within thirty (30) days after written notice
thereof to the Company from Executive:
(ii) a reduction (other than for Cause) by the Company of
Executive's aggregate compensation under Paragraph 7(a)(i) above as in
effect on the commencement of the Term hereof or as in effect thereafter if
such compensation has been increased (other than a reduction in aggregate
compensation in the fourth and/or fifth twelve month periods of the Term
resulting from the Company's good faith review of Executive's base salary
and performance as provided in Paragraph 7(a)(i)), unless such reduction is
restated retroactively not later than thirty (30) days after written notice
thereof to the Company from Executive;
(iii) a material reduction by the Company in the overall value
of benefits provided to the Executive as in effect on the commencement of
the Term hereof or as in effect thereafter if such benefits have been
increased (as used in the preceding clause, "benefits" shall include all
profit-sharing, retirement, pension, health, dental, disability insurance,
automobile and similar benefits) unless such reduction is restated
retroactively not later than thirty (30) days after written notice thereof
to the Company from Executive;
13
<PAGE>
(iv) a relocation of Executive's principal place of employment
to any place outside the greater Los Angeles area, except for reasonable
amounts of required travel by the Executive on the Company's business; or
(v) any material breach by the Company of any provision of
this Agreement which is not cured within thirty (30) days after written
notice thereof to the Company from Executive; or
(f) At the expiration of the Term.
12. No Mitigation. Except as provided in Paragraphs 8(b) and 8(c)
-------------
regarding the benefits provided by a subsequent employer, and without limiting
any other provision hereof, any income and any other employment benefits
received by Executive from any and all sources other than the Company before or
after the expiration or termination of this Agreement for any reason whatsoever
shall in no way reduce or otherwise affect the Company's obligation to make
payments and afford benefits hereunder. Executive shall have no duty to seek
employment. No claim the Company has against Executive shall be used to offset
the Company's obligation hereunder.
13. Confidential Material.
---------------------
14
<PAGE>
(a) Disclosure. Executive acknowledges that, in the performance of
----------
duties on behalf of the Company. Executive shall have access to, receive and be
entrusted with confidential information, including but in no way limited to
development, marketing, organizational, financial, management, administrative,
production, distribution and sales information, data, specifications and
processes presently owned or at any time in the future developed by, the Company
or its agents or consultants, or used presently or at any time in the future in
the course of its business that is not otherwise part of the public domain
(collectively, the "Confidential Material"). All such Confidential Material is
considered secret and will be available to Executive in confidence. Except in
the performance of Executive's duties on behalf of the Company or as required by
law, Executive shall not, directly or indirectly for any reason whatsoever,
disclose or use any such Confidential Material, unless such Confidential
Material ceases (through no fault of Executive's) to be confidential because it
has become part of the public domian. All records, files, drawings, documents,
equipment and other tangible items, wherever located, relating in any way to the
Confidential Material or otherwise to the Company's business, which Executive
prepares, uses, or encounters, shall be and remain the Company's sole and
exclusive property and shall be included in the Confidential Material. Upon
termination of this Agreement by any means, or whenever requested by the
Company, Executive shall promptly deliver to the Company any and all of the
Confidential Material not previously delivered to the Company that may be or at
any previous time has been in Executive's possession or under Executive's
control; provided, however, Executive may keep Executive's rolodex or other
personal list of addresses and telephone numbers.
15
<PAGE>
(b) Unfair Competition. Executive hereby acknowledges that the
------------------
sale or unauthorized use or disclosure of any of the Company's Confidential
Material by Executive by any means whatsoever at any time before, during or
after Executive's employment with the Company shall constitute "Unfair
Competition". Executive agrees that Executive shall not engage in Unfair
Competition either during the time Executive is employed by the Company or at
any time thereafter.
(c) Other. In the event of the termination of Executive's
-----
employment for any reason, Executive shall not for a period of of one (1) year
thereafter:
(i) directly or indirectly, either alone or jointly with or on
behalf of any corporation or entity of which Executive is a director, employee
or greater than five percent (5%) shareholder solicit for employment and then
employ any employee of the Company or any of its affiliates or subsidiaries
other than Executive's secretary or personal assistant; or
(ii) make any derogatory public statement concerning the Company,
any of its affiliates or subsidiaries, or Executive's employment unless
previously approved by the Company, except as may be required by law.
14. Miscellaneous.
-------------
16
<PAGE>
(a) Arbitration.
-----------
(i) Any and all disputes between Executive and Company, however
significant, arising out of, relating in any way to or in connection with this
Agreement (including the validity, scope and enforceability of this arbitration
clause) shall be solely settled by an arbitration to be held in Los Angeles,
California and conducted in accordance with such rules of the American
Arbitration Association or any similar successor body as are not inconsistent
with the provisions of this Paragraph 14(a).
(ii) Any arbitration hereunder shall be held before a single
arbitrator mutually agreed to by the parties thereto, except that, if the
parties shall fail to agree to such an arbitrator within twenty (20) days from
the date on which the claimant's request for arbitration is delivered to the
other party to the arbitration, such arbitration shall be held before an
arbitrator appointed by the American Arbitration Association.
(iii) Discovery may be taken in the arbitration proceedings
pursuant to the provisions of California Code of Civil Procedure Section
1283.05, which are incorporated herein by reference and made applicable to any
arbitration held pursuant to this Paragraph.
17
<PAGE>
(iv) The award of the arbitrator shall be made within ninety
(90) days from the date on which the arbitrator is selected. The award of the
arbitrator shall be final, and the parties agree to waive their right to any
form of appeal, to the greatest extent allowed by law. The arbitrator shall
award costs and fees, including the fees of the arbitrator and reasonable
attorneys' fees, to the prevailing party. Judgement upon any award of the
arbitrator may be entered in any court having jurisdiction or application may be
made to such court for the judicial acceptance of the award and for order of
enforcement.
(b) Applicable Law and Venue. This Agreement and any disputes
------------------------
or claims arising hereunder shall be construed in accordance with, governed by
and enforced under the laws of the State of California without regard for any
rules of conflicts of law. The arbitrator appointed as described above located
in Los Angles, California shall be the sole fora for any action for relief
arising out of or pursuant to, or to enforce or interpret, this Agreement.
Each party to this Agreement consents to the personal jurisdiction and
arbitration in such fora and courts and each party hereto covenants not to, and
waives any right to, seek a transfer of venue from such jurisdiction on any
grounds
(c) Interpretation. The provisions of this Agreement were
--------------
negotiated by each of the parties hereto and this Agreement shall be deemed to
have been drafted by each party.
18
<PAGE>
(d) Representations of the Company. The Company represents and
------------------------------
warrants that this Agreement is validly binding on the Company and enforceable
in accordance with its terms and that the execution and performance hereof is
not in conflict with any agreement or understanding the Company has with any
third party.
(e) No Waivers. The failure of either party to enforce any
----------
provision of this Agreement shall not be construed as a waiver of any such
provision, nor prevent such party thereafter from enforcing such provision or
any other provision of this Agreement. Rights granted the parties hereto herein
are cumulative and the election of one shall not constitute a waiver of such
party's right to assert all other legal remedies available under the
circumstances.
(f) Notices. Any notice to be given under the terms of this
-------
Agreement shall be in writing and may be delivered personally, by telecopy,
telex or other form of written electronic transmission, by overnight courier or
by registered or certified mail, postage prepaid, and shall be addressed as
follows:
TO THE COMPANY:
Metro-Goldwyn-Mayer Inc.
2500 Broadway Street
Santa Monica, California 90404-3061
Attention: Director of Human Resources
19
<PAGE>
WITH A COPY TO:
Metro-Goldwyn-Mayer Inc.
2500 Broadway Street
Santa Monica, California 90404-3061
Attention: Legal Department
TO THE EXECUTIVE:
William A. Jones, Esq.
Metro-Goldwyn-Mayer Inc.
2500 Broadway Street
Santa Monica, California 90404-3061
Either party may hereafter notify the other in writing of any change in address.
Any notice hereunder shall be deemed duly given when received by the person to
whom it was sent.
(g) Severability. The provisions of this Agreeement are severable and
------------
if any provision of this Agreement shall be held to be invalid or otherwise
unenforceable in whole or in part, the remainder of the provisions, or
enforceable parts thereof, shall not be affected thereby unless as a result of
such severing the remaining provisions or enforceable parts do not substantially
reflect the intention of the parties in entering into this Agreement.
(h) Successors and Assigns. The rights and obligations of the parties
----------------------
under this Agreement shall inure to the benefit of and be binding upon their
successors, heirs and
20
<PAGE>
assigns, including the survivor upon any merger, consolidation or combination of
the Company with any other entity.
(i) Entire Agreement. This Agreement supersedes all prior
----------------
agreements and understandings between the parties hereto, oral or written, and
may not be modified or terminated orally. No modification, termination or
attempted waiver shall be valid unless in writing, signed by the party against
whom such modification, termination or waiver is sought to be enforced.
(j) Survival. The provisions of Paragraphs 8, 9, 10, 11, 12, 13,
--------
and 14 of this Agreement shall survive the Term, it being understood that the
foregoing shall not limit Executive's rights with respect to amounts due to him
an unpaid at the expiration of the Term.
(k) Confidential and Publicity. This Agreement shall remain
--------------------------
confidential and the terms shall not be divulged to any person (other than
Executive's professional advisors and family) except to the extent required by
law or legal process. Any press release or announcement of or relating to this
Agreement and the timing of any such announcement shall only be made with the
agreement of Executive and the Company.
(l) Attorneys. Each party may be represented by counsel of its
---------
choice even though such counsel may have represented the other party in matters
related to the
21
<PAGE>
business of the Company, and each party agrees to execute an appropriate waiver
to effectuate this clause.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
METRO-GOLDWYN-MAYER INC.
By: [SIGNATURE ILLEGIBLE]
----------------------
Its: Vice Chairman
---------------------
/s/ William A. Jones
-------------------------
William A. Jones
22
<PAGE>
JOB DESCRIPTION
---------------
A. Serve as one of the Company's principal representatives along with the
Chief Executive Officer ("CEO") and the Vice Chairman ("VC") with
responsibilities for matters affecting the Company's business, activities,
relationships and disputes with key constituencies and outside parties. The
foregoing includes, but is not limited to, serving as:
1. Principal liaison and spokesperson and participation in formulating
Company policy regarding all domestic and foreign governmental units
and their agencies and activities.
2. Corporate Secretary with responsibility for organizing, attending and
documenting meetings of the Board of Directors and maintaining the
minute books and official corporate records of the Company.
3. Principal spokesperson and participation in formulating Company policy
in connection with (i) its joint ventures (e.g., UIP including service
on Partners Committee) and (ii) trade association activities (e.g.,
MPAA/MPA) and including all political activities, fundraising and
managing and coordinating the activities of all operating units with
such organizations.
4. Principal executive responsible for all labor and employment matters,
including AMPTP activities, and managing and coordinating the
Company's labor and employment issues and disputes including (without
limitation) (i) claims and proceedings regarding wrongful discharge,
employment discrimination and other employment-related claims and (ii)
contractual matters related to employment and termination agreements.
Such additional responsibilities consistent with the foregoing as may
be assigned by the CEO or VC.
B. Responsible for the management of the following corporate functions:
1. Corporate-Secretary
2. Risk Management
3. Labor Relations
4. Corporate Administration (including, but not limited to, Human
Resources) or, at the Company's election, Human Resources alone, to
the extent such function or functions are not included within the
initial responsibilities of a new Chief Financial Officer.
23
<PAGE>
EXHIBIT 10.14
JOINT AND SEVERAL INDEMNITY AGREEMENT
AGREEMENT dated as of October , 1997 by and between Metro-Goldwyn-Mayer
Inc., a Delaware corporation (the "Corporation") and Metro-Goldwyn-Mayer
-----------
Studios, a Delaware corporation ("MGM Studios" and together with the
-----------
Corporation, the "Indemnitors") on the one hand, and Michael G. Corrigan (the
"Indemnitee", on the other.
----------
RECITALS
The Indemnitee is a director and/or officer of the Corporation, MGM
Studios and/or an Affiliate Indemnitee (as hereinafter defined). Each of the
Indemnitors and the Indemnitee recognize the increased risk of litigation and
other claims being asserted against directors and officers in today's
environment.
The Bylaws of the Corporation requires the Corporation and the Bylaws of
MGM Studios requires MGM Studios to indemnify their respective directors and
officers as currently provided therein, and the Indemnitee has been serving and
continues to serve as a director and/or officer of the Corporation and/or MGM
Studios in part in reliance on such provisions. The Bylaws of each of the
Indemnitors permit such Indemnitor to purchase and maintain insurance or to
furnish similar protection or make other arrangements (any such insurance,
protection or arrangement, an "Indemnification Arrangement") on behalf of the
--------------- -----------
Indemnitee against personal liability (including, but not limited to, providing
for Advanced Amounts as hereinafter defined) asserted against him or incurred by
or on behalf of him in such capacity as a director or officer of such Indemnitor
or as an Affiliate Indemnitee, or arising out of his status as such, whether or
not such Indemnitor would have the power to indemnify him against such liability
under the provisions of this Agreement or under the Delaware General Corporation
Law (the "DGCL"), as it may then be in effect.
----
In part to provide the Indemnitee with specific contractual assurance of
substantial protection against personal liability (regardless of, among other
things, any amendment to or revocation of the aforementioned provisions of any
of the Indemnitor's Bylaws or any change in the composition of such Indemnitor's
Board of Directors or control of such Indemnitor), each of the Indemnitors
desires to enter into this Agreement. DGCL Section 145(f) expressly recognizes
that the indemnification provisions of the DGCL are not exclusive of any other
rights to which a person seeking indemnification may be entitled under the
Certificate of Incorporation or Bylaws of any of the Indemnitors, or an
agreement providing for indemnification, or a resolution of stockholders or
directors, or otherwise, and the Bylaws of each of the Indemnitors expressly
recognizes that the indemnification provisions of the Bylaws of such Indemnitor
shall not be deemed exclusive of, and shall not affect, any other rights to
which a person seeking indemnification may be entitled under any agreement, and
this Agreement is being entered into pursuant to the Bylaws of each of the
Indemnitors, as permitted by the DGCL, and has been authorized by the
stockholders of the Indemnitors.
In order to induce the Indemnitee to serve as a director and/or officer
of the Corporation and/or MGM Studios and in consideration of the Indemnitee's
so serving, each of the Indemnitors desires jointly and severally to hold
harmless and indemnify the Indemnitee and to make arrangements pursuant to which
the Indemnitee may be advanced or reimbursed expenses incurred by the Indemnitee
in certain proceedings, in every case to the fullest extent authorized or
permitted by the DGCL, or any other applicable law, or by any amendment thereof
or other statutory provisions authorizing or permitting such indemnification
which are adopted after the date hereof (but, in the case of any such amendment,
only to the extent that such amendment permits the Indemnitor to provide broader
indemnification rights than the
<PAGE>
DGCL, or other applicable law, permitted such Indemnitor to provide prior to
such amendment).
NOW, THEREFORE, in consideration of the foregoing recitals and of the
Indemnitee's continuing to serve the Corporation and/or MGM Studios as a
director and/or officer, the parties agree as follows:
1. Indemnification. To the fullest extent allowed by law, each of the
---------------
Indemnitors, jointly and severally, shall hold harmless and indemnify the
Indemnitee, his executors, administrators or assigns against any and all
expenses, liabilities and losses (including, without limitation, investigation
expenses, expert witnesses' and attorneys' fees and expenses, judgments,
penalties, fines, amounts paid or to be paid in settlement any interest,
assessments, or other charges imposed thereon and any federal, state, local or
foreign taxes imposed as a result of actual or deemed receipt of any payment
hereunder) actually incurred by the Indemnitee (net of any related insurance
proceeds or other amounts received by the Indemnitee or paid by or on behalf of
an Indemnitor on the Indemnitee's behalf in compensation of such expenses,
liabilities or losses) in connection with any actual or threatened action, suit
or proceeding, whether civil, criminal, administrative or investigative or in
arbitration, to which the Indemnitee is a party or participant or is threatened
to be made a party or participant (a "Proceeding"), as a plaintiff, defendant,
----------
respondent, witness or otherwise, based upon, arising from, relating to or by
reason of the fact that the Indemnitee: (a) is, was, shall be or shall have been
a director and/or officer of the Corporation or (b) is or was serving, shall
serve, or shall have served at the request of the Corporation as a director,
officer, partner, trustee, fiduciary, employee or agent ("Affiliate Indemnitee")
--------------------
of another foreign or domestic corporation or non-profit corporation,
cooperative, partnership, joint venture, trust, employee benefit plan, or other
incorporated or unincorporated enterprise (each, a "Company Affiliate"); or
-----------------
arising from or relating to any action or omission to act taken by the
Indemnitee in any of the foregoing capacities; provided, however, that, except
as provided in Section 9(b) hereof, an Indemnitor shall indemnify the Indemnitee
in connection with a Proceeding initiated by the Indemnitee only if such
proceeding (or part thereof) was authorized by a two-thirds vote of the Board of
Directors of such Indemnitor.
The Indemnitee shall be presumed to be entitled to such indemnification
under this Agreement upon submission of a written claim pursuant to Section 4
hereof. Thereafter, the Indemnitors shall have the burden of proof to overcome
the presumption that the Indemnitee is so entitled. Such presumption shall only
be overcome by a judgment or other final adjudication, after all appeals and all
time for appeals has expired ("Final Determination"), which is adverse to the
-------------------
Indemnitee and which establishes (i) that his acts were committed in bad faith,
or were the result of active and deliberate dishonesty, and were material to the
cause of action so adjudicated and (ii) that the Indemnitee in fact personally
gained a financial profit or other advantage to which he was not legally
entitled. If the Indemnitee is not wholly successful in any Proceeding but is
successful on the merits or otherwise, as to one or more but less than all
claims, issues or matters in such Proceeding the Indemnitors agree, jointly and
severally, to indemnify the Indemnitee to the maximum extent permitted by law
against all losses and expenses incurred by the Indemnitee in connection with
each successfully resolved claim, issue or matter. Neither the failure of any of
the Indemnitors (including their respective Boards of Directors, legal counsel
or stockholders) to have made a determination prior to the commencement of such
Proceeding that indemnification of the Indemnitee is proper in the circumstances
because such person has met the applicable standard of conduct set forth in the
DGCL, nor an actual determination by such Indemnitor (including its Board of
Directors, its legal counsel or its stockholders) that the Indemnitee has not
met the applicable standard of conduct, shall be a defense to the action or
create a presumption that the Indemnitee has not met the applicable standard of
conduct. The purchase, establishment or maintenance of any Indemnification
Arrangement shall not in any
2
<PAGE>
way diminish, restrict, limit or adversely affect the rights and obligations of
any of the Indemnitors or of the Indemnitee under this Agreement, except as
expressly provided herein, and the execution and delivery of this Agreement by
the Indemnitors and the Indemnitee shall not in any way diminish, restrict,
limit or adversely affect the Indemnitee's right to indemnification from the
Indemnitors or any other party or parties under any other Indemnification
Arrangement, the Certificate of Incorporation or Bylaws of any of the
Indemnitors, or the DGCL.
2. Period of Limitations. No legal action shall be brought and no
---------------------
cause of action shall be asserted by or on behalf of an Indemnitor or any
affiliate of an Indemnitor against the Indemnitee, Indemnitee's spouse, heirs,
executors, or personal or legal representatives after the expiration of two
years from the date of accrual of such cause of action, or such longer period as
may be required by applicable law under the circumstances. Any claim or cause of
action of the Indemnitor or its affiliate shall be extinguished and deemed
released unless asserted by the timely filing of a legal action within such
period; provided, however, that if any shorter period of limitations is
otherwise applicable to any such cause of action the shorter period shall
govern.
3. Insurance. Subject only to the provisions of this Section 3, as
---------
long as the Indemnitee shall continue to serve as a director and/or officer of
an Indemnitor (or shall continue at the request of an Indemnitor to serve as an
Affiliate Indemnitee) and, thereafter, as long as the Indemnitee shall be
subject to any possible Proceeding by reason of the fact that the Indemnitee was
a director and/or officer of the Corporation and/or MGM Studios (or served in
any of said other capacities), the Indemnitors shall, unless no such policies
are available in any market, purchase and maintain in effect for the benefit of
the Indemnitee one or more valid, binding and enforceable policies (the
"Insurance Policies") of directors' and officers'
------------------
liability insurance ("D&O Insurance") providing adequate liability coverage for
-------------
the Indemnitee's acts as a director and/or officer of the Indemnitors or as an
Affiliate Indemnitee. Each Indemnitor shall promptly notify the Indemnitee of
any lapse, amendment or failure to renew said policy or policies or any
provision thereof relating to the extent or nature of coverage provided
thereunder. In the event any Indemnitor does not purchase and maintain in effect
said policy or policies of D&O Insurance pursuant to the provisions of this
Section 3, such Indemnitor shall, in addition to and not in limitation of the
other rights granted the Indemnitee under this Agreement, hold harmless and
indemnify the Indemnitee to the full extent of coverage which would otherwise
have been provided for the benefit of the Indemnitee pursuant to the Insurance
Policies.
