METRO-GOLDWYN-MAYER INC, S-1/A, 1998-09-11

METRO-GOLDWYN-MAYER INC
S-1/A, 1998-09-11
MOTION PICTURE & VIDEO TAPE PRODUCTION

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 11, 1998
REGISTRATION NO. 333-60723
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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AMENDMENT NO. 2

TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

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METRO-GOLDWYN-MAYER INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

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DELAWARE 6712 95-4605850
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
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2500 BROADWAY STREET
SANTA MONICA, CALIFORNIA 90404
(310) 449-3000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

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ROBERT BRADA, ESQ.

EXECUTIVE VICE PRESIDENT
METRO-GOLDWYN-MAYER INC.
2500 BROADWAY STREET
SANTA MONICA, CALIFORNIA 90404
(310) 449-3000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)

WITH A COPY TO:

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<S> <C>
BRUCE D. MEYER, ESQ. KENDALL R. BISHOP, ESQ.
GIBSON, DUNN & CRUTCHER LLP O'MELVENY & MYERS LLP
333 SOUTH GRAND AVENUE 1999 AVENUE OF THE STARS
LOS ANGELES, CALIFORNIA 90071 LOS ANGELES, CALIFORNIA 90067
(213) 229-7000 (310) 553-6700
</TABLE>

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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this registration statement becomes effective.

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If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]

If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]

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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES
AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.

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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion,
PROSPECTUS
Shares Dated September 11, 1998
[LOGO OF METRO-GOLDWYN-MAYER INC.(TM)]
METRO-GOLDWYN-MAYER INC.
Common Stock

Metro-Goldwyn-Mayer Inc., a Delaware corporation ("MGM" or the "Company"), is
distributing to holders of record of the Company's common stock, $.01 par value
per share (the "Common Stock"), as of the close of business on , 1998
(the "Record Date"), at no charge to such holders, transferable subscription
rights (the "Rights") to subscribe for shares (the "Shares") of the Common
Stock, for $ per share (the "Subscription Price") (the "Rights Offering").
The Rights will expire at 5:00 pm (New York City time) (the "Expiration Time")
on , 1998, unless extended by the Company (such date, as it may be extended,
is referred to herein as the "Expiration Date"). In no event will the
Expiration Date be extended beyond , 1998.

Holders of the Common Stock will receive Rights for each share of the
Common Stock held as of the Record Date. The number of Rights distributed to
each holder will be rounded up to the nearest whole number. Rights holders may
purchase one Share at the Subscription Price for each Right held. Persons who
exercise their Rights will also have the opportunity to purchase additional
Shares at the Subscription Price pursuant to the Oversubscription Privilege
described herein. Once a holder has exercised any Rights, such exercise cannot
be revoked.

As of the Record Date, Tracinda Corporation, a Nevada corporation ("Tracinda"),
and a Delaware corporation that is principally owned by Tracinda (collectively,
with Tracinda, the "Tracinda Group") beneficially owned approximately
90 percent of the outstanding Common Stock. The Tracinda Group has committed to
exercise all of the Rights distributed to it pursuant to the Rights Offering.
The Tracinda Group will also purchase all Shares that are not otherwise
subscribed for by the Expiration Time. Any such purchases by Tracinda Group
will be at the Subscription Price and will be subject to the satisfaction of
certain conditions. See "The Rights Offering."

Following the completion of the Rights Offering, the Tracinda Group, the
directors and officers of the Company and their respective affiliates will
beneficially own between percent and percent of the outstanding shares of
the Common Stock.

The last reported sales price of the Common Stock on the New York Stock
Exchange (the "NYSE") on September 10, 1998 was $15 5/16 per share. Application
will be made to list the Rights on the NYSE. The Company does not expect to be
profitable for at least several years.

SEE "RISK FACTORS" BEGINNING ON PAGE 11 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.
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PRICE TO UNDERWRITING DISCOUNTS PROCEEDS TO
PUBLIC AND COMMISSIONS(1) COMPANY(2)
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Per Share $ None $
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Total $500,000,000 None $500,000,000
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(1)In connection with the Rights Offering, the Company has retained J.P. Morgan
& Co. and Merrill Lynch & Co. as dealer managers (the "Dealer Managers") and
J.P. Morgan Securities Inc. as financial advisor. Hambrecht & Quist LLC
("Hambrecht & Quist") has been retained as a financial advisor to an
independent committee of the Board of Directors of the Company (the "Special
Committee"). The Dealer Managers will receive selling commissions of $ for
each Share issued in connection with the Rights Offering, except Shares
purchased by the Tracinda Group and Shares purchased by holders as of the
Record Date upon exercise of such holder's Basic Subscription Privilege or
related Oversubscription Privilege. In addition, the Company has agreed to
indemnify the Dealer Managers and Hambrecht & Quist against certain
liabilities, including liabilities under the Securities Act of 1933, as amended
(the "Securities Act"). See "Dealer Manager and Financial Advisor
Arrangements."
(2)Before deducting expenses payable by the Company estimated at $ .

Dealer Managers

J.P. MORGAN & CO. MERRILL LYNCH & CO.

----------

Financial Advisor to the Special Committee
HAMBRECHT & QUIST
, 1998
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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. Undue reliance should
not be placed on these forward-looking statements, which speak only as of the
date hereof. The Company undertakes no obligation to update these forward-
looking statements.

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 "DEALER MANAGER AND
FINANCIAL ADVISOR ARRANGEMENTS."

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, THE SPECIAL COMMITTEE,
THE DEALER MANAGERS OR HAMBRECHT & QUIST. 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.

TABLE OF CONTENTS

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PAGE PAGE
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Available Information..................... 3 The Industry.............................. 48
Summary................................... 4 Business.................................. 50
Risk Factors.............................. 11 Management................................ 68
Background of the Company................. 19 Description of Capital Stock.............. 81
Use of Proceeds........................... 20 Ownership of Voting Securities............ 82
Price Range of Common Stock............... 20 Financing Arrangements.................... 88
Dividend Policy........................... 20 Certain Transactions...................... 90
Capitalization............................ 21 Shares Eligible for Future Sale........... 93
Dilution.................................. 22 Certain Federal Income Tax Consequences... 94
The Rights Offering....................... 23 Dealer Manager and Financial Advisor
Selected Consolidated Financial Data...... 30 Arrangements............................. 96
Unaudited Pro Forma Financial Information. 32 Legal Matters............................. 96
Management's Discussion and Analysis of Experts................................... 97
Financial Condition and Results of
Operations............................... 35 Index to Financial Statements............. F-1
</TABLE>

2
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AVAILABLE INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (of which this Prospectus is a part) on
Form S-1 under the Securities Act, with respect to the Rights and 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 Company is subject
to the informational requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and in accordance therewith files reports and
other information with the Commission. 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. The Common Stock is listed on the NYSE, and 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.

3
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SUMMARY

The following summary is qualified in its entirety by the more detailed
information and the 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" or "MGM" refers
collectively to Metro-Goldwyn-Mayer Inc. and its direct and indirect
subsidiaries. Unless otherwise indicated, all information in this Prospectus
assumes no exercise of stock options outstanding as of the date of this
Prospectus to purchase 7,846,754 shares of the Common Stock.

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. ("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, 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 18 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, a company formed under the laws of Australia
("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. 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, eight of which
have been released. The Landmark Theatres owned by Goldwyn were excluded from
the Orion Acquisition. See "Background of the Company."

In November 1997 the Company completed an initial public offering, whereby it
issued and sold 9,000,000 new shares of the Common Stock at a price per share
of $20, less an underwriting discount, for net proceeds (after expenses) to the
Company of approximately $165 million (the "IPO"). Concurrent with the
consummation of the IPO, Tracinda purchased directly from the Company, at a
purchase price of $18.85 per share (equal to the per share price to the public
in the IPO, less the underwriting discount), 3,978,780 shares of the Common
Stock for an aggregate purchase price of $75 million (the "Tracinda Purchase").
In addition, Tracinda acquired an aggregate of 2,429,263 shares of the Common
Stock through open market purchases following commencement of the IPO through
the date of this Prospectus.

Pursuant to a Purchase Agreement (the "Tracinda/Seven Purchase Agreement")
entered into by Seven and Tracinda in August 1998, the Tracinda Group
purchased, on September 1, 1998, 16,208,463 shares of the Common Stock from
Seven, representing all of the capital stock of the Company beneficially owned
by Seven, for a price per share of $24 and an aggregate purchase price of $389
million (the "Seven Sale").

4
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BUSINESS STRATEGY

The Company is a premier global entertainment content company. The Company's
goal is to become a fully integrated global entertainment company and thereby
maximize the value of its assets, including the Library and its film and
television production units. To achieve this goal, the Company seeks to:

Build and Leverage the Library. The Company believes that the Library is its
most powerful asset and that the Library will continue to generate relatively
stable cash flows through the worldwide distribution of its titles. Management
seeks 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 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 eight to ten 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 two to four
specialty motion pictures annually through Goldwyn. The Company may also
distribute motion pictures produced by others. See "Business--Production--
Motion Picture Production."

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 and intends to use its extensive Library
as a source of ideas. Under this non-network television programming strategy,
the Company generally has been able to enter into contracts during or shortly
after completion of production of a series that provide for the recovery over
time of substantially all production costs for the series. In addition to non-
network television programming, the Company also develops programs such as two-
hour television movies and mini-series and currently is producing a series for
network television. The Company also is considering joint ventures, co-
productions and other partnering arrangements for certain of its series. See
"Business--Production--Television Production."

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.

In connection with the Company's pursuit of its goal of becoming an integrated
global entertainment company, the Company is considering various strategic
alternatives, such as business combinations with companies with strengths
complementary to those of the Company and other acquisitions. The Company may
need to seek additional financing in order to complete any acquisitions.

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.

5
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THE RIGHTS OFFERING

RIGHTS.............................
Each record holder of the Common Stock
("Record Date Holder") at the close of
business on the Record Date will receive,
at no charge, transferable
subscription Rights for each share of the
Common Stock held of record on the Record
Date. The number of Rights issued to each
Record Date Holder will be rounded up to
the nearest whole Right.

SUBSCRIPTION PRICE................. $ per share (the "Subscription
Price").

BASIC SUBSCRIPTION PRIVILEGE.......
Each whole Right entitles the holder
thereof (a "Holder" or "Rights Holder")
to purchase from the Company one share of
the Common Stock (a "Share") at the
Subscription Price (the "Basic
Subscription Privilege"). Pursuant to the
Basic Subscription Privilege, Holders
other than the Tracinda Group will
receive Rights to purchase an aggregate
of Shares (the "Public's Basic
Subscription Privilege"), and the
Tracinda Group will receive Rights to
purchase Shares. The Tracinda Group
has committed to exercise the Basic
Subscription Privilege with respect to
all of the Rights distributed to it
(subject to certain conditions).

OVERSUBSCRIPTION PRIVILEGE.........
Each Holder (other than the Tracinda
Group) who elects to exercise the Basic
Subscription Privilege in full may also
subscribe (the "Oversubscription
Privilege") at the Subscription Price for
additional Shares, subject to proration,
to the extent that the Public's Basic
Subscription Privilege is not exercised
in full.

RECORD DATE........................ , 1998 (the "Record Date").

EXPIRATION DATE.................... The Rights will expire on , 1998,
unless extended by the Company in its
sole discretion (as so extended, the
"Expiration Date"), at 5:00 p.m., New
York City time (the "Expiration Time").
In no event will the Expiration Date be
extended beyond , 1998. Any Rights
that remain unexercised at the Expiration
Time shall expire and no longer be
exercisable.

TRANSFERABILITY OF RIGHTS.......... The Rights are transferable and it is
anticipated that they will trade on the
NYSE until the close of business on the
day prior to the Expiration Date. There
can be no assurance, however, that any
market for the Rights will develop or, if
a market develops, that the market will
remain available throughout the period
during which Rights may be exercised.

The Subscription Agent will endeavor to
sell the Rights for Holders who have so
requested and have delivered a
certificate evidencing the Rights (a
"Subscription Warrant"), with the
instruction for sale properly executed,
to the Subscription Agent at or prior to
11:00 A.M., New York City time, on
, 1998. There can be no assurance
that the Subscription Agent will be able
to sell any Rights or as to the prices
the Subscription Agent may be able to
obtain in such sales.

6
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PRINCIPAL STOCKHOLDERS............. As of the Record Date, the Tracinda Group
beneficially owned approximately 90
percent of the outstanding shares of the
Common Stock and will thus receive Rights
to subscribe for Shares in the
Rights Offering. The Tracinda Group has
committed to exercise its Basic
Subscription Privilege with respect to
all of the Rights distributed to it
(subject to certain conditions). The
Tracinda Group has also entered into the
Standby Agreement. See "The Rights
Offering--Principal Stockholder" and "--
Standby Agreement."

STANDBY AGREEMENT.................. The Tracinda Group has agreed to
purchase, pursuant to the Standby
Agreement, any Shares that are not
otherwise subscribed for by the
Expiration Time (the "Unsubscribed
Shares"). Pursuant to the Standby
Agreement, the Tracinda Group's
obligations to purchase the Unsubscribed
Shares (and to exercise the Rights held
by it) are subject to certain conditions.
See "The Rights Offering--Standby
Agreement."

PROCEDURE FOR EXERCISING RIGHTS.... The Basic Subscription Privilege and the
Oversubscription Privilege may be
exercised by properly completing the
Subscription Warrant and forwarding it
(or by following the Guaranteed Delivery
Procedures as defined herein), with
payment of the Subscription Price for
each Share subscribed for, to the
Subscription Agent (as defined herein),
who must receive such payment and such
Subscription Warrant (or a Notice of
Guaranteed Delivery) prior to the
Expiration Time. If Subscription Warrants
are sent by mail, Holders are urged to
use insured, registered mail.

Funds paid by uncertified personal checks
may take at least five business days to
clear. Accordingly, Holders who wish to
pay the Subscription Price by means of
uncertified personal checks are urged to
make payment sufficiently in advance of
the Expiration Time to ensure that the
payment is received and clears by that
time, and are urged to consider, in the
alternative, payment by means of
certified or cashier's check, money order
or wire transfer of funds.

ONCE A HOLDER HAS EXERCISED THE BASIC
SUBSCRIPTION PRIVILEGE AND, IF
APPLICABLE, THE OVERSUBSCRIPTION
PRIVILEGE, THE EXERCISE MAY NOT BE
REVOKED. RIGHTS NOT EXERCISED PRIOR TO
THE EXPIRATION TIME WILL EXPIRE AND WILL
NO LONGER BE EXERCISABLE BY ANY HOLDER.

PERSONS HOLDING THE COMMON STOCK,
OR WISHING TO EXERCISE RIGHTS,
THROUGH OTHERS.................... Persons holding shares of the Common
Stock through a broker, dealer,
commercial bank, trust company or other
nominee, as well as persons holding
certificates for the Common Stock
personally who would prefer to have such
institutions effect transactions relating
to the Rights on their behalf, should
contact the appropriate institution or
nominee and request it to effect the
transactions for them.

CONDITIONS TO THE RIGHTS OFFERING.. The consummation of the Rights Offering
is subject to certain conditions. See
"The Rights Offering--Conditions to the
Rights Offering."

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ISSUANCE OF COMMON STOCK........... Issuance of the Common Stock certificates
representing Shares purchased pursuant to
the Rights will be delivered to
subscribers as soon as practicable after
the Expiration Date. Funds delivered to
the Subscription Agent in payment of the
Subscription Price shall be retained by
the Subscription Agent until the
consummation of the Rights Offering and
the issuance of such certificates. No
interest will be paid to Holders on funds
paid to the Subscription Agent,
regardless of whether such funds are
applied to the Subscription Price or
returned to the Holders.

LISTING............................ The Common Stock is listed on the NYSE
under the symbol "MGM." Application will
be made to list the Rights for trading on
the NYSE under the symbol "MGM Rt."

USE OF PROCEEDS.................... The aggregate proceeds to the Company
from the Rights Offering will be
approximately $500 million, before
deducting estimated offering expenses
payable by the Company. It is currently
anticipated that a portion of the net
proceeds will be used to repay any
amounts that may be outstanding under the
Bridge Loan (as defined under
"Management's Discussion and Analysis of
Financial Condition and Results of
Operations--Liquidity and Capital
Resources"). The remaining proceeds will
be used to reduce indebtedness of the
Company under the revolving portion of
the Company's Amended Credit Facility (as
defined herein under "Management's
Discussion and Analysis of Financial
Condition and Results of Operations--
Liquidity and Capital Resources"). As of
August 31, 1998 the outstanding balance
under the revolving portion of the
Amended Credit Facility was $517.0
million. As the Company's business plan
calls for continued borrowing, the
Company expects that any amounts repaid
under the Amended Credit Facility out of
the net proceeds will be reborrowed by
the Company.

CERTAIN FEDERAL INCOME TAX
CONSEQUENCES...................... For United States federal income tax
purposes, Record Date Holders generally
will not recognize taxable income in
connection with the distribution to them
or exercise by them of Rights. Rights
Holders may recognize gain or loss upon
the sale of Rights or Shares acquired
through exercise of the Rights. See
"Certain Federal Income Tax
Consequences."

SUBSCRIPTION AGENT................. ChaseMellon Shareholder Services LLC (the
"Subscription Agent"). The Subscription
Agent's telephone number is
(800) .

8
<PAGE>

COMMON STOCK OUTSTANDING PRIOR TO
THE RIGHTS OFFERING (AS OF JULY
31, 1998)(1)...................... 65,803,185 shares

COMMON STOCK TO BE OUTSTANDING
AFTER THE RIGHTS OFFERING(1)...... shares
- ---------
(1) Excludes 7,534,252 shares of the Common Stock issuable upon exercise of
employee stock options outstanding as of July 1, 1998 (2,021,424 of which are
vested or will vest within 60 days) and 590,813 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" commencing on page 10 for a description of certain risks to
be considered before making an investment in the Common Stock.

9
<PAGE>

SUMMARY CONSOLIDATED FINANCIAL DATA

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
PREDECESSOR SUCCESSOR
-------------------------- ---------------------------------------------------
SIX MONTHS SIX MONTHS
YEAR ENDED JANUARY 1 TO OCTOBER 11 TO YEAR ENDED ENDED ENDED
DECEMBER 31, OCTOBER 10, DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30,
In thousands, except share 1995 1996 1996 1997(1) 1997 1998
and per share data ------------ ------------ ------------- ------------ ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues.................. $ 860,971 $ 912,706 $ 228,686 $ 831,302 $ 351,014 $ 597,661
Expenses.................. 973,331 1,589,275 215,112 898,413 356,873 629,353
Operating income (loss)... (112,360) (676,569) 13,574 (67,111) (5,859) (31,692)
Interest expense and other
income, net.............. (56,014) (68,196) (9,062) (50,658) (19,211) (36,683)
Income (loss) before
income taxes............. (168,374) (744,765) 4,512 (117,769) (25,070) (68,375)
Net income (loss)......... (169,309) (745,038) 166 (128,114) (29,005) (73,637)
Earnings (loss) per share:
Basic................... $ .01 $ (4.47) $ (1.73) $ (1.12)
Diluted................. $ .00 $ (4.47) $ (1.73) $ (1.12)
Weighted average number of
shares used in
computation of earnings
(loss) per share:
Basic................... 16,692,217 28,634,362 16,766,426 65,781,329
Diluted................. 37,796,672 28,634,362 16,766,426 65,781,329
OTHER DATA:
Cash flow from operating
activities............... $ 371,657 $ 343,137 $ 61,328 $ 245,318 $ 160,056 $ 247,213
Cash flow used in
investing activities..... (710,812) (380,142) (1,390,861) (1,290,022) (280,604) (495,349)
Cash flow from financing
activities............... 328,029 44,852 1,345,394 1,028,784 124,678 267,794
EBITDA(2)................. (81,588) (87,289) 16,709 (49,098) 1,198 (20,848)
Capital expenditures...... 9,376 6,901 2,079 9,555 5,294 7,119
Depreciation.............. 4,021 4,645 1,418 6,783 3,236 3,922
</TABLE>

--------------------
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
ACTUAL AS ADJUSTED(3)
In thousands ---------- --------------
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................ $ 23,512 $ 72,512
Film and television costs, net....................... 1,993,093 1,993,093
Total assets......................................... 2,947,816 2,996,816
Bank and other debt ................................. 1,158,304 713,304
Stockholders' equity................................. 1,306,299 1,800,299
</TABLE>
- ---------
(1) Reflects the effect of the Orion Acquisition transactions from the date of
the acquisition on July 10, 1997.
(2) "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 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."

