METRO-GOLDWYN-MAYER INC, 424B4, 1997-11-13

METRO-GOLDWYN-MAYER INC
424B4, 1997-11-13
MOTION PICTURE & VIDEO TAPE PRODUCTION

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<PAGE>

FILED PURSUANT TO RULE 424(b)(4)
REGISTRATION NO. 333-35411

PROSPECTUS
9,000,000 SHARES
[LOGO OF METRO-GOLDWYN-MAYER INC.]
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 9,000,000 shares offered by the Underwriters, 7,200,000
shares will be offered initially in the United States and Canada (the "U.S.
Offering") by the U.S. Underwriters and 1,800,000 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 864,000 and 216,000
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.
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 immediately prior to 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").

Concurrently with the consummation of the Offering, Tracinda Corporation
("Tracinda") will purchase directly from the Company, at a price per share
equal to the per share price to public, less the underwriting discount,
3,978,780 shares of the Common Stock, for an aggregate purchase price of $75
million (the "Tracinda Purchase"). The Underwriters will not participate in, or
receive any discount or commission on, the sale of the Common Stock to Tracinda
in the Tracinda Purchase.

The Common Stock has been approved for listing (subject to official notice of
issuance) on the New York Stock Exchange (the "NYSE") under the symbol "MGM."

Following the Offering and the Tracinda Purchase, Tracinda, Seven Network
Limited, the directors and officers of the Company and affiliates thereof will
beneficially own approximately 86.5% 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.

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<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO PUBLIC DISCOUNT(1) COMPANY(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share............................. $20.00 $1.15 $18.85
- --------------------------------------------------------------------------------
Total(3).............................. $180,000,000 $10,350,000 $169,650,000
</TABLE>

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

(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 approximately $4,650,000 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 864,000 and 216,000 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 $201,600,000, $11,592,000 and
$190,008,000, 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 November 18, 1997.
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MERRILL LYNCH & CO. J.P. MORGAN & CO.
Joint Lead Managers
----------------
BEAR, STEARNS & CO. INC. FURMAN SELZ
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The date of this Prospectus is November 12, 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
immediately prior to 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 the date of this Prospectus to purchase 8,009,454
shares of the Common Stock or (ii) the Underwriters' over-allotment options for
1,080,000 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, 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:

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 and the
Tracinda Purchase, 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 TRACINDA PURCHASE

Concurrently with the consummation of the Offering, Tracinda will purchase
directly from the Company, at a price of $18.85 per share (equal to the per
share price to public, less the underwriting discount), 3,978,780 shares of the
Common Stock, for an aggregate purchase price of $75 million (the "Tracinda
Purchase"). The Underwriters will not participate in, or receive any discount
or commission on, the sale of the Common Stock to Tracinda in the Tracinda
Purchase.

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 9,000,000 shares of Common Stock being offered hereby by the Company,
7,200,000 shares are being offered initially in the United States and Canada by
the U.S. Underwriters and 1,800,000 shares are being offered initially outside
the United States and Canada by the International Underwriters. See
"Underwriting."

Common Stock offered(1):

U.S. Offering............. 7,200,000 shares

International Offering.... 1,800,000 shares

Total Offering.......... 9,000,000 shares

Tracinda Purchase........... 3,978,780 shares

Common Stock to be
outstanding after the
Offering and the Tracinda
Purchase................... 65,698,201 shares (1)(2)

Use of proceeds............. It is currently anticipated that substantially
all of the net proceeds to the Company from the
Offering and the Tracinda Purchase (the "Net
Proceeds") 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 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."