4. Claims for Payments. The Indemnitee shall have the right to receive
-------------------
from the Indemnitors on demand or, at his option, to have any of the Indemnitors
pay promptly on his behalf, in advance of a Final Determination of a Proceeding,
all amounts payable by the Indemnitors pursuant to the terms of this Agreement
as corresponding amounts are expended or incurred by the Indemnitee in
connection with any Proceeding or otherwise (such amounts so expended or
incurred being referred to as "Advanced Amounts"). In making any claim for
----------------
payment by the Indemnitors of any amount, including any Advanced Amount,
pursuant to this Agreement, the Indemnitee shall submit to the Indemnitors a
written request for payment (a "Claim") which includes a schedule setting forth
-----
in reasonable detail the dollar amount expended (or incurred or expected to be
expended or incurred). Each item on such schedule shall be supported by the
bill, agreement, or other documentation relating thereto, a copy of which shall
be appended to the schedule as an exhibit.
Where the Indemnitee is requesting Advanced Amounts, the Indemnitee must
also provide an undertaking to repay such Advanced Amounts if a Final
Determination is made that the Indemnitee is not entitled to indemnification
hereunder.
3
<PAGE>
5. Section 16(b) Liability. No indemnitor shall be liable under
-----------------------
this Agreement to make any payment in connection with any claim made against the
Indemnitee for an accounting of profits made from the purchase or sale by the
Indemnitee of securities of an Indemnitor within the meaning of Section 16(b) of
the Securities Exchange Act of 1934, and amendments thereto, or similar
provisions of any state statutory law or common law.
6. Continuation of Indemnity. All agreements and obligations of
-------------------------
the Indemnitors contained herein shall continue during the period the Indemnitee
is a director and/or officer of such Indemnitor (or is serving at the request
of an Indemnitor as an Affiliate Indemnitee) and shall continue thereafter so
long as the Indemnitee shall be subject to any possible Proceeding by reason of
the fact that the Indemnitee was a director or officer of such Indemnitor or
served as such an Affiliate Indemnitee.
7. Successors: Binding Agreement. This Agreement shall be binding
-----------------------------
on, and shall inure to the benefit of and be enforceable by, each of the
Indemnitor's successors and assigns and by the Indemnitee's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
divisees and legatees. Each Indemnitor shall require any successor or assignee
(whether direct or indirect, by purchase, merger, consolidation or otherwise)
to all or substantially all of the business and/or assets of such Indemnitor, by
written agreement in form and substance reasonably satisfactory to such
Indemnitor and to the Indemnitee, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent that such Indemnitor would
be required to perform if no such succession or assignment had taken place.
8. Notification and Defense of Claim. Promptly after receipt by
---------------------------------
the Indemnitee of notice of the commencement of any Proceeding, the Indemnitee
shall, if a claim in respect thereof is to be made against an Indemnitor under
this Agreement, notify such Indemnitor of the commencement thereof, but the
failure to so notify such Indemnitor will not relieve the Indemnitors from any
liability which it may have to the Indemnitee. With respect to any such
Proceeding:
(i) Each Indemnitor shall be entitled to participate therein at its
own expense;
(ii) Except with prior written consent of the Indemnitee, the
Indemnitors shall not be entitled to assume the defense of any Proceeding;
and
(iii) No Indemnitor shall settle any Proceeding in any manner which
would impose any penalty or limitation on the Indemnitee without the
Indemnitee's prior written consent.
The Indemnitee shall not settle any Proceeding with respect to which the
Indemnitee has received indemnified amounts or Advanced Amounts without the
Indemnitors' prior written consent, nor will the Indemnitee unreasonably
withhold consent to any proposed settlement.
9. Enforcement. (a) Each Indemnitor has entered into this Agreement
-----------
and assumed the obligations impose on such Indemnitor hereby in order to
induce the Indemnitee to act as a director and/or officer of the Corporation
and/or MGM Studios or as an Affiliate Indemnitee and acknowledges that the
Indemnitee is relying upon this Agreement in continuing in such capacity.
(b) All expenses incurred by the Indemnitee in connection with the
preparation and submission of the Indemnitee's request for indemnification
hereunder shall be borne, jointly and severally, by the Indemnitors. In the
event the Indemnitee has requested payment
4
<PAGE>
of any amount under this Agreement and has not received payment thereof within
thirty (30) days of such request, the Indemnitee may bring any action to enforce
rights or collect moneys due under this Agreement, and, if the Indemnitee is
successful in such action, the Indemnitors shall reimburse the Indemnitee for
all of the Indemnitee's fees and expenses in bringing and pursuing such action.
If it is determined that the Indemnitee is entitled to indemnification for part
(but not all) of the indemnification so requested, expenses incurred in seeking
enforcement of such partial indemnification shall be reasonably prorated
among the claims, issues or matters for which the Indemnitee is entitled to
indemnification for claims, issues or matter for which the Indemnitee is not so
entitled. The Indemnitee shall be entitled to the advancement of such amounts
to the full extent contemplated by Section 4 hereof in connection with such
Proceeding.
10. Separability. If any provision or provisions of this Agreement shall
------------
be held to be invalid, illegal or unenforceable for any reason whatsoever, (i)
the validity, legality and enforceability of the remaining provisions of this
Agreement (including, without limitation, all portions of any sections or
subsections of this Agreement containing any such provision held to be invalid,
illegal or unenforceable, that are not by themselves invalid, illegal or
unenforceable) shall not in any way be affected or impaired thereby, and (ii) to
the fullest extent possible, the provisions of any section or subsections of
this Agreement containing any such provisions held to be invalid, illegal or
unenforceable shall be construed so as to give effect to the intent of the
parties that the Indemnitors (or any of them) provide protection to the
Indemnitee to the fullest extent enforceable.
11. Miscellaneous. No provision of this Agreement may be modified,
-------------
waived or discharged unless such modification, waiver or discharge is agreed to
in writing signed by the Indemnitee and an officer of each of the Indemnitors
designated by the Board of Directors of such Indemnitor. No waiver by either
party at any time of any breach by the other party of, or of compliance with,
any condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same time or at any prior or subsequent time. The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws of
the State of Delaware, without giving effect to the principles of conflicts of
laws thereof. The Indemnitee may bring an action seeking resolution of disputes
or controversies arising under, or in any way related to, this Agreement in the
state or federal court jurisdiction in which the Indemnitee resides or in which
his place of business is located and in any related appellate courts, and each
of the Indemnitors hereby consents to the jurisdiction of such courts and to
such venue.
12. Notices. For the purposes of this Agreement, notices and all other
-------
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, as follows:
If to the Indemnitee: Michael G. Corrigan
Fifth Floor
2500 Broadway Street
Santa Monica, CA 90404
5
<PAGE>
If to the Corporation: Metro-Goldwyn-Mayer Inc.
Fifth Floor
2500 Broadway Street
Santa Monica, CA 90404
Attn: General Counsel
If to MGM Studios: Metro-Goldwyn-Mayer Studios
Fifth Floor
2500 Broadway Street
Santa Monica, CA 90404
Attn: General Counsel
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
13. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
14. Effectiveness. This Agreement shall be effective as of the day and
-------------
year first above written.
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed as of the day and year first above written.
METRO-GOLDWYN-MAYER INC.
By: --------------------------------------
Name:
Title:
METRO-GOLDWYN-MAYER STUDIOS
By: --------------------------------------
Name:
Title:
INDEMNITEE
-------------------------------------------
Michael G. Corrigan
6
<PAGE>
EXHIBIT 10.23
MGM
---
SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT
-------------------------------------------
THIS AGREEMENT made this 18th day of July, 1997, by and between Metro-
Goldwyn-Mayer Inc., a corporation duly organized and existing under laws of the
State of Delaware (the "Company"), and A. Robert Pisano, an individual residing
in Los Angeles, CA (the "Participant").
WITNESSETH:
WHEREAS, the Company wishes to provide for the payment of supplemental
retirement benefits to Robert Pisano in addition to the benefits to which he may
be entitled under the MGM Retirement Plan, the MGM Savings Plan, any other
qualified plans sponsored by the Company, the O & M Plan, and any other
employer-sponsored deferred compensation plans; and
WHEREAS, the Company executed a Supplemental Executive Retirement
Agreement (the "Agreement") with the Participant on April 22, 1996; and
WHEREAS, the parties have agreed that certain amendments shall be made to
the Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth, and intending to be legally bound, the Company and the
Participant agree to this amended and restated Agreement as follows:
1. RIGHT TO BENEFITS
-----------------
a. Vesting. Except as provided in Subsection c, below, the Participant
-------
will be fully vested in all benefits under this Agreement.
b. Reemployment. If the Participant is restored to employment with the
------------
Company after having retired, any monthly payments under the Agreement which had
commenced shall be discontinued and, upon subsequent retirement or termination
of employment with the Company, the Participant's benefits under the Agreement
shall be recomputed in accordance with Section 2 and shall again become payable
to such Participant in accordance with the provisions of the Agreement.
c. Cause. In the event that the Participant is involuntarily terminated
-----
for cause, all benefits which would otherwise be payable to him under the
Agreement shall be forfeited and the Participant shall repay to the Company any
amounts paid to the
<PAGE>
Participant under the Agreement. For purposes of this Section 1, the
Participant shall be deemed terminated for cause only under the following
circumstances:
(1) - The Participant's willful and intentional refusal to perform his
material duties and agreements under such Participant's employment
agreement with the Company, but only if the Participant has not cured
such breach within thirty (30) days after receipt of notice thereof
from the Company, which notice shall specify with particularity the
material duties or agreements which the Participant has willfully or
intentionally refused to perform;
(2) The entry of a judgment convicting the Participant of a felony.
Notwithstanding the foregoing, if the Company's Board of Directors or a
duly constituted Committee thereof, in its discretion, shall determine that
the Participant had no reasonable cause to believe his conduct was
unlawful, then the Board of Directors may determine that such benefits
shall not be forfeited.
2. Amount and Payment of Benefits
------------------------------
a. Amount of Benefits. Except as modified by Sections 3 or 7, the amount of
------------------
any benefits payable to or on account to the Participant, to the extent the
Participant is entitled to a benefit pursuant to Section 1 of this
Agreement shall be equal to the amount determined under paragraph (1)
below, reduced by the amount determined under paragraph (2) below.
(1) An amount equal to $150,000 per year payable in the form of a
single life annuity commencing at the later of age 60 or the date
of the Participant's actual termination of employment.
(2) The amount determined in (1) above shall be reduced by an amount
equal to the benefit, if any, the Participant is entitled to
receive under the O & M Plan, determined as if such benefit were
payable in the form of an Actuarially Equivalent single life
annuity commencing on the date that benefits under this Agreement
commence.
(3) In the event the Participant has received, is receiving, or is
scheduled to receive benefits from the O & M Plan in any form
other than a single life annuity or at a time other than when
benefits commence under this Agreement, the benefit to be taken
into account under Section 2a(2) shall be determined by the
Company based on actuarial assumptions and factors utilized under
the Retirement Plan as of the date of determination, or to the
extent such factors or assumptions do not contemplate a particular
situation which arises under this Agreement or the Retirement Plan
is no longer in effect, based upon the factors applied by the
Pension Benefit Guaranty Corporation for
-2-
<PAGE>
purposes of determining the present value of benefits upon
termination of a plan with insufficient assets.
b. Adjustments to Benefit Amount.
------------------------------
(1) Termination After Age 60. The $150,000 annual benefit payable
------------------------
to the Participant under Section 2a(1) of the Agreement shall
be increased by 5/12ths of one percent for each month after
attaining age 60 that the Participant continues in the
employment of the Company.
(2) Adjustments After Benefits Commence. After payments have
-----------------------------------
commenced, the annual benefit amount determined under Section
2a(1) or Section 3 shall be increased effective each January 1
by the adjustment factor applied to retiree payments for the
calendar year under the O&M Plan; provided, however, that no
adjustment shall be made in any year in which the adjustment
factor is negative. No adjustment shall be made under this
Agreement prior to the time that the Participant advises the
Company of the adjustment factor under the O&M Plan for the
applicable period. The Company shall, however, make such annual
adjustment retroactive to January 1 of the calendar year when
the Participant provides such information. This adjustment
shall be made annually until all benefit payments under this
Agreement have ceased, including payments to the Participant's
surviving spouse.
c. Commencement of Benefits. Benefits shall commence on the first day
------------------------
of the month following the earlier of:
(1) the Participant's death, or
(2) the latest of:
(a) the Participant's attainment of age 60;
(b) the Participant's termination of employment with the
Company; or
(c) the date elected by the Participant, provided, however,
that any election by the Participant to defer payments
beyond the time provided in subparagraphs (a) and (b)
above must be made at least twelve months prior to the
later of (i) the time that the Participant attains age 60
or (ii) the date the Participant terminates his
employment with the Company.
-3-
<PAGE>
Notwithstanding any other provision of this Agreement to the contrary, the
Committee may, in its sole discretion, direct that payments be made before
such payments are otherwise due if, for any reason (including, but not
limited to a change in the tax or revenue laws of the United States of
America, a published ruling or similar announcement issued by the Internal
Revenue Service, a regulation issued by the Secretary of the Treasury or
his delegate, or a decision by a court of competent jurisdiction involving
the Participant or beneficiary), such Committee believes that the
Participant or his beneficiary(ies) has recognized or will recognize
income for federal income tax purposes with respect to amounts that are or
will be payable to such Participant under the Agreement before such
amounts are scheduled to be paid. In making this determination, the
Committee shall take into account the hardship that would be imposed on
the Participant or his beneficiary(ies) by the payments of federal income
taxes under such circumstances.
d. Form of Payment.
---------------
(1) Normal Form of Benefit. If the Participant is unmarried on the date
----------------------
benefits commence, the benefit shall be payable in the form of a single
life annuity for the Participant's life. Such benefit shall be payable in
monthly installments equal to one-twelfth (1/12) of the amount determined
under Section 2a.
(2) Optional Benefit Forms. If the Participant is married on the date
----------------------
benefits commence, the Participant may elect to receive his benefit in one
of the following optional forms:
(a) Single Life Annuity. The Participant may elect to receive his
-------------------
benefit for his lifetime.
(b) 50% Joint and Survivor Annuity. The Participant may elect to
------------------------------
receive the Actuarial Equivalent of the amount the Participant would
receive under the life only form of payment described in paragraph (1)
hereof, with payments equal to 50% of the amount that was payable to him
during his lifetime continued after his death for the remainder of his
eligible spouse's lifetime should he predecease her. The eligible spouse
shall be the spouse to show to whom the Participant is married on the date
that payments under this Agreement commence.
(c) 100% Joint and Survivor Annuity. The Participant may elect to
-------------------------------
receive the Actuarial Equivalent of the amount the Participant would
receive under the life only form of payment described in paragraph (1)
hereof, with payments equal to 100% of the amount that was payable to him
during his lifetime continued after his death for the remainder of his
eligible spouse's lifetime should he predecease
-4-
<PAGE>
her. The eligible spouse shall be the spouse to whom the Participant
is married on the date that payments under this Agreement commence.
3. DEATH OR DISABILITY OF PARTICIPANT
----------------------------------
a. Pre-Retirement Spousal Death Benefit. The Participant may
------------------------------------
elect to replace the death benefits otherwise payable under clause
(1) of Section 3b with an annuity payable to the Participant's spouse
to whom the Participant is married at the time of his death. Such
Pre-Retirement Spousal Death Benefit shall be payable in the event
the Participant dies prior to commencing receipt of benefits under
this Agreement while employed by the Company or after having become
vested in his benefits under Section 1 of this Agreement. The monthly
amount payable to the Participant's spouse under such election shall
be equal to 50% of the monthly payments which would have been payable
to the Participant during his lifetime if the Participant had retired
immediately before the date of his death and had elected the 50%
Joint and Survivor Annuity, payable for the spouse's life. These
payments shall commence as soon as practicable following notification
that death has occurred, but no earlier than the first business day
of the calendar month following that in which the death occurred. If
benefits are paid under this Section 3a, all payments under the
Agreement shall cease upon death of the Participant's spouse, and no
benefits shall be payable under Section 3b.
b. Death Prior to Receipt of Base Entitlement. If (1) the
------------------------------------------
Participant has not elected the Pre-Retirement Spousal Death Benefit
and dies prior to commencing receipt of benefits under this Agreement
while employed by the Company or after having become vested in his
benefits under Section 1 of this Agreement, or (2) the Participant
dies (or, if the Participant has elected a joint and survivor form of
payment, if the Participant and his spouse die) after payments under
this Agreement have commenced but prior to receiving the "Base
Entitlement" described in Subsection c, below, monthly payments of
$7,500 shall be made to the beneficiary designated by the Participant
to receive such amounts until such time as total payments under this
Agreement (including payments under Sections 2 and 7d of the
Agreement, but not including payments under Section 7(b) or 7(c) of
the Agreement, if applicable) plus all benefits which have been
paid, which are payable or which will become payable under the O & M
Plan, are equal to the Base Entitlement. These payments shall
commence as soon as practicable following notification that death has
occurred, but no earlier than the first business day of the calendar
month following that in which the death occurred. In the absence of
any such designation, payment shall be made to the personal
representative, executor or administrator of the Participant's
estate.
c. Base Entitlement. Except as provided in Section 7e of the Agreement,
----------------
the Base Entitlement shall be equal to $900,000 (or, if the
Participant has elected
-5-
<PAGE>
an optional form of benefit payment under Section 2d(2)(b) or (c), the
Participant's annual benefit under such optional form multiplied by
six).
d. Disability Benefit. If the Participant becomes disabled in accordance
-------------------
with the provisions of Section 1.a.(4) prior to commencing receipt of
benefits under this Agreement while employed by the Company, monthly
payments of $7,500 shall be made to the Participant (and if the
Participant dies, to the Beneficiary designated by the Participant)
until such time as the total payments under this Agreement (including
payments under Section 7d of the Agreement, but not including payments
under Section 7b or 7c of the Agreement, if applicable) plus all
benefits which have been paid, which are payable or which will become
payable under the O & M Plan are equal to the Base Entitlement. This
payment shall commence as soon as practicable following the date such
disability commences. In the event this Subsection d becomes
operative, no payments shall be payable under Subsections a or b of
this Section 3.
4. GENERAL PROVISIONS
------------------
a. The establishment of the Agreement shall not be construed as
conferring any legal rights upon the Participant for a continuation of
employment, nor shall it interfere with the rights of the Company to
discharge the Participant and to treat him without regard to the
effect which such treatment might have upon him as the Participant in
the Agreement. Except as provided in Section 7, no legal or beneficial
interest in any of the Company's assets is intended to be conferred by
the terms of the Agreement.
b. In the event that the Committee shall find that the Participant or his
beneficiary is unable to care for his affairs because of illness or
accident, the Committee may direct that any benefit payment due him be
paid to his spouse or, if none, to a duly appointed legal
representative, and any such payment so made shall be a complete
discharge of the liabilities of the Company and the Agreement
therefor.
c. The Company shall have the right to deduct from each payment to be
made under the Agreement any required withholding taxes.
d. The Agreement shall be constructed, regulated and administered under
the laws of the State of California.
5. NON-ASSIGNABILITY OF INTEREST
-----------------------------
Subject to any applicable law, the interest herein and the right to
receive distributions under this Agreement may not be anticipated,
alienated, sold, transferred, assigned, pledged, encumbered, or subjected
to any charge or legal process, nor shall any such
- 6 -
<PAGE>
benefit be in any manner liable for or subject to garnishment,
attachment, execution or levy, or liable for or subject to the debts,
contracts, liabilities, engagements or torts of the Participant;
provided, however, that nothing herein shall prohibit the Participant
from designating a trust established for the Participant's benefit to
receive any payments due the Participant under this Agreement. If
any attempt is made to do so, or the Participant becomes bankrupt, the
interests of the Participant under the Agreement may be terminated by
the Committee, which, in its sole discretion, may cause the same to be
held or applied for the benefit of one or more of the dependents of
such Participant or make any other disposition of such interests that
it deems appropriate.