(3) Gives effect to the application of the estimated net proceeds of
approximately $494 million as if the Rights Offering had been completed as of
June 30, 1998.

10
<PAGE>

RISK FACTORS

The Rights and the Common Stock are speculative in nature and involve 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 purchasing any of the Rights or the Common Stock.

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 1995, for the period January 1,
1996 through October 10, 1996, for 1997 and for the six months ended June 30,
1998 the Company reported an operating loss of $112.4 million, $676.6 million
(including a $563.8 million provision for impairment of intangible assets),
$67.1 million and $31.7 million, 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 at least through 1999. See "Management's Discussion and Analysis of
Financial Conditions and Results of Operations."

RISKS RELATING TO LIQUIDITY AND FINANCING REQUIREMENTS

In recent years the Company has funded its operations primarily from internally
generated funds, bank borrowings and proceeds from the sale of equity
securities including the IPO and the Tracinda Purchase, which were completed in
November 1997. The Company is currently operating under a business plan which
anticipates substantial continued borrowing under the Amended Credit Facility,
primarily to fund film and television production.

The Company's cash flow in 1998 has been adversely affected by, and the Company
determined to undertake the Rights Offering as a result of, several factors.
First, the Company is making and has committed to make substantial investments
that are more extensive than previously anticipated in connection with
commitments entered into for new television programming. This new television
production includes an aggregate of approximately 100 additional episodes for
the Company's non-network programs, as well as 13 new episodes of The
Magnificent Seven (which is a network program and thus produced at a greater
deficit than the Company's non-network programs), for the 1998/99 television
season. See "Business--Production--Television Production."

Second, although Tomorrow Never Dies and The Man in the Iron Mask performed
better than anticipated, the Company's three other major theatrical releases
since the IPO have performed substantially below expectations. The Company's
short-term cash flow has been and will continue to be negatively affected by
the unsuccessful releases, particularly during the ten to 15 months after the
release of such films. Although the Company anticipates that this short-term
reduction will ultimately be offset by increased ancillary cash receipts from
the two successful releases, such cash receipts will be realized over several
years.

Third, the Company's recent sales experience in the television syndication and
home video markets indicates that the Company will realize cash from these
sources over a period longer than originally anticipated. Fourth, during the
six months ended June 30, 1998, the Company accelerated certain theatrical
motion picture production in order to avoid the
impact of an industry strike that had been threatened in the second quarter of
1998. As a result of this acceleration, the Company currently has nine motion
pictures, comprising substantially all of its release slate through April 1999,
for which principal photography has been completed and substantially all
production costs have been expended. Other factors include increases in
marketing and distribution expenses that have been higher than anticipated.

11
<PAGE>

The Company's current strategy and business plan contemplate substantial on-
going investments in the production of new feature films and television
programs. In addition, the Company may continue to make investments to develop
new distribution channels to further exploit the Library. The Company plans to
continue to evaluate the level of such investments in the context of the
capital available to the Company and changing market conditions.

The Company believes that cash flow from operations and the amounts available
under the Amended Credit Facility, after giving effect to the Rights Offering,
will be adequate to meet the Company's obligations and commitments and will
enable the Company to continue to conduct its operations in accordance with its
current business plan through the year 2002. The Company's belief as to the
adequacy of its capital resources is based in part on the assumption that its
motion pictures will perform as planned. However, no assurance can be given in
this regard. See "--Risks of Motion Picture and Television Production."

If necessary in order to manage its cash needs, the Company could seek to
reduce or delay its production or release schedules and to further increase its
use of co-production, split-rights or other partnering arrangements. There can
be no assurance that any such steps by the Company to reduce its cash needs
would be adequate or timely, or that acceptable arrangements could be reached
with third parties if necessary. In addition, although changes in the Company's
production or release schedule or the increased use of partnering would improve
the Company's short-term cash flow and (in the case of partnering) reduce the
Company's risk relating to the performance of the relevant films, such steps
could adversely affect long term cash flow and results of operations in
subsequent periods.

The Amended Credit Facility contains various covenants, including limitations
on indebtedness, dividends and capital expenditures and maintenance of certain
financial ratios. The Amended Credit Facility was amended, effective March 30,
1998, to amend certain of these financial covenants. As of June 30, 1998 the
Company was in compliance with its amended financial covenants and, assuming
the consummation of the Rights Offering, expects to be in compliance for the
remainder of 1998. However, as a result of the factors described above, the
Company believes that it may cease to be in compliance with certain financial
ratio covenants during 1999, and may therefore need certain additional
amendments (the "Amendments") to the Amended Credit Facility. The Company has
begun discussions with its lenders and, based on such discussions, believes it
will be able to obtain the requisite Amendments. However, no assurances can be
given that the Company will be successful in obtaining the Amendments or, if
successful, that the Company will not cease to be in compliance with such
amended or other covenants or conditions in the future. The consummation of the
Rights Offering is conditioned on the effectiveness of the Amendments.

LEVERAGE

The Company is, and after completion of the Rights Offering will be, highly
leveraged. As of July 31, 1998, after giving effect to the completion of the
Rights Offering, the Company would have had total indebtedness of approximately
$712.6 million (including $700.0 million outstanding under the Amended Credit
Facility) and stockholders' equity of approximately $1,778.5 million, for a
ratio of total indebtedness to stockholders' equity of 0.4:1. As of August 31,
1998, after giving effect to the completion of the Rights Offering, $723
million would have been outstanding, and $577 million would have been
available, under the Amended Credit Facility.

Under certain circumstances as described in "Management Discussion and Analysis
of Financial Condition and Results of Operation--Liquidity and Capital
Resources," the total amount of the Amended Credit Facility may be increased to
$1.5 billion. In addition, the Company is currently considering seeking
alternative sources of film financing. The degree to which the Company is
leveraged may require it to dedicate a substantial portion of its cash flow to
the payment of principal of, and interest on, its indebtedness, reducing the
amount of cash flow available to fund film and television production and other
operating expenses. Additionally, the degree to which the Company is leveraged
may adversely affect its ability to obtain additional financing, if necessary,
for such operating expenses, to compete effectively against competitors with
greater financial resources, to withstand downturns in its business or the
economy generally and to pursue strategic acquisitions and other business
opportunities that may be in the best interests of the Company and its
stockholders.

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.

12
<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 recognized over the entire revenue stream
expected to be 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 at least through the end of 1999, 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 competing films
released into the marketplace at or near the same time, the availability of
alternative forms of entertainment and leisure time activities, general
economic conditions and other tangible and intangible factors, all of which can
change and cannot be predicted with certainty. Further, the theatrical success
of a motion picture is generally a key factor in generating revenues from other
distribution channels. There is a substantial risk that some or all of the
Company's motion pictures will not be commercially successful, resulting in
costs not being recouped or anticipated profits not being realized.

Television production and distribution is also highly speculative and
inherently risky. The success of the Company's television production and
distribution business is affected by some of the same factors described above
and may also be impacted by prevailing advertising rates, which are subject to
fluctuation. Thus, there is a substantial risk that some or all of the
Company's television projects will not be commercially successful, resulting in
costs not being recouped or anticipated profits not being realized. See "The
Industry" and "Business--Production," "--Distribution" and "--Competition."

In the ordinary course of business the Company may from time to time be subject
to claims or litigation to defend against alleged infringement of the rights of
others or to determine the scope and validity of the intellectual property
rights of others. If material, such claims or litigation could be costly and
divert management's attention. Adverse determinations in such litigation could
result in the loss of the Company's proprietary rights, subject the Company to
significant liabilities, or require the Company to seek licenses from third
parties, any one of which could have a material adverse effect on the Company's
business and results of operations. Except for the possible effect of the
matter discussed in the second paragraph of "--Risks Associated with the James
Bond Films and Third Party Relationships," the Company does not believe that
any such claims or litigation that are currently pending or threatened will
have a material adverse effect on the Company's business or results of
operations.

Substantial Production and Marketing Costs. The production and marketing of
theatrical motion pictures requires substantial capital. The costs of producing
and marketing motion pictures have generally increased in recent years.
According to the Motion Picture Association of America ("MPAA"), the average
direct negative cost (which includes all costs associated with creating a
motion picture, including pre-production, production and post-production, but
excluding capitalized overhead and interest, marketing and distribution costs)
of a motion picture produced by one of the major studios has grown from
$23.5 million in 1989 to $53.4 million in 1997, an increase of 127 percent, and
the average domestic marketing cost per picture has grown from $9.2 million in
1989 to $22.3 million in 1997, an increase of 142 percent. These costs may
continue to increase in the future, thereby increasing the costs to the Company
of its motion pictures. Production costs and marketing 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,

13
<PAGE>

television and foreign markets. The direct negative costs of the motion
pictures produced by the Company (other than its specialty motion pictures)
released (and scheduled for release) in 1998 and the first six months of 1999
are estimated to range between $15 million and $65 million, with an average of
$32 million. The Company's investment in the specialty motion pictures released
(and scheduled for release) in 1998 and the first six months of 1999 are
estimated to range between $0.5 and $4.8 million, with an average of $2.0
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 (other than with respect to its specialty
motion pictures). 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 typically
production costs are higher and the license fees for domestic first run
programming cover 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 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
currently is producing a series for network television. 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, 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
(although the Company does intend to pre-sell such rights with respect to
certain of its other motion pictures). 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. The Company has re-established its full schedule of motion picture
releases for the balance of 1998 and the first half of 1999. See "--Curtailment
of Certain Operations Due to Sale of Company." However, no assurances can be
given that any of the pictures scheduled for release in the rest of 1998 or the
first half of 1999 will be released as scheduled, and there can be no assurance
that any pictures produced 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, talent availability and the
release schedule of competitive motion pictures. The Company's ability to meet
its production and release goals will also depend in part on its ability to
identify and obtain sufficient amounts of quality material and attract desired
talent. See "Business--Production--Motion Picture Production."

CERTAIN LIMITATIONS ON THE EXPLOITATION OF THE LIBRARY

14
<PAGE>

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 variable 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 Orion's 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 Orion, 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. A cross-section of the titles in the Library is
subject to one or more such licenses, 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 approximately 25 percent of the Orion
titles, which have been licensed in one or more of France, Spain, Germany and
the United Kingdom. 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 and cash flow 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."

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 65, 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 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

15
<PAGE>

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 Inc. ("Sony Pictures") 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. On November 17, 1997, the Company and
Danjaq filed an action in federal court in Los Angeles against Sony
Corporation, Sony Pictures, Columbia Pictures Industries, Inc. ("Columbia"),
John Calley, Kevin McClory and Spectre Associates, Inc. ("Spectre") seeking
declaratory and injunctive relief and/or damages for copyright infringement,
trademark dilution, slander of title, unfair competition, inducing breach of
contract and breach of fiduciary duties, and misappropriation of trade secrets.
On January 23, 1998, the Company and Danjaq filed an amended complaint adding
claims for trademark infringement, federal unfair competition and California
trademark dilution. Among other things, the Company and Danjaq contend not only
that Mr. McClory's rights were limited to remaking Thunderball but that even
those rights have expired under U.S. law pursuant to the doctrine of Stewart v.
Abend, 495 U.S. 207 (1990) and that Mr. McClory's rights have been recently
acquired by Danjaq. On May 19, 1998, the Company and Danjaq filed a motion for
preliminary injunction on the copyright and trademark issues to preclude Sony
Pictures from preparation, production, distribution, advertising or other
exploitation of a James Bond motion picture. On July 29, 1998, that motion was
granted and Sony Pictures, Columbia and the other defendants were preliminarily
enjoined from the production, preparation, distribution, advertising or other
exploitation of a James Bond motion picture in any medium and from using the
"James Bond" and the "James Bond 007" trademarks. Trial on this matter has been
set for December 15, 1998. The Company believes that another remake of
Thunderball by Mr. McClory, Sony Pictures 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 Pictures 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--Motion Picture and Television Library" and "Legal Proceedings."

The Company generally distributes its motion pictures in theatrical markets
outside of the United States and Canada through United International Pictures
B.V. ("UIP"), a partnership owned equally by the Company, Paramount Pictures
Corporation ("Paramount") and Universal Studios, Inc. ("Universal"). In 1989,
the European Commission granted UIP an exemption from Article 85(1) of the
Treaty of Rome. UIP filed an application seeking renewal of such exemption
prior to its expiration in 1993. On January 16, 1998, the Competition
Directorate of the Commission of the European Communities issued a Statement of
Objections which indicates that, although a final decision has not been taken,
the Commission is of the opinion that the 1989 exemption should not be extended
and that UIP should therefore be required to cease operations in the European
Union. UIP responded to the Statement of Objections on May 15, 1998 and a
hearing has been scheduled before the European Commission in late September
1998. 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 ceases or reduces
operations, or if one of the other partners withdraws for any reason, the
Company believes that it will be able to find or develop satisfactory
alternative methods for international distribution, although such alternative
methods may result in decreased revenues or profitability. See "Business--
Distribution--Theatrical Distribution" and "--Regulation."

RISKS RELATING TO ACQUISITIONS

The Company may consider strategic acquisitions as opportunities arise (subject
to the receipt of any necessary financing). 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 any
acquisitions that have been or may be completed by the Company or with the
integration of an acquired company's operations with those of the Company, and
there can be no assurance that the anticipated benefits of any acquisitions
that have been or will be completed by the Company will be achieved.

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 non-U.S. 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, results of operations and cash flows. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business-- Regulation."

16
<PAGE>

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, have greater financial and other
resources than the Company. Further, 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 and cash flows
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

Depending upon the number of shares purchased by others, upon completion of the
Rights Offering, the Tracinda Group will beneficially own between approximately
percent and approximately percent of the outstanding Common Stock. As a
result, the Tracinda Group, will continue to be the Company's single largest
stockholder. In the aggregate, the Tracinda Group, the directors and officers
of the Company and affiliates thereof will beneficially own at least percent
of the Common Stock after completion of the Rights Offering. See "Ownership of
Voting Securities."

The Common Stock does not have cumulative voting rights and, since Tracinda
will continue to own greater than 50 percent of the outstanding Common Stock
after the issuance of Shares pursuant to the Rights Offering, Tracinda will
have the ability to elect the entire Board of Directors of the Company, subject
to the agreement discussed immediately below. Tracinda and Mr. Mancuso have
agreed to vote all of the shares of the Common Stock beneficially owned by them
and take any necessary or desirable action within their control so that the
Board of Directors of the Company consists of nine 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), two of whom are nominated by the Chief Executive Officer of the
Company (one of whom shall be Mr. Mancuso so long as he serves as the Chief
Executive Officer of the Company), and three "independent directors," of which
there currently is one, who are nominated by a 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 and otherwise meet the requirements of the
NYSE for serving as independent directors; provided, however, that Tracinda is
only obligated to vote for nominees selected by the Board of Directors of the
Company who are acceptable to Tracinda. The Board of Directors of the Company
may determine to reduce the size of the Board of Directors to eight persons, in
which case the number of independent directors will be reduced to two. The
foregoing agreement to vote will remain in effect until November 2012. In
addition to electing directors, Tracinda, on its own or together with
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. See "Ownership of Voting Securities--Investors Shareholder
Agreement."

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."

17
<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

Upon consummation of the Rights Offering and the exercise in full of the
Rights, the Company will have approximately shares of the Common Stock
outstanding. The Shares acquired upon the exercise of the Rights will be freely
transferable under the Securities Act, except for Shares acquired by Tracinda
or other "affiliates," as that term is defined under the Securities Act, which
will be subject to certain limitations on resale. Of the 65,797,840 shares
outstanding as of July 1, 1998, 56,765,655 shares are "restricted securities"
within the meaning of Rule 144 ("Rule 144") promulgated under the Securities
Act and 59,205,380 shares are held by "affiliates." These shares, together with
any Shares acquired by Tracinda or any other affiliate pursuant to the Rights
Offering, 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," is
entitled to sell, within any three-month period, a number of "restricted" or
"affiliate" shares that does not exceed the greater of one percent of the then
outstanding shares of the Common Stock (approximately shares immediately
after the Rights 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
restricted 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.

In addition, as of July 1, 1998 the Company has granted outstanding employee
stock options to purchase an aggregate of 7,534,252 shares of the Common Stock,
has granted stock options to each of Tracinda and Celsus (a financial advisor
to Seven) to purchase 156,251 shares of the Common Stock, respectively, and has
authorized the issuance of up to 100,000 shares of the Common Stock to non-
employee Directors. See "Management--Incentive and Bonus Plans" and
"Management--Director Compensation." Furthermore, Tracinda, Mr. Mancuso and
certain other holders of the Common Stock or 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, (which registration rights have
been waived with respect to the Rights Offering). See "Ownership of Voting
Securities--Shareholders Agreement." No predictions can be made as to the
effect, if any, that public sales of shares of the Common Stock or the
availability of shares of the Common Stock 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."

CERTAIN OFFERING CONSIDERATIONS

No Revocation; Cancellation of Rights Offering. Once a Holder has exercised its
Rights such exercise may not be revoked. If the conditions precedent to the
Rights Offering are not satisfied or if the Company elects to withdraw the
Rights Offering, the Rights Offering will be cancelled and neither the Company
nor the Subscription Agent will have any obligation with respect to the Rights
except to return, without interest, any payment received by the Subscription
Agent in respect of the Subscription Price. See "The Rights Offering."

Absence of Public Market for Rights; Determination of Subscription Price. There
has been no prior market for the Rights and no assurance can be given that a
market will develop or, if a market develops, that it will continue. The market
price for the Rights may be subject to significant fluctuations. The
Subscription Price will be determined by the Board of Directors and the Special
Committee and will represent a discount to the market price of the Common Stock
on the date of this Prospectus. However, there can be no assurance that the
market price of the Common Stock will not decline during or after the Rights
Offering or that a subscribing Holder will be able to sell Shares purchased in
the Rights Offering at a price equal to or greater than the Subscription Price.
Certificates representing Shares will be delivered as soon as practicable after
the Expiration Date. Until such certificates are delivered, subscribing Holders
may not be able to sell Shares they have purchased in the Rights Offering. No
interest will be paid to Holders on funds delivered to the Subscription Agent
pursuant to the exercise of Rights pending delivery of Shares or return of such
funds. See "The Rights Offering."

Dilution. A Holder who does not exercise its Basic Subscription Privilege in
full will experience a decrease in such Holder's proportionate interest in the
equity ownership of the Company. The sale of Rights may not compensate a Holder
for all or any part of the reduction in the market value of such Holder's
shares of Common Stock, if any, resulting from the Rights Offering.
Stockholders who do not exercise or sell their Rights will relinquish any value
inherent in the Rights. Holders exercising Rights will incur immediate and
substantial dilution in net tangible book value per share of the Common Stock
from the Subscription Price. See "Dilution."