NYSE symbol................. The Common Stock has been approved for listing
(subject to official notice of issuance) on the
NYSE under the symbol "MGM."
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(1) Does not include up to 864,000 and 216,000 shares subject to over-allotment
options granted by the Company to the U.S. Underwriters and International
Underwriters respectively.
(2) Excludes 7,696,952 shares of the Common Stock issuable upon exercise of
employee stock options outstanding as of the date of this Prospectus
(1,093,292 of which are vested and exercisable or will vest and become
exercisable within 60 days) and 428,113 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." 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 $ (9.98) $ (0.77) $ (0.85)
Pro forma number
of shares used in
computation of
net income (loss)
per share........ 37,567,634 65,546,534 37,643,426 65,622,326
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 $ 190,242
Film and television costs, net............................................. 1,263,073 1,669,510 1,669,510
Total assets............................................................... 1,806,574 2,586,037 2,741,787
Bank and other debt ....................................................... 566,258 796,004 711,754
Stockholders' equity....................................................... 876,708 1,236,708 1,476,708
</TABLE>
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(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 and the Tracinda Purchase as if they had
occurred at the beginning of the period presented.

(3) Reflects the effect of the Orion Acquisition Transactions, the Offering and
the Tracinda Purchase 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 of
approximately $240 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 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 MGM STUDIOS

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 MGM Studio's ability to enter into new projects
with top artistic and creative talent. As a consequence, MGM Studios 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.

7
<PAGE>

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

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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
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.

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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."

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
acceptable 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 (as
amended, the "WHV 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. No assurance can be made as to the outcome of this
matter. 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. Approximately half of the titles in the Library are
subject to one or more of such licenses. 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. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business--Regulation."

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 and the Tracinda Purchase, Tracinda will
beneficially own approximately 61.2 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 24.6
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 86.5 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

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<PAGE>

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 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 and the Tracinda Purchase, the Company
will have approximately 65,698,201 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
56,698,201 shares (including the shares issued in the Tracinda Purchase) 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 will be permitted as to
approximately 37,566,301 of such restricted shares after the Offering, and
will become permitted as to the remainder within one year after the completion
of the Offering, 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 is 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 has been be determined through
negotiations between the Company and representatives of the Underwriters. See
"Underwriting" for factors considered in determining the initial public
offering price.

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<PAGE>

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.

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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.

16
<PAGE>

USE OF PROCEEDS

The aggregate net proceeds to the Company from the sale of the 9,000,000
shares offered hereby and the sale of 3,978,780 shares of the Common Stock in
the Tracinda Purchase are estimated to be approximately $240 million
(approximately $260 million if the Underwriters' over-allotment options are
exercised in full), after deducting underwriting discounts and estimated
offering expenses payable by the Company. It is currently anticipated that
substantially all of the Net Proceeds 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
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 to finance
such acquisition, it reserves the right to do so, depending on, among other
things, the timing of the acquisition.

17
<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) and the Tracinda Purchase as if the foregoing had
occurred as of June 30, 1997 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, 65,673,284 shares issued and
outstanding............................. 168 318 657
Additional paid-in capital............... 904,485 1,264,335 1,504,001
Retained earnings (deficit).............. (28,839) (28,839) (28,839)
Cumulative translation adjustment........ 889 889 889
---------- ---------- ----------
Total stockholders' equity............. 876,708 1,236,708 1,476,708
---------- ---------- ----------
Total capitalization................... $1,442,966 $2,032,712 $2,198,462
========== ========== ==========
</TABLE>

18
<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.

19
<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.

20
<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.

21
<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 Tracinda Purchase 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.

22
<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 OFFERING AND PRO FORMA
HISTORICAL HISTORICAL ACQUIRED(10) ADJUSTMENTS TRACINDA PURCHASE COMBINED
---------- ---------- ------------ ----------- ----------------- ----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents.......... $ 20,255 $ 1,252 $ (1,050) $ 14,035 (/1/) $155,750 (/9/) $ 190,242
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 $155,750 $2,741,787
========== ========= ======== ========= ======== ==========
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/) 339 (/8/) 657
Additional paid-in capital......... 904,485 350,774 (47,595) 56,671 (/7/) 239,666 (/9/) 1,504,001
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) 480,767 240,000 1,476,708
---------- --------- -------- --------- -------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY........................... $1,806,574 $ 466,315 $(60,461) $ 373,609 $155,750 $2,741,787
========== ========= ======== ========= ======== ==========
</TABLE>