6. SOURCE OF PAYMENTS
------------------
Except as provided in Section 7, the benefits under this Agreement shall be
payable by the Company only with respect to the Participant after he has
retired, died or otherwise terminated his employment with the Company and
any such benefits and all costs, charges and expenses relating thereto shall
be payable from the general assets of the Company. Nothing in this Agreement
shall be interpreted or construed to require the Company in any manner to
fund any obligation to the Participant hereunder. Nothing contained in this
Agreement nor any action taken hereunder shall create, or be construed to
create, a trust of any kind, or a fiduciary relationship between the Company
and the Participant. Notwithstanding the foregoing, the Company may, in its
discretion, establish a trust (known as a "rabbi trust") to hold funds
intended to provide benefits hereunder and the assets of such trust shall be
subject to the claim of the general creditors of the Company in the event of
bankruptcy or insolvency of the Company.
Notwithstanding the foregoing, the Company may purchase such insurance as it
deems necessary or advisable to provide for the payment of any or all
benefits under the Agreement. In this regard, the Company may require the
completion of medical questionnaires, the taking of physical examinations by
the Participant or the provision by the Participant of any other information
that may be requested by the insurance provider at the time such insurance
is purchased.
-7-
<PAGE>
7. CHANGE IN CONTROL
-----------------
a. Notwithstanding the foregoing provisions of the Agreement, in the
event of a Change in Control or a Change in Status, as herein defined,
prior to time that the Participant or, if applicable, the
Participant's surviving spouse or beneficiary has received all of the
benefits to which he is entitled under the Agreement, the following
provisions shall become operative, provided, however, that such
provisions shall not become operative upon a Change in Control if (1)
the purchaser assumes (in writing to the Participant) all obligations
under the terms of this Agreement, and (2) the purchaser satisfies the
criteria described in Addendum A to this Agreement; provided, further,
that the provisions of this Article 7 shall not become operative if
a Change in Control occurs solely due to an acquisition of the
Company by a consortium which includes Participant and Frank G.
Mancuso if, following such acquisition, Participant holds an ownership
interest in the Company which was not obtained through the purchase of
publicly traded shares.
b. If this Article 7 becomes effective, the Company shall, no later than
the date of such Change in Control or Change in Status, deposit funds
in escrow (with an escrow agent acceptable to the Participant) in an
amount sufficient to provide on an actuarial basis (using the
Actuarial Equivalent factors for the single sum option under the MGM
Retirement Plan) the level of benefits described in Section 2 (or,
if the Change in Control or Change in Status occurs at the time
payments are being made under Section 3, the level of benefits
described in Section 3) of this Agreement. All fees with respect to
the escrow agent shall be paid by the Company. The escrow agent shall
be responsible for investment of the funds in the escrow arrangement.
The Company shall grant the Participant or, if applicable, the
Participant's surviving spouse or beneficiary, a first priority
security interest in such escrowed amount. At the time such actual
Change in Control or Change in Status occurs, the Participant's (or,
if applicable, the surviving spouse's or beneficiary's) security
interest shall be perfected and the Participant (or surviving spouse
or beneficiary) shall be entitled to receive an amount from the escrow
account equal to the estimated federal and state income tax due and
payable on the amount the Participant (or surviving spouse or
beneficiary) must recognize as taxable income under the escrow
arrangement. The federal and state income tax due and payable in the
taxable year in which a Change in Control or Change in Status occurs
shall be deemed to be the combined highest federal and state marginal
income tax rate in effect in the year the escrow arrangement is
established times the amount held under the escrow arrangement at the
time of such Change in Control or Change in Status.
c. For each taxable year that the escrow account remains in existence
subsequent to the year of a Change in Control or a Change in Status,
the
-8-
<PAGE>
Participant (or surviving spouse or beneficiary) shall be entitled to
receive from the escrow account, in addition to the amounts payable
under Section 7d, an amount equal to the estimated federal and state
income tax due and payable on any amounts which the Participant (or
surviving spouse or beneficiary) must recognize as taxable income
under the escrow arrangement. The federal and state income tax due and
payable in each subsequent year shall be deemed to be the combined
highest federal and state marginal income tax rate in effect in
the year that such payment is made times the earnings on amounts held
in the escrow arrangement.
d. In lieu of any annual or monthly benefit amount payable under Section
2 or 3a, b or d, in the event that a Change in Control or Change in
Status occurs and the provisions of Subsection b become operative, the
annual (or in the case of Section 3, monthly) benefit payable to the
Participant or the Participant's surviving spouse under the Agreement
shall be equal to the benefit determined under Section 2 or 3a, b or d
as applicable, multiplied by the complement of the income tax rate
(i.e., 1 - the income tax rate) determined under Subsection b above.
----
e. In the event that a Change in Control or Change in Status occurs and
the provisions of Subsection b of this Section 7 become operative, the
Base Entitlement as defined in Section 3c hereof shall thereupon be
reduced to reflect the extent to which future payments under Sections
2, 3b and 3d hereof can thereafter be made to Participant on an after-
tax basis. Accordingly, the Base Entitlement in such event shall be
the amount of the total benefits, if any, already paid to Participant
under Section 2, 3b, or 3d hereof and paid or payable under the O & M
Plan (collectively, the "Taxable Benefits") plus such additional
amount as shall be determined by multiplying the complement of the
income tax rate (i.e., 1 - the income tax rate) determined under
----
subsection b above by the difference between $900,000 and the
Taxable Benefits.
f. Any assets remaining in the escrow arrangement following the
satisfaction of all liabilities to the Participant and, where
applicable, his Beneficiary pursuant to Section 3 and Subsections b,
c, d and e of this Section 7 shall be returned to the Company. In the
event that the assets in the escrow arrangement are insufficient to
satisfy the Company's obligations under this Agreement, the Company
shall pay any remaining payments due to the Participant or his
beneficiary from the general assets of the Company. The amount of such
payments shall be determined in accordance with the provisions of
Section 2 and, if applicable, Section 3 of this Agreement, without
regard to the provisions of Sections 7d or 7e.
g. A "Change in Control" shall be deemed to have occurred if there shall
occur or there shall be consummated (i) any merger or consolidation of
the
-9-
<PAGE>
Company with or into any other person, as the result of which Tracinda
Corporation, a Nevada corporation ("Tracinda") and Seven Network
Limited, a corporation organized under the laws of the Commonwealth of
Australia ("Seven"), beneficially own, in the aggregate, less than
50.1% of the combined voting power of the then outstanding voting
securities of the surviving corporation entitled to vote generally in
the election of directors of the surviving corporation immediately
upon completion of the transaction and any other person beneficially
owns 30.0% or more of the combined voting power of the then
outstanding voting securities of the surviving corporation entitled to
vote generally in the election of directors; (ii) any sale, transfer
or other conveyance whether direct or indirect, of all or
substantially all of the property and assets of the Company, on a
consolidated basis, in one transaction or a series of related
transactions; provided, however, that this clause (ii) shall not apply
to any sale, transfer or other conveyance to MGM, by any wholly owned
direct or indirect subsidiary of MGM or, by any wholly owned direct or
indirect subsidiary of MGM to any other such wholly owned direct or
indirect subsidiary of MGM or by MGM to one or more wholly owned
direct or indirect subsidiaries of MGM; or (iii) any transaction or
event that results in Tracinda and Seven ceasing, in the aggregate, to
beneficially own 50.1% or more of the combined voting power of the
then outstanding voting securities of the Company entitled to vote
generally in the election of directors and any other person
beneficially owning 30.0% or more of the combined voting power of the
then outstanding voting securities of the Company entitled to vote
generally in the election of directors. As used herein, the term
"person" shall have the meaning of such term under Sections 13(d) and
14(d) of the Securities Exchange Act of 1934 (the "Exchange Act")
whether or not applicable to the Company; and the terms "beneficial
owner" and "beneficially own" shall have the meanings set forth in
Rule 13d-3 under the Exchange Act whether or not applicable to the
Company. Notwithstanding the foregoing, a Change in Control shall not
be deemed to have occurred under clauses (i) or (iii) if the acquirer,
purchaser or 30.0% owner is an employee benefit plan (or related
trust) sponsored or maintained by the Company or any corporation
controlled by the Company. Further, a Change in Control shall not be
deemed to have occurred under clauses (i) or (iii) if Tracinda and
Seven cease to beneficially own 50.1% due to a public offering of
stock of the Company.
Solely for purposes of this Paragraph 7g, "MGM" shall mean
Metro-Goldwyn-Mayer, Inc., and "Company" shall mean P&F Acquisition
Corp. and/or Metro-Goldwyn-Mayer, Inc.
h. A "Change in Status" shall occur upon the occurrence of one of the
following:
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<PAGE>
(1) the Company shall terminate without "Cause" the Employment
Agreement between the Company and Participant dated as of
October 10, 1996 (the "Employment Agreement"), based upon the
definition of Cause in Section 11(d) of the Employment
Agreement; or
(2) the Participant shall terminate the Employment Agreement for
"good reason" pursuant to Section 11(e) of the Employment
Agreement.
8. AMENDMENTS TO AGREEMENT
-----------------------
The Company and the Participant may suspend, amend or otherwise modify or
terminate this Agreement at any time in a writing executed by both
parties.
9. ARBITRATION
-----------
a. Any controversy or claim arising out of or relating to this
Agreement, or any alleged breach of the terms or conditions
contained herein, shall be settled by arbitration in accordance with
the Commercial Arbitration Rules of the American Arbitration
Association (the "AAA") as such rules may be modified herein.
b. An award rendered in connection with an arbitration pursuant to this
Section shall be final and binding and judgment upon such an award
may be entered and enforced in any court of competent jurisdiction.
c. The forum for arbitration under this Agreement shall be Los Angeles,
California and the governing law for such arbitration shall be laws
of the State of California.
d. Arbitration under this Section shall be conducted by a single
arbitrator selected jointly by the Company and the Participant or
Beneficiary, as applicable (the "Complainant"). If within ten (10)
days after a demand for arbitration is made, the Company and the
Complainant are unable to agree on a single arbitrator, three
arbitrators shall be appointed. Each party shall select one
arbitrator and those two arbitrators shall then select a third
neutral arbitrator within ten (10) days after their appointment. In
connection with the selection of the third arbitrator, consideration
shall be given to familiarity with executive compensation plans and
experience in dispute resolution between parties, as a judge or
otherwise. If the arbitrators selected by the parties cannot agree on
the third arbitrator, they shall discuss the qualifications of such
third arbitrator with the AAA prior to selection of such arbitrator,
which selection shall be in accordance with the Commercial
Arbitration Rules of the AAA.
-11-
<PAGE>
e. If an arbitrator cannot continue to serve, a successor to an
arbitrator selected by a party shall be also selected by the same
party, and a successor to a neutral arbitrator shall be selected as
specified in Subsection d of this Section. A full rehearing will be
held if the neutral arbitrator is unable to continue to serve or if
the remaining arbitrators unanimously agree that such a rehearing is
appropriate.
f. The arbitrator or arbitrators shall be guided, but not bound, by the
Federal Rules of Evidence and by the procedural rules, including
discovery provisions, of the Federal Rules of Civil Procedure. Any
discovery shall be limited to information directly relevant to the
controversy or claim in arbitration.
g. The arbitration hearing shall be held within ten (10) days (or as soon
thereafter as possible) after the picking of the arbitrators. No
continuance of said hearing shall be allowed without the consent of
Participant. Absence from or nonparticipation at the hearing by
either party shall not prevent the issuance of an award. Hearing
procedures which will expedite the hearing may be ordered at the
arbitrators' discretion, and the arbitrators may close the hearing in
their sole discretion when they decide they have heard sufficient
evidence to satisfy issuance of an award.
h. Solely for purposes of determining the allocation of the costs
described in this Subsection h, the Company will be considered the
prevailing party in a dispute if the arbitrators determine (1) that
the Company has not breached this Agreement and (2) the claim by
Participant was not made in good faith. Otherwise, Participant will be
considered the prevailing party. In the event that the Company is the
prevailing party, the fee of the arbitrators and all necessary
expenses of the hearing (excluding any attorneys' fees incurred by the
Company) including stenographic reporter, if employed, shall be paid
by the other party. In the event that Participant is the prevailing
party, the fee of the arbitrators and all necessary expenses of the
hearing (including all attorneys' fees incurred by Participant in
---------
pursuing his or her claim), including the fees of a stenographic
reporter if employed, shall be paid by the Company.
10. DEFINITIONS
-----------
a. "Actuarial Equivalent" shall mean a benefit of equivalent value
determined in accordance with the provisions of Section 16 of the MGM
Retirement Plan.
b. "Board of Directors" shall mean the Board of Directors of the
Company.
- 12 -
<PAGE>
c. "Committee" shall mean the Retirement Plan Committee described in
Section 11 of the MGM Retirement Plan.
d. "Company" shall mean Metro-Goldwyn-Mayer Inc. or any successor by
merger, purchase or otherwise, with respect to its employees.
e. "Effective Date" shall mean November 1, 1995.
f. "O & M Plan" shall mean the portion of the O'Melveny & Myers
Partnership Agreement entitled Retirement, Death and Disability
Payments (currently Section 10 of such partnership agreement).
g. "Retirement Plan" shall mean the MGM Retirement Plan.
IN WITNESS WHEREOF, the parties have executed this Agreement the day and
year first above written.
METRO-GOLDWYN-MAYER INC.
ATTEST: /s/ SUSAN NEWELL BY: /s/ WILLIAM A. JONES
--------------------------- ----------------------------
WILLIAM A. JONES
-------------------------------
Senior Executive Vice President
PARTICIPANT
/S/ A. ROBERT PISANO
-------------------------------
A. Robert Pisano
-13-
<PAGE>
ADDENDUM A
A purchaser satisfies the criteria hereunder if the stock of the purchaser
(or an entity which, directly or indirectly, owns at least 80% of the
purchaser) is publicly traded and such entity has a Standard & Poor's debt
rating of A or better, or a rating by another similar agency of an equivalent
debt rating.
-14-
<PAGE>
================================================================================
EXHIBIT 10.24
FORM OF
AMENDED AND RESTATED SHAREHOLDERS AGREEMENT
by and among
METRO-GOLDWYN-MAYER INC.
SEVEN NETWORK LIMITED
TRACINDA CORPORATION
METRO-GOLDWYN-MAYER STUDIOS INC.
MR. FRANK G. MANCUSO
and
THE OTHER PARTIES SPECIFIED ON THE
SIGNATURE PAGES HERETO
Dated as of August 4, 1997
================================================================================
1
<PAGE>
TABLE OF CONTENTS
ARTICLE I DEFINITIONS.................................................... 2
Section 1.1. Definitions......................................... 2
ARTICLE II REPRESENTATIONS AND WARRANTIES................................ 4
Section 2.1. Representations and Warranties of the Company....... 4
Section 2.2. Representations and Warranties of Seven............. 5
Section 2.3. Representations and Warranties of Tracinda.......... 5
Section 2.4. Representations and Warranties of MGM Studios....... 6
Section 2.5. Representations and Warranties of the Executives.... 6
ARTICLE III LEGEND; TAG-ALONG RIGHTS..................................... 7
Section 3.1. Legend.............................................. 7
Section 3.2. "Tag-Along" Rights.................................. 7
ARTICLE IV REGISTRATION RIGHTS........................................... 10
Section 4.1. Demand Registrations................................ 10
Section 4.2. Piggyback Registrations............................. 11
Section 4.3. Holdback Agreements................................. 12
Section 4.4. Registration Procedures............................. 12
Section 4.5. Registration Expenses............................... 15
Section 4.6. Indemnification..................................... 15
Section 4.7. Participation in Underwritten Registrations......... 17
Section 4.8. Current Public Information.......................... 18
Section 4.9. Preparation; Reasonable Investigation............... 18
Section 4.10. Certain Rights of Holders.......................... 19
Section 4.11. Form S-8........................................... 19
ARTICLE V GENERAL PROVISIONS............................................. 19
Section 5.1. Notices............................................. 19
Section 5.2. Assignment; Binding Effect; Benefit; Successors..... 21
Section 5.3. Entire Agreement.................................... 21
Section 5.4. Amendment........................................... 22
Section 5.5. Governing Law; Effective Date....................... 22
Section 5.6. Counterparts........................................ 22
Section 5.7. Headings............................................ 23
Section 5.8. Interpretation...................................... 23
Section 5.9. Severability........................................ 23
1
<PAGE>
Section 5.10. Enforcement of Agreement........................... 23
Section 5.11. Termination of Original Shareholders Agreement..... 23
Section 5.12. Antidilution Adjustment............................ 23
2
<PAGE>
AMENDED AND RESTATED SHAREHOLDERS AGREEMENT
-------------------------------------------
THIS AMENDED AND RESTATED SHAREHOLDERS AGREEMENT, dated as of August
4, 1997 (this "Agreement"), by and among METRO-GOLDWYN-MAYER INC., a corporation
---------
organized under the laws of the State of Delaware and formerly known as P&F
Acquisition Corp. (the "Company"), SEVEN NETWORK LIMITED, a corporation
-------
organized under the laws of the Commonwealth of Australia ("Seven"); TRACINDA
-----
CORPORATION, a corporation organized under the laws of the State of Nevada
("Tracinda"); METRO-GOLDWYN-MAYER STUDIOS INC., a corporation organized under
- ----------
the laws of the State of Delaware ("MGM Studios") and formerly known as Metro-
-----------
Goldwyn-Mayer Inc.; Mr. Frank G. Mancuso ("Mr. Mancuso"), and the Persons listed
-----------
on the signature pages hereto (Mr. Mancuso and each such Person is herein
referred to as an "Executive" and together as the "Executives")/1/, amends and
--------- ----------
supersedes that certain Shareholders Agreement, dated as of October 10, 1996, by
and among MGM Studios, Seven, Tracinda, the Company, Mr. Mancuso and the other
parties thereto (the "Original Shareholders Agreement").
-------------------------------
A. The Executives will be granted options ("Options") to acquire
-------
shares of capital stock of the Company pursuant to the Plan (as defined below).
B. Mr. Mancuso executed an amended and restated employment agreement
with the Company and MGM Studios dated as of August 4, 1997 pursuant to which
Mr. Mancuso may acquire from time to time shares of capital stock of the
Company.
C. The Company intends to commence with an Approved Initial Public
Offering (as defined below) of the Common Stock (as defined below) of the
Company and to enter into certain related transactions.
D. The parties hereto have agreed to enter into this Agreement for
the purpose of amending and restating in its entirety the provisions of the
Original Shareholders Agreement as provided herein.
Accordingly, for due and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
- -----------------
/1/ At the execution of this Agreement, the signature pages hereto will
indicate the names of the Executives, who shall not exceed 18 in number.
<PAGE>
ARTICLE I
DEFINITIONS
Section 1.1. Definitions.
-----------
"Affiliate": of any Person, means (i) any other Person controlling,
---------
controlled by or under common control with such Person, (ii) any director or
executive officer of such Person or of any Affiliate of such Person and (iii)
any family member of any director or executive officer of such Person or any
director or executive officer of any Affiliate of such Person.
"Agreement": as defined in the preamble to this Agreement.
---------
"Antidilution Adjustment": as defined in Section 5.12.
-----------------------
"Approved Initial Public Offering": has the meaning set forth in the
--------------------------------
Investors Shareholder Agreement as the same may be amended from time to time in
accordance with the terms thereof.
"Commission": means the Securities and Exchange Commission or any
----------
other Federal agency at the time administering the Securities Act.
"Common Stock": means the common stock of the Company.
------------
"Company": as defined in the preamble to this Agreement.
-------
"Demand Registrations": as defined in Section 4.1(a).
--------------------
"Exchange Act": means the Securities Exchange Act of 1934, as
------------
amended, and the rules and regulations of the Commission thereunder, all as the
same shall be in effect at the time.
"Executives": as defined in the preamble to this Agreement.
----------
"IPO Closing": means the closing of an Approved Initial Public
-----------
Offering at which the Company first receives the funds described in the
definition of "Approved Initial Public Offering," whether or not the
underwriters have at such time exercised any over-allotment option.
"IPO Closing Date": means the date of the IPO Closing.
----------------
"MGM Studios": as defined in the preamble to this Agreement.
-----------
"Notice Date": as defined in Section 3.2.
-----------
"Options": as defined in the preamble to this Agreement.
-------
"Original Shareholders Agreement": as defined in the preamble to this
-------------------------------
Agreement.
"Other Securityholders": as defined in Section 3.2.