18
<PAGE>

BACKGROUND OF THE COMPANY

Metro-Goldwyn-Mayer ("Old MGM") was established in 1924 through the merger of
Metro Pictures, Goldwyn Pictures and Louis B. Mayer Productions. A corporation
wholly owned by Mr. Kerkorian became Old MGM's controlling shareholder in 1969.
In 1981 Old MGM acquired UA, which had been formed in 1919 when Mary Pickford,
Douglas Fairbanks, D.W. Griffith and Charlie Chaplin joined forces to release
their own motion pictures, as well as motion pictures made by independent
producers. In 1986 Turner acquired the businesses of Old MGM, and as part of
that transaction, Tracinda (and certain of the former stockholders of Old MGM)
concurrently acquired UA, including the UA library, from Old MGM. Shortly
thereafter, UA reacquired the Metro-Goldwyn-Mayer name and logo and certain
other assets from Turner. UA was then renamed MGM/UA Communications Co.
("MGM/UA"). Turner retained the film library created through the pre-1986
operations of Old MGM (the "Old MGM Library").

In November 1990 MGM/UA was acquired by Pathe Communications Corporation
("Pathe") and was renamed MGM-Pathe Communications Co., the predecessor to MGM
Studios ("MGM-Pathe"). In May 1992 Credit Lyonnais Bank Nederland N.V.
("CLBN"), Pathe's principal lender, foreclosed on substantially all of the
stock of MGM-Pathe following default by Pathe, and such stock was ultimately
transferred to CDR.

In July 1993 Frank G. Mancuso was appointed as Chairman and Chief Executive
Officer of MGM Studios. In January 1996 CDR announced its intention to sell MGM
Studios.

Tracinda, Seven and senior management of MGM Studios formed the Company (then
known as P&F Acquisition Corp.) to acquire all of the outstanding capital stock
of MGM Studios and its subsidiaries, including UA, in October 1996 pursuant to
the MGM Acquisition. Tracinda is wholly-owned by Mr. Kerkorian.

In July 1997 the Company acquired all of the outstanding capital stock of Orion
and its subsidiaries, including Goldwyn, from Metromedia International Group,
Inc. 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 Landmark Theatres owned by
Goldwyn were excluded from the Orion Acquisition.

On November 18, 1997, the Company completed the IPO, whereby it issued and sold
9,000,000 new shares of the Common Stock for net proceeds (after expenses of
the IPO) to the Company of approximately $165 million. Concurrent with the
consummation of the IPO, Tracinda consummated the Tracinda Purchase for an
aggregate purchase price of $75 million. In addition, Tracinda acquired an
aggregate of 2,429,263 shares of the Common Stock through open market purchases
following commencement of the IPO through the date of this Prospectus.

Pursuant to the Tracinda/Seven Purchase Agreement, the Tracinda Group
purchased, on September 1, 1998, 16,208,463 shares of the Common Stock from
Seven, representing all of the capital stock of the Company held by Seven for a
price per share of $24 and an aggregate purchase price of $389 million.

19
<PAGE>

USE OF PROCEEDS

The aggregate net proceeds to the Company from the sale of Shares upon exercise
of the Rights offered hereby are estimated to be approximately $494 million,
after deducting offering expenses payable by the Company. It is currently
anticipated that all of the net proceeds will be used to repay any indebtedness
outstanding under the Bridge Loan and, thereafter, 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 August 31, 1998, the outstanding balance under the revolving portion of the
Amended Credit Facility was $517.0 million. As the Company's current business
plan anticipates substantial continued borrowing, some or all of the amounts
repaid under the Amended Credit Facility out of the net proceeds are expected
to be reborrowed by the Company, subject to compliance with the terms of the
facility. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources" and "Financing
Arrangements."

PRICE RANGE OF COMMON STOCK

The Common Stock has been listed on the NYSE since November 13, 1997 (stock
symbol--MGM). The following table sets forth for the quarters indicated the
high and low composite per share closing sales prices as reported by the NYSE.

<TABLE>
<S> <C> <C>
------------------
<CAPTION>
HIGH LOW
-------- ---------
<S> <C> <C>
1997
Fourth Quarter.............................................. $21 7/8 $19 3/8
1998
First Quarter............................................... 24 1/2 17 1/2
Second Quarter.............................................. 27 21 1/2
Third Quarter (through September 9, 1998)................... 22 3/16 14
</TABLE>

The last reported sales price of the Common Stock on the NYSE on September 10,
1998 was $15 5/16 per share. As of June 30, 1998, there were in excess of 2,000
beneficial holders.

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). The Company has not paid any dividends since 1996. 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 Amended Credit Facility contains 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.

20
<PAGE>

CAPITALIZATION

The following table sets forth the consolidated capitalization of the Company
as of June 30, 1998, (i) on a historical basis, and (ii) as adjusted to give
effect to the Rights Offering and the sale of all the Shares as if the
foregoing had occurred as of June 30, 1998 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, 1998
ACTUAL AS ADJUSTED
In thousands ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
DEBT:
Amended Credit Facility:
Term loans................................... $ 700,000 $ 700,000
Revolving credit facility.................... 445,000(1) --
Other borrowings............................... 13,304 13,304
---------- ----------
Total debt................................... 1,158,304 713,304
---------- ----------
STOCKHOLDERS' EQUITY:
Common Stock, $.01 par value per share,
125,000,000 shares authorized; 65,797,840
shares issued and outstanding; as adjusted,

shares issued and outstanding................. 658
Additional paid-in capital..................... 1,506,315
Deficit........................................ (201,585) (201,585)
Accumulated other comprehensive income......... 911 911
---------- ----------
Total stockholders' equity................... 1,306,299 1,800,299
---------- ----------
Total capitalization......................... $2,464,603 $2,513,603
========== ==========
</TABLE>
- ---------

(1) As of August 31, the amount outstanding under the revolving credit facility
was $517 million.

21
<PAGE>

DILUTION

The net tangible book value of the Company as of June 30, 1998 was
approximately $738 million, or $11.22 per share (based on 65,797,840 shares of
the Common Stock outstanding as of June 30, 1998). Net tangible book value per
share is determined by dividing the tangible net worth of the Company (total
assets (excluding goodwill) less total liabilities) by the number of shares
outstanding. Without taking into account any changes in such net tangible book
value after June 30, 1998, other than to give effect to the sale of the
Shares at a price of $ per share, the net tangible book value of the Company
as of June 30, 1998 would have been approximately $ million, or $ per share
(based on 65,797,840 shares of the Common Stock outstanding as of June 30,
1998, plus the Shares issued in the Rights Offering). This represents an
immediate increase in the net tangible book value of $ per share for each
share of Common Stock outstanding prior to the completion of the Rights
Offering and an immediate dilution of $ per share for shares of Common Stock
issued in the Rights Offering. Dilution is determined by subtracting the net
tangible book value per share after the Rights Offering from the Subscription
Price per share. The following table illustrates this per share dilution.

<TABLE>
<S> <C> <C>
Subscription Price per share(1).......................................
Net tangible book value per share before Rights Offering(2).......... 11.22
Increase per share attributable to the exercise of the Rights........
-----
Net tangible book value per share after Rights Offering...............
---
Dilution per share for Shares issued upon exercise of the Rights(2)...
---
</TABLE>
- ---------
(1) Prior to deducting expenses of the Rights Offering to be paid by the
Company.

(2) Based on 65,797,840 shares of the Common Stock outstanding as of June 30,
1998 and assuming no exercise of outstanding stock options. As of July 1, 1998,
there were options outstanding to purchase a total of 7,846,754 shares of the
Common Stock at exercise prices ranging from $6.41 to $24.00. See "Management--
Incentive and Bonus Plans" and "Ownership of Voting Securities."

22
<PAGE>

THE RIGHTS OFFERING

THE RIGHTS

The Company is issuing Rights to each Record Date Holder as of the close of
business on the Record Date at no charge to the Record Date Holders. Record
Date Holders will receive Rights for each share of the Common Stock held on
the Record Date. The Rights will be evidenced by transferable Subscription
Warrants, which are being distributed to each Record Date Holder
contemporaneously with the delivery of this Prospectus. Upon execution of a
Subscription Warrant, each Rights Holder will agree that the exercise of Rights
will be made on the terms and subject to the conditions specified in this
Prospectus.

The number of Rights issued to each Record Date Holder will be rounded up to
the nearest whole Right. No fractional Rights or cash in lieu thereof will be
issued or paid. No Subscription Warrant may be divided in such a way as to
permit the Rights Holder to receive a greater number of Rights than the number
to which such Subscription Warrant entitles its Holder. However, a depository,
bank, trust company or securities broker or dealer holding shares of the Common
Stock on the Record Date for more than one beneficial owner may, upon proper
showing to the Subscription Agent, exchange its Subscription Warrant to obtain
a Subscription Warrant for the number of Rights to which all such beneficial
owners in the aggregate would have been entitled had each been a Record Date
Holder on the Record Date.

SUBSCRIPTION PRIVILEGES

Basic Subscription Privilege. Each whole Right will entitle the Rights Holder
to purchase one Share at the Subscription Price. In the aggregate, a maximum of
Shares may be purchased pursuant to the Public's Basic Subscription
Privilege.

Oversubscription Privilege. Each Holder (other than the Tracinda Group) who
exercises the Basic Subscription Privilege in full will also be eligible to
subscribe, at the Subscription Price, for additional Shares (subject to
proration, as described below) to the extent that any Shares ("Excess Shares")
are not subscribed for pursuant to exercises under the Public's Basic
Subscription Privilege. If the number of Excess Shares is not sufficient to
satisfy all subscriptions pursuant to exercises of the Oversubscription
Privilege, the Excess Shares will be allocated pro rata (subject to the
elimination of fractional shares) among those Holders who have exercised the
Oversubscription Privilege, in proportion to the number of Shares each such
Holder has purchased pursuant to the Basic Subscription Privilege. Only Holders
who exercise the Basic Subscription Privilege in full with respect to all
Rights held by such Holders on the Expiration Date will be entitled to exercise
the Oversubscription Privilege. For purposes of determining if a Holder has
fully exercised the Basic Subscription Privilege, only Basic Subscription
Privileges held by the Holder in the same capacity will be considered. For
example, a Holder holding shares of the Common Stock as an individual need not
fully exercise all Basic Subscription Privileges received in respect of shares
of the Common Stock held jointly with the Holder's spouse or in respect of
shares of the Common Stock held in an individual retirement account. By
completing the portion of the Subscription Warrant exercising the
Oversubscription Privilege, a Holder will be deemed to have certified that it
has fully exercised all Basic Subscription Privileges received in respect of
shares of the Common Stock held in the same capacity (other than the Basic
Subscription Privileges under any Rights so received which have been
transferred by such Holder). A Holder's election to exercise the
Oversubscription Privilege must be made at the time such Holder exercises the
Basic Subscription Privilege in full.

In order to exercise the Oversubscription Privilege, banks, brokers and other
nominee Holders who exercise the Oversubscription Privilege on behalf of
beneficial owners of Rights will be required to certify (a "Nominee Holder
Certification") to the Subscription Agent and the Company the number of shares
held on the Record Date on behalf of each such beneficial owner of Rights, the
number of Rights as to which the Basic Subscription Privilege has been
exercised on behalf of each such beneficial owner, that each such beneficial
owner's Basic Subscription Privilege held in the same capacity has been
exercised in full and the number of Shares subscribed for pursuant to the
Oversubscription Privilege by each such beneficial owner, and to record certain
other information received from each such beneficial owner.

SUBSCRIPTION PRICE

The Subscription Price is $ per Share subscribed for (whether pursuant to the
Basic Subscription Privilege or the Oversubscription Privilege), payable in
cash.

EXPIRATION TIME AND DATE

The ability of Holders to exercise the Basic Subscription Privilege and the
Oversubscription Privilege will expire at 5:00 p.m., New York City time, on ,
1998, unless extended by the Company, in its sole discretion, but in any event
no

23
<PAGE>

later than , 1998. Rights not exercised prior to the Expiration Time will
expire and such Rights will no longer be exercisable by any Holder. The Company
will not be obligated to honor any purported exercise of Rights by Holders
received by the Subscription Agent after the Expiration Time, regardless of
when the documents relating to that exercise were sent, except pursuant to the
Guaranteed Delivery Procedures described below.

PRINCIPAL STOCKHOLDERS

As of the Record Date, the Tracinda Group beneficially owned approximately 90
percent of the outstanding Common Stock, and will thus receive Rights to
subscribe for Shares in the Rights Offering. The Tracinda Group has agreed
to exercise its Basic Subscription Privilege with respect to all of the Rights
distributed to it (subject to certain conditions). See "--Conditions of Rights
Offering." The Tracinda Group has also agreed to purchase any Unsubscribed
Shares pursuant to the Standby Agreement. The Tracinda Group may be deemed an
underwriter for purposes of the Securities Act.

Depending upon the number of Shares purchased by others, upon the completion of
the Rights Offering, the percentage of the outstanding shares of Common Stock
beneficially owned by the Tracinda Group, collectively, will range from
approximately percent to approximately percent.

STANDBY AGREEMENT

The Tracinda Group has agreed to purchase, at the Subscription Price, any
Unsubscribed Shares, subject to certain conditions. See "--Conditions to the
Rights Offering." The Company has agreed to pay or reimburse the Tracinda Group
for all out-of-pocket fees and expenses reasonably incurred by the Tracinda
Group in connection with its performance under the Standby Agreement and the
Rights Offering (including reasonable fees and expenses of legal counsel).

EXERCISE OF RIGHTS

Holders may exercise their Rights by delivering to the Subscription Agent, at
the address specified below, at or prior to the Expiration Time, the properly
completed and executed Subscription Warrant(s) evidencing those Rights, with
any signatures guaranteed as required, together with payment in full of the
Subscription Price for each Share subscribed for pursuant to the Basic
Subscription Privilege and the Oversubscription Privilege. Payment in full must
be made by (i) check or bank draft drawn upon a United States bank, or postal,
telegraphic or express money order, payable to ChaseMellon Shareholder Services
LLC as Subscription Agent, or (ii) by wire transfer of funds to the account
maintained by the Subscription Agent for the purpose of accepting subscriptions
at The Chase Manhattan Bank, New York, NY, ABA No. 021 000 021, Attention:
ChaseMellon Shareholder Services Reorg. Account: 323-213057 (Metro-Goldwyn-
Mayer Inc.). The Subscription Price will be deemed to have been received by the
Subscription Agent only upon (i) clearance of an uncertified check, (ii)
receipt by the Subscription Agent of a certified or cashier's check or bank
draft drawn upon a United States bank or of a postal, telegraphic or express
money order or (iii) receipt of collected funds in the Subscription Agent's
account designated above.

Funds paid by uncertified personal check may take at least five business days
to clear. Accordingly, Holders who wish to pay the Subscription Price by means
of uncertified personal check are urged to make payment sufficiently in advance
of the Expiration Time to ensure that the payment is received and clears by
that time, and are urged to consider in the alternative payment by means of
certified or cashier's check, money order or wire transfer of funds.

If a Holder wishes to exercise Rights, but time will not permit the Holder to
cause the Subscription Warrant(s) evidencing those Rights to reach the
Subscription Agent prior to the Expiration Time, the Rights may nevertheless be
exercised if all of the following conditions (the "Guaranteed Delivery
Procedures") are met:

(i) the Holder has caused payment in full of the Subscription Price for
each Share being subscribed for pursuant to the Basic Subscription
Privilege and, if applicable, the Oversubscription Privilege to be received
(in the manner set forth above) by the Subscription Agent at or prior to
the Expiration Time;

(ii) the Subscription Agent receives, at or prior to the Expiration Time, a
guarantee notice (a "Notice of Guaranteed Delivery") substantially in the
form provided with the Instructions as to Use of Subscription Warrants (the
"Instructions") distributed with the Subscription Warrants, from a member
firm of a registered national securities exchange or a member of the
National Association of Securities Dealers, Inc. ("NASD"), or from a
commercial bank or trust company having an office or correspondent in the
United States (each, an "Eligible Institution"), stating the name of the
exercising Holder, the number of Rights represented by the Subscription
Warrant(s) held by the exercising Holder, the number of Shares being
subscribed for pursuant to the Basic Subscription Privilege and, if any,

24
<PAGE>

pursuant to the Oversubscription Privilege and guaranteeing the delivery to
the Subscription Agent of the Subscription Warrant(s) evidencing those
Rights (and, if applicable for a nominee Holder, the related Nominee Holder
Certification) within five NYSE trading days following the date of the
Notice of Guaranteed Delivery; and

(iii) the properly completed Subscription Warrant(s) (and, if applicable
for a nominee Holder, the related Nominee Holder Certification), with any
signatures guaranteed as required, is received by the Subscription Agent
within three NYSE trading days following the date of the Notice of
Guaranteed Delivery relating thereto. The Notice of Guaranteed Delivery may
be delivered to the Subscription Agent in the same manner as Subscription
Warrants at the address set forth above, or may be delivered by telegram or
facsimile transmission (telecopier no. (201) 296-4293). To confirm
facsimile deliveries, please call (201) 496-4860. Additional copies of the
form of Notice of Guaranteed Delivery are available upon request from the
Subscription Agent, whose addresses and telephone numbers are set forth
under "--Subscription Agent" below.

If an exercising Holder does not indicate the number of Rights being exercised,
or does not forward full payment of the aggregate Subscription Price for the
number of Rights that the Holder indicates are being exercised, then the Holder
will be deemed to have exercised the Basic Subscription Privilege with respect
to the maximum number of Rights that may be exercised for the aggregate
Subscription Price payment delivered by the Holder, and to the extent that the
aggregate Subscription Price payment delivered by the Holder exceeds the
product of the Subscription Price multiplied by the number of Rights evidenced
by the Subscription Warrants delivered by the Holder (such excess being the
"Subscription Excess"), the Holder will be deemed to have exercised the
Oversubscription Privilege to purchase that number of whole Shares equal to the
quotient obtained by dividing the Subscription Excess by the Subscription Price
(subject to proration, as described above). Any amount remaining after
application of the foregoing procedures shall be returned to the Holder as soon
as practicable by mail without interest or deduction.

A Holder who subscribes for fewer than all of the Shares represented by its
Subscription Warrants may, under certain circumstances, (i) direct the
Subscription Agent to attempt to sell its remaining Rights, or (ii) receive
from the Subscription Agent a new Subscription Warrant representing the unused
Rights. See "--Method of Transferring Rights" below. A Holder's election to
exercise its Oversubscription Privilege must be made at the time such Holder
exercises its Basic Subscription Privilege in full.

Unless a Subscription Warrant (i) provides that the Shares to be issued
pursuant to the exercise of the Rights represented thereby are to be issued to
the registered Holder of such Rights as indicated in the Subscription Warrant
or (ii) is submitted for the account of an Eligible Institution, signatures on
each Subscription Warrant must be guaranteed by a bank, broker, dealer, credit
union, national securities exchange, registered securities association,
clearing agency or savings association.

Record Date Holders who hold shares of the Common Stock for the account of
others, such as brokers, trustees or depositories for securities (a "Nominee
Record Date Holder"), should contact the respective beneficial owners of such
shares as soon as possible to ascertain those beneficial owners' intentions and
to obtain instructions and certain beneficial owner certifications with respect
to their Rights, all as included in the Instructions distributed by Nominee
Record Date Holders to beneficial owners. If a beneficial owner so instructs,
the Nominee Record Date Holder should complete appropriate Subscription
Warrants, and, in the case of any exercise of the Oversubscription Privilege,
the related Nominee Holder Certification, and submit them to the Subscription
Agent with the proper payment. In addition, beneficial owners of the Common
Stock or Rights held through such a Nominee Record Date Holder should contact
the Nominee Record Date Holder and request the Nominee Record Date Holder to
effect transactions in accordance with the beneficial owner's instructions.