23
<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 ADJUSTMENTS MGM
MGM ORION OPERATIONS NOT PRO FORMA FOR OFFERING AND PRO FORMA
HISTORICAL HISTORICAL ACQUIRED(10) ADJUSTMENTS TRACINDA PURCHASE 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)(/1//2/) -- 376,771
General corporate
administration expense. 35,140 22,046 (4,869) -- -- 52,317
Goodwill amortization... 3,821 2,240 -- 1,549 (/1//4/) -- 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)(/1//5/) 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)(/1//7/) -- (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 65,622,326
========== ==========
</TABLE>

24
<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)(/1//2/)
General corporate
administration
expense......... 18,319 60,056 27,356 (9,089) 12,527 3,801 112,970 10,758 (/1//3/)
Goodwill
amortization.... 1,717 11,570 2,908 -- -- -- 16,195 (989)(/1//4/)
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 (/1//5/)
Interest and
other income,
net............. 813 3,179 286 -- -- -- 4,278 740 (/1//6/)
---------- ---------- -------- -------- -------- ------- ---------- --------
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)(/1//7/)
---------- ---------- -------- -------- -------- ------- ---------- --------
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 OFFERING AND PRO FORMA
TRACINDA PURCHASE 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)... $ (9.98)
===========
Pro forma
weighted average
number of common
stock and common
equivalent
shares
outstanding(18). 65,546,534
===========
</TABLE>

25
<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.

26
<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 immediately prior to the
closing of the Offering.

(9) To reflect the issuance of 9,000,000 shares of the Common Stock offered
in connection with the Offering at an offering price of $20.00 per share
and the sale of 3,978,780 shares in the Tracinda Purchase and the
application of the $240 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 and the 12,978,780
Tracinda Purchase....................... 12,978,780
---------- ----------
65,622,326 65,546,534
========== ==========
</TABLE>

27
<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.

28
<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.

29
<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. For
films released by the Company since January 1994 which resulted in feature
film write-downs in the period of initial release, subsequent performance as
it relates to this group of films has not resulted in additional material
write-downs. 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.

30
<PAGE>

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
ACTUAL PRO FORMA 1997 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>

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.

31
<PAGE>

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 $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

32
<PAGE>

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. The Company expects net
interest expense to be higher in subsequent periods as the Company's
indebtedness has increased since the end of the 1997 Period.

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.

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 JAN.
YEAR ENDED JAN. 1 TO OCT. 11 TO 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.

33
<PAGE>

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 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

34
<PAGE>

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.

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.

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

36
<PAGE>

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.

37
<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 and the Tracinda Purchase, 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 and the
Tracinda Purchase, 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. 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."

38
<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.

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<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

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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<PAGE>

(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.

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 titles in the Library, including approximately 50
percent of the pre-1990 MGM and UA titles, which have been licensed in one or
more of the U.S., France, Spain and Germany, and less than 50 percent of the
Orion titles, which have been licensed in one or more of 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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<PAGE>

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. The Company believes that this strategy is
unlikely to have a negative impact on its ability to generate home video
rentals.

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

48
<PAGE>

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.

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

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<PAGE>

worldwide home video revenues (as determined under the WHV Agreement) and
reimbursement of certain 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. No
assurance can be made as to the outcome of this matter. 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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<PAGE>

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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<PAGE>

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 filed a lawsuit against Disney to compel the reconveyance of the
licensed rights in Western Europe and for termination of the Disney License,
and has recently received a jury verdict in its favor with respect to the
rights in Western Europe. 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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<PAGE>

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.

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

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<PAGE>

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 European
Union Council of Ministers 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.
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 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."

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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 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

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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. Trial
proceedings with respect to such action began in October 1997, and the Company
has recently received a jury verdict in its favor with respect to the Western
European rights. The time for Disney to file post-judgment motions or to
appeal has not yet elapsed. Additionally, the court has indicated that it will
grant summary judgment in favor of Disney on the claim that the Disney License
has been terminated; the Company may appeal such decision.

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. ("MIG") 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.