---------------------
2
<PAGE>
"Permitted Transferee": means:
--------------------
(a) (i) the successors in interest to such Executive, in the case of a
Transfer upon the death of such Executive, provided that each such successor in
interest would be a Permitted Transferee under clauses (a)(ii) or (a)(iv) of
this definition, (ii) such Executive's spouse, parents, grandparents, siblings
and descendants (whether by blood or adoption, and including stepchildren) and
the spouses of such persons, (iii) such Executive, with respect to the
disposition of the community property interest of such Executive's spouse in all
or any part of the Common Stock upon the dissolution of the marriage of the
Executive and his or her spouse or upon the death of such spouse, (iv) any
transferee occasioned by the incompetence of such Executive and (v) in the case
of a Transfer during such Executive's lifetime, any Person in which no Person
has any interest (directly or indirectly) except for any of such Executive, such
Executive's spouse, parents, grandparents, siblings and descendants (whether by
blood or adoption, and including stepchildren) and the spouses of such persons;
and
(b) the beneficiaries or the grantor of any trust all the
beneficiaries of which are natural persons; provided, however, that each such
-------- -------
beneficiary or grantor of such trust is a Person who would be a Permitted
Transferee under clause (a) of this definition.
"Person": means any natural person, corporation, partnership, limited
------
liability company, firm, association, trust, government, governmental agency, or
other legal entity, whether acting in an individual, fiduciary or other
capacity.
"Piggyback Registration": as defined in Section 4.2(a).
----------------------
"Plan": means, collectively, the Stock Incentive Plan and the Stock
----
Option Agreement.
"Registrable Securities": means (i) any shares of Common Stock owned
----------------------
by, or otherwise hereafter acquired by, Tracinda, Seven or any Executive and
(ii) any securities issued as a dividend on or other distribution with respect
to or in exchange, replacement or in subdivision of, any such Common Stock. As
to any particular Registrable Securities, such securities shall cease to be
Registrable Securities when (i) a registration statement with respect to the
sale of such securities shall have been declared effective under the Securities
Act and such securities shall have been disposed of in accordance with such
registration statement, or (ii) such securities shall have been sold (other than
in a privately negotiated sale) pursuant to Rule 144 (or any successor
provision) under the Securities Act and in compliance with the requirements of
paragraphs (c), (e), (f) and (g) of Rule 144.
"Registration Expenses": as defined in Section 4.5(a).
---------------------
"Securities Act": means the Securities Act of 1933, as amended, and
--------------
the rules and regulations of the Commission thereunder, as the same shall be in
effect at the time.
"Series A Options": as defined in the Plan.
----------------
"Series B Options": as defined in the Plan.
----------------
3
<PAGE>
"Seven": as defined in the preamble to this Agreement.
-----
"Short-Form Registrations": as defined in Section 4.1(a).
------------------------
"Stock Incentive Plan": means the Company's Amended and Restated 1996
--------------------
Stock Incentive Plan, in substantially the form attached hereto as Exhibit A.
"Stock Split": as defined in Section 5.12.
-----------
"Stock Option Agreement": means the Company's several Stock Option
----------------------
Agreements, in substantially the form attached hereto as Exhibit B, entered into
pursuant to the Stock Incentive Plan.
"Subsidiary": of any Person means any corporation or other legal
----------
entity of which such Person (either alone or through or together with any other
direct or indirect Subsidiary) owns, directly or indirectly, 50% or more of the
stock or other equity interests, the holders of which are generally entitled to
vote for the election of the board of directors or other governing body of such
corporation or other legal entity.
"Tag-Along Notice": as defined in Section 3.2.
----------------
"Tag-Along Sale": as defined in Section 3.2.
--------------
"Tracinda": as defined in the preamble to this Agreement.
--------
"Transfer": as defined in Section 3.2.
--------
"Transferring Party": as defined in Section 3.2.
------------------
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.1. Representations and Warranties of the Company. The
---------------------------------------------
Company hereby represents and warrants to the other parties hereto as follows:
(i) the Company has all requisite corporate power and authority to enter into
this Agreement and to consummate the transactions contemplated hereby; (ii) the
execution and delivery by the Company of this Agreement, and the consummation by
the Company of the transactions contemplated hereby, have been duly authorized
by all necessary corporate action on the part of the Company; (iii) this
Agreement has been duly executed and delivered by the Company and constitutes a
valid and binding obligation of the Company enforceable against the Company in
accordance with its terms, except as the enforceability hereof may be limited by
bankruptcy, insolvency or other similar laws affecting creditors' rights
generally or general principles of equity and except to the extent that the
indemnity provisions set forth in Article IV may not be valid under applicable
securities laws or by reason of public policy; (iv) no consent, approval, order
or authorization of, or registration, declaration or filing with, any court,
administrative agency or commission or other governmental authority or
instrumentality, domestic or foreign, is required by, or with respect to, the
Company in connection with the execution and delivery of this Agreement by the
Company or the
4
<PAGE>
consummation by the Company of the transactions contemplated hereby; and (v) the
execution and delivery of this Agreement by the Company and the consummation of
the transactions contemplated hereby by the Company does not conflict with, or
result in a breach of, any law or regulation of any governmental authority
applicable to the Company or any material agreement to which the Company is a
party.
Section 2.2. Representations and Warranties of Seven. Seven hereby
---------------------------------------
represents and warrants to the other parties hereto as follows: (i) Seven has
all requisite corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated hereby; (ii) the execution and delivery
by Seven of this Agreement, and the consummation by Seven of the transactions
contemplated hereby, have been duly authorized by all necessary corporate action
on the part of Seven; (iii) this Agreement has been duly executed and delivered
by Seven and constitutes a valid and binding obligation of Seven enforceable
against Seven in accordance with its terms, except as the enforceability hereof
may be limited by bankruptcy, insolvency or other similar laws affecting
creditors' rights generally or general principles of equity and except to the
extent that the indemnity provisions set forth in Article IV may not be valid
under applicable securities laws or by reason of public policy; (iv) no consent,
approval, order or authorization of, or registration, declaration or filing
with, any court, administrative agency or commission or other governmental
authority or instrumentality, domestic or foreign, is required by, or with
respect to, Seven in connection with the execution and delivery by Seven of this
Agreement or the consummation by Seven of the transactions contemplated hereby;
and (v) the execution and delivery by Seven of this Agreement and the
consummation by Seven of the transactions contemplated hereby does not conflict
with, or result in a breach of, any law or regulation of any governmental
authority applicable to Seven or any material agreement to which Seven is a
party.
Section 2.3. Representations and Warranties of Tracinda. Tracinda
------------------------------------------
hereby represents and warrants to the other parties hereto as follows: (i)
Tracinda has all requisite corporate power and authority to enter into this
Agreement and to consummate the transactions contemplated hereby; (ii) the
execution and delivery by Tracinda of this Agreement, and the consummation by
Tracinda of the transactions contemplated hereby, have been duly authorized by
all necessary corporate action on the part of Tracinda; (iii) this Agreement has
been duly executed and delivered by Tracinda and constitutes a valid and binding
obligation of Tracinda enforceable against Tracinda in accordance with its
terms, except as the enforceability hereof may be limited by bankruptcy,
insolvency or other similar laws affecting creditors' rights generally or
general principles of equity and except to the extent that the indemnity
provisions set forth in Article IV may not be valid under applicable securities
laws or by reason of public policy; (iv) no consent, approval, order or
authorization of, or registration, declaration or filing with, any court,
administrative agency or commission or other governmental authority or
instrumentality, domestic or foreign, is required by, or with respect to,
Tracinda in connection with the execution and delivery of this Agreement by
Tracinda or the consummation by Tracinda of the transactions contemplated
hereby; and (v) the execution and delivery of this Agreement by Tracinda and the
consummation by Tracinda of the transactions contemplated hereby does not
conflict with, or result in a breach of, any law or regulation of any
governmental authority applicable to Tracinda or any material agreement to which
Tracinda is a party.
5
<PAGE>
Section 2.4. Representations and Warranties of MGM Studios. MGM
---------------------------------------------
Studios hereby represents and warrants to the other parties hereto as follows:
(i) MGM Studios has all requisite corporate power and authority to enter into
this Agreement and to consummate the transactions contemplated hereby; (ii) the
execution and delivery by MGM Studios of this Agreement, and the consummation by
MGM Studios of the transactions contemplated hereby, have been duly authorized
by all necessary corporate action on the part of MGM Studios; (iii) this
Agreement has been duly executed and delivered by MGM Studios and constitutes a
valid and binding obligation of MGM Studios enforceable against MGM Studios in
accordance with its terms, except as the enforceability hereof may be limited by
bankruptcy, insolvency or other similar laws affecting creditors' rights
generally or general principles of equity and except to the extent that the
indemnity provisions set forth in Article IV may not be valid under applicable
securities laws or by reason of public policy; (iv) no consent, approval, order
or authorization of, or registration, declaration or filing with, any court,
administrative agency or commission or other governmental authority or
instrumentality, domestic or foreign, is required by, or with respect to, MGM
Studios in connection with the execution and delivery of this Agreement by MGM
Studios or the consummation by MGM Studios of the transactions contemplated
hereby; and (v) the execution and delivery of this Agreement by MGM Studios and
the consummation by MGM Studios of the transactions contemplated hereby does not
conflict with, or result in a breach of, any law or regulation of any
governmental authority applicable to MGM Studios or any material agreement to
which MGM Studios is a party.
Section 2.5. Representations and Warranties of the Executives. Each
------------------------------------------------
of the Executives (as to himself only) hereby represents and warrants to the
other parties hereto, as of the date of the execution of this Agreement by such
Executive, as follows: (i) such Executive has all requisite power and authority
to enter into this Agreement and to consummate the transactions contemplated
hereby; (ii) this Agreement has been duly executed and delivered by such
Executive and constitutes a valid and binding obligation of such Executive
enforceable against such Executive in accordance with its terms, except as the
enforceability hereof may be limited by bankruptcy, insolvency or other similar
laws affecting creditors' rights generally or general principles of equity and
except to the extent that the indemnity provisions set forth in Article IV may
not be valid under applicable securities laws or by reason of public policy;
(iii) no consent, approval, order or authorization of, or registration,
declaration or filing with, any court, administrative agency or commission or
other governmental authority or instrumentality, domestic or foreign, is
required by, or with respect to, such Executive in connection with the execution
and delivery of this Agreement by such Executive or the consummation by
Executive of the transactions contemplated hereby; and (v) the execution and
delivery of this Agreement by such Executive and the consummation by such
Executive of the transactions contemplated hereby does not conflict with, or
result in a breach of, any law or regulation of any governmental authority
applicable to such Executive or any material agreement to which such Executive
is a party.
ARTICLE III
LEGEND; TAG-ALONG RIGHTS
Section 3.1. Legend. Tracinda and Seven hereby acknowledge and
------
agree that each of the certificates representing the shares of Common Stock
beneficially owned by each of them shall include the following legend:
6
<PAGE>
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
LIMITATIONS ON TRANSFER AND CERTAIN OTHER MATTERS SET FORTH IN AN
AGREEMENT DATED AS OF AUGUST 4, 1997 BY AND AMONG SEVEN NETWORK
LIMITED, TRACINDA CORPORATION, METRO-GOLDWYN-MAYER STUDIOS INC.,
METRO-GOLDWYN-MAYER INC., MR. FRANK G. MANCUSO, AND CERTAIN OTHER
PERSONS (THE "AGREEMENT"). A COPY OF THE AGREEMENT IS ON FILE WITH
THE SECRETARY OF METRO-GOLDWYN-MAYER INC.
Section 3.2. "Tag-Along" Rights.
-----------------
(a) If either of Seven or Tracinda (a "Transferring Party") desires
------------------
to sell, transfer, assign, pledge or otherwise dispose of ("Transfer") directly
--------
or indirectly, in whole or in part, any shares of Common Stock beneficially
owned by it (a "Tag-Along Sale"), the Transferring Party shall provide the
--------------
Company and each of the Executives and Tracinda or Seven, as the case may be
(the "Other Securityholders"), with written notice (the "Tag Along Notice")
--------------------- ----------------
setting forth:
(i) the number of shares of Common Stock proposed to be
Transferred;
(ii) the name and address of the prospective purchaser;
(iii) all material terms and conditions of such proposed
transaction including the date of the proposed closing of such transaction
and the proposed amount and the form of consideration to be paid for such
Common Stock;
(iv) that the Transferring Party is offering each of the Other
Securityholders the right to participate in such Transfer on a pro rata
basis on the same terms and conditions as are applicable to the
Transferring Party;
(v) the aggregate number of shares of Common Stock beneficially
owned by such Transferring Party as of the date of the Tag Along Notice
(the "Notice Date") from the Transferring Party to the Company;
-----------
(vi) the Company's calculation of the maximum number of shares of
Common Stock that each such Other Securityholder is entitled to include in
the Tag-Along Sale (as computed in accordance with the equation set forth
in subsection (a) of this Section 3.2); and
(vii) a copy of the proposed agreements for the Tag-Along Sale.
The Company shall have the obligation to provide the calculation described
in clause (vi) above to the Transferring Party upon request by the Transferring
Party and shall take full and
7
<PAGE>
complete responsibility for the accuracy and completeness of such calculation.
Within 20 calendar days following the delivery of the Tag Along Notice, each
Other Securityholder, by notice in writing to the Transferring Party, shall have
(i) in the case of the Executives, the right to exercise any Options held by
such Executives to the extent required to realize the rights of such Executives
provided in this Section 3.2 and (ii) the opportunity to sell to the prospective
purchaser (upon the same terms and conditions as the Transferring Party) on the
proposed date of the closing of the applicable transaction as specified in the
applicable Tag Along Notice up to that number of shares of Common Stock
specified in the Tag Along Notice owned by such Other Securityholder (excluding
any shares of Common Stock acquired pursuant to open market purchases) as shall
equal the product of (x) a fraction, the numerator of which is the number of
shares of Common Stock specified in the Tag Along Notice beneficially owned by
such Other Securityholder as of the date of such proposed sale (excluding any
shares of Common Stock acquired pursuant to open market purchases), and the
denominator of which is the aggregate number of shares of Common Stock specified
in the Tag Along Notice beneficially owned as of the date of such proposed sale
by the Transferring Party and all of the Other Securityholders (excluding any
shares of Common Stock acquired pursuant to open market purchases), and (y) the
number of shares of Common Stock proposed to besold; provided, however, that
-------- -------
to the extent the prospective purchaser agrees to purchase Common Stock in
excess of the amount specified in the Tag Along Notice, such excess amount shall
be allocated among the Transferring Party and the Other Securityholders on a
pro-rata basis based on the allocation procedures specified above; provided
--------
further, however, that to the extent that one or more Other Securityholders
- ------- ------- ----
elect not to participate in such sale, the amount of Common Stock which such
Other Securityholder(s) would otherwise have been entitled to sell in such sale
shall not be reallocated to the remaining Other Securityholders who elect to
participate in such sale; and provided further, however, that in exercising
-------- ------- ------- ----
these rights with respect to an Executive's Series A Option or Series B Option
(1) the Series A Option must be exercised, to the extent then vested, before the
Series B Option, to the extent then vested, is exercised, (2) thereafter, the
Series B Option, to the extent then vested, must be exercised before the Series
A Option, to the extent not vested, is exercised, (3) then, the balance of the
Series A Option must be exercised before the balance of the Series B Option is
exercised and (4) thereafter, the balance of the Series B Option will be
exercisable. The amount of shares of Common Stock to be sold by the Transferring
Party shall be reduced if and to the extent necessary to provide for such sale
of shares of Common Stock by the Other Securityholders. If an Other
Securityholder does not elect to participate in such sale within the 20 calendar
day period referred to above, the Transferring Party shall be entitled to
consummate such sale not later than 90 days after the end of such 20 calendar
day period on terms no more favorable to the Transferring Party than those
stated in the Tag Along Notice without the participation of such Other
Securityholder and all rights of such Other Securityholder to exercise Options
in connection with such sale shall terminate. An Other Securityholder shall not
be deemed to have entered into a legally binding agreement to sell shares unless
and until such Other Securityholder shall have entered into a definitive
purchase agreement with the prospective transferee which shall include customary
conditions precedent to such Other Securityholder's obligations thereunder,
including, without limitation, the obtaining of all necessary regulatory
approvals, and which shall provide for the same terms and conditions applicable
to the Transferring Party, including (without limitation) representations,
warranties and indemnities; provided that the maximum indemnity obligation
-------- ----
of the Other Securityholder under any such
8
<PAGE>
agreement (in its capacity as a selling shareholder) shall be limited to the
purchase price received by such Other Securityholder in the applicable
transaction and the indemnity obligations of the Other Securityholder under any
such agreement (in its capacity as a selling shareholder) shall be several, and
not joint, with the other parties selling shares pursuant to the agreement. The
provisions of this Section 3.2 shall not inure to the benefit of or be binding
upon any transferee of Common Stock from Tracinda or Seven (except in connection
with any transfer by either of them to one or more of their Affiliates) or from
any Executive (other than a Permitted Transferee of an Executive).
(b) The provisions of this Section 3.2 shall not apply to:
(i) any transaction in which shares of Common Stock are proposed
to be sold publicly pursuant to a registration statement filed under the
Securities Act or pursuant to Rule 144 or Regulation S promulgated under
the Securities Act; or
(ii) any one transaction or series of related transactions
involving the transfer by the Transferring Party of less than 1% of the
then issued and outstanding shares of Common Stock; or
(iii) any bona fide pledge to a bank or other institutional
financial lender; or
(iv) any sale from one party to this Agreement to another party
to this Agreement.
(c) The obligations provided for in this Section 3.2 shall terminate
with respect to each Transferring Party at such time as such Transferring Party
beneficially owns less than 250,000 shares of Common Stock.
(d) If an Option held by an Executive has vested pursuant to the terms
of the Plan but is not exercisable pursuant to the terms of the Plan at the time
of a Tag-Along Sale pursuant to this Section 3.2, the Executive shall be
entitled to exercise such Option as described in subsection (a) of this Section
3.2.
(e) Notwithstanding anything contained herein to the contrary, the
provisions of this Section 3.2 shall not apply to, in the case of each of
Tracinda and Seven, (i) the transfer of, or the grant of options for the
acquisition of, up to 7,500 shares of Common Stock (such number to be
appropriately adjusted in the event that the Company should effect any stock
dividend, stock split, reverse stock split, or any similar transaction after the
date hereof) beneficially owned by it to officers, directors, employees,
consultants and affiliates so long as such transferee shall agree in writing to
be bound by all the terms of this Agreement applicable to its transferor as if
the transferee originally had been a party to this Agreement and (ii) the
transfer and assignment of all or any portion of the capital stock of the
Company beneficially owned by it to any direct or indirect wholly owned
subsidiary of such entity so long as (y) such transferee shall agree in writing
to be bound by all the terms of this Agreement applicable to its transferor as
if the transferee originally had been a party to this Agreement and (z) the
transferor agrees to cause
9
<PAGE>
such direct or indirect wholly owned subsidiary to continue to be a direct or
indirect wholly owned subsidiary of the transferor for so long as such direct or
indirect wholly owned subsidiary beneficially owns any such capital stock of the
Company.
ARTICLE IV
REGISTRATION RIGHTS
Section 4.1. Demand Registrations.
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(a) Requests for Registration. Subject to Sections 4.1(c) and 4.3
-------------------------
hereof, each of Seven, Tracinda and each Executive shall have the right to make
up to three requests, in the case of each of Seven and Tracinda, and up to two
requests with respect to all of the Executives, for registration under the
Securities Act of all or part of their Registrable Securities on Form S-1 or any
similar long-form registration or on Form S-3 or any similar short-form
registration ("Short-Form Registrations"); provided that no request for a Demand
------------------------ -------- ----
Registration may be made at anytime prior to 180 days after the IPO Closing
Date; and provided, further, that any request for a Demand Registration shall
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not be otherwise deemed to be effective unless such request includes Registrable
Securities which have an estimated value of no less than $50,000,000. Each
request for a Demand Registration shall specify the approximate number of
Registrable Securities requested to be registered and the anticipated per share
price range for such offering. All registrations requested pursuant to this
Section 4.1(a) are referred to herein as "Demand Registrations."
--------------------
(b) Short-Form Registrations. Demand Registrations will be Short-Form
------------------------
Registrations whenever the Company is permitted to use any applicable short
form, unless the party requesting such Demand Registration is entitled to
request, and agrees to bear the incremental Registration Expenses for,
registration on Form S-1 at a time when use of Short-Form Registration is
available. The Company will use its best efforts to make Short-Form
Registrations available for the sale of Registrable Securities. Demand
Registration requests may be for shelf registrations if the Company is then
eligible to effect shelf registrations.