The Instructions accompanying the Subscription Warrants should be read
carefully and followed in detail. Subscription Warrants should be sent with
payment to the Subscription Agent. DO NOT SEND SUBSCRIPTION WARRANTS TO THE
COMPANY.

The method of delivery of Subscription Warrants and payment of the Subscription
Price to the Subscription Agent will be at the election and risk of the Holder.
If Subscription Warrants and payments are sent by mail, Holders are urged to
send these materials by registered mail, properly insured, with return receipt
requested, and are urged to allow a sufficient number of days to ensure
delivery to the Subscription Agent and clearance of payment prior to the
Expiration Time. Because uncertified personal checks may take at least five
business days to clear, Holders are strongly urged to pay, or arrange for
payment, by means of certified or cashier's check, money order or wire transfer
of funds.

25
<PAGE>

All questions concerning the timeliness, validity, form and eligibility of any
exercise of Rights will be determined by the Company, whose determinations will
be final and binding. The Company, in its sole discretion, may waive any defect
or irregularity, or permit a defect or irregularity to be corrected within such
time as it may determine, or reject the purported exercise or any Right because
of any defect or irregularity. Subscription Warrants will not be deemed to have
been received or accepted until all irregularities have been waived or cured
within such time as the Company determines, in its sole discretion. Neither the
Company nor the Subscription Agent will be under any duty to give notification
of any defect or irregularity in connection with the submission of Subscription
Warrants or any other required document or incur any liability for failure to
give such notification. The Company reserves the right to reject any exercise
if such exercise is not in accordance with the terms of Rights Offering or not
in proper form or if the acceptance thereof or the issuance of shares of Common
Stock pursuant thereto could be deemed unlawful or materially burdensome. See
"--Regulatory Limitation" below.

Any questions or requests for assistance concerning the method of exercising
Rights or requests for additional copies of this Prospectus, the Instructions,
the Nominee Holder Certification or the Notice of Guaranteed Delivery should be
directed to ChaseMellon Shareholder Services, L.L.C., at 450 W. 33rd Street,
14th Floor, New York, New York 10001 (telephone: banks and brokers (212) 273-
8080, collect; all others (800) ).

NO REVOCATION

Once a Rights Holder has exercised the Basic Subscription Privilege or the
Oversubscription Privilege, the exercise may not be revoked.

METHOD OF TRANSFERRING RIGHTS

It is anticipated that the Rights will be listed on the NYSE and may be
purchased or sold through usual investment channels until the close of business
on the last trading day prior to the Expiration Date. There has, however, been
no prior trading in the Rights, and no assurance can be given that a trading
market will develop or, if a market develops, that the market will remain
available throughout the subscription period.

The Rights evidenced by a single Subscription Warrant may be transferred in
whole by endorsing the Subscription Warrant for transfer in accordance with the
accompanying Instructions. A portion of the Rights evidenced by a single
Subscription Warrant (but not fractional Rights) may be transferred by
delivering to the Subscription Agent a Subscription Warrant properly endorsed
for transfer, with instructions to register that portion of the Rights
indicated therein in the name of the transferee and to issue a new Subscription
Warrant to the transferee evidencing the transferred Rights. In that event, a
new Subscription Warrant evidencing the balance of the Rights will be issued to
the Holder or, if the Holder so instructs, to an additional transferee, or will
be sold by the Subscription Agent in the manner described below upon
appropriate instruction from the Holder.

The Rights evidenced by a Subscription Warrant may also be sold, in whole or in
part, through the Subscription Agent by delivering to the Subscription Agent
the Subscription Warrant properly executed for sale by the Subscription Agent.
If only a portion of Rights evidenced by a single Subscription Warrant is to be
sold by the Subscription Agent, that Subscription Warrant must be accompanied
by instructions setting forth the action to be taken with respect to the Rights
that are not to be sold. Promptly following the Expiration Date, the
Subscription Agent will send the Holder a check for the net proceeds from the
sale of any Rights sold. If such Rights can be sold, the sale shall be deemed
to have been effected at the weighted average sale price of all Rights sold by
the Subscription Agent, less the pro rata portion of any applicable brokerage
commissions, taxes and other expenses. No assurance, however, can be given that
a market will develop for the Rights or that the Subscription Agent will be
able to sell any Rights. Orders to sell Rights must be received by the
Subscription Agent at or prior to 11:00 a.m., New York City time, on , 1998.
The Subscription Agent's obligation to execute orders is subject to its ability
to find buyers. If the Rights cannot be sold by the Subscription Agent by 5:00
p.m. New York City time, on , 1998, they will be returned promptly by mail to
the Holder.

Holders wishing to transfer all or a portion of their Rights (but not
fractional Rights) should allow a sufficient amount of time prior to the
Expiration Time for (i) the transfer instructions to be received and processed
by the Subscription Agent, (ii) new Subscription Warrants to be issued and
transmitted and (iii) the Rights evidenced by the new Subscription Warrants to
be exercised or sold by the recipients thereof. Such amount of time could range
from two to ten business days, depending upon the method by which delivery of
the Subscription Warrants and payment is made and the number of transactions
which the Holder instructs the Subscription Agent to effect. Neither the
Company nor the Subscription Agent shall have any liability to a transferee or
transferor of Rights if Subscription Warrants or any other required documents
are not received in time for exercise or sale prior to the Expiration Time.

26
<PAGE>

A new Subscription Warrant will be issued to a submitting Holder upon the
partial exercise or sale of Rights only if the Subscription Agent receives a
properly endorsed Subscription Warrant no later than 5:00 p.m., New York City
time, on the fifth day prior to the Expiration Date. No new Subscription
Warrants will be issued with respect to Subscription Warrants submitted after
such time and date. Accordingly, after such time and date a Holder exercising
or selling less than all of its Rights will lose the power to sell or exercise
its remaining Rights. If the Rights have ceased trading on a when-issued basis,
a new Subscription Warrant will be sent by first class mail to the submitting
Holder if the Subscription Agent receives the properly completed Subscription
Warrant by 5:00 p.m., New York City time, on the seventh business day before
the Expiration Date. In such case, unless the submitting Holder makes other
arrangements with the Subscription Agent, a new Subscription Warrant issued
after 5:00 p.m., New York City time, on the fifth business day before the
Expiration Date will be held for pick-up by the submitting Holder at the
Subscription Agent's hand delivery address provided herein. All deliveries of
newly issued Subscription Warrants will be at the risk of the submitting
Holder. All commissions, fees and other expenses (including brokerage
commissions and transfer taxes) incurred in connection with the purchase, sale
or exercise of Rights will be for the account of the transferor of the Rights,
and none of such commissions, fees or expenses will be paid by the Company or
the Subscription Agent.

THOSE RIGHTS NOT EXERCISED BY A HOLDER PRIOR TO THE EXPIRATION TIME WILL EXPIRE
AND WILL NO LONGER BE EXERCISABLE.

PROCEDURES FOR DTC PARTICIPANTS

It is anticipated that the Rights will be eligible for transfer through, and
that the exercise of the Basic Subscription Privilege (but not the
Oversubscription Privilege) may be effected through, the facilities of The
Depository Trust Company ("DTC"). Rights exercised as part of the Basic
Subscription Privilege through DTC are referred to as "DTC Exercised Rights." A
Holder of DTC Exercised Rights may exercise the Oversubscription Privilege in
respect thereof by properly executing and delivering to the Subscription Agent,
at or prior to the Expiration Time, a DTC Participant Oversubscription Exercise
Form and a Nominee Holder Certification, together with payment of the
appropriate Subscription Price for the number of Shares for which the
Oversubscription Privilege is to be exercised. Copies of the DTC Participant
Oversubscription Exercise Form and the Nominee Holder Certification may be
obtained from the Subscription Agent.

SUBSCRIPTION AGENT

The Subscription Agent is ChaseMellon Shareholder Services, LLC.

The Subscription Agent's address, which is the address to which the
Subscription Warrants and payment of the Subscription Price must be delivered,
as well as the address to which Nominee Holder Certifications and Notices of
Guaranteed Delivery and DTC Participant Oversubscription Exercise Forms (each
as described herein) must be delivered, is:

<TABLE>
<S> <C> <C>
IF BY MAIL: IF BY HAND: IF BY OVERNIGHT COURIER:
ChaseMellon Shareholder ChaseMellon Shareholder ChaseMellon Shareholder
Services, L.L.C. Services, L.L.C. Services, L.L.C.
85 Challenger Road--Mail Drop--
Post Office Box 3301 120 Broadway, 13th Floor Reorg
South Hackensack, NJ 07606 New York, New York 10271 Ridgefield Park, NJ 07660
Attn: Reorganization Department Attn: Reorganization Department Attn: Reorganization Department
</TABLE>

The Subscription Agent's telephone number is (800) .

The Company will pay the fees and expenses of the Subscription Agent (except
for fees, applicable brokerage commissions, taxes and other expenses relating
to the sale of Rights by the Subscription Agent, all of which will be for the
account of the transferor of the Rights) and has also agreed to indemnify the
Subscription Agent against certain liabilities that it may incur in connection
with the Rights Offering.

APPROVAL OF THE RIGHTS OFFERING

As a result of the factors mentioned in "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources," the Board of Directors of the Company, at a meeting on July 22,
1998, approved the raising of $250 million of additional equity capital. The
Board of Directors also appointed Mr. Francis Ford Coppola, the independent
member of the Board of Directors, as the Special Committee to review the
advisability of proceeding with the Rights Offering in light of the financing
alternatives available to the Company.

27
<PAGE>

The Special Committee retained Hambrecht & Quist as its independent financial
advisor and Brobeck, Phleger & Harrison LLP as its independent legal counsel.
On July 29, 1998, after receiving advice from its advisors and considering
various factors and alternatives, the Special Committee approved the Rights
Offering, subject to the full Board of Directors also approving the Rights
Offering and subject to the Special Committee and a pricing committee of the
Board of Directors approving the specific terms of the Rights Offering. The
full Board of Directors also approved the Rights Offering on July 29, 1998. On
August 19, 1998, the Special Committee (subject to approval of the full Board
of Directors) and the full Board of Directors approved an increase in the size
of the Rights Offering to $500 million.

Some of the factors considered by the Board of Directors and the Special
Committee include: the capital requirements of the Company; the advice of J.P.
Morgan Securities Inc., as financial advisor to the Company, as well as
Hambrecht & Quist, the independent financial advisor to the Special Committee;
strategic alternatives available to the Company for the raising of capital; the
market price of the Common Stock, both before and after the announcement of
equity offering; the business prospects for the Company; and the general
condition of the securities markets.

DETERMINATION OF SUBSCRIPTION PRICE

The Subscription Price will be determined by the Board of Directors, subject to
the approval of the Special Committee, and will represent a discount to the
market price of a share of the Common Stock on the date of this Prospectus.
Factors to be considered by the Board and the Special Committee in determining
the Subscription Price will include those described under "--Approval of the
Rights Offering." There can be no assurance that the market price for the
Common Stock during the Rights Offering will be equal to or above the
Subscription Price, or that, following the issuance of the Rights and of the
Shares upon an exercise of the Rights, a subscribing Holder will be able to
sell Shares purchased in the Rights Offering at a price equal to or greater
than the Subscription Price.

NO RECOMMENDATION TO HOLDERS

An investment in the Common Stock must be made pursuant to each investor's
evaluation of its, his or her best interests. Accordingly, none of the Board of
Directors of the Company, the Special Committee, the Dealer Managers, Hambrecht
& Quist or the Tracinda Group makes any recommendation to Holders regarding
whether they should exercise their Rights.

FOREIGN AND CERTAIN OTHER STOCKHOLDERS

Subscription Warrants will not be mailed to Record Date Holders whose addresses
are outside the United States or who have an APO or FPO address, but will be
held by the Subscription Agent for such Holders' accounts. To exercise their
Rights, such Holders must notify the Subscription Agent prior to 11:00 a.m.,
New York City time, on , 1998, at which time (if no contrary instructions
have been received) the Rights represented thereby will be sold, subject to the
Subscription Agent's ability to find a purchaser. Any such sales will be deemed
to be effected at the weighted average sale price of all Rights sold by the
Subscription Agent. See "The Rights Offering--Method of Transferring Rights."
If the Rights can be sold, a check for the proceeds from the sale of any
Rights, less a pro rata portion of any applicable brokerage commissions, taxes
and other expenses, will be remitted to such Holders by mail. The proceeds, if
any, resulting from sales of Rights pursuant to the Basic Subscription
Privilege of Holders whose addresses are not known by the Subscription Agent or
to whom delivery cannot be made will be held in a non-interest bearing account.
Any amount remaining unclaimed on the second anniversary of the Expiration Date
will be turned over to the Company.

REGULATORY LIMITATION

The Company will not be required to issue Shares pursuant to the Rights
Offering to any Holders who in the opinion of the Company would be required to
obtain prior clearance or approval from any state or federal regulatory
authorities to own or control such Shares if, at the Expiration Time, this
clearance or approval has not been obtained.

EFFECT OF RIGHTS OFFERING ON STOCK OPTIONS OF THE COMPANY

The number of shares of Common Stock subject to, and the per share exercise
price of, the various outstanding stock options issued by the Company (and the
aggregate number of shares reserved under the Company's various stock incentive
plans) will not be adjusted in connection with the Rights Offering.

WITHDRAWAL

The Company reserves the right to withdraw the Rights Offering at any time
prior to the Effective Time and for any reason, in which event all funds
received from Holders will be returned without interest.

28
<PAGE>

ISSUANCE OF COMMON STOCK

Certificates representing Shares purchased pursuant to the Rights Offering will
be issued to subscribers as soon as practicable after the Expiration Date.
Funds delivered to the Subscription Agent in payment of the Subscription Price
shall be retained by the Subscription Agent, and will not be delivered to the
Company, until the consummation of the Rights Offering and the issuance of such
certificates. If a Holder exercising the Oversubscription Privilege is
allocated less than all of the Shares which such Holder subscribed for pursuant
to the Oversubscription Privilege, the excess funds paid by such Holder will be
returned to such Holder as soon as practicable after the Expiration Date. No
interest will be paid to Holders on funds paid to the Subscription Agent,
regardless of whether such funds are applied to the Subscription Price or
returned to the Holders. Holders will have no rights as stockholders of the
Company with respect to Shares subscribed for until certificates representing
such Shares are issued to them. Unless otherwise instructed in the Subscription
Warrant, certificates for Shares issued pursuant to the exercise of Rights will
be registered in the name of the Holder exercising such Rights.

CONDITIONS TO THE RIGHTS OFFERING

The Rights Offering will not be consummated unless the Amendments to the
Amended Credit Facility are obtained. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources." In addition, the purchase of Shares by the Tracinda Group
pursuant to its Basic Subscription Privilege, as well as the purchase by the
Tracinda Group of Unsubscribed Shares under the Standby Agreement, are
conditions to consummation of the Rights Offering. The Standby Agreement
provides that the obligation of the Tracinda Group to purchase Unsubscribed
Shares is subject to certain conditions, including the condition that there
shall have been no material adverse change in or affecting the business,
prospects, financial position, stockholders' equity or results of operations of
the Company except to the extent any such changes result from changes in
general economic conditions or the decline in prices of stocks generally
(collectively, the "Tracinda Closing Conditions"). The obligations of the
Tracinda Group to purchase Shares pursuant to its Basic Subscription
Privilege is also subject to the Tracinda Closing Conditions.

If the Amendments are not obtained by the Expiration Time, or if the Tracinda
Group does not purchase Shares pursuant to its Basic Subscription Privilege
and purchase the Unsubscribed Shares, the Subscription Agent will promptly
return, without interest, all funds received by it in payment of the
Subscription Price.

29
<PAGE>

SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated financial data of the Company (including its
predecessor) presented below for each of the years ended December 31, 1993
through 1995, the period from January 1 to October 10, 1996, the period from
October 11 to December 31, 1996 and the year ended December 31, 1997 have been
derived from the audited Consolidated Financial Statements of the Company. The
audited Consolidated Financial Statements of MGM Studios for the period from
January 1 through October 10, 1996 and the Company for the period from October
11 to December 31, 1996 and for the year ended December 31, 1997 were audited
by Arthur Andersen LLP, independent public accountants. The audited
Consolidated Financial Statements of MGM Studios for the years ended December
31, 1995 and 1994 were audited by PricewaterhouseCoopers LLP, independent
accountants. The audited Consolidated Financial Statements of MGM Studios for
the year ended December 31, 1993 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, 1997 and 1998 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, 1998 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.

30
<PAGE>

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
(PREDECESSOR) (SUCCESSOR)
------------------------------------------------ --------------------------------------------------
In thousands, except YEAR ENDED DECEMBER 31, JANUARY 1 TO OCTOBER 11 TO YEAR ENDED SIX MONTHS ENDED
share and per share OCTOBER 10, DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30,
data 1993 1994 1995 1996 1996(3) 1997(3) 1997(3) 1998(3)
--------- --------- --------- ------------ ------------- ------------ --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA
Revenues............ $ 538,887 $ 597,121 $ 860,971 $ 912,706 $ 228,686 $ 831,302 $ 351,014 $ 597,661
Expenses:
Feature films and
television
distribution....... 700,134 668,516 894,280 953,820 195,076 799,539 317,912 571,780
General corporate
administration
expenses........... 75,745 49,314 64,175 60,056 18,319 87,644 35,140 50,651
Goodwill
amortization....... 14,876 14,876 14,876 11,570 1,717 11,230 3,821 6,922
Provision for
impairment......... -- -- -- 563,829(2) -- -- -- --
--------- --------- --------- --------- ----------- ----------- --------- ---------
790,755 732,706 973,331 1,589,275 215,112 898,413 356,873 629,353
--------- --------- --------- --------- ----------- ----------- --------- ---------
Operating income
(loss)............. (251,868) (135,585) (112,360) (676,569) 13,574 (67,111) (5,859) (31,692)
Interest expense,
net of amounts
capitalized........ (87,472) (33,860) (66,386) (71,375) (9,875) (53,105) (20,599) (38,428)
Interest and other
income, net........ 1,020 2,070 10,372 3,179 813 2,447 1,388 1,745
--------- --------- --------- --------- ----------- ----------- --------- ---------
Income (loss) from
continuing
operations before
provision for
income taxes....... (338,320) (167,375) (168,374) (744,765) 4,512 (117,769) (25,070) (68,375)
Provision for income
taxes.............. (6,725) (3,877) (935) (273) (4,346) (10,345) (3,935) (5,262)
--------- --------- --------- --------- ----------- ----------- --------- ---------
Income (loss) from
continuing
operations......... $(345,045) $(171,252) $(169,309) $(745,038) $ 166 $ (128,114) $ (29,005) $ (73,637)
========= ========= ========= ========= =========== =========== ========= =========
Earnings (loss) per
share:
Basic.............. $ .01 $ (4.47) $ (1.73) $ (1.12)
Diluted............ $ .00 $ (4.47) $ (1.73) $ (1.12)
OTHER OPERATING DATA
(UNAUDITED)
Cash flow from
operating
activities......... $ 80,455 $ 216,289 $ 371,657 $ 343,137 $ 61,328 $ 245,318 $ 160,056 $ 247,213
Cash flow from
investing
activities......... (253,371) (464,031) (710,812) (380,142) (1,390,861) (1,290,022) (280,604) (495,349)
Cash flow from
financing
activities......... 182,704 239,965 328,029 44,852 1,345,394 1,028,784 124,678 267,794
EBITDA(/1/)......... (222,118) (103,499) (81,588) (87,289) 16,709 (49,098) 1,198 (20,848)
Capital
expenditures....... 15,578 9,099 9,376 6,901 2,079 9,555 5,294 7,119
Depreciation
expense............ 2,999 5,335 4,021 4,645 1,418 6,783 3,236 3,922

<CAPTION>
-----------------------------------------------------------------------------------------------------
(PREDECESSOR) (SUCCESSOR)
------------------------------------------------ --------------------------------------------------
AS OF
AS OF DECEMBER 31, OCTOBER 10, AS OF DECEMBER 31, AS OF JUNE 30,
1993 1994 1995 1996 1996(3) 1997(3) 1997(3) 1998(3)
--------- --------- --------- ------------ ------------- ------------ --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
In thousands
BALANCE SHEET DATA
Cash and cash
equivalents........ $ 36,773 $ 28,797 $ 17,128 $ 24,717 $ 16,381 $ 3,978 $ 20,255 $ 23,512
Film and television
costs, net......... 1,343,931 1,412,607 1,565,438 1,006,402 1,099,201 1,867,126 1,263,073 1,993,093
Total assets........ 2,142,562 2,235,622 2,440,254 1,744,234 1,774,668 2,822,654 1,806,574 2,947,816
Bank and other debt. 555,915 876,866 1,217,316 1,229,499 444,427 890,508 566,258 1,158,304
Stockholders'
equity............. 984,607 829,059 659,499 -- 903,122 1,378,555 876,708 1,306,299
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 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) 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.
(3) Financial data presented for periods subsequent to October 10, 1996 reflect
the effect of the MGM Acquisition on the consolidated results of operations and
from July 11, 1997 include the results of operations resulting from the Orion
Acquisition.