The Company is a defendant in an action entitled Samuel Goldwyn, Jr., et al.
v. Metro-Goldwyn-Mayer Inc., et al., pending in the Los Angeles County
Superior Court, which alleges claims for damages, injunctive and declaratory
relief for, among other things, fraud and deceit, breach of various
agreements, breach of fiduciary duty, trademark infringement, and unfair
competition. The complaint was served on the Company on October 30, 1997, and
no responsive pleading is due until December 1, 1997. The complaint seeks,
among other relief, damages in excess of $5 million, an injunction against the
defendants' use of the trademarks covered by the trademark license, injunctive
relief preventing the Company from using the "Goldwyn" name in connection with
the licensing or exhibition of any new film that has not been acquired by the
Company's Goldwyn subsidiary, termination of the distribution agreement,
unspecified punitive damages and attorneys' fees. The Company intends to
contest the litigation vigorously and believes that this action will not have
a 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.

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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
Alex Yemenidjian... 41 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

59
<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.

Alex Yemenidjian. Mr. Yemenidjian became a director of the Company in
November 1997. Mr. Yemenidjian has served as the President of MGM Grand, Inc.
since July 1995, as Chief Operating Officer of MGM Grand, Inc. since June
1995, as Chief Financial Officer of MGM Grand, Inc. since May 1994 and was an
Executive Vice President of MGM Grand, Inc. from June 1992 to July 1995. Prior
thereto, Mr. Yemenidjian served as the Chairman of the executive committee of
MGM Grand, Inc. from January 1991 to June 1992, and as the President and Chief
Operating Officer of MGM Grand, Inc. from March 1990 to January 1991.
Mr. Yemenidjian has been a director of MGM Grand, Inc. since 1989. Mr.
Yemenidjian served as an executive of Tracinda from January 1990 to January
1997.

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,
three persons meeting the requirements of the NYSE for serving as independent
directors will be selected and, together with Mr. Pisano, added to the Board
of Directors.

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<PAGE>

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

In November 1997 a Compensation Committee of the Board of Directors was
established, consisting of Mr. Stokes and Mr. Yemenidjian, 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 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 Company shall cause the Audit Committee to consist of persons
meeting the requirements of the NYSE for serving as independent directors. 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 COMMITTEE

Promptly following completion of the Offering, the Company shall create an
Executive Committee of the Board of Directors consisting of Messrs. Mancuso,
Pisano, Aljian, Gleason, Kerkorian and York.

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<PAGE>

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........ 482,893 122,692 -- 83,334 179,168 538,858(8)
Senior Executive Vice
President and General
Counsel
William A. Jones........ 467,238 -- -- 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."

(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

62
<PAGE>

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."

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
VALUE
AT ASSUMED ANNUAL RATES
OF STOCK PRICE
APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM ($)
-------------------------------------------------------- -----------------------
PERCENT OF
SHARES TOTAL OPTIONS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED (#)(1) FISCAL YEAR (%)(2) ($/SH) DATE 5% 10%
- ---- -------------- ------------------ ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Frank G. Mancuso........ 1,745,680 46.7% $24.00 10/9/2006 $26,348,371 $66,771,944
A. Robert Pisano........ 523,754 14.0 24.00 10/9/2006 7,905,266 20,033,496
Michael S. Hope......... -- -- 24.00 -- -- --
David G. Johnson........ 179,168 4.8 24.00 10/9/2006 2,704,267 6,853,144
William A. Jones........ 159,584 4.3 24.00 10/9/2006 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 3,742,360 employee stock options granted as of
December 31, 1996.

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<PAGE>

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.

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."

64
<PAGE>

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 the date of this Prospectus, 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, the then-sole stockholder of the Company, in connection with the sale of
MGM Studios to the Company in return for services rendered by them to MGM
Studios in their capacities as executive officers of MGM Studios 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 the date of this Prospectus, 8,125,065 shares of the Common Stock were
reserved for award under the 1996 Incentive Plan, of which options to purchase
7,696,952 shares of the Common Stock were outstanding. Of

65
<PAGE>

the outstanding employee options, 1,093,292 options are vested and exercisable
(or will vest or become exercisable within 60 days). 2,491,250 of the
outstanding options are exercisable at $20.00 per share and the balance are
exercisable at $24.00 per share. The outstanding options 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 two-thirds 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 the Bonus Plan Committee of the Board of Directors,
which is a committee of outside directors and currently composed of the same
members as the Compensation Committee. The Senior Management Bonus Plan is
subject to approval by the stockholders of the Company no later than December
31, 1998. If the Senior Management Bonus Plan is not approved by the holders
of a majority of the outstanding shares of the Common Stock present at a
meeting at which a quorum is present (or by the written consent of a majority
of the Common Stock), the Senior Management Bonus 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 approval of the Senior
Management Bonus Plan and the Bonus Interests.