(c) Restrictions on Demand Registrations. The Company will not be
------------------------------------
obligated to effect any Demand Registration within six months after the
effective date of a previous Demand Registration. During any two-year period,
the Company may make a one-time election to postpone the filing or the
effectiveness of a registration statement for a Demand Registration for up to
six months if the board of directors of the Company determines, in its good
faith judgment, that (i) such Demand Registration would reasonably be expected
to have a material adverse effect on, interfere with or delay any proposal or
plan by the Company or any of its subsidiaries to engage in any acquisition of
assets (other than in the ordinary course of business) or any merger,
consolidation, tender offer or similar transaction, (ii) the filing of a
registration statement or a sale of Registrable Securities pursuant thereto
would require disclosure of material information that the Company has a bona
fide business purpose for preserving as confidential or (iii) the Company is
unable to comply with the registration requirements of the Commission; provided
--------
that, in such event, the holders of Registrable Securities initially requesting
- ----
such Demand Registration will be entitled to withdraw such request and, if such
request is withdrawn, such request for Demand Registration will not count as a
request for Demand Registration hereunder
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and the Company will pay all Registration Expenses in connection with such
withdrawn registration request.
(d) Selection of Underwriters. The party requesting a Demand
-------------------------
Registration will have the right to select the managing underwriters to
administer the offering, who shall be of national prominence and reasonably
acceptable to the Company.
Section 4.2. Piggyback Registrations.
-----------------------
(a) Right to Piggyback. Whenever at anytime after the IPO Closing
------------------
Date, the Company proposes to register any of its equity securities under the
Securities Act (other than a registration on Form S-4 or Form S-8 or any
successor or similar forms) and the registration form to be used may be used for
the registration of Registrable Securities (a "Piggyback Registration"), whether
----------------------
or not for sale for its own account, the Company will give prompt written notice
to each of Tracinda, Seven and the Executives of its intention to effect such a
registration and the class or classes of equity securities of the Company to be
registered and will include in such registration all Registrable Securities of
the same class or classes with respect to which the Company has received written
requests for inclusion therein within 20 days after the receipt of the notice
from the Company.
(b) Priority on Primary Registrations. If a Piggyback Registration is
---------------------------------
an underwritten primary registration on behalf of the Company, and the managing
underwriters advise the Company in writing that in their opinion the number of
securities requested to be included in such registration exceeds the number
which can be sold in such offering within a price range reasonably acceptable to
the Company, the Company will include in such registration (i) first, the
securities the Company proposes to sell and (ii) second, all other securities
(including the Registrable Securities) requested to be included in such
registration, pro rata among the respective holders thereof on the basis of the
number of securities owned by each such holder.
(c) Priority on Secondary Registrations. If a Piggyback Registration
-----------------------------------
is an underwritten secondary registration on behalf of holders of securities of
the Company, and the managing underwriters advise the Company in writing that in
their opinion the number of securities requested to be included in such
registration exceeds the number which can be sold in such offering within a
price range reasonably acceptable to such holders, the Company will include in
such registration the securities (including the Registrable Securities)
requested to be included in such registration, pro rata among the respective
holders thereof on the basis of the number of securities owned by each such
holder.
Section 4.3. Holdback Agreements. (a) If requested in writing by
the Company or the managing underwriters, if any, of any registration effected
pursuant to Section 4.1 or 4.2, each of Seven, Tracinda and the Executives
agrees not to effect any public sale or distribution (including sales pursuant
to Rule 144) of equity securities of the Company, or any securities convertible
into or exchangeable or exercisable for such securities, during the time period
reasonably requested by the managing underwriters, not to exceed the period
commencing with the date seven days prior to and ending with the date 90 days,
or such longer period, not to exceed 180 days, as the applicable managing
underwriter shall request, after the effective date of
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any underwritten Demand Registration, any underwritten Piggyback Registration or
other underwritten registration by the Company of its securities (except as part
of such underwritten registration).
(b) If requested in writing by the managing underwriters of any
registration effected pursuant to Section 4.1 or 4.2, the Company agrees (i) not
to effect any public sale or distribution of its equity securities, or any
securities convertible into or exchangeable or exercisable for such securities,
during the time period reasonably requested by the managing underwriters, not to
exceed the period commencing with the date seven days prior to and ending with
the date 90 days, or such longer period, not to exceed 180 days, as the
applicable managing underwriter shall request, after the effective date of any
underwritten Demand Registration or any underwritten Piggyback Registration
(except as part of such underwritten registration or pursuant to registrations
on Form S-4 or Form S-8 or any successor forms), and (ii) to use its best
efforts to cause each holder of its capital stock, which such holder purchased
from the Company at any time after the date of this Agreement (other than in a
registered public offering), to so agree.
(c) If the Company has previously filed a registration statement with
respect to Registrable Securities pursuant to Section 4.1 or 4.2, and if such
previous registration has not been withdrawn or abandoned, the Company will not
file or cause to be effected any other registration of any of its equity
securities or securities convertible or exchangeable into or exercisable for its
equity securities under the Securities Act (except on Form S-4 or Form S-8 or
any successor forms), whether on its own behalf or at the request of any holder
or holders of such securities, until a period of at least 90 days, or such
longer period, not to exceed 180 days, as the applicable managing underwriter
shall request, has elapsed from the effective date of such previous
registration.
Section 4.4. Registration Procedures. Whenever Tracinda, Seven or
-----------------------
an Executive has requested that any Registrable Securities be registered
pursuant to this Agreement, the Company will use its best efforts to effect the
registration and the sale of such Registrable Securities in accordance with the
intended method of disposition thereof, and pursuant thereto the Company will as
expeditiously as possible:
(a) prepare and file with the Commission a registration statement with
respect to such Registrable Securities and thereafter use its best efforts to
cause such registration statement to become effective (provided that, before
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filing a registration statement or prospectus or any amendments or supplements
thereto, the Company will furnish to the counsel selected by the holders of a
majority of the Registrable Securities covered by such registration statement
copies of all such documents proposed to be filed, which documents will be
subject to review of such counsel);
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
a period of either (i) not less than six months (subject to extension pursuant
to Section 4.7(b)) or, if such registration statement relates to an underwritten
offering, such longer period as in the opinion of counsel for the underwriters a
prospectus is required by law to be delivered in connection with sales of
Registrable Securities by
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an underwriter or dealer or (ii) such shorter period as will terminate when all
of the securities covered by such registration statement have been disposed of
in accordance with the intended methods of disposition by the seller or sellers
thereof set forth in such registration statement (but in any event not before
the expiration of any longer period required under the Securities Act), and to
comply with the provisions of the Securities Act with respect to the disposition
of all securities covered by such registration statement until such time as all
of such securities have been disposed of in accordance with the intended methods
of disposition by the seller or sellers thereof set forth in such registration
statement;
(c) furnish to each seller of Registrable Securities such number of
copies of such registration statement, each amendment and supplement thereto,
the prospectus included in such registration statement (including each
preliminary prospectus) and such other documents as such seller may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such seller;
(d) use its best efforts to register or qualify such Registrable
Securities under such other securities or blue sky laws of such jurisdictions as
any seller reasonably requests and do any and all other acts and things which
may be reasonably necessary or advisable to enable such seller to consummate the
disposition in such jurisdictions of such Registrable Securities owned by such
seller (provided that the Company will not be required to (i) qualify generally
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to do business in any jurisdiction where it would not otherwise be required to
qualify but for this subparagraph, (ii) subject itself to taxation in any such
jurisdiction or (iii) consent to general service of process in any such
jurisdiction);
(e) notify each seller of such Registrable Securities, at any time
when a prospectus relating thereto is required to be delivered under the
Securities Act, upon discovery that, or upon the discovery of the happening of
any event as a result of which, the prospectus included in such registration
statement contains an untrue statement of a material fact or omits any fact
necessary to make the statements therein not misleading in the light of the
circumstances under which they were made, and the Company will prepare and file
with the Commission and, at the request of any such seller, furnish to such
seller a reasonable number of copies of, a supplement or amendment to such
prospectus so that, as thereafter delivered to the purchasers of such
Registrable Securities, such prospectus will not contain an untrue statement of
a material fact or omit to state any fact necessary to make the statements
therein not misleading in the light of the circumstances under which they were
made;
(f) cause all such Registrable Securities to be listed on each
securities exchange on which similar securities issued by the Company are then
listed and, if not so listed, to be listed on the Nasdaq National Market;
(g) provide a transfer agent and registrar for all such Registrable
Securities not later than the effective date of such registration statement;
(h) enter into such customary agreements (including underwriting
agreements in customary form) and take all such other actions as the holders of
a majority of the Registrable Securities being sold or the underwriters, if any,
reasonably request in order to expedite or
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facilitate the disposition of such Registrable Securities (including, without
limitation, effecting a stock split or a combination of shares);
(i) make available for inspection by any seller of Registrable
Securities, any underwriter participating in any disposition pursuant to such
registration statement, and any attorney, accountant or other agent retained by
any such seller or underwriter, all financial and other records, pertinent
corporate documents and properties of the Company, and cause the officers,
directors, employees and independent accountants of the Company to supply all
information reasonably requested by any such seller, underwriter, attorney,
accountant or agent in connection with such registration statement;
(j) otherwise use its best efforts to comply with all applicable rules
and regulations of the Commission, and make available to its security holders,
as soon as reasonably practicable, an earnings statement covering the period of
at least twelve months beginning with the first day of the first full calendar
quarter of the Company after the effective date of the registration statement,
which earnings statement shall satisfy the provisions of Section 11(a) of the
Securities Act and Rule 158 thereunder;
(k) in the event of the issuance of any stop order suspending the
effectiveness of a registration statement, or of any order suspending or
preventing the use of any related prospectus or suspending the qualification of
any securities included in such registration statement for sale in any
jurisdiction, the Company will use its reasonable best efforts promptly to
obtain the withdrawal of such order;
(l) obtain a "cold comfort" letter, dated the effective date of such
registration statement (and, if such registration includes an underwritten
public offering, dated the date of the closing under the underwriting
agreement), signed by the independent public accountants of the Company in
customary form and covering such matters of the type customarily covered by
"cold comfort" letters as the holders of a majority of the Registrable
Securities being sold reasonably request (provided that such Registrable
Securities constitute at least 10% of the securities covered by such
registration statement); and
(m) provide a legal opinion of the outside counsel of the Company,
dated the effective date of such registration statement (and, if such
registration includes an underwritten public offering, dated the date of the
closing under the underwriting agreement), with respect to the registration
statement, each amendment and supplement thereto, the prospectus included
therein (including the preliminary prospectus) and such other documents relating
thereto in customary form and covering such matters of the type customarily
covered by legal opinions of such nature. The Company may require each seller
of Registrable Securities as to which any registration is being effected to
furnish the Company such information regarding such seller and the distribution
of such securities as the Company may from time to time reasonably request in
writing.
Section 4.5. Registration Expenses. (a) Except as provided in
Section 4.1(b), the Company shall pay all Registration Expenses relating to any
registration of Registrable Securities hereunder. "Registration Expenses" shall
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mean any and all fees and expenses incident
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to the Company's performance of or compliance with this Article IV, including,
without limitation: (i) Commission, stock exchange or National Association of
Securities Dealers, Inc. registration and filing fees and all listing fees and
fees with respect to the inclusion of securities on the Nasdaq National Market,
(ii) fees and expenses of compliance with state securities or "blue sky" laws
and in connection with the preparation of a "blue sky" survey, including,
without limitation, reasonable fees and expenses of blue sky counsel, (iii)
printing expenses, (iv) messenger and delivery expenses, (v) fees and
disbursements of counsel for the Company, (vi) with respect to each
registration, reasonable fees and disbursements of one counsel for the selling
shareholders (other than the Company) (selected by the holders making the Demand
Registration request, in the case of a registration pursuant to Section 4.1, and
selected by the holders of a majority of the Registrable Securities included in
such registration, in the case of a registration pursuant to Section 4.2) as
well as of one local counsel, (vii) fees and disbursements of all independent
public accountants (including the expenses of any audit and/or "cold comfort"
letter) and fees and expenses of other persons, including special experts,
retained by the Company, and (viii) any other fees and disbursements of
underwriters, if any, customarily paid by issuers or sellers of securities.
(b) Notwithstanding the foregoing, (i) the provisions of this Section
4.5 shall be deemed amended to the extent necessary to cause these expense
provisions to comply with "blue sky" laws of each state in which the offering is
made and (ii) in connection with any registration hereunder, each holder of
Registrable Securities being registered shall pay all underwriting discounts and
commissions and transfer taxes, if any, attributable to the Registrable
Securities included in the offering by such holder.
Section 4.6. Indemnification. (a) The Company and MGM Studios
jointly and severally agree to indemnify and hold harmless, to the extent
permitted by law, each holder of Registrable Securities, its officers,
directors, employees and agents and each Person who controls such holder (within
the meaning of the Securities Act) against any losses, claims, damages or
liabilities, joint or several, to which such holder or any such director,
officer, employee, agent or controlling person may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions or proceedings, whether commenced or threatened, in
respect thereof) arise out of or are based upon (i) any untrue or alleged untrue
statement of a material fact contained (A) in any registration statement,
prospectus or preliminary prospectus or any amendment thereof or supplement
thereto or (B) in any application or other document or communication (in this
Section 4.6 collectively called an "application") executed by or on behalf of
the Company or based upon written information furnished by or on behalf of the
Company filed in any jurisdiction in order to qualify any securities covered by
such registration statement under the "blue sky" or securities laws thereof,
(ii) any omission or alleged omission of a material fact required to be stated
therein or necessary to make the statements therein not misleading or (iii) any
violation by the Company of the Securities Act or any state securities law, or
any rule or regulation promulgated under the Securities Act or any state
securities law, or any other law applicable to the Company relating to any such
registration or qualification, and the Company will reimburse such holder and
each such director, officer and controlling person for any legal or any other
expenses incurred by them in connection with investigating or defending any such
loss, claim, liability, action or proceeding; provided that the Company shall
-------------
not be liable in any such case to the extent that any such loss, claim, damage,
liability (or action or proceeding in respect thereof) or expense arises out of
or is based upon an
15
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untrue statement or alleged untrue statement, or omission or alleged omission,
made in such registration statement, any such prospectus or preliminary
prospectus or any amendment or supplement thereto, or in any application, in
reliance upon and in conformity with written information prepared and furnished
to the Company by such holder expressly for use therein or by such holder's
failure to deliver a copy of the registration statement or prospectus or any
amendments or supplements thereto after the Company has furnished such holder
with a sufficient number of copies of the same. In connection with an
underwritten offering, the Company will indemnify such underwriters, their
officers and directors and each Person who controls such underwriters (within
the meaning of the Securities Act) to the same extent as provided above with
respect to the indemnification of the holders of Registrable Securities.
(b) In connection with any registration statement in which a holder of
Registrable Securities is participating, each such holder will furnish to the
Company in writing such information and documents concerning such holder as the
Company reasonably requests for use in connection with any such registration
statement or prospectus and, to the extent permitted by law, will indemnify and
hold harmless the Company, MGM Studios, their respective directors and officers
and each other Person who controls or is controlled by the Company and the
directors and officers of each such controlling or controlled Person (within the
meaning of the Securities Act) against any losses, claims, damages, liabilities,
joint or several, to which the Company or any such director or officer or
controlling or controlled Person may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions or
proceedings, whether commenced or threatened, in respect thereof) arise out of
or are based upon (i) any untrue or alleged untrue statement of a material fact
contained in the registration statement, prospectus or preliminary prospectus or
any amendment thereof or supplement thereto or in any application or (ii) any
omission or alleged omission of a material fact required to be stated therein or
necessary to make the statements therein not misleading, but only to the extent
that such untrue statement or omission is made in such registration statement,
any such prospectus or preliminary prospectus or any amendment or supplement
thereto, or in any application, in reliance upon and in conformity with written
information concerning such holder prepared and furnished to the Company by such
holder in writing expressly for use therein, and such holder will reimburse the
Company and each such director, officer and controlling or controlled Person for
any legal or any other expenses incurred by them in connection with
investigating or defending any such loss, claim, liability, action or
proceeding; provided that the obligation to indemnify will be individual to each
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holder and will be limited to the net amount of proceeds received by such holder
from the sale of Registrable Securities pursuant to such registration statement.
(c) Any Person entitled to indemnification hereunder will (i) give
prompt written notice to the indemnifying party of any claim with respect to
which it seeks indemnification and (ii) unless in such indemnified party's
reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party. If such defense is assumed, the
indemnified party will not be subject to any liability for any settlement made
by the indemnifying party without its consent (but such consent will not be
unreasonably withheld). An indemnifying party who is not entitled to, or elects
not to, assume the defense of a claim will not be obligated to pay the fees and
expenses of
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more than one counsel for all parties indemnified by such indemnifying party
with respect to such claim, unless in the reasonable judgment of any indemnified
party a conflict of interest may exist between such indemnified party and any
other of such indemnified parties with respect to such claim. If the
indemnifying party assumes the defense, the indemnified party may engage its own
counsel at its own sole cost and expense. All fees and expenses of counsel to
any indemnified party required to be paid by any indemnifying party shall be
paid by such indemnifying party as incurred by such indemnified party.
(d) The indemnification provided for under this Agreement will remain
in full force and effect regardless of any investigation made by or on behalf of
the indemnified party or any officer, director, employee, agent or controlling
or controlled Person of such indemnified party and will survive the transfer of
securities by any holder thereof. If the indemnification provided for herein is
unavailable to an indemnified party or insufficient in respect of any losses,
claims, damages or liabilities referred to therein, then each indemnifying
party, in lieu of indemnifying such indemnified party thereunder, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages or liabilities in such proportion as is
appropriate to reflect the relative fault of the indemnifying party or parties,
on the one hand, and the indemnified party or parties, on the other hand, in
connection with the statements or omissions that resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations; provided, however, that in no event shall any contribution by
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any holder or any director, officer, employee, agent or controlling or
controlled Person thereof exceed the amount of the net proceeds received by such
holder from the sale of Registrable Securities pursuant to such registration
statement.
Section 4.7. Participation in Underwritten Registrations. (a) If
-------------------------------------------
requested by the underwriters for any underwritten offering pursuant to a Demand
Registration requested under Section 4.1, the Company shall enter into a
customary underwriting agreement with the underwriters. Such underwriting
agreement shall be satisfactory in form and substance to the Person who
requested such registration and shall contain such representations and
warranties by, and such other agreements on the part of, the Company and such
other terms as are generally prevailing in agreements of that type, including,
without limitation, indemnities and contribution agreements. Such underwriting
agreement shall also contain such representations, warranties, indemnities and
contributions by the participating holders as are customary in agreements of
that type. In the case of a registration pursuant to Section 4.2 hereof, if the
Company shall have determined to enter into any underwriting agreements in
connection therewith, all of the holders' Registrable Securities to be included
in such registration shall be subject to such underwriting agreement. Such
underwriting agreement shall also contain such representations, warranties,
indemnities and contributions by the participating holders as are customary in
agreements of that type.
(b) Each Person that is participating in any registration hereunder
agrees that, upon receipt of any notice from the Company of the happening of any
event of the kind described in Section 4.4(e) above, such Person will forthwith
discontinue the disposition of its Registrable Securities pursuant to the
registration statement until such Person's receipt of the copies of a
supplemented or amended prospectus as contemplated by such Section 4.4(e). In
the event the Company shall give any such notice, the applicable time period
mentioned in Section 4.4(b) during
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which a registration statement is to remain effective shall be extended by the
number of days during the period from and including the date of the giving of
such notice pursuant to this paragraph to and including the date when each
seller of a Registrable Security covered by such registration statement shall
have received the copies of the supplemented or amended prospectus contemplated
by Section 4.4(e).
Section 4.8. Current Public Information. At all times, the Company
--------------------------
will file all reports required to be filed by it under the Securities Act and
the Exchange Act and the rules and regulations adopted by the Commission
thereunder, and will take such further action as any holder or holders of
Registrable Securities may reasonably request, all to the extent required to
enable such holders to sell Registrable Securities pursuant to Rule 144.
Section 4.9. Preparation; Reasonable Investigation. In connection
-------------------------------------
with the preparation and filing of each registration statement under the
Securities Act, the Company will give the holders of Registrable Securities
registered under such registration statement and their respective counsel,
underwriters and accountants, the opportunity to participate in the preparation
of such registration statement, each prospectus included therein or filed with
the Commission, and each amendment thereof or supplement thereto, and will give
each of them such access to its books and records and such opportunities to
discuss the business, finances and accounts of the Company and its Subsidiaries
with its officers, directors and the independent public accountants who have
certified its financial statements as shall be necessary, in the opinion of such
holders' and such underwriters' respective counsel, to conduct a reasonable
investigation within the meaning of the Securities Act.
Section 4.10. Certain Rights of Holders. The Company will not file
-------------------------
any registration statement under the Securities Act which refers to any holder
of Registrable Securities by name or otherwise as the holder of any securities
of the Company, unless it shall first have given such holder the right to
require:
(a) the insertion therein of language, in form and substance
satisfactory to such holder, to the effect that, in the opinion of such
holder, the holding of such holder of such securities does not make such
holder a "controlling person" of the Company within the meaning of the
Securities Act and is not to be construed as a recommendation by such
holder of the investment quality of the Company's securities covered
thereby and that such holding does not imply that such holder will assist
in meeting any future financial requirements of the Company, or
(b) in the event that such reference to such holder by name or
otherwise is not required by the Securities Act or any rules and
regulations promulgated thereunder, the deletion of the reference to such
holder.