31
<PAGE>

UNAUDITED PRO FORMA FINANCIAL INFORMATION

The following unaudited pro forma condensed statement of operations for the
year ended December 31, 1997 gives effect to the Orion Acquisition as if it had
occurred on January 1, 1997.

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 Orion's principal credit facility.

The unaudited pro forma condensed statement of operations is based on the
historical financial statements of the Company for the year ended December 31,
1997, including the results of operations of Orion from July 10, 1997, the date
of the Orion Acquisition, and Orion for the period from January 1, 1997 through
July 10, 1997 and the assumptions and adjustments described in the accompanying
notes. The Company believes that the assumptions on which the unaudited pro
forma condensed statement of operations is based are reasonable. The unaudited
pro forma condensed statement of operations is 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 condensed statement of
operations should be read in conjunction with the Consolidated Financial
Statements and the related notes thereto for the Company and Orion, included
elsewhere in this Prospectus.

32
<PAGE>

METRO-GOLDWYN-MAYER INC.

UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS

YEAR ENDED DECEMBER 31, 1997

<TABLE>
<CAPTION>
------------------------------------------------------------------
ORION
COMPANY ORION OPERATIONS NOT PRO FORMA
HISTORICAL HISTORICAL ACQUIRED(1) ADJUSTMENTS PRO FORMA
---------- ---------- -------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
In thousands, except
share and per share data
REVENUES................ $ 831,302 $ 99,574 $(28,793) $ -- $ 902,083
OPERATING EXPENSES
Film and television
production and
distribution........... 799,539 104,932 (22,804) (17,518)(2) 864,149
General corporate
administration expense. 87,644 21,964 (4,869) -- 104,739
Goodwill amortization... 11,230 2,368 -- 1,549 (3) 15,147
---------- -------- ---------- -------- ----------
Total operating
expenses.............. 898,413 129,264 (27,673) (15,969) 984,035
---------- -------- ---------- -------- ----------
Operating loss.......... (67,111) (29,690) (1,120) 15,969 (81,952)
NON-OPERATING INCOME AND
EXPENSE
Interest expense, net of
amounts capitalized ... (53,105) (10,844) 412 (1,741)(4) (65,278)
Interest and other
income, net............ 2,447 -- -- -- 2,447
---------- -------- ---------- -------- ----------
Total non-operating
income (expense)...... (50,658) (10,844) 412 (1,741) (62,831)
---------- -------- ---------- -------- ----------
Loss before taxes....... (117,769) (40,534) (708) 14,228 (144,783)
(Provision) benefit for
income taxes........... (10,345) (509) 9 -- (10,845)
---------- -------- ---------- -------- ----------
Net loss................ $(128,114) $(41,043) $ (699) $ 14,228 $(155,628)
========== ======== ========== ======== ==========
Pro forma loss per
share(5)............... $ (4.47) $ (2.86)
========== ==========
Pro forma weighted
average number of
common shares
outstanding(5)......... 28,634,362 54,458,427
========== ==========
</TABLE>

33
<PAGE>

METRO-GOLDWYN-MAYER INC.

NOTES TO UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS

DECEMBER 31, 1997

(1) To eliminate the Landmark Theatre operations not acquired in the Orion
Acquisition.
(2) To adjust film cost amortization for new basis in the Orion film library.
The revaluation of the Orion film 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 Orion film library were
revised accordingly, resulting in an amortization period not to exceed 20
years.
(3) To adjust goodwill amortization from the historical amortization period of
25 years to the pro forma amortization period of 40 years.
(4) To adjust interest expense to reflect the application of the $360 million
equity contribution made as part of the Orion Acquisition.
(5) Computes loss per share as if the Orion Acquisition and the conversion in
connection with the IPO of all outstanding shares of the Company's preferred
stock occurred as of the beginning of the period presented.

34
<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, results of operations and cash flows. 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 any of the periods presented herein. Deferred gains and losses on
foreign exchange contracts as of June 30, 1998 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.

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. See "Risk Factors--Risks of Motion Picture and
Television Production."

35
<PAGE>

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 at
least through the end of 1999.

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 film or television program recognizes a substantial portion of its
ultimate revenues within the first two years of release. By then, a film 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, and a television program
has been exploited on network television or in first-run syndication. A similar
portion of the film's or television program's capitalized costs should be
expected to be amortized accordingly, assuming the film or television program
is profitable.

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 at least through the end of 1999,
and thus the fluctuations caused by this accounting method may have a greater
impact, than otherwise might be the case.

36
<PAGE>

RESULTS OF OPERATIONS

Six Months Ended June 30, 1998 Compared to Six Months Ended June 30, 1997

The following table sets forth the Company's operating results for the six
months ended June 30, 1998 and 1997. Prior year results are not comparable to
results in the current year periods due to the acquisition of Orion on July 10,
1997.
<TABLE>
<CAPTION>
------------------------
SIX MONTHS ENDED JUNE 30,
1998 1997
In thousands --------- ---------
(UNAUDITED)
<S> <C> <C>
Revenues:
Feature films.......................................... $471,297 $296,197
Television programs.................................... 105,839 47,914
Other.................................................. 20,525 6,903
--------- ---------
Total revenues........................................ $597,661 $351,014
========= =========
Operating income (loss):
Feature films.......................................... $ 18,103 $ 48,546
Television programs.................................... 9,417 (3,215)
Other.................................................. (1,639) (12,229)
General and administration expenses.................... (50,651) (35,140)
Goodwill amortization.................................. (6,922) (3,821)
--------- ---------
Operating loss.......................................... (31,692) (5,859)
Interest expense, net of amounts capitalized............ (38,428) (20,599)
Interest and other income (expense), net................ 1,745 1,388
--------- ---------
Loss before provision for income taxes.................. (68,375) (25,070)
Income tax provision.................................... (5,262) (3,935)
--------- ---------
Net loss................................................ $(73,637) $(29,005)
========= =========
</TABLE>

Feature Films. Feature film revenues increased by $175.1 million, or 59
percent, to $471.3 million in the six months ended June 30, 1998 (the "1998
Period") compared to the six months ended June 30, 1997 (the "1997 Period").
Explanations for the increase in revenues are discussed in the following
paragraphs.

Worldwide theatrical revenues increased by $170.7 million to $184.2 million in
the 1998 Period due to significant worldwide theatrical revenues earned by
Tomorrow Never Dies and The Man In The Iron Mask, as well as the release in the
domestic theatrical marketplace of Species 2 and Dirty Work, among others. In
the 1997 Period, the Company released Turbulence, Zeus and Roxanne, Warriors of
Virtue and Touch in the domestic marketplace, and had no other significant
worldwide theatrical revenues. Overall, in the 1998 Period the Company released
eight new feature films domestically and three new films internationally, as
compared to four films released domestically and no new films in initial
release internationally in the 1997 Period.

Worldwide home video revenues decreased by $2.1 million, or 1 percent, to
$177.2 million in the 1998 Period, which included the release in the domestic
rental market of Tomorrow Never Dies, Red Corner and Hoodlum, among others, as
compared to the release of Kingpin and Fled in the domestic rental market in
the 1997 Period as well as the sell-through release of Larger Than Life.
Although domestic home video revenues increased due to the significant revenues
generated by the release of Tomorrow Never Dies as well as the distribution in
the 1998 Period of the Orion library, which was not distributed in the 1997
Period as the Company did not acquire Orion until July 10, 1997, international
home video revenues were lower in the 1998 Period due to fewer new home video
releases internationally than in the 1997 Period, which included significant
revenues from the releases of GoldenEye, Get Shorty and The Birdcage, among
others.

Worldwide pay television revenues from feature films decreased by $5.3 million,
or 11 percent, to $44.4 million in the 1998 Period, primarily due to the
delivery in the 1997 Period of The Birdcage in the domestic marketplace. There
were no comparable releases in the 1998 Period. Network television revenues
from feature films decreased by $3.0 million, or 24 percent, to $9.3 million in
the 1998 Period, principally due to the delivery of only three new films to
network television in the 1998 Period as compared to five new films delivered
in the 1997 Period. Worldwide syndicated television revenues from feature films
increased by $9.0 million, or 22 percent, to $50.5 million in the 1998 Period
principally due to higher international library sales and from the distribution
of the Orion film library in the 1998 Period.

37
<PAGE>

Other feature film revenues increased $5.8 million in the 1998 Period due to
miscellaneous rebates and other income collected in the period.

Operating income from feature films decreased by $30.5 million, or 63 percent,
to $18.1 million in the 1998 Period as compared to the 1997 Period. The
decrease in operating results in the 1998 Period reflects feature film write-
downs on certain releases of $33.6 million, partially offset by the profit from
the films Tomorrow Never Dies and The Man In The Iron Mask. There were no
feature film write-downs in the corresponding 1997 Period.

Television Programming. Television programming revenues increased by $57.9
million, or 121 percent, to $105.8 million in the 1998 Period as compared to
the 1997 Period. Network television revenues were $24.6 million in the 1998
Period, consisting of the deliveries of the new series The Magnificent Seven,
the television miniseries Creature and one made-for-television movie. There
were no series or television movies on network television in the 1997 Period.
Worldwide pay television revenues increased by $2.5 million, or 17 percent, to
$17.5 million in the 1998 Period, which included three series in broadcast on
domestic pay television, The Outer Limits, Poltergeist and Stargate SG-1, as
compared to two series, The Outer Limits and Poltergeist, and one made-for-
television movie in the 1997 Period. Worldwide syndicated television revenues
increased by $19.8 million, or 74 percent, to $46.5 million in the 1998 Period,
primarily due to the addition of the new series Stargate SG-1 and Fame LA in
worldwide syndication, and the licensing of the international rights to
Creature. Worldwide home video revenues with respect to television programming
increased by $3.8 million, or 77 percent, to $8.9 million in the 1998 Period
due to the domestic home video release of Garth Brooks Live In Concert and the
television movie Twelve Angry Men, as well as the international home video
release of Stargate SG-1. The remaining television programming revenue increase
of $7.2 million was principally related to a payment received from a third
party for the rights to create new episodes of Hollywood Squares.

Operating income from television programming increased by $12.6 million, or 393
percent, to $9.4 million in the 1998 Period as compared to a loss of $3.2
million in the 1997 Period. The increase in operating results in the 1998
Period was principally a result of the aforementioned increase in revenues and
the receipt of the Hollywood Squares remake rights payment, partially offset by
write-downs of $4.6 million on certain television programming released in the
period.

Other. Other revenues include distribution of consumer products, interactive
media and branded programming services, all of which constitute emerging
businesses for MGM Studios with relatively limited current operations, as well
as music soundtrack and royalty income. The Company recognized an operating
loss from other businesses of $1.6 million in the 1998 Period as compared to a
loss of $12.2 million in the 1997 Period. Operating results in the 1998 Period
include the receipt of a $10.0 million payment associated with the Company's
sale of a portion of its investment in a Japanese pay television channel.
Expenses in the 1998 Period include interactive product and development costs
of $8.2 million, as compared to similar costs of $7.3 million in the 1997
Period. In addition, the 1998 Period includes aggregate losses of $5.8 million
on the Company's investment in MGM Gold (Asia), a satellite and cable delivered
channel based in Asia whose operations were terminated in April 1998, and the
Company's newly launched cable programming joint venture MGM Networks Latin
America, as compared to $5.6 million for such start-up losses in the 1997
Period. Music soundtrack and royalty income in the 1998 Period aggregated $2.8
million as compared to $2.0 million in the 1997 Period, respectively.

General and Administration Expenses. General and administration expenses
increased by $15.5 million, or 44 percent, to $50.7 million in the 1998 Period
as compared to the 1997 Period, primarily due to increased legal and
professional fees of $6.4 million related to ongoing litigation, executive
severance expenses of $2.6 million and additional overhead charges of $1.0
million associated with the Orion Acquisition, with no corresponding overhead
charges in the 1997 Period. Additionally, the 1997 Period benefited from
certain insurance recoveries of $3.3 million. There were no such recoveries in
the 1998 Period.

Goodwill Amortization. Goodwill amortization increased by $3.1 million, or
81 percent, to $6.9 million in the 1998 Period as compared to the 1997 Period
as a result of higher goodwill due to the Orion Acquisition.

Interest Expense, Net of Amounts Capitalized. Net interest expense increased by
$17.8 million, or 87 percent, to $38.4 million in the 1998 Period as compared
to the 1997 Period, primarily due to higher debt levels associated with the
financing of the Orion Acquisition, as well as borrowings for increased
operating activities.

Income Tax Provision. The income tax provision of $5.3 million in the 1998
Period and $3.9 million in the 1997 Period primarily reflect foreign remittance
taxes attributable to international distribution revenues.

38
<PAGE>

Year Ended December 31, 1997 Compared to Year Ended December 31, 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. Furthermore, the Company
completed the Orion Acquisition and has consolidated its results of operations
from the July 10, 1997 acquisition date. Consequently, operating results for
the year ended December 31, 1997 are not comparable to the corresponding 1996
period. For purposes of presentation and 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, 1997.

The following table sets forth the Company's operating results for the year
ended December 31, 1997 and the periods from January 1, 1996 to October 10,
1996 and from October 11, 1996 to December 31, 1996.

<TABLE>
<CAPTION>
------------------------------------------------------
(SUCCESSOR) (PREDECESSOR) (SUCCESSOR) (COMBINED)
PERIOD FROM PERIOD FROM
YEAR ENDED JANUARY 1, TO OCTOBER 11, TO YEAR ENDED
DECEMBER 31, OCTOBER 10, DECEMBER 31, DECEMBER 31,
1997 1996 1996 1996
In thousands ------------ ------------- -------------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Feature films.......... $ 699,219 $ 815,460 $209,354 $1,024,814
Television programs.... 114,200 82,315 14,413 96,728
Other.................. 17,883 14,931 4,919 19,850
---------- ---------- ---------- -----------
Total revenues........ $ 831,302 $ 912,706 $228,686 $1,141,392
========== ========== ========== ===========
Operating income (loss):
Feature films.......... $ 65,509 $ (54,268) $ 37,140 $ (17,128)
Television programs.... (7,201) 11,412 (4,062) 7,350
Other.................. (26,545) 1,742 532 2,274
General and
administration
expenses.............. (87,644) (60,056) (18,319) (78,375)
Goodwill amortization.. (11,230) (11,570) (1,717) (13,287)
Provision for
impairment............ -- (563,829) -- (563,829)
---------- ---------- ---------- -----------
Operating income (loss). (67,111) (676,569) 13,574 (662,995)
Interest expense, net of
amounts capitalized.... (53,105) (71,375) (9,875) (81,250)
Interest and other
income, net............ 2,447 3,179 813 3,992
---------- ---------- ---------- -----------
Income (loss) before
provision for income
taxes.................. (117,769) (744,765) 4,512 (740,253)
Income tax provision.... (10,345) (273) (4,346) (4,619)
---------- ---------- ---------- -----------
Net income (loss)....... $(128,114) $(745,038) $ 166 $ (744,872)
========== ========== ========== ===========
</TABLE>

Feature Films. Feature film revenues decreased by $325.6 million, or 32
percent, to $699.2 million in the year ended December 31, 1997 compared to the
year ended December 31, 1996. Explanations for the decrease in revenues are
discussed in the following paragraphs.

Worldwide theatrical revenues decreased by $149.5 million, or 59 percent, to
$102.9 million in 1997 due to relatively limited worldwide theatrical
distribution activity following the sale of the Company on October 10, 1996. In
1997, the Company released 15 new feature films domestically and two films
internationally, as compared to 13 films released domestically and eight films
internationally in 1996. In 1997 the Company released Hoodlum, Red Corner and
Tomorrow Never Dies, which was initially released in December 1997 and will
earn a significant portion of its theatrical revenues in 1998. Of the remaining
1997 releases, seven films were produced by Orion and six of these were
released in limited distribution only. In 1996, the Company earned
significantly higher worldwide theatrical revenues from GoldenEye, The
Birdcage, Leaving Las Vegas and Get Shorty.

39
<PAGE>

Worldwide home video revenues decreased by $244.6 million, or 41 percent, to
$350.4 million in 1997, which included the domestic releases of Kingpin and
Fled in the rental market, as well as the releases of Larger Than Life, The
Birdcage and Warriers of Virtue in the sell-through markets. In 1996
significant home video revenues were realized from the releases of GoldenEye,
The Birdcage, Get Shorty, Leaving Las Vegas and Showgirls in the rental market,
as well as the release of All Dogs Go To Heaven 2 and promotions of the James
Bond and Rocky film series in the sell-through market.

Worldwide pay television revenues increased by $13.5 million, or 14 percent, to
$107.6 million in 1997, primarily due to the availability of The Birdcage,
Kingpin and Fled, among other films, in the domestic pay television market as
well as significant international pay television license fees recognized for
GoldenEye, The Birdcage and Species. In 1996, the Company realized domestic pay
television revenues for GoldenEye, Get Shorty and Species, among others, but
earned significantly less in international pay television markets than in 1997.
Network television revenues increased $13.2 million to $14.7 million in 1997,
which included license fees recognized on the films Stargate, Blown Away,
Getting Even With Dad and Speechless, among others. Worldwide syndicated
television revenues increased $41.8 million, or 51 percent, to $123.6 million
in 1997 principally due to the acquisition of the Orion film library on July
10, 1997, which contributed syndication revenues of $22.7 million in the
period, as well as international syndication license fees recognized for Blown
Away, Getting Even With Dad and Rob Roy, among others.

Operating income from feature films was $65.5 million in 1997 as compared to a
loss of $17.1 million in 1996. The 1997 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 1996. Additionally, there were feature film write-downs of $38.1 million in
1997 with respect to certain theatrical releases in that period as compared to
$82.5 million in write-downs on certain theatrical releases in 1996.

Television Programming. Television programming revenues increased by $17.5
million, or 18 percent, to $114.2 million in 1997 as compared to 1996.
Worldwide pay television revenues increased by $6.4 million, or 25 percent, to
$32.3 million in 1997 due to the delivery of the new series Stargate SG-1 and
the television movie Twelve Angry Men. Worldwide syndicated television revenues
increased by $4.0 million, or 7 percent, to $60.9 million in 1997 due to
additional episodes of The Outer Limits and Poltergeist in domestic
syndication, and the release of the new series Fame LA. Worldwide home video
revenues with respect to television programming increased in 1997 by $4.9
million, or 40 percent, to $16.9 million due to the release of Babes in Toyland
in the domestic home video marketplace, partially offset by generally reduced
video revenues from other television movies in the period. The remaining
revenue increase in 1997 of $2.2 million principally related to higher network
and licensing income.