Subject to the stockholder approval requirement discussed above and to
certain vesting and other requirements, each Bonus Interest entitles the
holder to receive a cash payment if (a) the sum of the average closing price
of the Common Stock during the 20 trading days and, in certain circumstances,
per share distributions on the Common Stock (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").

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 ("Original 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 Original Bonus

66
<PAGE>

Interests entitled the holder to $22.32 per Original 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 Original Bonus Interests agreed with the Company that
the Series A Options, Series B Options and Original Bonus Interests
outstanding under the Original Plan would be cancelled. Concurrently with the
amendment and restatement, 5,205,702 of the options described above and the
Bonus Interests described above were granted.

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 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

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<PAGE>

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 three 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 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 next year 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

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<PAGE>

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
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,

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<PAGE>

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.

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

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<PAGE>

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.

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

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<PAGE>

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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<PAGE>

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. 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).

As of the date of this Prospectus there were outstanding 52,719,421 shares
of the Common Stock. As of the date of this Prospectus there were reserved for
issuance upon the exercise of options 8,437,567 shares of the Common Stock, of
which options for 8,009,454 shares of the Common Stock are outstanding
(1,405,794 of which are vested and exercisable or will become vested and
exercisable within 60 days).

PREFERRED STOCK

As of the date of this Prospectus, 502,920 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 20,955,167 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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<PAGE>

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
the date of this Prospectus (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 AND THE OFFERING AND THE
TRACINDA PURCHASE TRACINDA PURCHASE
--------------------- ---------------------
NAME AND ADDRESS OF BENEFICIAL NUMBER OF PERCENTAGE NUMBER OF PERCENTAGE
OWNER SHARES(1) OF CLASS SHARES OF CLASS
- ------------------------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Tracinda Corporation(2)(3)......... 36,448,208 68.7% 40,426,988 61.2%
4835 Koval Lane
Las Vegas, NV 89109
Seven Network Limited(3)........... 16,208,463 30.6 16,208,463 24.6
ATN7, Mobbs Lane
Epping NSW 2121 Australia
Frank G. Mancuso(3)(4)............. 579,263 1.1 579,263 *
A. Robert Pisano(5)................ 145,991 * 145,991 *
James D. Aljian(6)................. -- -- -- --
Michael R. Gleason(7).............. 156,251 * 156,251 *
Kirk Kerkorian(3)(8)............... 36,448,208 68.7 40,426,988 61.2
Kerry M. Stokes(3)(9).............. 16,208,463 30.6 16,208,463 24.6
Alex Yemenidjian(6)................ -- -- -- --
Jerome B. York(6).................. -- -- -- --
Michael S. Hope(10)................ -- -- -- --
Michael G. Corrigan................ -- -- -- --
David G. Johnson(11)............... 58,352 * 58,352 *
William A. Jones(12)............... 65,954 * 65,954 *
All Directors and Executive
Officers as a group (11 persons).. 53,662,482 99.9 57,641,262 86.5
</TABLE>
- --------
* Less than 1 percent.

(1) The shares of the Common Stock which a person has the right to acquire
within 60 days of the date of this Prospectus and the shares of Common
Stock underlying options that are vested as of the date of this
Prospectus or that will become vested within 60 days 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--Certain Matters Relating
to 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."

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(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 the date of this Prospectus and 436,595 shares of the Common
Stock underlying options vested as of the date of this Prospectus or that
will become vested within 60 days.

(5) Includes 130,991 shares of the Common Stock underlying options vested as
of the date of this Prospectus or that will become vested within 60 days.