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Section 4.11. Form S-8. The Company will, within 6 months following
--------
the IPO Closing Date, cause to become effective a registration statement on Form
S-8 with the Commission with respect to shares of capital stock of the Company
subject to Options.
ARTICLE V
GENERAL PROVISIONS
Section 5.1. Notices. Any notice required to be given hereunder
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shall be sufficient if in writing, and sent by facsimile transmission and by
courier service (with proof of service), hand delivery or certified or
registered mail (return receipt requested and first-class postage prepaid),
addressed as follows:
If to the Company or MGM Studios, to:
Metro-Goldwyn-Mayer Inc.
2500 Broadway
Fifth Floor
Santa Monica, CA 90404-3061
Attention: David Johnson
Telephone: (310) 449-3993
Telecopy: (310) 449-3011
with a copy to:
Gibson, Dunn & Crutcher LLP
333 S. Grand Avenue
Los Angeles, CA 90071
Attention: Bruce D. Meyer
Telephone: (213) 229-7979
Telecopy: (213) 229-7520
If to Tracinda, to:
Tracinda Corporation
4835 Koval Lane
Las Vegas, NV 89109
Attention: Secretary / Treasurer
Telecopy: (702) 737-1177
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with a copy to:
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, NY 10004
Attention: Stephen Fraidin, P.C.
Telephone: (212) 859-8140
Telecopy: (212) 859-4000
If to Seven, to:
Seven Network Limited
c/o Culmen Group, L.P.
201 Main Street
Suite 1955
Fort Worth, TX 76102
Attention: Michael R. Gleason
Telephone: (817) 335-6999
Telecopy: (817) 870-1384
and:
ATN7
Mobbs Lane
Epping NSW 2121, Australia
Attention: Gary Rice, Managing Director
Telephone: (602) 877-7000
Telecopy: (612) 996-77191
with a copy to:
Kelly, Hart & Hallman
201 Main Street
Fort Worth, TX 76102
Attention: F. Richard Bernasek
Telephone: (817) 332-2500
Telecopy: (817) 878-9280
if to an Executive, to the address of such Executive set forth in the signature
pages hereof or to such other address as any party shall specify by written
notice so given, and such notice shall be deemed to have been delivered as of
the date so telecommunicated, personally delivered or mailed.
Section 5.2. Assignment; Binding Effect; Benefit; Successors.
(a) Except as otherwise expressly provided in this Agreement, neither this
Agreement nor any of
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the rights, interests or obligations hereunder shall be assigned by any of the
parties hereto (whether by operation of law or otherwise); provided, however,
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that the registration and related rights specified in Article IV shall inure to
- ----
the benefit of any transferee of Registrable Securities pursuant to a Transfer
permitted under the terms of this Agreement; provided, further, however, that
-------- ------- ------- ----
each of Tracinda and Seven may assign its rights under this Agreement to any of
their respective direct or indirect wholly owned Subsidiaries so long as (i)
such assignee agrees to be bound by the terms of this Agreement to the same
extent as the applicable assignor, (ii) the applicable assignor continues to be
bound by, and is not released from, any of its obligations under this Agreement,
and (iii) the applicable assignor will cause the applicable direct or indirect
wholly owned Subsidiary to continue to be a direct or indirect wholly owned
Subsidiary of the applicable assignor for so long as such assignee shall have
rights under this Agreement. For the purpose of this Agreement, all capital
stock of the Company owned by any direct or indirect wholly owned Subsidiary of
Tracinda or Seven, as applicable, shall be deemed owned by Tracinda or Seven, as
applicable. Subject to the first sentence of this Section 5.2, this Agreement
shall be binding upon and shall inure to the benefit of the parties hereto and
their respective successors and assigns. Except as expressly provided in this
Agreement, notwithstanding anything contained in this Agreement to the contrary,
nothing in this Agreement, express or implied, is intended to confer on any
person other than the parties hereto any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
(b) In the event that the Company shall enter into a merger,
consolidation or other similar type transaction, all of the terms of this
Agreement relating to the Company, as applicable, shall apply to the surviving
corporation.
Section 5.3. Entire Agreement. Upon the effectiveness hereof, this
----------------
Agreement and any certificate delivered by the parties in connection herewith
constitute the entire agreement among the parties with respect to the subject
matter hereof and supersede all prior agreements and understandings (oral and
written) among the parties with respect thereto.
Section 5.4. Amendment. (a) Subject to Section 5.4(b), this
---------
Agreement may not be amended or modified except by an instrument in writing
signed by or on behalf of each of the parties hereto which, with respect to the
Executives, shall refer to the holders of a majority of shares of capital stock
of the Company owned by the Executives and subject to the terms of this
Agreement.
(b) The provisions of Article IV of this Agreement which are solely
for the benefit of Tracinda, Seven and/or the Company may be amended without the
consent of the Executives. Any other provision of Article IV may be amended
without the consent of the Executives provided that, in the case of this
sentence, such amendment does not materially and adversely affect the rights of
the Executives under this Agreement.
Section 5.5. Governing Law; Effective Date. This Agreement shall
-----------------------------
be governed by, and construed in accordance with, the internal laws of the State
of Delaware (without regard to conflict of laws principles which would require
the application of the laws of any other State). Each of the parties hereto
agrees that any legal action or proceeding with respect to this Agreement may be
brought in the Courts of the State of Delaware or the United
21
<PAGE>
States District Court located in the State of Delaware and, by execution and
delivery of this Agreement, each party hereto hereby irrevocably submits itself
in respect of its property, generally and unconditionally to the non-exclusive
jurisdiction of the aforesaid courts in any legal action or proceeding arising
out of this Agreement. Each of the parties hereto hereby irrevocably waives any
objection which it may now or hereafter have to the laying of venue of any of
the aforesaid actions or proceedings arising out of or in connection with this
Agreement brought in the courts referred to in the preceding sentence. Each
party hereto hereby consents to process being served in any such action or
proceeding by the mailing of a copy thereof to the address set forth in Section
5.1 hereof and agrees that such service upon receipt shall constitute good and
sufficient service of process or notice thereof. Nothing in this Section 5.5
shall affect or eliminate any right to serve process in any other manner
permitted by law. This Agreement shall become effective at the time of the IPO
Closing. Prior to the issuance of any Options or shares of capital stock of the
Company to any Executive of the Company, MGM Studios or any of their respective
Subsidiaries, the Company shall cause such Executive to become a party to this
Agreement.
Section 5.6. Counterparts. This Agreement may be executed by the
------------
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute one and the same instrument. Each counterpart may consist of a number
of copies of this Agreement, each of which may be signed by less than all of the
parties hereto, but together all such copies are signed by all of the parties
hereto.
Section 5.7. Headings. Headings of the Articles and Sections of
--------
this Agreement are for the convenience of the parties only and shall be given no
substantive or interpretive effect whatsoever.
Section 5.8. Interpretation. In this Agreement, unless the context
--------------
otherwise requires, words describing the singular number shall include the
plural and vice versa, "including" shall mean including, without limitation, and
words denoting any gender shall include all genders and words denoting natural
persons shall include corporations and partnerships and vice versa.
Section 5.9. Severability. Any term or provision of this Agreement
------------
which is invalid or unenforceable in any jurisdiction shall, as to that
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining terms
and provisions of this Agreement or otherwise affecting the validity or
enforceability of any of the terms or provisions of this Agreement in any other
jurisdiction. If any provision of this Agreement is so broad as to be
unenforceable, the provision shall be interpreted to be only so broad as is
enforceable.
Section 5.10. Enforcement of Agreement. The parties hereto agree
------------------------
that irreparable damage would occur in the event that any of the provisions of
this Agreement were not performed in accordance with its specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any Delaware court, this
being in addition to any other remedy to which they may be entitled at law or in
equity.
22
<PAGE>
Section 5.11. Termination of Original Shareholders Agreement. Seven,
----------------------------------------------
Tracinda, the Company, MGM Studios, and Executives hereby mutually agree that,
effective as of the IPO Closing Date, the Original Shareholders Agreement shall
terminate and be of no further force or effect and none of them shall have any
further rights, duties or obligations thereunder from and after the effective
date of such termination. Until such time as the IPO Closing Date shall occur,
the Original Shareholders Agreement shall remain in full force and effect and
shall be unaffected hereby, except that no party hereto shall be entitled to
effect a Piggyback Registration pursuant to the Approved Initial Public
Offering.
Section 5.12. Antidilution Adjustment. Prior to or concurrent with
-----------------------
the consummation of the IPO Closing, the Company will effect, in one or more
transactions, a net stock split of the Common Stock (the "Stock Split"). As a
-----------
result of the Stock Split, before this Agreement becomes effective, the number
of shares of Common Stock in Section 3.2(c) will be multiplied by the Stock
Split (the "Antidilution Adjustment"). By way of illustration, if the Stock
-----------------------
Split is 50 for 1 by virtue of the Antidilution Adjustment, the 250,000 number
in Section 3.2(c) of this Agreement will become 12,500,000.
23
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement and
caused the same to be duly delivered on their behalf as of the day and year
first written above.
SEVEN NETWORK LIMITED
By:
--------------------------------
Name:
Title:
TRACINDA CORPORATION
By:
---------------------------------
Name:
Title:
METRO-GOLDWYN-MAYER STUDIOS INC.
By:
----------------------------------
Name:
Title:
METRO-GOLDWYN-MAYER INC.
By:
----------------------------------
Name:
Title:
--------------------------------------
Frank G. Mancuso
--------------------------------------
[Executive]
--------------------------------------
[Executive]
--------------------------------------
[Executive]
--------------------------------------
[Executive]
--------------------------------------
[Executive]
24
<PAGE>
The undersigned, an indirect wholly owned subsidiary of Seven Network Limited,
hereby agrees to be bound by the terms of this Agreement to the same extent as
Seven Network Limited.
MILTONSTAR PTY LIMITED
By:
-------------------------------
Name:
Title:
25
<PAGE>
Exhibit A
EXHIBIT A
See Exhibit 10.5
26
<PAGE>
Exhibit B
EXHIBIT B
See Exhibit 10.5
27
<PAGE>
EXHIBIT 10.25
================================================================================
FORM OF
AMENDED AND RESTATED INVESTORS SHAREHOLDER AGREEMENT
by and among
SEVEN NETWORK LIMITED
TRACINDA CORPORATION
METRO-GOLDWYN-MAYER STUDIOS INC.
METRO-GOLDWYN-MAYER INC.
and
FRANK G. MANCUSO
Dated as of August 4, 1997
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I DEFINITIONS..................................................... 1
Section 1.1. Definitions...................................... 1
ARTICLE II REPRESENTATIONS AND WARRANTIES................................. 4
Section 2.1. Representations and Warranties of the Company.... 4
Section 2.2. Representations and Warranties of Seven.......... 4
Section 2.3. Representations and Warranties of Tracinda....... 4
Section 2.4. Representations and Warranties of MGM Studios.... 5
ARTICLE III CORPORATE GOVERNANCE; CERTAIN CORPORATE ACTIONS............... 5
Section 3.1. Voting of Shares................................. 5
Section 3.2. Composition of the Board of Directors of the
Company and MGM Studios and the Committees
Thereof........................................ 6
Section 3.3. Approval of Certain Matters...................... 9
ARTICLE IV FIRST REFUSAL................................................. 10
Section 4.1. First Refusal.................................... 10
Section 4.2. Legend........................................... 12
ARTICLE V PREEMPTIVE RIGHTS............................................... 12
Section 5.1. Certain Pre-emptive Rights....................... 12
ARTICLE VI BUSINESS; CERTIFICATE OF INCORPORATION AND BYLAWS.............. 14
Section 6.1. Entertainment Business........................... 14
Section 6.2. Certificate of Incorporation and By-laws......... 14
Section 6.3 Conversion of Preferred Stock..................... 14
ARTICLE VII GENERAL PROVISIONS............................................ 14
Section 7.1. Notices.......................................... 14
Section 7.2. Assignment; Binding Effect; Benefit; Successors.. 16
Section 7.3. Entire Agreement................................. 17
Section 7.4. Amendment........................................ 17
Section 7.5. Governing Law.................................... 17
Section 7.6. Counterparts; Effective Date..................... 17
Section 7.7. Headings......................................... 17
Section 7.8. Interpretation................................... 17
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Section 7.9. Severability...................................... 18
Section 7.10. Enforcement of Agreement......................... 18
Section 7.11. Certain Rights................................... 18
Section 7.12. Termination of Original Investors Shareholder
Agreement...................................... 18
Section 7.13. Antidilution Adjustment.......................... 18
</TABLE>
ii
<PAGE>
AMENDED AND RESTATED INVESTORS
------------------------------
SHAREHOLDER AGREEMENT
---------------------
THIS AMENDED AND RESTATED INVESTORS SHAREHOLDER AGREEMENT, dated as of
August 4, 1997 (this "Agreement"), by and among SEVEN NETWORK LIMITED, a
---------
corporation organized under the laws of the Commonwealth of Australia ("Seven");
-----
TRACINDA CORPORATION, a corporation organized under the laws of the State of
Nevada ("Tracinda"); METRO-GOLDWYN-MAYER INC., a corporation organized under the
--------
laws of the state of Delaware and formerly known as P&F Acquisition Corp. (the
"Company"); METRO-GOLDWYN-MAYER STUDIOS INC., a corporation organized under the
-------
laws of the State of Delaware and formerly known as Metro-Goldwyn-Mayer Inc.
("MGM Studios"); and FRANK G. MANCUSO ("Mr. Mancuso"), amends and supersedes
- ------------- -----------
that certain Investors Shareholder Agreement, dated as of October 16, 1996, by
and among Seven, the Company, Tracinda, MGM Studios and Mr. Mancuso (the
"Original Investors Shareholder Agreement").
- -----------------------------------------
A. The Company intends to commence with an Approved Initial Public
Offering (as defined below) of the Common Stock (as defined below) of the
Company and to enter into certain related transactions.
B. The parties hereto have agreed to enter into this Agreement for
the purpose of amending and restating in its entirety the provisions of the
Original Investors Shareholder Agreement as provided herein.
Accordingly, for due and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I
DEFINITIONS
Section 1.1. Definitions.
-----------
"Affiliate": of any Person, means (i) any other Person controlling,
---------
controlled by or under common control with such Person, (ii) any director or
executive officer of such Person or of any Affiliate of such Person and (iii)
any family member of any director or executive officer of such Person or any
director or executive officer of any Affiliate of such Person.
"Agreement": as defined in the preamble to this Agreement.
---------
"Antidilution Adjustment": as defined in Section 7.13.
-----------------------
"Approved Initial Public Offering": shall mean an offering of Common
--------------------------------
Stock of the Company to the public through a syndicate of underwriters co-
managed by Merrill Lynch Pierce Fenner & Smith, Inc. and J. P. Morgan
Securities, Inc. and others (with Merrill Lynch Pierce Fenner & Smith, Inc.
acting as book running manager) pursuant to an effective registration statement
under the Securities Act by the Company (other than in connection with any
employee
<PAGE>
benefit plan maintained by the Company or any corporation controlled by it)
provided that the following conditions are met:
(i) the initial public offering price of such shares of Common Stock
(before deduction of underwriters' discounts and commissions and the out-of-
pocket expenses of the Company incurred in connection therewith) shall be not
less than the sum of $1,000 per share of Common Stock plus the Carrying Cost
Factor Amount Per Share;
(ii) the aggregate initial offering price of all such shares so sold
in such public offering (before deduction of underwriters' discounts and
commissions and the out-of-pocket expenses of the Company incurred in connection
therewith) shall be not less than $250 million nor more than $450 million; and
(iii) the underwriters shall not have been granted an over-allotment
option to purchase more than 15% of the shares of Common Stock initially sold to
the underwriters at a price equal to the initial public offering price and such
over-allotment option shall only be exercisable within 30 days after the IPO
Closing.
"Carrying Cost Factor Amount Per Share": shall mean the quotient (rounded
-------------------------------------
to the nearest $0.25) which results when:
(i) the sum of (A) an amount calculated like interest at the rate of
8% per annum on the sum of $900 million from October 10, 1996 to the IPO Closing
Date, plus (B) an amount calculated like interest at the rate of 8% per annum on
the sum of $360 million from July 10, 1997 to the IPO Closing Date;
is divided by
(ii) 1,260,000 shares of Common Stock;
provided, however, that the parties hereto acknowledge and agree that in
connection with an Approved Initial Public Offering it will be necessary to
adjust the number of shares of Common Stock outstanding through a stock split or
other similar device, and in such event the foregoing amounts per share of
Common Stock shall be appropriately adjusted to give effect thereto.
"Commission": the Securities and Exchange Commission or any other
----------
Federal agency at the time administering the Securities Act.
"Common Stock": the common stock of the Company.
------------
"Company": as defined in the preamble to this Agreement.
-------
"Employment Agreement": the Amended and Restated Employment Agreement
--------------------
by and among Mr. Mancuso, the Company and MGM Studios, dated as of August 4,
1997.
"Exchange Act": the Securities Exchange Act of 1934, as amended, and
------------
the rules and regulations of the Commission thereunder, all as the same shall be
in effect at the time.
2
<PAGE>
"First Refusal Notice": as defined in Section 4.1(a).
--------------------
"HSR Act": the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
-------
as amended.
"IPO Closing": shall mean the closing of an Approved Initial Public
-----------
Offering at which the Company first receives the funds described in the
definition of "Approved Initial Public Offering", whether or not the
underwriters have at such time exercised any over-allotment option.
"IPO Closing Date": shall mean the date of the IPO Closing.
----------------
"MGM Studios": as defined in the preamble to this Agreement.
-----------
"Non-Transferring Party": as defined in Section 4.1(a).
----------------------
"Original Investors Shareholder Agreement": as defined in the
----------------------------------------
preamble to this Agreement.
"Person": any natural person, corporation, partnership, limited
------
liability company, firm, association, trust, government, governmental agency, or
other legal entity, whether acting in an individual, fiduciary or other
capacity.
"Preferred Stock": shall mean the Series A Convertible Preferred
---------------
Stock of the Company.
"Response Period": as defined in Section 4.1(a).
---------------
"Securities Act": the Securities Act of 1933, as amended, and the
--------------
rules and regulations of the Commission thereunder, as the same shall be in
effect at the time.
"Seven": as defined in the preamble to this Agreement.
-----
"Shareholders Agreement": the Amended and Restated Shareholders
----------------------
Agreement dated as of August 4, 1997 among MGM Studios, the Company, Tracinda,
Seven, Mr. Mancuso and the other parties thereto.
"Stock Split": as defined in Section 7.13.
-----------
"Subsidiary": of any Person shall mean any corporation or other legal
----------
entity of which such Person (either alone or through or together with any other
direct or indirect Subsidiary) owns, directly or indirectly, 50% or more of the
stock or other equity interests, the holders of which are generally entitled to
vote for the election of the board of directors or other governing body of such
corporation or other legal entity.
"Tracinda": as defined in the preamble to this Agreement.
--------
"Transfer": as defined in Section 4.1(a).
--------
3
<PAGE>
"Transferring Party": as defined in Section 4.1(a).
------------------
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.1. Representations and Warranties of the Company. The
---------------------------------------------
Company hereby represents and warrants to the other parties hereto as follows:
(i) the Company has all requisite corporate power and authority to enter into
this Agreement and to consummate the transactions contemplated hereby; (ii) the
execution and delivery by the Company of this Agreement, and the consummation by
the Company of the transactions contemplated hereby, have been duly authorized
by all necessary corporate action on the part of the Company; (iii) this
Agreement has been duly executed and delivered by the Company and constitutes a
valid and binding obligation of the Company enforceable against the Company in
accordance with its terms, except as the enforceability hereof may be limited by
bankruptcy, insolvency or other similar laws affecting creditors' rights
generally or general principles of equity; (iv) no consent, approval, order or
authorization of, or registration, declaration or filing with, any court,
administrative agency or commission or other governmental authority or
instrumentality, domestic or foreign, is required by, or with respect to, the
Company in connection with the execution and delivery of this Agreement by the
Company or the consummation by the Company of the transactions contemplated
hereby; and (v) the execution and delivery of this Agreement by the Company and
the consummation of the transactions contemplated hereby by the Company does not
conflict with, or result in a breach of, any law or regulation of any
governmental authority applicable to the Company or any material agreement to
which the Company is a party.