The Company recognized an operating loss from television programming of $7.2
million in 1997 as compared to operating income of $7.4 million in 1996.
Amortization expense on current series increased in 1997 due to loss reserves
recognized on The Bradshaw Difference, which has been cancelled, and on the new
series Fame LA.

Other. Other revenues include distribution of consumer products, interactive
media and branded programming services, all of which constitute emerging
businesses for MGM Studios with relatively limited current operations. The
Company recognized an operating loss from other businesses of $26.5 million in
1997 as compared to operating income of $2.3 million in 1996. The 1997 results
included interactive product and development costs of $16.8 million, as
compared to interactive costs of only $9.1 million in 1996. In addition, the
1997 results include start-up losses of $11.8 million on the Company's
investment in MGM Gold (Asia), a satellite and cable delivered channel based in
Asia in which the Company holds a 50 percent equity interest, and $2.4 million
of start-up costs associated with the Company's launch of the service, MGM Gold
(Brazil). There were no such start-up losses or costs in the 1996 period.

General and Administration Expenses. General and administration expenses
increased by $9.3 million, or 12 percent, to $87.6 million in 1997 as compared
to 1996, primarily as a result of the Orion Acquisition, which added overhead
charges of $6.7 million (including non-recurring overhead of approximately $4.0
million) from the July 10, 1997 acquisition date, and the accrual of long-term
management incentive and other bonuses of $15.5 million. In 1996 the Company
accrued long-term management incentive bonuses of $12.6 million.

Goodwill Amortization. Goodwill amortization decreased by $2.1 million, or 15
percent, to $11.2 million in 1997 compared to 1996 due to the revaluation of
the Company's assets and liabilities pursuant to purchase accounting in
connection with the MGM Acquisition on October 10, 1996, which resulted in
lower goodwill than previously carried in the balance sheet.

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 predecessor company (i.e. MGM

40
<PAGE>

Studios) recorded a charge of $563.8 million during 1996 to write-off certain
intangible assets in connection with CDR's disposition of its ownership
interest, 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 was $53.1
million in 1997 as compared to $81.3 million in 1996. Net interest expense
decreased in 1997 due to the substantial equity investments received by the
Company in connection with the MGM Acquisition, the IPO and the Tracinda
Purchase, and correspondingly lower debt levels, as well as increased
capitalization associated with increased film production in the period.

Income Tax Provision. The income tax provision of $10.3 million in 1997
reflects primarily foreign remittance taxes attributable to international
distribution revenues. The income tax provision of $4.6 million in 1996
reflects foreign remittance taxes attributable to international distribution
revenues, net of the reversal of certain tax reserves of approximately $14.0
million no longer required, and tax expense on net profits in the post-MGM
Acquisition period. The Company does not anticipate any further substantial
reversals of tax reserves.

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 PREDECESSOR
JANUARY 1, TO OCTOBER 11, TO YEAR ENDED YEAR ENDED
OCTOBER 10, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1996 1996 1995
In thousands ------------- -------------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Feature films.......... $ 815,460 $209,354 $1,024,814 $ 736,152
Television programs.... 82,315 14,413 96,728 90,231
Other.................. 14,931 4,919 19,850 34,588
---------- ----------- ----------- ----------
Total revenues........ $ 912,706 $228,686 $1,141,392 $ 860,971
========== =========== =========== ==========
Operating income (loss):
Feature films.......... $ (54,268) $ 37,140 $ (17,128) $ (82,059)
Television programs.... 11,412 (4,062) 7,350 22,928
Other.................. 1,742 532 2,274 25,822
General and
administration
expense............... (60,056) (18,319) (78,375) (64,175)
Goodwill amortization.. (11,570) (1,717) (13,287) (14,876)
Provision for
impairment............ (563,829) -- (563,829) --
---------- ----------- ----------- ----------
Operating income (loss). (676,569) 13,574 (662,995) (112,360)
Interest expense, net of
amounts capitalized.... (71,375) (9,875) (81,250) (66,386)
Interest and other
income, net............ 3,179 813 3,992 10,372
---------- ----------- ----------- ----------
Income (loss) before
provision for income
taxes.................. (744,765) 4,512 (740,253) (168,374)
Income tax provision.... (273) (4,346) (4,619) (935)
---------- ----------- ----------- ----------
Net income (loss)....... $(745,038) $ 166 $ (744,872) $(169,309)
========== =========== =========== ==========
</TABLE>

Feature Films. Feature film revenues increased by $288.7 million, or 39
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 significant 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

41
<PAGE>

marketplace. In 1996 the Company earned significant revenues from the domestic
theatrical releases of The Birdcage and Leaving Las Vegas as compared to
GoldenEye, Get Shorty and Species in 1995. Internationally, the Company earned
significant revenues from GoldenEye, Get Shorty and The Birdcage as compared to
GoldenEye, Species and Rob Roy in 1995.

Worldwide home video revenues increased by $262.3 million, or 79 percent, to
$595.1 million in 1996. In 1996, home video revenues included the domestic
rental releases of GoldenEye, The Birdcage, Get Shorty and Leaving Las Vegas as
well as the sell-through release of All Dogs Go To Heaven 2. In 1995 the
Company released Species, Rob Roy and Speechless in the domestic rental
marketplace, as well as Pebble and the Penguin in the domestic sell-through
market. The increase in home video revenue in 1996 reflected the strong
performance of titles released in the period, as well as the substantial
increase in the number of titles released as compared to 1995. The Company
released 15 new feature films in the home video market in 1996 as compared to
nine new feature films in 1995. Additionally, revenues earned under the
Company's distribution agreement 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.

The Company recognized an operating loss from feature films of $17.1 million in
1996 as compared to a loss of $82.1 million in 1995. The improvement in the
operating results in 1996 reflects the aforementioned substantial increase in
revenues and a higher operating margin in the 1996 post-MGM Acquisition period,
which benefited from the lower amortization rates due to the revaluation of the
Library under purchase accounting. 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.

Operating income from television programming decreased by $15.6 million, or 68
percent, to $7.4 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 lower amortization on revenues from the television library of older
series in 1995.

Other. Other revenues include distribution of consumer products, interactive
media and branded programming services, all of which constitute emerging
businesses with relatively limited current operations. Operating income from
other businesses was $2.3 million in 1996 as compared to $25.8 million in 1995.
The 1996 results included interactive product and development costs of $9.1
million. The 1995 results did not include comparable activity in this new
business. Operating results from other businesses in 1995 included payments
received in connection with an Australian pay television joint venture and an
audit settlement with a major distributor.

General and Administration Expenses. General and administration expenses
increased by $14.2 million, or 22 percent, to $78.4 million in 1996 compared to
1995 primarily due to increased executive compensation of $5.4 million,
increased accrual of long-term management incentive bonuses of $2.6 million,
higher legal and professional fees of $2.0 million, increased depreciation of
$2.0 million, and a net increase in various other items of $2.2 million.

42
<PAGE>

Goodwill Amortization. Goodwill amortization decreased by $1.6 million, or 11
percent, to $13.3 million in 1996 compared to 1995 due to the revaluation of
the Company's assets and liabilities pursuant to purchase accounting in
connection with the MGM Acquisition on October 10, 1996, which resulted in
lower goodwill than previously carried in the balance sheet.

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. Net interest and other income 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.

Income Tax Provision. 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.

EBITDA

While many in the financial community consider EBITDA to be an important
measure of comparative operating performance, it should be considered in
addition to, but not as a substitute for or superior to, operating income, net
earnings, cash flow and other measures of financial performance prepared in
accordance with generally accepted accounting principles. EBITDA does not
reflect cash 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.

43
<PAGE>

The following table sets forth EBITDA for the six months ended June 30, 1998
and 1997, the year ended December 31, 1997, the period from October 11, 1996 to
December 31, 1996, the period from January 1, 1996 to October 10, 1996 and the
year ended December 31, 1995:

<TABLE>
<CAPTION>
-----------------------------------------------------
SUCCESSOR
----------------------------------------------------
<CAPTION>
PREDECESSOR
----------------------------
SIX MONTHS SIX MONTHS PERIOD FROM
ENDED ENDED YEAR ENDED OCTOBER 11, TO
JUNE 30, JUNE 30, DECEMBER 31, DECEMBER 31,
1998 1997 1997 1996
In thousands ---------- ---------- ------------ --------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Feature films................................ $471,297 $296,197 $ 699,219 $209,354
Television programs.......................... 105,839 47,914 114,200 14,413
Other........................................ 20,525 6,903 17,883 4,919
--------- --------- --------- ---------
Total revenues.............................. $597,661 $351,014 $ 831,302 $228,686
========= ========= ========= =========
EBITDA:
Feature films................................ $ 18,103 $ 48,546 $ 65,509 $ 37,140
Television programs.......................... 9,417 (3,215) (7,201) (4,062)
Other........................................ (1,639) (12,229) (26,545) 532
General and administration expenses.......... (46,729) (31,904) (80,861) (16,901)
--------- --------- --------- ---------
EBITDA....................................... (20,848) 1,198 (49,098) 16,709
Depreciation and non-film amortization........ (10,844) (7,057) (18,013) (3,135)
Provision for impairment...................... -- -- -- --
--------- --------- --------- ---------
Operating income (loss)....................... (31,692) (5,859) (67,111) 13,574
Interest expense, net of amounts capitalized.. (38,428) (20,599) (53,105) (9,875)
Interest and other income (expense), net...... 1,745 1,388 2,447 813
--------- --------- --------- ---------
Income (loss) before provision for income
taxes........................................ (68,375) (25,070) (117,769) 4,512
Income tax provision.......................... (5,262) (3,935) (10,345) (4,346)
--------- --------- --------- ---------
Net income (loss) ............................ $ (73,637) $ (29,005) $(128,114) $ 166
- --------------------------------------------------
========= ========= ========= =========
PERIOD FROM
JANUARY 1, TO YEAR ENDED
OCTOBER 10, DECEMBER 31,
1996 1995
In thousands -------------- -------------
<S> <C> <C>
Revenues:
Feature films................................ $ 815,460 $ 736,152
Television programs.......................... 82,315 90,231
Other........................................ 14,931 34,588
-------------- -------------
Total revenues.............................. $ 912,706 $ 860,971
============== =============
EBITDA:
Feature films................................ $ (45,032) $ (70,184)
Television programs.......................... 11,412 22,928
Other........................................ 1,742 25,822
General and administration expenses.......... (55,411) (60,154)
-------------- -------------
EBITDA....................................... (87,289) (81,588)
Depreciation and non-film amortization........ (25,451) (30,772)
Provision for impairment...................... (563,829) --
-------------- -------------
Operating income (loss)....................... (676,569) (112,360)
Interest expense, net of amounts capitalized.. (71,375) (66,386)
Interest and other income (expense), net...... 3,179 10,372
-------------- -------------
Income (loss) before provision for income
taxes........................................ (744,765) (168,374)
Income tax provision.......................... (273) (935)
-------------- -------------
Net income (loss) ............................ $(745,038) $(169,309)
- --------------------------------------------------
============== =============
</TABLE>

LIQUIDITY AND CAPITAL RESOURCES

In recent years the Company has funded its operations primarily from internally
generated funds, bank borrowings and proceeds from the sale of equity
securities including the IPO and the Tracinda Purchase, which were completed in
November 1997. In the IPO, the Company issued and sold 9,000,000 new shares of
the Common Stock at a price per share of $20, less an underwriting discount,
for net proceeds (after IPO expenses) to the Company of approximately
$165 million. Concurrent with the consummation of the IPO, Tracinda purchased
directly from the Company 3,978,780 shares of the Common Stock, at a price per
share of $20 less an amount equal to the underwriting discount per share for
shares issued in the IPO, for an aggregate purchase price of $75 million.
Approximately $190 million of the net proceeds of the IPO and the Tracinda
Purchase were used to repay existing bank debt with the remaining net proceeds
retained and used for working capital purposes. The Company is currently
operating under a business plan which anticipates substantial continued
borrowing under the Amended Credit Facility, primarily to fund film and
television production.

During the six months ended June 30, 1998, the net cash provided by operating
activities was $247 million, the net cash used in investing activities
(primarily additions to film costs, net) was $495 million, and the net cash
provided by financing activities (net bank advances) was $268 million.

In addition to feature film and television programming capital requirements,
the Company is obligated to fund 50 percent of the expenses of MGM Networks
Latin America up to a maximum of approximately $14.1 million (in addition to
the initial capital contribution of $9.9 million that the Company has funded).
See "Business--Distribution--International Pay and Free Television." Other
capital requirements, including the purchase of computer systems, equipment and
other improvements are not expected to exceed $15.0 million annually in 1998
and 1999.

44
<PAGE>

programming. This new television production includes an aggregate of
approximately 100 additional episodes for the Company's non-network programs,
as well as 13 new episodes of The Magnificent Seven (which is a network program
and thus produced at a greater deficit than the Company's non-network
programs), for the 1998/99 television season. See "Business--Production--
Television Production."

Third, the Company's recent sales experience in the television syndication and
home video markets indicates that the Company will realize cash from these
sources over a period longer than originally anticipated. Fourth, during the
six months ended June 30, 1998, the Company accelerated certain theatrical
motion picture production in order to avoid the impact of an industry strike
that had been threatened in the second quarter of 1998. As a result of this
acceleration, the Company currently has nine motion pictures, comprising
substantially all of its release slate through April 1999, for which principal
photography has been completed and substantially all production costs have been
expended. Other factors include increases in marketing and distribution
expenses that have been higher than anticipated.

The Company believes that cash flow from operations and the amounts available
under the Amended Credit Facility, after giving effect to the Rights Offering,
will be adequate to meet the Company's obligations and commitments and will
enable the Company to continue to conduct its operations in accordance with its
current business plan through the year 2002. The Company's belief as to the
adequacy of its capital resources is based in part on the assumption that its
motion pictures will perform as planned. However, no assurances can be given in
this regard. See "Risk Factors--Risks of Motion Picture and Television
Production."

The Company is currently considering seeking alternative sources of film
financing to take advantage of opportunities in the debt markets. However, no
assurance can be given that the Company will be able to obtain any such
financing, or any other financing that may be needed by the Company, on terms
acceptable to the Company.

The Company intends to continue to pursue its goal of becoming an integrated
global entertainment company. In connection with its pursuit of this goal, the
Company is considering various strategic alternatives, such as business
combinations with companies with strengths complementary to those of the
Company and other acquisitions. The Company may need to seek additional
financing in order to complete any acquisitions.

On October 15, 1997, the Company and its principal lenders entered into an
amended and restated principal credit facility (the "Amended Credit Facility")
aggregating $1.3 billion consisting of a six year $600 million revolving credit
facility (the "Revolving Facility"), a $400 million seven and one-half year
term loan ("Tranche A Loan") and a $300 million eight and one-half year term
loan ("Tranche B Loan" and, collectively with the Tranche A Loan, the "Terms
Loans"). The Amended Credit Facility also contains provisions allowing, with
the consent of lenders holding at least 66 2/3 percent of the aggregate loans
and commitments and subject to syndication thereof, for an additional
$200 million tranche, raising the potential amount of the Amended Credit
Facility to $1.5 billion. No assurance can be given that such consent could be
obtained or that such syndication could be completed. The Revolving Facility
and Tranche A Loan bears interest at 2.25 percent over

45
<PAGE>

the Adjusted LIBOR rate, as defined therein, and the Tranche B Loan bears
interest at 2.50 percent over the Adjusted LIBOR rate. The Company has entered
into three year fixed interest rate swap contracts in relation to a portion of
the Term Loans for a notional value of $500 million at an average rate of 8.6
percent, which expire in November 2000. Scheduled amortization of the Term
Loans under the Amended Credit Facility commences with $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 at maturity. The Revolving Facility matures
in October 2003, subject to extension under certain conditions.

As of August 31, 1998, $83.0 million was available under the Amended Credit
Facility. The Company expects to apply a portion of the net proceeds from the
Rights Offering to the repayment of any amounts that may be outstanding under
the Bridge Loan and, thereafter, to the reduction of amounts outstanding under
the Revolving Facility. Giving effect to the use of the proceeds from the
Rights Offering, the availability under the Amended Credit Facility as of
August 31, 1998 would have been $577.0 million. The Company expects to
subsequently reborrow some or all of the repaid amounts under the Amended
Credit Facility.

The Amended Credit Facility contains various covenants, including limitations
on indebtedness, dividends and capital expenditures and maintenance of certain
financial ratios. The Amended Credit Facility was amended, effective March 30,
1998, to modify certain of these financial covenants. As of June 30, 1998 the
Company was in compliance with its amended financial covenants and, assuming
the consummation of the Rights Offering, expects to be in compliance for the
remainder of 1998. However, as a result of the factors described above, the
Company believes that it may cease to be in compliance with certain financial
ratio covenants during 1999, and may therefore need the Amendments to the
Amended Credit Facility. The Company has begun discussions with its lenders
and, based on such discussions, believes it will be able to obtain the
requisite Amendments. However, no assurances can be given that the Company will
be successful in obtaining the Amendments or, if successful, that the Company
will not cease to be in compliance with such amended or other covenants or
conditions in the future. The consummation of the Rights Offering is
conditioned on the effectiveness of the Amendments. The Company expects that if
the Amendments are obtained, they will become effective upon the consummation
of the Rights Offering.

The Company has obtained a commitment for a bridge loan which can be accessed
to fund operations, prior to the consummation of the Rights Offering, if
necessary (the "Bridge Loan"). The Company would repay any amounts outstanding
under the Bridge Loan with proceeds from the sale of Shares upon exercise of
the Rights offered hereby. See "Risk Factors--Risks Relating to Liquidity and
Financing Requirements."

YEAR 2000 DATA CONVERSION

Impact of the Year 2000 Issue Introduction. The term "Year 2000 issue" is a
general term used to describe the various problems that may result from the
improper processing of dates and date-sensitive calculations by computers and
other machinery as the Year 2000 is approached and reached. These problems
generally arise from the fact that most of the world's computer hardware and
software have historically used only two digits to identify the year in a date,
often meaning that the computer will fail to distinguish dates in the "2000's"
from dates in the "1900's." These problems may also arise from other sources as
well, such as the use of special codes and conventions in software that make
use of the date field.

State of Readiness. The Company's primary focus has been on its own internal
systems. To date, the Company has completed the Year 2000 conversion with
respect to all of its most critical computer systems and applications, which
constitute approximately 70% of the Company's Year 2000 sensitive systems
(together with those systems containing embedded microprocessors or other
technology, "Systems"). The Company is in the testing or remediation phase with
respect to the remainder of its Systems, which include most of the Company's
computer hardware and other equipment containing embedded microprocessors or
other technology. The Company expects to complete its Year 2000 conversion by
March 31, 1999.

Because of the substantial progress made by the Company towards its Year 2000
conversion, the Company does not anticipate that any additional significant
changes will be required or that the Year 2000 issue will pose significant
operational problems for the Company. However, if any necessary changes are not
made or completed in a timely fashion or unanticipated problems arise, the Year
2000 issue may take longer for the Company to address and may have a material
impact on the Company's financial condition and results of operations.

In addition, the Company has had initial communications with certain of its
significant suppliers, distributors, financial institutions, lessors and others
with which it does business to evaluate their Year 2000 compliance plans and
state of

46
<PAGE>

readiness and to determine the extent to which the Company's Systems may be
affected by the failure of others to remediate their own Year 2000 issues. The
Company is also in the process of distributing a Year 2000 assessment form to
other parties, in order to provide the Company with further information as to
their Year 2000 conversion progress. To date, however, the Company has received
only preliminary feedback from such parties and has not independently confirmed
any information received from other parties with respect to the Year 2000
issues. As such, there can be no assurance that such other parties will
complete their Year 2000 conversion in a timely fashion or will not suffer a
Year 2000 business disruption that may adversely affect the Company's financial
condition and results of operations.