(6) Each of Messrs. Aljian and York is an employee of, and, along with Mr.
Yemenidjian, 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--Certain Matters Relating to
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 of the Common Stock beneficially owned by
Tracinda prior to, and 40,426,988 shares of the Common Stock owned after,
the consummation of the Offering and the Tracinda Purchase.

(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 of the
Common Stock 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 44,810 shares of the Common Stock underlying options vested as
of the date of this Prospectus or that will become vested within 60 days.

(12) Includes 39,912 shares of the Common Stock underlying options vested as
of the date of this Prospectus or that will become vested within 60 days.

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 and the Tracinda 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

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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 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 and the
Tracinda Purchase, (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.

Until the fifteenth anniversary of the closing date of the Offering and the
Tracinda Purchase, (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 executive committee of the Board of Directors of the
Company consists of three members 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 two members of the Board of Directors of
the Company 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).

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 the Company and a member of the executive and compensation committees of
the Board of Directors of the Company 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

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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 a member of the
executive and compensation committees of the Board of Directors of the
Company, 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 the Tracinda Purchase 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 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 and the Tracinda Purchase) 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

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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 and the Tracinda Purchase, 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.

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); (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; or (iv) the issuance of the Common Stock to
officers, directors or employees of the Company or any of its subsidiaries to
fulfill the Company's obligations pursuant to any savings plans or retirement
plans approved by the Board of Directors of the Company.

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

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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 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 and the Tracinda
Purchase, 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

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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 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
and the Tracinda Purchase 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.

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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 and the Tracinda Purchase, 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 and the Tracinda Purchase. 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, securities 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.

CERTAIN MATTERS RELATING TO THE MGM ACQUISITION

The First Private Placement

In October 1996 the Company acquired all of the outstanding capital stock of
MGM Studios and its subsidiaries from CDR for an aggregate consideration of
$1.3 billion. In order to finance such purchase, the Company sold capital
stock to Tracinda and Seven as described below. (The remainder of the purchase
price was financed by borrowings under the Original MGM Credit Facility.)
Pursuant to an investment agreement dated July 11, 1996 among Seven, Tracinda
and the Company, 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 (after giving effect to the Series A Preferred Stock
Conversion and Stock Split) of $24.00 per share (which is $4.00 more than the
per share price to public set forth on the cover page hereof) 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.

Consideration Paid by the Company to Directors, Named Executive Officers and
Current Stockholders

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 (which is $13.59 less than the per share
price to public set forth on the cover page hereof). The options became
exercisable on October 10, 1997 and expire on October 10, 2002. 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.

In order to induce certain employees to waive certain rights under their
then-existing employment agreements (relating to the change in control) and to
induce certain of such employees to enter into new employment agreements, the
Company made payments in cash and in-kind in the form of capital stock (valued
at $24.00 per share) to such persons. The aggregate amount of such cash
payments to the directors of the Company and the Named Executive Officers was
$1,885,371. (The foregoing amount does not include an aggregate amount of
$15,669,183 in CL Payments paid by CL to such persons. See "Management--
Executive Compensation--CL Payments.") The aggregate number of shares of the
Common Stock so granted to directors of the Company or the Named Executive
Officers was 118,335. The new employment agreements referenced above contain
certain provisions regarding termination payments. See "Management--Executive
Compensation," "--Employment Agreements" and "Ownership of Voting Securities."

In addition to the foregoing, the Company paid fees and expenses in
connection with the MGM Acquisition (and the Original MGM Credit Facility) to
unrelated third parties totaling $48.6 million, including investment banking
fees of $18.0 million, financing fees of $25.7 million and legal fees of $3.9
million.

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THE SECOND PRIVATE PLACEMENT

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.

CAPITAL CALL AGREEMENT

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 and the Tracinda Purchase.

SALES OF UNREGISTERED SECURITIES TO MR. MANCUSO

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 the date of this Prospectus, Mr. Mancuso had purchased 69,000
shares of the Common Stock for aggregate consideration of $1,656,000. 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."

TRACINDA PURCHASE

Concurrently with the consummation of the Offering, Tracinda and the Company
will consummate the Tracinda Purchase, pursuant to which Tracinda will
purchase directly from the Company, at a purchase price of $18.85 per share
(equal to the per share price to public, less the underwriting discount),
3,978,780 shares of the Common Stock, for an aggregate purchase price of $75
million.