Section 2.2. Representations and Warranties of Seven. Seven hereby
---------------------------------------
represents and warrants to the other parties hereto as follows: (i) Seven has
all requisite corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated hereby; (ii) the execution and delivery
by Seven of this Agreement, and the consummation by Seven of the transactions
contemplated hereby, have been duly authorized by all necessary corporate action
on the part of Seven; (iii) this Agreement has been duly executed and delivered
by Seven and constitutes a valid and binding obligation of Seven enforceable
against Seven in accordance with its terms, except as the enforceability hereof
may be limited by bankruptcy, insolvency or other similar laws affecting
creditors' rights generally or general principles of equity; (iv) no consent,
approval, order or authorization of, or registration, declaration or filing
with, any court, administrative agency or commission or other governmental
authority or instrumentality, domestic or foreign, is required by, or with
respect to, Seven in connection with the execution and delivery by Seven of this
Agreement or the consummation by Seven of the transactions contemplated hereby;
and (v) the execution and delivery by Seven of this Agreement and the
consummation by Seven of the transactions contemplated hereby does not conflict
with, or result in a breach of, any law or regulation of any governmental
authority applicable to Seven or any material agreement to which Seven is a
party.
Section 2.3. Representations and Warranties of Tracinda. Tracinda
------------------------------------------
hereby represents and warrants to the other parties hereto as follows: (i)
Tracinda has all requisite corporate power and authority to enter into this
Agreement and to consummate the transactions contemplated hereby; (ii) the
execution and delivery by Tracinda of this Agreement, and the
4
<PAGE>
consummation by Tracinda of the transactions contemplated hereby, have been duly
authorized by all necessary corporate action on the part of Tracinda; (iii) this
Agreement has been duly executed and delivered by Tracinda and constitutes a
valid and binding obligation of Tracinda enforceable against Tracinda in
accordance with its terms, except as the enforceability hereof may be limited by
bankruptcy, insolvency or other similar laws affecting creditors' rights
generally or general principles of equity; (iv) no consent, approval, order or
authorization of, or registration, declaration or filing with, any court,
administrative agency or commission or other governmental authority or
instrumentality, domestic or foreign, is required by, or with respect to,
Tracinda in connection with the execution and delivery of this Agreement by
Tracinda or the consummation by Tracinda of the transactions contemplated
hereby; and (v) the execution and delivery of this Agreement by Tracinda and the
consummation by Tracinda of the transactions contemplated hereby does not
conflict with, or result in a breach of, any law or regulation of any
governmental authority applicable to Tracinda or any material agreement to which
Tracinda is a party.
Section 2.4. Representations and Warranties of MGM Studios. MGM
---------------------------------------------
Studios hereby represents and warrants to the other parties hereto as follows:
(i) MGM Studios has all requisite corporate power and authority to enter into
this Agreement and to consummate the transactions contemplated hereby; (ii) the
execution and delivery by MGM Studios of this Agreement, and the consummation by
MGM Studios of the transactions contemplated hereby, have been duly authorized
by all necessary corporate action on the part of MGM Studios; (iii) this
Agreement has been duly executed and delivered by MGM Studios and constitutes a
valid and binding obligation of MGM Studios enforceable against MGM Studios in
accordance with its terms, except as the enforceability hereof may be limited by
bankruptcy, insolvency or other similar laws affecting creditors' rights
generally or general principles of equity; (iv) no consent, approval, order or
authorization of, or registration, declaration or filing with, any court,
administrative agency or commission or other governmental authority or
instrumentality, domestic or foreign, is required by, or with respect to, MGM
Studios in connection with the execution and delivery of this Agreement by MGM
Studios or the consummation by MGM Studios of the transactions contemplated
hereby; and (v) the execution and delivery of this Agreement by MGM Studios and
the consummation by MGM Studios of the transactions contemplated hereby does not
conflict with, or result in a breach of, any law or regulation of any
governmental authority applicable to MGM Studios or any material agreement to
which MGM Studios is a party.
ARTICLE III
CORPORATE GOVERNANCE; CERTAIN CORPORATE ACTIONS
Section 3.1. Voting of Shares.
----------------
(a) Until the fifteenth anniversary of the IPO Closing Date, Seven
shall (i) vote all of the shares of capital stock of the Company beneficially
owned by Seven, and shall take all other necessary or desirable actions within
its control (including, without limitation, by attendance at meetings in person
or by proxy for the purpose of obtaining a quorum and execution of written
consents in lieu of meetings), to effectuate the provisions of this Agreement
and (ii) use its best efforts to cause the Persons designated by it to serve on
the Company's board of directors pursuant to this Article III to take all
actions necessary to effectuate the terms of this Agreement.
5
<PAGE>
(b) Until the fifteenth anniversary of the IPO Closing Date, Tracinda
shall (i) vote all of the shares of capital stock of the Company beneficially
owned by Tracinda, and shall take all other necessary or desirable action within
its control (including, without limitation, by attendance at meetings in person
or by proxy for the purpose of obtaining a quorum and execution of written
consents in lieu of meetings) to effectuate the provisions of this Agreement and
(ii) use its best efforts to cause the Persons designated by it to serve on the
Company's board of directors pursuant to this Article III to take all actions
necessary to effectuate the terms of this Agreement.
(c) Until the fifteenth anniversary of the IPO Closing Date, each of
the Company and MGM Studios shall take all necessary or desirable actions within
its respective control (including, without limitation, by calling special board
and stockholder meetings) to effectuate the provisions of this Agreement.
(d) Until the fifteenth anniversary of the IPO Closing Date, Mr.
Mancuso shall vote all of the shares of capital stock of the Company
beneficially owned by him, and shall take all other necessary and desirable
action within his control (including, without limitation, by attendance at
meetings in person or by proxy for the purpose of obtaining a quorum and
execution of written consents in lieu of meetings) to effectuate the provisions
of this Agreement.
Section 3.2. Composition of the Board of Directors of the Company and
--------------------------------------------------------
MGM Studios and the Committees Thereof.
- --------------------------------------
(a) Until the fifteenth anniversary of the IPO Closing Date, Seven
shall vote all of the shares of capital stock of the Company from time to time
beneficially owned by Seven, and shall take all necessary or desirable action
within its control, Tracinda shall vote all of the shares of capital stock of
the Company from time to time beneficially owned by Tracinda, and shall take all
necessary or desirable actions within its control, the Company shall vote all
shares of capital stock of MGM Studios beneficially owned by it, and shall take
all necessary or desirable action within its control, Mr. Mancuso shall vote all
shares of capital stock of the Company from time to time owned by him and shall
take all necessary or desirable action, and MGM Studios shall take all necessary
or desirable action within its control, in each case, so that the composition of
the board of directors of each of the Company and MGM Studios and the committees
thereof shall be as follows:
(i) The authorized board of directors of the Company shall
consist of eleven members (subject to the provisions set forth in clause (D)
below) and the members of such board of directors shall be determined as
follows:
(A) four persons shall be nominated by Tracinda so long as
Tracinda beneficially owns 400,000 or more shares of Common Stock or two persons
shall be nominated by Tracinda so long as Tracinda beneficially owns less than
400,000, but at least 250,000, shares of Common Stock; provided, however, that
Tracinda's right to nominate persons to the board of directors of the Company
pursuant to this clause (A) shall expire on the date that Tracinda no longer
beneficially owns at least 250,000 shares of Common Stock; provided, further,
that if at any time Tracinda is entitled to nominate less than four directors
pursuant to this clause (A),
6
<PAGE>
a majority of the remaining directors of the Company shall be entitled to
nominate a number of directors (who need not qualify as "independent directors"
as specified in clause (D) of this Section 3.2(a)(i)) equal to the amount of
such reduction in directors that Tracinda may nominate; and provided, further,
that so long as Tracinda owns at least 250,000 shares of Common Stock, for each
selection by the board of directors of the Company pursuant to the immediately
preceding proviso of a person who is affiliated with or an associate of Seven
(as such terms are defined in the rules promulgated under the Exchange Act), a
person who is affiliated with or associated with Tracinda shall be selected by
the board of directors to serve as a director of the Company;
(B) two persons shall be nominated by Seven; provided, however,
that Seven's right to nominate two persons to the board of directors of the
Company shall expire on the date that Seven no longer beneficially owns at least
250,000 shares of Common Stock and thereafter such number of directors (who need
not qualify as "independent directors" as specified in clause (D) of this
Section 3.2(a)(i)) shall be nominated by a majority of the remaining directors
of the Company;
(C) two persons shall be nominated by the Chairman and Chief
Executive Officer of the Company (one of which persons shall be Mr. Mancuso so
long as he serves as Chief Executive Officer of the Company); and
(D) three persons who are not affiliated or associated with either
Tracinda or Seven and who otherwise meet the requirements of the New York Stock
Exchange for serving as "independent directors" shall be nominated and selected
by a majority of the members of the board of directors of the Company, which
majority, so long as Tracinda beneficially owns at least 400,000 shares of
Common Stock, must include Tracinda's nominees on the board of directors of the
Company; provided, however, that notwithstanding anything to the contrary in
this Agreement, each of Tracinda and Seven shall only be obligated to vote the
shares of capital stock from time to time beneficially owned by them for
nominees selected pursuant to this clause (D) if such nominee(s) are acceptable
to Tracinda or Seven, as the case may be, and shall have the right to vote
against such nominee(s) if such nominee(s) are not acceptable to Tracinda or
Seven, as the case may be; provided further, however, that the number of
"independent directors" on the board of directors shall be subject to reduction
from three persons to two persons if a majority of the existing board of
directors so determines.
(ii) The compensation committee of the board of directors of the
Company shall include members to be determined as follows:
(A) one person nominated to the board of directors of the Company
by Tracinda, so long as Tracinda beneficially owns 250,000 or more shares of
Common Stock; provided, however, that Tracinda's right to include in the
compensation committee of the board of directors of the Company a person
Tracinda has nominated to the board of directors of the Company pursuant to this
clause (A) shall expire on the date that Tracinda no longer beneficially owns at
least 250,000 shares of Common Stock; provided, further, that if at any time
Tracinda does not have the right to include its nominee on the compensation
committee of the board of directors of the Company pursuant to this clause (A),
the member of the compensation committee
7
<PAGE>
of the board of directors of the Company shall be a director (who need not
qualify as an "independent director" as specified in clause (C) of this Section
3.2(a)(ii)) nominated by a majority of the remaining directors of the Company;
(B) one person nominated to the board of directors of the Company
by Seven; provided, however, that Seven's right to include in the compensation
committee of the board of directors of the Company one person nominated by it to
the board of directors of the Company shall expire on the date that Seven no
longer beneficially owns at least 250,000 shares of Common Stock and thereafter
such member of the compensation committee of the board of directors of the
Company shall be a director (who need not qualify as an "independent director"
as specified in clause (C) of this Section 3.2(a)(ii)) nominated by a majority
of the remaining directors of the Company; and
(C) one person who is not affiliated or associated with either
Tracinda or Seven and who otherwise meets the requirements of the New York Stock
Exchange for serving as an "independent director" and who was nominated and
selected as a director by a majority of the members of the board of directors of
the Company, which majority, so long as Tracinda beneficially owns at least
400,000 shares of Common Stock, must include Tracinda's nominees to the board of
directors of the Company.
(iii) The Company shall cause the board of directors of MGM Studios
to consist of the members from time to time on the board of directors of the
Company and shall cause the members of the committees of the board of directors
of the Company to serve as members of the comparable committees of the board of
directors of MGM Studios.
(b) Each of Seven and Tracinda, respectively, shall have the exclusive
right (which, to the extent the same may be required by law, may only be
exercised indirectly, through the parties hereto voting at meetings of the
stockholders of the Company and/or through the calling of a special meeting of
the stockholders of the Company) (i) to remove, with or without cause, any
director designated by it in accordance with this Section 3.2 and (ii) to
designate and elect any replacement for a director designated by it in
accordance with this Section 3.2, upon the death, resignation, retirement,
disqualification or removal from office of such director. The board of
directors of the Company shall have the right to remove Mr. Mancuso as a
director of the Company, with or without cause, upon the termination of his
employment as Chief Executive Officer of MGM Studios subject to the terms of Mr.
Mancuso's employment agreement which shall remain in effect following execution
hereof. Except as specified in the immediately preceding sentence, the board of
directors of the Company shall not have the right to remove Mr. Mancuso as a
director of the Company. Except consistent with the terms of this Agreement,
the board of directors of the Company shall not be authorized to fill a vacancy
on the board of directors of the Company caused by the death, resignation,
retirement, disqualification or removal of a director designated pursuant to
this Section 3.2. To the extent, that at any time, the composition of the board
of directors of the Company is not consistent with provisions of this Section
3.2, each of the parties hereto shall take all necessary or desirable action,
including by calling a special meeting of the stockholders of the Company, to
give effect to the provisions of this Section 3.2. In the event that Mr. Mancuso
shall cease to act as Chief Executive Officer of the Company, promptly
thereafter the parties hereto shall take all necessary or desirable actions,
8
<PAGE>
including a calling of a special meeting of the stockholders of the Company, to
remove the other person then serving as a director of the Company and MGM
Studios pursuant to clause (C) of Section 3.2(a)(i) unless such other person is
acceptable to the new Chief Executive Officer of the Company.
(c) If Mr. Mancuso shall cease to act as Chief Executive Officer of
the Company, Mr. Mancuso hereby agrees to his resignation as a director of both
the Company and MGM Studios and all other positions held by Mr. Mancuso at MGM
Studios, the Company and their respective Subsidiaries, effective as of the time
he ceases to act as chief executive officer of the Company. For so long as Mr.
Mancuso shall serve as a member of the board of directors of the Company and MGM
Studios, Mr. Mancuso shall act as the chairman of the board of directors of both
the Company and MGM Studios. It shall be a condition precedent to the
nomination by Mr. Mancuso pursuant to clause (C) of Section 3.2(a)(i) of a
person to serve as a director of the Company and MGM Studios that such person
shall have agreed to his resignation as a director of both the Company and MGM
Studios (but not any other positions with the Company or MGM Studios) at such
time as Mr. Mancuso shall no longer serve as the Chief Executive Officer of the
Company.
(d) Each of the parties hereto shall take all such action, and execute
all such documents, as is necessary or desirable to effect the provisions of
this Section 3.2. Each of Tracinda and Seven agrees to use its best efforts to
obtain the resignation from the board of directors of the requisite number of
persons nominated by it in order to accomplish any reduction in the number of
directors contemplated by clauses (A) and (B), respectively, of Section
3.2(a)(i).
(e) Until October 10, 2001, the obligations imposed by this Article
III shall be binding upon any transferee of Seven or Tracinda except that the
provisions of this Article III shall not be binding on:
(i) any person (other than an Affiliate of Tracinda or Seven)
who acquires shares of Common Stock from Tracinda or Seven pursuant to a public
offering registered under the Securities Act or pursuant to Rule 144 or
Regulation S promulgated thereunder; or
(ii) any person (other than an Affiliate of Tracinda or Seven) who
acquires not more than 100,000 shares of Common Stock from Tracinda or Seven, as
the case may be, in one transaction or a series of related transactions.
Section 3.3. Approval of Certain Matters . Until the earlier to
---------------------------
occur of (i) the fifteenth anniversary of the IPO Closing Date and (ii) the date
that Seven no longer beneficially owns at least 250,000 shares of Common Stock,
neither the Company nor MGM Studios nor any of their Subsidiaries shall (a) sell
or agree to sell or (b) license or agree to license for a period of more than
three years in substantially all major territories of the world in one
transaction or a series of related transactions all or 85% or more of the films
then in the library of the Company, MGM Studios and their Subsidiaries unless
such sale, license or agreement shall have been unanimously approved by the
board of directors of the Company. Thereafter, any such sale, license or
agreement shall only require the approval of a majority of a quorum of directors
at a duly called meeting of the board of directors of the Company.
9
<PAGE>
ARTICLE IV
FIRST REFUSAL
Section 4.1. First Refusal.
-------------
(a) If prior to October 10, 2001, either Tracinda or Seven (as
appropriate in this Article IV, the "Transferring Party"), desires to sell,
------------------
transfer, assign, pledge or otherwise dispose of (a "Transfer"), directly or
--------
indirectly, in whole or part, all or any portion of the shares of capital stock
of the Company beneficially owned by it, the Transferring Party shall provide
the other party (the "Non-Transferring Party") with a written notice (the "First
---------------------- -----
Refusal Notice") (which First Refusal Notice may be sent concurrently with the
- --------------
Tag-Along Notice which may be required to be sent with respect to such
transaction pursuant to Section 3.2 of the Shareholders Agreement) setting
forth:
(i) the number and class of shares of capital stock of the
Company proposed to be Transferred;
(ii) that the Transferring Party has received a bona fide
written offer from a prospective purchaser of said shares of capital stock of
the Company;
(iii) the name and address of the prospective purchaser;
(iv) the material terms and conditions of such proposed
transaction; and
(v) that the Transferring Party is offering to Transfer such
shares of capital stock of the Company to the Non-Transferring Party on the same
terms and conditions as contained in the bona fide offer.
The Non-Transferring Party shall have 20 calendar days following the receipt of
the First Refusal Notice to respond as to whether it desires to purchase the
shares of capital stock of the Company specified in the First Refusal Notice.
Such 20 calendar day period shall be referred to as the "Response Period."
---------------
Within the Response Period, the Non-Transferring Party shall, by notice in
writing to the Transferring Party, have the opportunity and right to purchase
(on the terms and conditions specified in the First Refusal Notice) the shares
of capital stock of the Company specified in the First Refusal Notice. If the
Non-Transferring Party shall not respond within the Response Period, then such
party shall be deemed to have waived its right to purchase the shares of capital
stock of the Company specified in the First Refusal Notice. If the Non-
Transferring Party fails to exercise or waives its right to purchase the shares
of capital stock of the Company referred to in the First Refusal Notice, then
the Transferring Party shall be free, for a six-month period, to enter into a
definitive agreement to Transfer such shares of capital stock of the Company to
such third party on terms equivalent to or better than the terms specified in
the First Refusal Notice without restriction under this Agreement; it being
understood, however, that if the Transferring Party does not enter into such
definitive agreement within such six-month period, or such definitive agreement
is subsequently terminated, the Transferring Party shall once again be subject
to all the provisions of this Section 4.1.
10
<PAGE>
(b) Each acceptance made hereunder shall constitute a separate and
binding contract obligating the Transferring Party to sell, and the Non-
Transferring Party to purchase, the shares of capital stock of the Company
accepted at the price and upon the terms and conditions as set forth in the
First Refusal Notice. The parties agree to negotiate in good faith to
consummate the transaction as soon as possible, but in no event later than the
date 30 calendar days after the appropriate Response Period has elapsed (as such
period may be extended up to a maximum period of two months (unless further
extension is agreed to by the Transferring Party) by any applicable waiting
period required under the HSR Act or any other applicable law). At the closing,
the Transferring Party shall deliver the certificate or certificates
representing the shares of capital stock of the Company to be sold, duly
endorsed for transfer or accompanied by duly executed stock powers, against
receipt from the Non-Transferring Party of the purchase price for such shares of
capital stock of the Company, in cash by wire transfer of immediately available
funds or certified check, at the option of the Transferring Party, all in
accordance with the terms and conditions set forth in the First Refusal Notice.
Notwithstanding any provision of this Agreement to the contrary, in the event of
failure by the Non-Transferring Party to close said transaction within the
required time periods, the Transferring Party shall be entitled, in addition to
all other available remedies, to treat such failure as a waiver under Section
4.1(a) of this Agreement by the Non-Transferring Party, entitling the
Transferring Party to take the action specified in Section 4.1(a) of this
Agreement pursuant to such waiver.
(c) If the purchase price specified in the First Refusal Notice
includes any property other than cash, the First Refusal Notice shall state how
the non-cash property was valued, unless the Transferring Party and the proposed
transferee expressly agree otherwise as stated in the First Refusal Notice and,
the Non-Transferring Party may pay cash in an amount equal to the fair market
value of any non-cash property determined in the following manner:
(i) The fair market value of securities which are publicly traded
shall be deemed to be the average of the daily closing prices (or, if no closing
price is available, the average of the last bid and ask prices) of such
securities for the five consecutive trading days immediately prior to the date
of the First Refusal Notice; and
(ii) The fair market value of any other property shall be
determined by the good faith agreement of the parties or, if the parties are
unable to agree, by an appropriate expert mutually selected by the parties.
(d) The provisions of this Section 4.1 shall terminate, with respect
to such capital stock of the Company, upon the transfer, in compliance with this
Section 4.1, by Tracinda or Seven of such capital stock to any Person other than
Tracinda or Seven or their respective Affiliates.
(e) Nothing contained in the provisions of this Section 4.1 shall
affect the tag-along rights of any party pursuant to Section 3.2 of the
Shareholders Agreement.