Costs to Address the Year 2000 Issue. To date, the Company estimates that it
has spent approximately $300,000 to address the Year 2000 issue, with the
majority of the work being performed by Company employees. The aggregate cost
to achieve Year 2000 conversion is estimated to be approximately $1 million.
The Company intends to fund such costs from its operations and funds borrowed
under the Amended Credit Facility. The Company believes such costs will not
have a material adverse effect on its liquidity or financial condition.
However, as the Company progresses with its Year 2000 conversion and implements
any necessary changes to its Systems, certain additional costs may be
identified. There can be no assurance that such additional costs will not have
a material adverse effect on the Company's financial condition and results of
operations.

Risks of Year 2000 Issues. To date, the Company has not identified any System
which presents a material risk of not being Year 2000 ready in a timely fashion
or for which a suitable alternative cannot be implemented. However, as the
Company progresses with its Year 2000 conversion, the Company may identify
Systems which do present a material risk of Year 2000 disruption. Such
disruption may include, among other things, the inability to process
transactions or information, record and access data relating to the
availability of titles in the Company's library for licensing and distribution,
send invoices or engage in similar normal business activities. The failure of
the Company to identify Systems which require Year 2000 conversion that are
critical to the Company's operations or the failure of the Company or others
with which the Company does business to become Year 2000 ready in a timely
manner could have a material adverse effect on the Company's financial
condition and results of operations.

Contingency Plans. Because the Company's Year 2000 conversion is expected to be
completed prior to any potential disruption to the Company's business, the
Company has not yet completed the development of a comprehensive Year
2000-specific contingency plan. However, as part of its contingency Year 2000
effort, information received from external sources is examined for date
integrity before being brought into the Company's internal systems. If the
Company determines that its business or a segment thereof is at material risk
of disruption due to the Year 2000 issue or anticipates that its Year 2000
conversion will not be completed in a timely fashion, the Company will work to
enhance its contingency plan.

The discussion above contains certain forward-looking statements. The costs of
the Year 2000 conversion, date which the Company has set to complete such
conversion and possible risks associated with the Year 2000 issue are based on
the Company's current estimates and are subject to various uncertainties that
could cause the actual results to differ materially from the Company's
expectations. Such uncertainties include, among others, the success of the
Company in identifying Systems that are not Year 2000 compliant, the nature and
amount of programming required to upgrade or replace each of the affected
Systems, the availability of qualified personnel, consultants and other
resources, and the success of the Year 2000 conversion efforts of others.

47
<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, with the major studios dominating 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 (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 197 in 1997 (43.0 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 may 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.

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.

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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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BUSINESS

COMPANY OVERVIEW

The Company is an entertainment company 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, 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 18 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, eight of which
have been released. The Landmark Theatres owned by one of the Orion Companies
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
seeks 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 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. See "--Distribution."

Develop, Produce and Distribute Theatrical Motion Pictures. Through MGM
Pictures and UA Pictures, the Company plans to produce or co-produce and
distribute approximately eight to ten 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
two to four specialty motion pictures annually through Goldwyn. The Company may
also distribute motion pictures produced by others.

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all production costs for the series. In addition to non-network television
programming, the Company also develops programs such as two-hour television
movies and mini-series and currently is producing a series for network
television, The Magnificent Seven. The Company also is considering joint
ventures, co-productions and other partnering arrangements for certain of its
series. See "--Production--Television Production."

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, has
reestablished a television series production business and has taken steps to
leverage the MGM brand name. 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, The Man in the Iron Mask
and Tomorrow Never Dies. 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 more expanded
production and release schedule. Since October 1996 the Company has approved 17
motion pictures for production, of which six have been released. See "Risk
Factors--Curtailment of Certain Operations Due to Sale of the Company."

MOTION PICTURE 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 June 30, 1998 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. Fourteen motion pictures in the
Library have won the Academy Award for Best Picture, including Annie Hall, The
Apartment, The Best Years of Our Lives, Dances With Wolves, 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
previously produced and developed.

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 45 Emmy awards and seven Golden Globe
awards.

The Library includes titles 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 seeks 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."

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 had
success with the film The Birdcage, a remake of La Cage aux Folles and has
recently announced that it will be remaking another of its Library titles, The
Thomas Crown Affair. Furthermore, the Company has successfully expanded the
valuable film franchises within its Library, most notably the James Bond
franchise, with the commercial success of GoldenEye and the release of the

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latest James Bond film, Tomorrow Never Dies, on December 19, 1997, which has
earned greater domestic box office receipts than any other film in the James
Bond film franchise. Additionally, the Company has successfully developed four
television series based on Library motion pictures: The Magnificent Seven based
on the movie of the same name; Poltergeist: The Legacy based on Poltergeist;
Stargate SG-1 based on Stargate; and All Dogs Go to Heaven, based on the movie
of the same name. The Company also produced a remake of Twelve Angry Men as a
made-for-television movie, which first aired on Showtime Networks Inc.
("Showtime") in August 1997.

Eighteen James Bond motion pictures in the Library 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, 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 Pictures 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.
On November 17, 1997, the Company and Danjaq filed an action in federal court
in Los Angeles against Sony, Sony Pictures, Columbia, John Calley, Kevin
McClory and Spectre seeking declaratory and injunctive relief and/or damages
for copyright infringement, trademark dilution, slander of title, unfair
competition, inducing breach of contract and breach of fiduciary duties, and
misappropriation of trade secrets. On January 23, 1998, the Company and Danjaq
filed an amended complaint adding claims for trademark infringement, federal
unfair competition and California trademark dilution. Among other things, the
Company and Danjaq contend not only that Mr. McClory's rights were limited to
remaking Thunderball but that even those rights have expired under U.S. law
pursuant to the doctrine of Stewart v. Abend, 495 U.S. 207 (1990) and that Mr.
McClory's rights have been recently acquired by Danjaq. On May 19, 1998, the
Company and Danjaq filed a motion for preliminary injunction on the copyright
and trademark issues to preclude Sony Pictures from preparation, production,
distribution, advertising or other exploitation of a James Bond motion picture.
On July 29, 1998, that motion was granted

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and Sony Pictures, Columbia and the other defendants were preliminarily
enjoined from the production, preparation, distribution, advertising or other
exploitation of a James Bond motion picture in any medium and from using the
"James Bond" and the "James Bond 007" trademarks. Discovery is ongoing in the
case. Trial has been set for December 15, 1998. See "Legal Proceedings." See
"Risk Factors--Risks Associated with James Bond Films and Third Party
Relationships" and "--Legal Proceedings."

The Company seeks aggressively to 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. During any given three-year period,
the Company may actively exploit up to [ ]% of the theatrical motion picture
titles and up to [ ]% of the episodic television titles in the Library. Due to
the size of the Library, the Company believes that it can better avoid the
over-exploitation of any title and therefore better preserve the ongoing value
of the Library by actively managing the rotation of titles through such
exhibition windows. 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.

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. Even if a title is owned by the Company, the Company may have granted
rights to exploit the title in certain media and territories to others. 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 four 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, the Company does not include such titles in calculating
the number of titles in the Library.

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. The titles
included in these licenses represent a cross-section of the 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 approximately 25 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."

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 intends under its current business
plan to produce or co-produce and distribute between approximately eight and
ten motion pictures annually across a variety of genres and budget ranges and

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may also release 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 118
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 results in lower development related write-offs and abandonment costs.
Historically, the Company's development related write-offs and abandonment
costs amounted to $21.2 million, $11.6 million and $19.5 million in the years
ended December 31, 1997, 1996 and 1995, respectively. For the six months ended
June 30, 1998, such write-offs and costs amounted to $14.7 million.

Additionally, the Company plans to release approximately two to four 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 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 is able
to avoid unnecessary cost-overruns and excess expenditures. See "Risk Factors--
Risks of Motion Picture and Television Production."

The Company believes that it 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 for the last six
months of 1998 and the first six months of 1999.

<TABLE>
<CAPTION>
APPROXIMATE
TITLE RELEASE DATE SUMMARY PRINCIPAL ACTORS
- ------------------------------------------------------------------------------------------------
<C> <C> <S> <C>
Disturbing Behavior(1).. Released A teen thriller about a Katie Holmes, James
new kid in town who Marsden, Nick Stahl
discovers the town's evil
method of turning
rebellious teens into
wholesome overachievers
Ronin(2)................ September 1998 An action-adventure about Robert DeNiro, Jean Reno,
a team of international Sean Bean, Jonathan
agents hired to carry out Pryce, Stellan Skarsgard,
a dangerous mission, Natasha McElhone
directed by John
Frankenheimer
Welcome to Woop Woop.... October 1998 Twisted road comedy from Johnathon Schaech, Rod
the director of "The Taylor, Susie Porter, Dee
Adventures of Priscilla, Smart
Queen of the Desert"
One Man's Hero.......... October 1998 An adventure about the Tom Berenger
legendary Saint Patrick
Battalion, who fought for
Mexico alongside Pancho
Villa in the Mexican-
American War
At First Sight(1)....... November 1998 Based on the true story by Val Kilmer, Mira Sorvino,
Oliver Sacks (Awakenings) Kelly McGillis, Nathan
of a blind man whose sight Lane, Steven Weber
is restored and the
effects it has on him, his
sister and the woman he
loves
The Ticket Scalper...... January 1999 A story of love, Andy Garcia, Andie
redemption and faith MacDowell
centering on a ticket
scalper who must confront
his past in order to hold
onto the girl he loves
Carrie II(2)............ January 1999 A sequel to the 1976 Amy Irving, Emily Bengyl,
horror thriller, Carrie II Jason London
is a supernatural thriller
about a teenage loner
whose telekinetic powers
awaken when she becomes
the focus of a cruel high
school joke
Molly(1)................ February 1999 A mentally challenged Elizabeth Shue, Aaron
young woman's genius is Eckhart
unleashed after
experimental surgery,
while her brother's
carefree lifestyle is
turned on its side when he
must care for her
Stigmata(1)............. March 1999 A priest, who was once a Gabriel Byrne, Patricia
scientist, assigned by the Arquette, Jonathan Pryce
Vatican to "debunk
miracles" comes to believe
that a young woman's
condition is actually the
mystical wounds of Christ
Supernova(2)............ March 1999 Science-fiction thriller James Spader, Angela
about a medical spaceship Bassett, Lou Diamond
that responds to a Phillips, Robert Forster
distress signal and takes
on a mysterious passenger
Mod Squad(1)............ April 1999 A trio of juvenile Claire Danes, Giovanni
delinquents become Ribisi, Omar Epps, Josh
undercover cops to Brolin
infiltrate a drug ring in
the ultra-hip LA club
scene
The Thomas Crown June 1999 An adventure of a Pierce Brosnan, Rene Russo
Affair(2).............. millionaire playboy who
steals a priceless work of
art and then strikes up a
fiery romance with the
brilliant female insurance
investigator who is on to
his game
</TABLE>
- ---------
(1) Developed and produced by MGM Pictures.
(2) Developed and produced by UA Pictures.

The Company may revise the release date of a motion picture as the production
schedule changes or in such a manner as the Company believes is likely to
maximize revenues. Additionally, there can be no assurance that any of the
motion

55
<PAGE>

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
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 1,030 hours of
television programming, of which approximately 40 percent remained to be aired
as of June 30, 1998. 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 substantially lowered 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 Magnificent Seven,
The Outer Limits, Poltergeist, Stargate and All Dogs Go to Heaven 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 has 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) 122 hours (one-hour
and two-hour episodes) (six seasons) of The Outer Limits (winner of the Cable
Ace award for Best Dramatic Series in 1995 and 1996) of which 32 hours remained
to be aired as of June 30, 1998; (ii) 66 episodes (three seasons) of
Poltergeist: The Legacy of which no episodes remained to be aired as of June
30, 1998; (iii) 88 episodes (four seasons) of Stargate-SG1 of which 66 episodes
remained to be aired as of June 30, 1998; and (iv) three new series (for a
minimum commitment of 21 episodes each, including a pilot episode) to be
produced by the Company for Showtime, with one new series to commence broadcast
in 1999 and two to commence in 2000. Showtime has also committed to a two-hour
pilot for Species, a possible television series based on the theatrical motion
picture of the same name. The Company has also acquired worldwide (excluding
Canada) distribution rights to the Showtime series Dead Man's Gun (a Cable Ace
nominee for Best Dramatic Series in 1997). Twenty-two new episodes of such
series will be produced, giving the Company a minimum of 44 episodes that have
not previously been distributed outside North America. Following their initial
exhibition cycle on Showtime, the Company intends to exploit these programs
further in other markets. In this respect, the Company has recently entered
into a license agreement with Sci-Fi Channel for the exclusive domestic basic
cable exhibition rights of The Outer Limits, Poltergeist: The Legacy and
Stargate-SGI.

The programming agreement with Showtime also includes a commitment by Showtime
to license seven made-for-television movies from the Company, five of which
remained to be produced and all of which remained to be aired as of June 30,
1998.

Additionally, the Company has obtained a commitment from Paxson Communications
("Paxson") to license 88 episodes of Flipper, a one-hour series, which
commitment includes a production order for 44 episodes. The series is scheduled
to air beginning in fall 1998 on Paxson's PAX NET network, comprised
principally of owned and operated stations which cover in excess of 65 percent
of U.S. television households.

The Company also has obtained a commitment from Fox Family Worldwide to license
40 episodes (of which 14 episodes are newly commissioned) of All Dogs Go to
Heaven, a one-half hour animated series to air beginning in fall 1998. The
Company has also entered into agreements to produce for U.S. broadcast
syndication (i.e. licenses to individual television stations) 40 half-hour
episodes of Robocop: Alpha Commando, an animated series based on the feature
motion picture Robocop, and 13 half-hour episodes of The Lionhearts, an
animated series based on Leo, the familiar MGM lion, and his cartoon "family."

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<PAGE>

The Company intends to develop additional series for first-run syndication for
which production, if the Company elects to produce such series, would begin in
1999.

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 produced a two-hour
pilot and eight episodes of The Magnificent Seven for CBS as a midseason
1997/98 series. Additionally, CBS has ordered 13 new episodes for the 1998/99
season.

The Company currently is considering joint ventures, co-productions and other
partnering arrangements for certain of its existing or future series in order
to minimize the up-front capital investment and limit the financial risk to the
Company with respect to the production of such series.

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.

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.

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. UIP received a "Statement of Objections" from
the Competition Directorate of the Commission of European Communities in
January 1998. UIP responded to such Statement of Objections on May 15, 1998.
See "--Regulation."

Co-Production and Distribution Agreements. In addition to producing feature
motion pictures independently, the Company occasionally enters into co-
production agreements, split rights deals and similar arrangements 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 agreements,
split rights deals or negative pickup arrangements, the Company may be
committed to spend specified amounts for prints and advertising.

57
<PAGE>

Additionally, the Company occasionally enters into "rent-a-system" arrangements
under which the Company provides distribution services to an independent film
company for a percentage distribution fee. Under rent-a-system arrangements the
independent film company generally is responsible for all print and advertising
costs. These types of arrangements may be entered into before, during or after
production of a particular motion picture.

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 each motion
picture's commercial potential 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 through the creation of various branded lines.
Examples of these branded lines include MGM's Movie Time, Contemporary
Classics, Screen Epics, Vintage Classics and Musicals. The Company believes
this strategy has resulted in increased shelf space in video retail stores and
that this increased visibility has led to increased sales of Library titles.
This strategy has been used to expand the sales and distribution of the Orion
catalog titles by incorporating them into two existing MGM collections, Movie
Time and Contemporary Classics. In addition, the Orion library has been
exploited to create new branded lines such as Soul Cinema and World Films.
Additionally, the Company will release the Library films, or groups of the
Library films, in connection with new films which it releases into the market,
in order to increase sales of both the Library films and new releases. An
example is the recent European James Bond video campaign, under which the Bond
catalog was promoted in connection with the theatrical release of Tomorrow
Never Dies. 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.

MGM Home Entertainment Inc. ("Home Entertainment") manages the marketing and
distribution of both current feature motion pictures and Library product of MGM
Studios and its subsidiaries in the home video and other home entertainment
markets. In addition, the Company has an agreement with Turner pursuant to
which the Company distributes the Turner library, the Old MGM Library and all
pre-1949 Warner titles in worldwide home video markets, for a total of
approximately 2,950 titles. The Company's rights under this agreement with
Turner expire in June 2001. As more fully described below, these titles as well
as the current pictures and Library product of MGM Studios and its
subsidiaries, and any theatrical motion picture in which MGM Studios or, with
certain exceptions, one of its affiliates acquires home video rights, are
serviced pursuant to the WHV Agreement.

In 1990, as part of the acquisition of MGM/UA by Pathe, MGM-Pathe (the
predecessor in interest to MGM Studios), MGM/UA and UA Pictures, Inc.
(collectively, the "Parties") entered into the WHV Agreement with WHV. Under
the WHV Agreement, the Parties have granted to WHV certain home video
distribution rights with respect to new motion pictures and the motion picture
library of MGM/UA, UA and their respective affiliates, subject to certain
limited exceptions, throughout the world for a distribution fee expressed as a
percentage of worldwide home video revenues (as determined under the WHV
Agreement) and reimbursement of certain 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.

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<PAGE>

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 1997, the Company increased its annual worldwide home video gross
revenue from feature films by 44 percent, from $243.0 million to $350.5
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 Company believes that 1997 and the six months ended June
30, 1998 were transitional periods for the home video division as revenues were
reduced by the lack of first-run rental product resulting from the slowdown in
production that accompanied the sale of MGM Studios in 1996.

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 in any
given territory, 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.

The Company has recently begun entering into revenue sharing agreements for
certain of its titles, pursuant to which the Company sells titles to rental
establishments at a discounted price and receives a percentage of the consumer
rental revenues generated from such titles. The Company anticipates that it
will continue to enter into more of such agreements in the future. Although no
assurance can be given, in part because of the recent introduction of these
arrangements in the industry, the Company believes that such arrangements may
increase its revenues from the home video rental market, by allowing the
Company to participate in increased revenues from successful titles, although
such revenues will be received over a longer period.

Orion manages the marketing and distribution of both current feature motion
pictures and library product of Orion in the home video markets, except for the
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. The term of
Hallmark's license of each of such library pictures expires on the later of
five and one-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. In November 1997 the Company
terminated an output agreement with Hallmark that covered feature motion
pictures produced or acquired by Goldwyn between May 1995 and April 2000.

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 Orion's 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 Orion, 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.

Through June 30, 1998, the Company has released 12 Orion films to the rental
market, including features Ulee's Gold, Fall, The Locusts and Retroactive, as
well as the Company's television productions, Twelve Angry Men and the two-hour
pilot of Stargate SG-1.

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

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<PAGE>

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. Tomorrow
Never Dies has become the largest selling DVD title yet released. 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 a substantial revenue
source; however the Company does anticipate incremental revenue from the
technology in 1998.

Pay and Free Television Distribution
General. The Company generally licenses its current theatrical motion pictures
for pay 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 intends 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 June 30, 1998, the Company had delivered 30 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 (i.e., pictures released under the Goldwyn
logo) 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 specialty motion pictures. The license fees for each
picture are determined according to a formula based on U.S. theatrical rentals
of such picture, with special provisions applicable to the speciality motion
pictures.

Orion and Home Box Office ("HBO") have entered into a theatrical motion picture
output agreement requiring future theatrical motion pictures produced and
distributed by Orion (excluding pictures produced by Goldwyn and distributed
under both the prior and current Goldwyn logo) to air on HBO's pay television
network. The 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.