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.

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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.

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

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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

As of the date of this Prospectus there were outstanding 52,719,421 shares
of Common Stock. Upon completion of the Offering and the Tracinda Purchase,
the Company will have approximately 65,698,201 of the Common Stock
outstanding. The 9,000,000 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.

All of the shares of the Common Stock outstanding prior the consummation of
the Offering (52,719,421 as of the date of this Prospectus) were issued, and
the 3,978,780 shares to be issued in the Tracinda Purchase will be 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 (approximately 657,000 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 7,696,952 shares of the Common Stock as of the date of this
Prospectus. 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 the date of this Prospectus, 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 have agreed 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....................................................... 1,212,500
J.P. Morgan Securities Inc. ....................................... 1,212,500
Bear, Stearns & Co. Inc. .......................................... 1,212,500
Furman Selz LLC.................................................... 1,212,500
BancAmerica Robertson Stephens..................................... 100,000
BT Alex. Brown Incorporated........................................ 100,000
CIBC Oppenheimer Corp. ............................................ 100,000
Cowen & Company.................................................... 100,000
Donaldson, Lufkin & Jenrette Securities Corporation................ 100,000
A.G. Edwards & Sons, Inc. ......................................... 100,000
Goldman, Sachs & Co. .............................................. 100,000
Lazard Freres & Co. LLC............................................ 100,000
Lehman Brothers Inc. .............................................. 100,000
Morgan Stanley & Co. Incorporated.................................. 100,000
NationsBanc Montgomery Securities, Inc. ........................... 100,000
PaineWebber Incorporated........................................... 100,000
SBC Warburg Dillon Read Inc. ...................................... 100,000
Schroder & Co. Inc. ............................................... 100,000
Smith Barney Inc. ................................................. 100,000
UBS Securities LLC................................................. 100,000
Wasserstein Perella Securities, Inc. .............................. 100,000
Arnhold and S. Bleichroeder, Inc. ................................. 50,000
Crowell, Weedon & Co. ............................................. 50,000
Gerard Klauer Mattison & Co., Inc. ................................ 50,000
Janney Montgomery Scott Inc. ...................................... 50,000
Edward D. Jones & Co., L.P. ....................................... 50,000
Legg Mason Wood Walker, Incorporated............................... 50,000
Neuberger & Berman, LLC............................................ 50,000
Rauscher Pierce Refsnes, Inc. ..................................... 50,000
The Seidler Companies Incorporated................................. 50,000
SoundView Financial Group, Inc. ................................... 50,000
Utendahl Capital Partners, L.P. ................................... 50,000
Wedbush Morgan Securities.......................................... 50,000
Wheat, First Securities, Inc. ..................................... 50,000
---------
Total......................................................... 7,200,000
=========
</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

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"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 1,800,000 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 $.67 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 $.10 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
864,000 additional shares of the Common Stock at the initial 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
216,000 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

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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.

The Common Stock has been approved for listing (subject to official notice
of issuance) 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.

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 served in such role and has
recommended a price in compliance with the

91
<PAGE>

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 has been
determined through negotiations between the Company and the Representatives.
Among the factors considered in such negotiations, in addition to prevailing
market conditions, were 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.

92
<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.

93
<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.:

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 November 7, 1997)

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.

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.

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.

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 November 7, 1997, the Company approved a recapitalization pursuant to
which the Company, immediately prior to the closing of the initial public
offering and the Tracinda Purchase (collectively the "Offering"), will (i)
convert each share of Preferred Stock into one share of Common Stock, (ii)
effect a 1:41.667 stock split and (iii) increase 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.

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 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.

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)

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.

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.

NOTE 9--RETIREMENT PLANS

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.

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.