(f) The provisions of this Section 4.1 shall not apply to any bona
fide pledge to a bank or other institutional financial lender.
11
<PAGE>
(g) Notwithstanding anything contained herein to the contrary, the
provisions of this Section 4.1 shall not apply to, in the case of each of
Tracinda and Seven, (i) the transfer of, or the grant of options for the
acquisition of, up to 7,500 shares of Common Stock (such number to be
appropriately adjusted in the event that the Company should effect any stock
dividend, stock split, reverse stock split, or any similar transaction after the
date hereof) beneficially owned by it to officers, directors, employees,
consultants and affiliates so long as such transferee shall agree in writing to
be bound by all the terms of this Agreement applicable to its transferor as if
the transferee originally had been a party to this Agreement and (ii) the
transfer and assignment of all or any portion of the capital stock of the
Company beneficially owned by it to any direct or indirect wholly owned
subsidiary of such entity so long as (y) such transferee shall agree in writing
to be bound by all the terms of this Agreement applicable to its transferor as
if the transferee originally had been a party to this Agreement and (z) the
transferor agrees to cause such direct or indirect wholly owned subsidiary to
continue to be a direct or indirect wholly owned subsidiary of the transferor
for so long as such direct or indirect wholly owned subsidiary beneficially owns
any such capital stock of the Company.
Section 4.2. Legend. The parties hereby acknowledge and agree that
------
each of the certificates representing the Common Stock shall include the
following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT
TO CERTAIN LIMITATIONS ON SALE, TRANSFER OR OTHER DISPOSITION
AND CERTAIN AGREEMENTS WITH RESPECT TO VOTING SET FORTH IN AN
AMENDED AND RESTATED INVESTORS SHAREHOLDER AGREEMENT DATED AS
OF AUGUST 4, 1997 BY AND AMONG SEVEN NETWORK LIMITED, TRACINDA
CORPORATION, METRO-GOLDWYN-MAYER STUDIOS INC., METRO-GOLDWYN-
MAYER INC. AND MR. FRANK G. MANCUSO (THE "AGREEMENT"). A COPY
OF THE AGREEMENT IS ON FILE WITH THE SECRETARY OF METRO-GOLDWYN-
MAYER INC.
ARTICLE V
PREEMPTIVE RIGHTS
5.1 Certain Pre-emptive Rights. If at any time prior to the
--------------------------
fifteenth anniversary of the IPO Closing Date, the Company shall propose to
issue to any Person any shares of its Common Stock or any securities exercisable
for the purchase of or convertible into Common Stock (other than (i) the
issuance of Common Stock or securities exercisable for the purchase of or
convertible into Common Stock pursuant to a firm commitment underwritten public
offering or pursuant to Rule 144A or Regulation S promulgated under the
Securities Act, (ii) the issuance of Common Stock or securities exercisable for
the purchase of or convertible into Common Stock pursuant to a registration
statement directly or indirectly to the holders of the outstanding capital stock
of a corporation or other business entity with a class of equity securities
registered under the Exchange Act in connection with the Company's acquisition
of such corporation or other business or substantially all of its assets
(whether by merger, consolidation, purchase of stock or assets or otherwise), or
(iii) the grant of stock options to officers, directors or employees of the
12
<PAGE>
Company or any of its Subsidiaries pursuant to stock option plans approved by
the board of directors of the Company or the issuance of Common Stock upon the
exercise of any such stock option), Seven, Tracinda and Mr. Mancuso shall have
the right to elect at any time within 10 days after receipt of notice from the
Company, as applicable:
(a) if such issuance is of Common Stock, to subscribe for and purchase
for cash a number of shares of Common Stock such that after giving effect to
such issuance to such other Person and such purchase by any one or more of
Seven, Tracinda and Mr. Mancuso, as the case may be, each party so electing
shall continue to beneficially own the same percentage of outstanding Common
Stock that such electing party beneficially owned prior to such issuance to such
other Person and such purchase by any one or more of Seven, Tracinda and Mr.
Mancuso, as the case may be; and
(b) if such issuance is of securities exercisable for the purchase of
or convertible into Common Stock, to subscribe for and purchase for cash a
number of such securities equal to the product of the aggregate number of such
securities to be issued (including pursuant to this Section 5.1) multiplied by
the percentage of the then outstanding Common Stock that is beneficially owned
by Seven, Tracinda or Mr. Mancuso, as the case may be.
The price to be paid in any such purchase by any one or more of Seven, Tracinda
and Mr. Mancuso and the other terms of purchase shall be the same as applicable
to the purchase of Common Stock or such other securities by such other Person,
except that in all cases the price to be paid by Seven, Tracinda and Mr. Mancuso
shall be paid in cash. In the event that such shares of Common Stock or such
other securities are to be issued to such other Person for property or services,
the price per share or other security to be paid by Seven, Tracinda and Mr.
Mancuso shall be equal to the fair market value per share or other security of
the property or services to be received by the Company from such other Person,
as such fair market value is determined by the "independent directors" of the
Company elected to the board of directors of the Company pursuant to the
provisions of clause (D) Section 3.2(a)(i) of this Agreement. The rights of
Seven and Tracinda set forth in this Section 5.1 shall terminate with respect to
each such party at such time as such party beneficially owns less than 250,000
shares of Common Stock. The rights of Mr. Mancuso set forth in this Section 5.1
shall terminate at such time as Mr. Mancuso is no longer the Chief Executive
Officer of the Company.
ARTICLE VI
BUSINESS; CERTIFICATE OF INCORPORATION AND BYLAWS
6.1 Entertainment Business. The parties hereto agree to use their
----------------------
best efforts to ensure that neither the Company nor any of its Subsidiaries
shall engage in any business activity except the entertainment business unless
(i) all directors of the board of directors shall have approved such engagement
in other business activities or (ii) a majority of the board of directors shall
have approved such engagement in other business activities and such engagement
in other business activities shall have been approved by the stockholders of the
Company in accordance with the applicable provisions of the Delaware General
Corporation Law; provided, however, that the obligations of the parties hereto
provided for in this sentence shall terminate on the fifteenth anniversary of
the IPO Closing Date. As used in this Section 6.1 the "entertainment business"
13
<PAGE>
shall include the acquisition, development, production, marketing, distribution,
exhibition, publication or use of intellectual property for purposes of
providing entertainment, education or information and all services and
activities reasonably related thereto, including the services and activities
currently provided or conducted by the Company and its Subsidiaries. The parties
hereto may amend or terminate this Section 6.1 by mutual agreement except that
no such amendment or termination shall require (i) the approval of Seven at any
time when it beneficially owns less than 250,000 shares of Common Stock, (ii)
the approval of Tracinda at any time when it beneficially owns less than 250,000
shares of Common Stock or (iii) the approval of Mr. Mancuso after such time as
he shall no longer serve as the Chief Executive Officer of the Company.
6.2 Certificate of Incorporation and By-laws. Each of the parties
----------------------------------------
hereto will take all necessary actions, including, if necessary, by amending the
Certificate of Incorporation and By-laws of the Company and/or MGM Studios, to
assure that the Certificate of Incorporation and By-laws of each of the Company
and MGM Studios do not contain any provision which is inconsistent with the
terms of this Agreement.
6.3 Conversion of Preferred Stock. Each of Seven, Tracinda and Mr.
-----------------------------
Mancuso agrees to convert, on the IPO Closing Date, all shares of Preferred
Stock beneficially owned (as determined in accordance with the rules promulgated
under Section 13 of the Exchange Act) by such holder on the date hereof, which
conversions shall be effected in accordance with the terms of the certificate of
designations establishing such Preferred Stock. Each of the parties hereto
shall use its best efforts to cause each person who beneficially owns Preferred
Stock but who is not a party hereto to convert the same to Common Stock on the
IPO Closing Date.
ARTICLE VII
GENERAL PROVISIONS
Section 7.1. Notices. Any notice required to be given hereunder
-------
shall be sufficient if in writing, and sent by facsimile transmission and by
courier service (with proof of service), hand delivery or certified or
registered mail (return receipt requested and first-class postage prepaid),
addressed as follows:
If to the Company or MGM Studios, to:
Metro-Goldwyn-Mayer Inc.
2500 Broadway, Fifth Floor
Santa Monica, CA 90404-3061
Attention: David Johnson
Telephone: (310) 449-3993
Telecopy: (310) 449-3011
with a copy to:
Gibson, Dunn & Crutcher LLP
333 S. Grand Avenue
14
<PAGE>
Los Angeles, CA 90071
Attention: Bruce D. Meyer
Telephone: (213) 229-7979
Telecopy: (213) 229-7520
If to Tracinda, to:
Tracinda Corporation
4835 Koval Lane
Las Vegas, NV 89109
Attention: Secretary / Treasurer
Telecopy: (702) 737-1177
with a copy to:
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, NY 10004
Attention: Stephen Fraidin, P.C.
Telephone: (212) 859-8140
Telecopy: (212) 859-4000
If to Seven, to:
Seven Network Limited
c/o Culmen Group, L.P.
201 Main Street
Suite 1955
Fort Worth, TX 76102
Attention: Michael R. Gleason
Telephone: (817) 335-6999
Telecopy: (817) 870-1384
and:
ATN7
Mobbs Lane
Epping NSW 2121, Australia
Attention: Gary Rice, Managing Director
Telephone: (602) 877-7000
Telecopy: (612) 996-77191
with a copy to:
Kelly, Hart & Hallman
201 Main Street
Fort Worth, TX 76102
15
<PAGE>
Attention: F. Richard Bernasek
Telephone: (817) 332-2500
Telecopy: (817) 878-9280
or to such other address as any party shall specify by written notice so given,
and such notice shall be deemed to have been delivered as of the date so
telecommunicated, personally delivered or mailed.
Section 7.2. Assignment; Binding Effect; Benefit; Successors. (a)
-----------------------------------------------
Except as otherwise expressly provided in this Agreement, neither this Agreement
nor any of the rights, interests or obligations hereunder shall be assigned by
any of the parties hereto (whether by operation of law or otherwise); provided,
however, that each of Tracinda and Seven may assign its rights under this
Agreement to any of their respective direct or indirect wholly owned
Subsidiaries so long as (i) such assignee agrees to be bound by the terms of
this Agreement to the same extent as the applicable assignor pursuant to a
written agreement with the Company and MGM Studios that is reasonably acceptable
to each of them, (ii) the applicable assignor continues to be bound by, and is
not released from, any of its obligations under this Agreement and (iii) the
applicable assignor will cause the applicable direct or indirect wholly owned
subsidiary to continue to be a direct or indirect wholly owned subsidiary of the
applicable assignor for so long as such assignee shall have any rights under
this Agreement. For the purpose of this Agreement, all capital stock of the
Company owned by any direct or indirect wholly owned Subsidiary of Tracinda or
Seven, as applicable, shall be deemed owned by Tracinda or Seven, as applicable.
Subject to the first sentence of this Section 7.2(a), this Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors and assigns. Except as expressly provided in this
Agreement, notwithstanding anything contained in this Agreement to the contrary,
nothing in this Agreement, express or implied, is intended to confer on any
person other than the parties hereto any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
(b) In the event that the Company or MGM Studios shall enter into a
merger, consolidation or other similar type transaction, all of the terms of
this Agreement relating to the Company and MGM Studios, as applicable, shall
apply to the surviving corporation.
Section 7.3. Entire Agreement. Upon the effectiveness hereof, this
----------------
Agreement, the Shareholders Agreement, the Employment Agreement and any
certificate delivered by the parties in connection herewith constitute the
entire agreement among the parties with respect to the subject matter hereof and
supersedes all prior agreements and understandings (oral and written) among the
parties with respect thereto.
Section 7.4. Amendment. This Agreement may not be amended or
---------
modified except by an instrument in writing signed by or on behalf of each of
the parties hereto, except as otherwise provided in Section 6.1 hereof.
Section 7.5. Governing Law. This Agreement shall be governed by,
-------------
and construed in accordance with, the internal laws of the State of Delaware
(without regard to conflict of laws principles which would require the
application of the laws of any other State).
16
<PAGE>
Each of the parties hereto agrees that any legal action or proceeding with
respect to this Agreement may be brought in the Courts of the State of Delaware
or the United States District Court located in the State of Delaware and, by
execution and delivery of this Agreement, each party hereto hereby irrevocably
submits itself in respect of its property, generally and unconditionally to the
non-exclusive jurisdiction of the aforesaid courts in any legal action or
proceeding arising out of this Agreement. Each of the parties hereto hereby
irrevocably waives any objection which it may now or hereafter have to the
laying of venue of any of the aforesaid actions or proceedings arising out of or
in connection with this Agreement brought in the courts referred to in the
preceding sentence. Each party hereto hereby consents to process being served in
any such action or proceeding by the mailing of a copy thereof to the address
set forth in Section 7.1 hereof and agrees that such service upon receipt shall
constitute good and sufficient service of process or notice thereof. Nothing in
this Section 7.5 shall affect or eliminate any right to serve process in any
other matter permitted by law.
Section 7.6. Counterparts; Effective Date. This Agreement may be
----------------------------
executed by the parties hereto in separate counterparts, each of which when so
executed and delivered shall be an original, but all such counterparts shall
together constitute one and the same instrument. Each counterpart may consist
of a number of copies of this Agreement, each of which may be signed by less
than all of the parties hereto, but together all such copies are signed by all
of the parties hereto. This Agreement shall become effective at the time of the
IPO Closing.
Section 7.7. Headings. Headings of the Articles and Sections of
--------
this Agreement are for the convenience of the parties only and shall be given no
substantive or interpretive effect whatsoever.
Section 7.8. Interpretation. In this Agreement, unless the context
--------------
otherwise requires, words describing the singular number shall include the
plural and vice versa, "including" shall mean including, without limitation, and
words denoting any gender shall include all genders and words denoting natural
persons shall include corporations and partnerships and vice versa.
Section 7.9. Severability. Any term or provision of this Agreement
------------
which is invalid or unenforceable in any jurisdiction shall, as to that
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining terms
and provisions of this Agreement or otherwise affecting the validity or
enforceability of any of the terms or provisions of this Agreement in any other
jurisdiction. If any provision of this Agreement is so broad as to be
unenforceable, the provision shall be interpreted to be only so broad as is
enforceable.
Section 7.10. Enforcement of Agreement. The parties hereto agree
------------------------
that irreparable damage would occur in the event that any of the provisions of
this Agreement were not performed in accordance with its specific terms or was
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any Delaware court, this
being in addition to any other remedy to which they may be entitled at law or in
equity.
17
<PAGE>
Section 7.11. Certain Rights. If either Seven or Tracinda shall
--------------
violate or breach the terms of this Agreement or the Shareholders Agreement (the
"breaching party") then, notwithstanding anything to the contrary in this
Agreement or the Shareholders Agreement, upon written notice provided to the
breaching party and, upon the running of a 30-day cure period after the delivery
of such written notice during which the breaching party fails to cure such
violation or breach, the rights (but not the obligations) of the breaching party
under the terms of this Agreement and the Shareholders Agreement shall terminate
(but such termination shall not affect the rights of any other party under this
Agreement or the Shareholders Agreement). This Section 7.11 is not intended for
the benefit of, or to give rights to, any party other than Tracinda or Seven.
Section 7.12. Termination of Original Investors Shareholder Agreement.
------------------------------------------------------
Seven, Tracinda, the Company, MGM Studios and Mr. Mancuso hereby mutually agree
that, effective as of the IPO Closing Date, the Original Investors Shareholder
Agreement and that certain Letter Agreement dated as of August 4, 1997 among the
parties hereto shall terminate and be of no further force or effect, and none of
them shall have any further rights, duties or obligations thereunder from and
after the effective date of such termination. Until such time as the IPO Closing
Date shall occur, the Original Investors Shareholder Agreement shall remain in
full force and effect and shall be unaffected hereby.
Section 7.13. Antidilution Adjustment. Prior to or concurrent with
-----------------------
the consummation of the IPO Closing, the Company will effect, in one or more
transactions, a net stock split of the Common Stock (the "Stock Split"). As a
-----------
result of the Stock Split, the following changes will be made in this Agreement,
before it becomes effective (the "Antidilution Adjustment"):
-----------------------
(a) The number of shares of Common Stock in the definition of Carrying
Cost Factor Amount Per Share and in Sections 3.2(a)(i)(A), 3.2
(a)(i)(B), 3.2(a)(i)(D), 3.2(e)(ii), 3.3, 5.1, and 6.1 hereof,
prior to the Antidilution Adjustment, will be multiplied by the
Stock Split. By way of illustration, if the Stock Split is 50 for
1, by virtue of the Antidilution Adjustment, the 1,260,000 number
in the definition of Carrying Cost Factor Amount Per Share hereof
and would become 63,000,000; and
(b) The $1,000 amount in the definition of Approved Initial Public
Offering and the quotient in the definition of Carrying Cost Factor
Amount Per Share, in each case prior to the Antidilution
Adjustment, will be divided by the Stock Split. By way of
illustration, if the Stock Split is 50 to 1, by virtue of the
Antidilution Adjustment, the $1,000 amount would become $20 and
the Carrying Cost Factor Amount per Share would be divided by 50.
Except as otherwise provided herein, all dollar amounts changed as a result of
the Antidilution Adjustment will be rounded to the nearest penny.
18
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement and
caused the same to be duly delivered on their behalf as of the day and year
first written above.
SEVEN NETWORK LIMITED
By:________________________________________________
Name:
Title:
TRACINDA CORPORATION
By:________________________________________________
Name:
Title:
METRO-GOLDWYN-MAYER STUDIOS INC.
By:________________________________________________
Name:
Title:
METRO-GOLDWYN-MAYER INC.
By:________________________________________________
Name:
Title:
________________________________________________
MR. FRANK G. MANCUSO
19
<PAGE>
The undersigned, an indirect wholly owned subsidiary of Seven Network Limited,
hereby agrees to be bound by the terms of this Agreement to the same extent as
Seven Network Limited.
MILTONSTAR PTY LIMITED
By:____________________________
Name:
Title:
20
<PAGE>
EXHIBIT 21
SIGNIFICANT SUBSIDIARIES
Name of Significant Subsidiary Jurisdiction of Incorporation
- ------------------------------ -----------------------------
1. Cannon Film Distribution V.O.F. Netherlands
2. Cannon International B.V. Netherlands
3. Filmways Pictures (England) Limited United Kingdom
4. Metro-Goldwyn-Mayer Home Entertainment Inc. Delaware
5. Metro-Goldwyn-Mayer Pictures Inc. Delaware
6. Metro-Goldwyn-Mayer Studios Inc. Delaware
7. MGM/UA Home Video (UK) Ltd. United Kingdom
8. MGM International B.V. Netherlands
9. MGM Nederland B.V. Netherlands
10. Orion Home Entertainment Corporation Delaware
11. Orion Pictures Corporation Delaware
12. Orion Pictures Distribution Corporation Delaware
13. Orion TV Productions, Inc. New York
14. Pathe Entertainment NV Curacao
15. Pathe Films, Inc. New York
16. Pathe Releasing, Corp. New York
17. Seventeen Leasing Corporation Delaware
18. United Artists Corporation Delaware
19. United Artists Pictures, Inc. Delaware
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Metro-Goldwyn-Mayer Inc.:
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
Form S-1 registration statement.
Arthur Andersen LLP
Los Angeles, California
October 20, 1997
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated February 29, 1996,
except for the restatement described in Note 12 as to which the date is July
31, 1996, relating to the financial statements of Metro-Goldwyn-Mayer Studios
Inc. (formerly known as Metro-Goldwyn-Mayer Inc.) for the years ended December
31, 1995 and 1994, which appears in such Prospectus. We also consent to the
application of such report to the Financial Statement Schedules for the two
years ended December 31, 1995 listed under Item 16(b) of this Registration
Statement when such schedules are read in conjunction with the financial
statements referred to in our report. We also consent to the references to us
under the heading "Experts" and "Selected Consolidated Financial Data" in such
Prospectus. However, it should be noted that Price Waterhouse LLP has not
prepared or certified such "Selected Consolidated Financial Data."
Price Waterhouse LLP
Century City, California
October 20, 1997
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Orion Pictures Corporation:
We consent to the inclusion of our report dated March 31, 1997, with respect
to the consolidated balance sheet of Orion Pictures Corporation and
subsidiaries as of December 31, 1996, and the related consolidated statements
of operations, stockholders' equity (capital deficiency), and cash flows for
the year then ended, which report appears in the Form S-1 of Metro-Goldwyn-
Mayer Inc. dated September 11, 1996 and to the reference to our firm under the
headings "Selected Financial Data" and "Experts" in the Prospectus.
KPMG Peat Marwick LLP
Los Angeles, California
October 20, 1997