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................................................. 16
Use of Proceeds........................................................... 17
Capitalization............................................................ 18
Dividend Policy........................................................... 19
Selected Consolidated Financial Data...................................... 20
Unaudited Pro Forma Financial Information................................. 22
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 28
The Industry.............................................................. 39
Business.................................................................. 41
Management................................................................ 59
Description of Capital Stock.............................................. 73
Ownership of Voting Securities............................................ 74
Financing Arrangements.................................................... 82
Certain Transactions...................................................... 84
Shares Eligible for Future Sale........................................... 88
Underwriting.............................................................. 89
Legal Matters............................................................. 93
Experts................................................................... 93
Available Information..................................................... 93
Index to Financial Statements............................................. F-1
</TABLE>

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

UNTIL DECEMBER 7, 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.

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

9,000,000 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

NOVEMBER 12, 1997

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>

PROSPECTUS
9,000,000 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 9,000,000 shares offered by the Underwriters, 1,800,000
shares will be offered initially outside the United States and Canada (the
"International Offering") by the International Underwriters and 7,200,000
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 216,000 and
864,000 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."

The Common Stock has been approved for listing (subject to official notice of
issuance) on the New York Stock Exchange (the "NYSE") under the symbol "MGM."

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............................. $20.00 $1.15 $18.85
- --------------------------------------------------------------------------------
Total(3).............................. $180,000,000 $10,350,000 $169,650,000
</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 approximately $4,650,000 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 216,000 and 864,000 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 $201,600,000, $11,592,000 and
$190,008,000, 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 November 18, 1997.

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

MERRILL LYNCH INTERNATIONAL J.P. MORGAN SECURITIES LTD.
Joint Lead Managers

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

BEAR, STEARNS INTERNATIONAL LIMITED FURMAN SELZ

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

The date of this Prospectus is November 12, 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........................................ 433,440
J.P. Morgan Securities Ltd. ....................................... 433,440
Bear, Stearns International Limited................................ 433,440
Furman Selz LLC.................................................... 433,440
Morgan Grenfell & Co. Limited...................................... 33,120
Societe Generale................................................... 33,120
---------
Total.......................................................... 1,800,000
=========
</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 7,200,000
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 $.67 per share of the Common Stock, and that the International
Underwriters may allow, and such dealers may reallow, a discount not in excess
of $.10 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 216,000 additional shares of the Common Stock at the initial
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

89
<PAGE>

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 864,000 additional shares of the Common Stock to cover over-
allotments, if any, on terms similar to those granted to the International
Underwriters.

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 Common Stock has been approved for listing (subject to official notice of
issuance) 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.

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.

90
<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 served in such role and has
recommended 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 has been
determined through negotiations between the Company and the Representatives.
Among the factors considered in such negotiations, in addition to prevailing
market conditions, were 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.

Each International Underwriter has agreed that (i) it has not offered or sold
and, for a period of six months following consummation of the Offering, will
not offer or sell any shares of the Common Stock to persons in the United
Kingdom except to persons whose ordinary activities involve them in acquiring,
holding, managing or disposing of investments (as principal or agent) for the
purposes of their businesses or otherwise in circumstances which do not
constitute an offer to the public in the United Kingdom within the meaning of
the Public Offers of Securities Regulations 1995, (ii) it has complied with and
will comply with all applicable provisions of the Public

91
<PAGE>

Offers of Securities Regulations 1995 and the Financial Services Act 1986 with
respect to anything done by it in relation to the Common Stock in, from, or
otherwise involving the United Kingdom and (iii) it has only issued or passed
on and will only issue or pass on in the United Kingdom any document received
by it in connection with the issue or sale of the Common Stock to a person who
is of a kind described in Article 11(3) of the Financial Services Act 1986
(Investment Advertisements) (Exemptions) Order 1996 or to a person to whom the
document may otherwise lawfully be issued or passed on.

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.

92
<PAGE>

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TABLE OF CONTENTS

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9,000,000 SHARES

[LOGO OF METRO-GOLDWYN-MAYER INC.]

METRO-GOLDWYN-MAYER INC.

COMMON STOCK

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PROSPECTUS

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MERRILL LYNCH INTERNATIONAL

J.P. MORGAN SECURITIES LTD.

BEAR, STEARNS INTERNATIONAL LIMITED

FURMAN SELZ

NOVEMBER 12, 1997

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<PAGE>

Front Page:
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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:
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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:
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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:
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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.