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

60
<PAGE>

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
Germany, France, the United Kingdom, Spain, Italy, Japan and Brazil. In 1997
and in the six months ended June 30, 1998, the Company received $58.8 million
and $31.5 million, respectively, in revenue from international pay television
distribution, accounting for seven percent and five percent, respectively, of
the Company's total revenue for each such period.

The Company currently distributes its motion pictures and television product
through free television licenses in over 100 territories. In 1997 and in the
six months ended June 30, 1998, the Company received $120.1 million and
$62.8 million, respectively, in revenues under these agreements, accounting for
14 percent and ten percent, respectively, of the Company's total revenues for
each such period. These license arrangements typically provide licensees with
the right to exhibit the licensed motion pictures 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 Film, 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 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 could 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 a cross-section of the
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 approximately five percent to 25 percent in joint ventures such as
CineCanal, Telecine, Star Channel and MovieVision, which are emerging
international premium film satellite 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.

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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 April 1998, the Company and its 50 percent equity partner, an indirect
subsidiary of Tele-Communications, Inc., decided to terminate their nearly two-
year old joint venture in movie channel MGM Gold (Asia). MGM Gold (Asia) was a
24-hour satellite and cable delivered service based and distributed in Asia
that featured programming from the Library. The recent economic deterioration
in Southeast Asia, which has resulted in diminished growth in multi-channel
television households, and slower than anticipated penetration in India and
China were the primary factors influencing the decision to cease the operations
of the joint venture. As of June 30, 1998, the Company had invested $13.2
million in the venture. The Company anticipates that the formal dissolution of
the venture will be concluded shortly and that related costs will not be
significant.

In May 1998 the Company and an indirect subsidiary of United International
Holdings ("UIH") combined their Latin American cable programming businesses
into a joint venture to form MGM Networks Latin America. Under the terms of the
joint venture, the Company acquired a 50 percent equity interest in the venture
by contributing its branded Brazilian channel (MGM Gold Brazil) and committing
to fund the first $9.9 million ($6.7 million of which was funded at closing)
required by the venture. In turn, UIH contributed its 100 percent interest in
United Family Communications ("UFC"), which produces and distributes The Family
Channel Latin America and Casa Club TV to satellite and cable television
distributors throughout Latin America and Brazil, for a 50 percent interest in
the joint venture. Each of the Company and UIH 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 approximately $14.1 million each (after the Company's
initial $9.9 million commitment, which has been funded). UFC commenced
operations in June 1997; MGM Gold Brazil began operations in December 1997. The
Company has entered into license agreements with MGM Networks Latin America,
licensing certain motion pictures and trademarks to the venture. The joint
venture is based in Coral Gables, Florida.

Over the next 12 months, The Family Channel Latin America will be re-branded
and reintroduced as MGM Latin America and MGM Brazil. MGM Latin America and MGM
Brazil are general entertainment channels programmed primarily with MGM
theatrical and television product. Casa Club TV is a women's and children's
channel offering home and garden, cooking and children's programming. As of
June 30, 1998, MGM Networks Latin America distributed its signal to
approximately three million homes in 14 countries throughout Latin America.

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 Panther, from motion
pictures and television series produced or distributed by the Company. In 1997
and in the six months ended June 30, 1998, the Company received $9.5 million
and $6.0 million, respectively, 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.

In February 1980 Old MGM granted to a predecessor-in-interest to MGM Grand Inc.
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 its hotel/gaming business and other 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 materials 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

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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 Productions 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 Enterprises, Inc. ("Disney") to compel the reconveyance of the
licensed rights in Western Europe and for termination of the Disney License and
received a jury verdict in its favor with respect to the rights in Western
Europe in November 1997. The court granted summary adjudication in favor of
Disney denying the Company the right to terminate Disney's U.S. rights under
the Disney License. The Company has appealed this aspect of the decision. See
"--Legal Proceedings."

The Company believes that it has the right to use the trademark Goldwyn in
connection with motion picture production and distribution as well as related
businesses and currently makes use of that mark in connection with certain of
its operations. The Company's right to use this mark has been disputed in
litigation with Samuel Goldwyn, Jr. 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 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 June 30, 1998, the Company had approximately 1,080 full-time and part-
time regular employees in its worldwide operations. Of that total,
approximately 150 were primarily engaged in production and development,
approximately 380 were primarily engaged in sales, marketing and distribution
and approximately 550 were primarily engaged in management and administration.
Approximately 170 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. The Company believes that its employee and labor relations are
good.

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Approximately 45 of the Company's current employees (and many of the employees
that the Company hires on a project-by-project basis) 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. See
"Risk Factors--Risks of Motion Picture and Television Production."

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 publicity, marketing and theatrical and television distribution offices
under a lease that expires in June 2004. Additionally, the Company leases
approximately 35,000 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 $1.1 million in the
aggregate (in addition to taxes, insurance and certain expenses paid by the
Company). The Company has subleased the office space used by Orion. 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,
and Sydney. The Company recently closed its Paris office and consolidated its
European distribution operations to its London office. 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 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
Austria, Belgium, Denmark, Germany, Greece, Finland, France, Ireland, Italy,
Luxembourg, The Netherlands, Portugal, Spain, Sweden 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.

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.

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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. In addition, on January 16, 1998, in response to UIP's renewal
application, the Competition Directorate of the Commission of the European
Communities issued a Statement of Objections. The Statement of Objections
indicates that, although a final decision has not been taken, the Commission is
of the opinion that the exemption granted to UIP in 1989 should not be extended
and that UIP should be required to cease operations in the European Union. UIP
responded to the Statement of Objections on May 15, 1998 and a hearing has been
scheduled before the European Commission in late September 1998. 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 ceases or reduces operations, the Company
believes that it will be able to find or develop satisfactory alternative
methods for international distribution, although such alternatives may result
in decreased revenues and profitability from such distribution. See "Risk
Factors--Risks Associated with the James Bond Films and Third Party
Relationships."

The Code and Ratings Administration of the MPAA assigns ratings indicating age-
group suitability for theatrical distribution of motion pictures. The Company
has followed and will continue to follow the practice of submitting its
pictures for such ratings. As a substantial number of the Company's films are
rated "R," under rules enforced by theatrical exhibitors, children under
certain ages may attend the applicable motion picture only if accompanied by an
adult.

United States television stations and networks as well as foreign governments
impose content restrictions on motion pictures which may restrict in whole or
in part exhibition on television or in a particular territory. There can be no
assurance that such restrictions will not limit or alter the Company's ability
to exhibit certain motion pictures in such media or markets.

LEGAL PROCEEDINGS

In the matter entitled Estate of Jim Garrison, et al. v. Warner Bros., Inc., et
al., which was filed as a putative class action in Los Angeles County Superior
Court in November 1995 against, among others, MGM Pictures and UA Pictures and
the other major studios, the court denied class certification in August 1996
with respect to the plaintiffs' claims for breach of contract, breach of
implied covenant, unjust enrichment, imposition of constructive trust and
declaratory relief and, initially, granted class certification with respect to
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. The court
subsequently announced that its grant of the plaintiffs' class certification
motion might have been "inadvertent" and issued an order on its own motion
requesting briefing on the issue whether the class should be decertified. After
such briefing and by Order dated May 26, 1998, the court decertified the
plaintiff class with respect to plaintiffs' remaining 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. The plaintiffs have
announced their intention to proceed against all defendants, including MGM
Pictures and UA Pictures, on their legal theories but solely as to the Warner
Bros. motion picture "JFK." Trial has been set for October 18, 1999, but the
court has scheduled a hearing on the defendants' motions for summary judgment
on September 28, 1998.

In May 1996 MGM Studios initiated an action in Los Angeles County Superior
Court against Disney to compel the reconveyance of rights granted with respect
to Western European territories to Disney Productions under the Disney License.
See "--Trademarks and 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 received a
jury verdict in its favor with respect to the Western European rights on
November 5, 1997. The court granted summary adjudication in favor of Disney
denying the Company the right to terminate Disney's U.S. rights under the
Disney License. The Company has appealed this aspect of the decision. The
parties are currently briefing the appeal. No hearing date has been set.

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In the two consolidated litigations entitled Turner Broadcasting System, Inc.
et al. vs. Tracinda Corporation and Turner Broadcasting System, Inc., et al.
vs. Metro-Goldwyn-Mayer Inc., (Base File CV-S-97-415), in April 1998 the
Company moved to dismiss the Amended Complaint against it on jurisdictional
grounds. In such litigation, MGM Studios, as successor in interest to UA, and
Tracinda are defendants in consolidated actions in the United States District
Court for the District of Nevada. Turner alleges that, as a result of Turner's
1986 acquisition of a predecessor in interest to MGM Studios and related
transactions, there was a $260 million tax loss and that the defendants are
contractually obligated to pay over to Turner any resulting tax benefits
attributable to that loss that Tracinda has received or will be allowed. The
Company has not claimed and will not receive any such tax benefits. The
Internal Revenue Service has disallowed both Turner's and Tracinda's tax
claims, which are now pending in the United States Tax Court. Based upon
information to date, the Company's management believes that it is unlikely that
the Turner litigation will have a material adverse effect on the Company's
financial condition or results of operations. The Nevada court has stayed the
action against MGM Studios pending a final decision in the tax court
proceedings.

Orion is a defendant in a matter entitled Sidney Sapsowitz et al. v. John W.
Kluge, Metromedia International Inc., and Orion Pictures Corp., et al., which
was filed in June 1997. The plaintiffs claim a "finder's fee" of $28.5 million
in connection with the Orion Acquisition. There have been no material
developments in the Sapsowitz case to date. Pursuant to the terms of agreements
executed in connection with the Orion Acquisition, the Company has
indemnification from Metromedia International Group, Inc. with respect to the
payment of any finder's fee. As a result, management believes that the
Sapsowitz litigation will not have any material adverse effect on the Company's
financial condition or results of operations.

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, 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
has been amended several times. 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 a distribution agreement and unspecified punitive
damages. See "--Trademarks and Consumer Products." 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.

On November 17, 1997, the Company and Danjaq filed an action in federal court
in Los Angeles against Sony, Sony Pictures, Columbia, John Calley, Kevin
McClory and Spectre seeking declaratory and injunctive relief and/or damages
for copyright infringement, trademark dilution, slander of title, unfair
competition, inducing breach of contract and breach of fiduciary duties, and
misappropriation of trade secrets, based on Sony Pictures' publicized assertion
on October 13, 1997 that it had the right (together with Mr. McClory) to create
its own James Bond film franchise. The complaint seeks various forms of legal
relief based on the Company's position that the defendants do not have any
legal right to produce or distribute a franchise of James Bond films, or any
James Bond films, in the United States. On January 23, 1998, the Company and
Danjaq filed an amended complaint adding claims for trademark infringement,
federal unfair competition and California trademark dilution. The Company and
Danjaq contend not only that Mr. McClory's rights were limited to remaking
Thunderball but that even those rights have expired under U.S. law pursuant to
the doctrine of Stewart v. Abend, 495 U.S. 207 (1990) and that Mr. McClory's
rights have been recently acquired by Danjaq. They also contend that Mr. Calley
misappropriated trade secret information about the James Bond franchise when he
left UA Pictures for Sony Pictures. On February 12, 1998, Sony Pictures and
Columbia filed an answer and counterclaim asserting, among other things, that
Mr. McClory owns the rights to materials he claims were the genesis of the
cinematic James Bond, and that Sony Pictures is the assignee of those rights
and that they are therefore owed an accounting of profits on all James Bond
films Danjaq and the Company have produced and marketed in the United States.
Mr. McClory answered the complaint on March 19, 1998, asserting contentions
similar to Sony Pictures'. On April 10, 1998, the Company and Danjaq filed a
motion to dismiss a portion of one of Sony Pictures' claims for relief, the
Third Claim For Relief seeking an accounting of the Company's and Danjaq's
profits in exploiting the James Bond franchise. While that motion was pending,
but before it was heard, Sony Pictures and Columbia on May 1, 1998 filed a
First Amended Counterclaim making certain modifications to their claims,
including a modification to the Third Claim For Relief so that it no longer
seeks an accounting but instead seeks damages for copyright infringement. On
May 19, 1998, the Company and Danjaq filed a motion for preliminary injunction
on the copyright and trademark issues to preclude Sony Pictures from
preparation, production, distribution, advertising or other exploitation of a
James Bond motion picture. On July 29, 1998, that motion was granted and Sony
Pictures, Columbia and the other defendants were preliminarily enjoined from
the production, preparation, distribution,

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advertising or other exploitation of a James Bond motion picture in any medium
and from using the "James Bond" and the "James Bond 007" trademarks. Discovery
is ongoing in the case. Trial has been set for December 15, 1998. See "Risk
Factors--Risks Associated with the James Bond films and Third Party
Relationships" and "Business--Motion Picture and Television Library."

The Company intends vigorously to assert both substantive and procedural
defenses to all of Sony Pictures' claims and to pursue its own remedies fully.
The Company believes that a remake of Thunderball by Mr. McClory, Sony Pictures
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 Pictures
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 or that such persons have a right to any of the profits
from the James Bond films that Danjaq and the Company have produced could have
a material adverse effect on the Company's business and results of operations.

On December 10, 1997, plaintiffs Nova Entertainment, GmbH and HAT
International, GmbH filed suit in the United States District Court for the
Central District of California, against the Company, for claims arising out of
the Company's decision in 1997 not to enter into a financing, production and
distribution arrangement with the plaintiffs. The complaint seeks damages in
excess of $90 million in fees the plaintiffs claim they would have received
from an alleged production of nine motion pictures over three years, along with
punitive damages in an unstated amount. In response to the plaintiffs'
complaint, the Company has alleged that the plaintiffs failed to plead a valid
claim for breach of both oral and written contract. Based upon information to
date, the Company's management believes that it is unlikely that the
plaintiffs' claims will have a material adverse effect on the Company's
financial condition or results of operations. The Company plans vigorously to
defend itself against such claims.

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 July 31, 1998. 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

- --------------------------------------------------------------------------------
<S> <C> <C>
Frank G. Mancuso 65 Chairman of the Board, Chief Executive Officer and Director
A. Robert Pisano 55 Vice Chairman and Director
James D. Aljian 65 Director
Francis Ford Coppola 59 Director
Kirk Kerkorian 81 Director
Alex Yemenidjian 42 Director
Jerome B. York 60 Director
William A. Jones 56 Senior Executive Vice President and Secretary
Daniel J. Taylor 41 Senior Executive Vice President and Chief Financial Officer
</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 and
Mr. Mancuso are parties to an Amended and Restated Investors Shareholder
Agreement dated as of August 4, 1997, as amended August , 1998 (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."

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 was appointed as a director and Vice Chairman of
the Board of Directors of the Company immediately following the IPO. 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.

FRANCIS FORD COPPOLA. Mr. Coppola has been a director of the Company since
January 1998. Since 1993 Mr. Coppola has been the owner, Chairman and President
of American Zoetrope, a film company based in San Francisco. Mr. Coppola is
also a five-time Oscar-winning director, writer and producer. Mr. Coppola
previously served on the board of directors of MGM Studios from December 1993
to October 1996.

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.

ALEX YEMENIDJIAN. Mr. Yemenidjian has been a director of the Company since
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. from May 1994 to February 1998
and was an Executive Vice

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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 Waste
Management, Inc.

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.

DANIEL J. TAYLOR. Mr. Taylor has been Senior Executive Vice President and Chief
Financial Officer of the Company and MGM Studios since June 1998 and, prior
thereto, was Executive Vice President--Corporate Finance since August 1997.
From May 1991 to July 1997, Mr. Taylor served as an executive of Tracinda.
Prior thereto, Mr. Taylor served as Vice President--Taxes and various other
capacities at the predecessor of the Company, from 1985 through May 1991.

ADDITIONAL DIRECTORS TO BE APPOINTED

It is anticipated that, pursuant to the Investors Shareholder Agreement, two
additional persons meeting the requirements of the NYSE for serving as
independent directors will be selected and added to the Board of Directors.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

In November 1997 a Compensation Committee of the Board of Directors of the
Company (the "Compensation Committee") was established which currently consists
of Mr. Yemenidjian and Mr. Coppola. The Compensation Committee is responsible
for administering the Company's stock incentive plans and monitoring, reviewing
and making recommendations to the Board of Directors with respect to the
Company's compensation policies, including the granting of awards under the
incentive plans.

Mr. Yemenidjian is a director and executive officer of MGM Grand, Inc., an
affiliate of Tracinda, and Mr. Coppola is the brother of the sole shareholder
of Taliafilm, Inc., with which the Company has entered into an agreement. See
"Certain Transactions." In addition, Mr. Pisano is a director and serves on the
compensation committee of Mr. Coppola's family trust.

AUDIT COMMITTEE

The Audit Committee of the Board of Directors of the Company (the "Audit
Committee") currently consists of Mr. Yemenidjian. 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. The Audit Committee is comprised exclusively of directors who are not
salaried employees of the Company and who are, in the opinion of the Board of
Directors, free from any relationship which would interfere with the exercise
of independent judgement as a committee member.

EXECUTIVE COMMITTEE

The Executive Committee of the Board of Directors of the Company (the
"Executive Committee") was established on December 16, 1997 and currently
consists of Messrs. Mancuso, Pisano, Aljian, Kerkorian and York. The Executive
Committee exercises all the powers and authority of the Board of Directors
during intervals between meetings of the Board of Directors, except as limited
by the Delaware General Corporation Law ("DGCL").

69
<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 years
ended December 31, 1997 and 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 3, 1997 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, 1997 (the "Named Executive
Officers").

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITION YEAR
--------------------------- ----
<S> <C>
Frank G. Mancuso........ 1997
Chairman of the 1996
Board and Chief
Executive Officer
A. Robert Pisano........ 1997
Vice Chairman of the 1996
Board of Directors
Michael G. Corrigan(9).. 1997
Senior Executive Vice 1996
President and Chief
Financial Officer
David G. Johnson(12).... 1997
Senior Executive Vice 1996
President and General
Counsel
William A. Jones........ 1997
Senior Executive Vice 1996
President and Secretary
Daniel J. Taylor(18).... 1997
Senior Executive Vice 1996
President and Chief
Financial Officer
<CAPTION>
-----------------------------------------------------------------------------------------------------
ANNUAL COMPENSATION LONG-TERM COMPENSATION
---------------------------------------- ------------------------------------------------------------
SECURITIES
OTHER ANNUAL BONUS UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY ($) BONUS ($) COMPENSATION ($) INTERESTS (#)(1) OPTIONS (#)(2) COMPENSATION ($)
--------------------------- ---------- --------- ------------------- -------------------- ------------------ --------------------
<S> <C> <C> <C> <C> <C> <C>
Frank G. Mancuso........ $2,020,400 -- $5,780,769(3) 811,756 1,745,680 $ 168,228(5)
Chairman of the 2,691,408 $750,000 576,923(4) -- -- 17,228,129(6)
Board and Chief
Executive Officer
A. Robert Pisano........ 956,600 750,000 -- 243,544 523,754 17,085(7)
Vice Chairman of the 816,984 -- -- -- -- 1,800,706(8)
Board of Directors
Michael G. Corrigan(9).. 328,185 -- -- 83,334(10) 179,168(10) 104,845(11)
Senior Executive Vice -- -- -- -- -- --
President and Chief
Financial Officer
David G. Johnson(12).... 573,483 100,000 -- 83,334(13) 179,168(13) 5,946(14)
Senior Executive Vice 482,893 122,692 -- -- -- 538,858(15)
President and General
Counsel
William A. Jones........ 546,626 -- -- 74,209 159,584 34,309(16)
Senior Executive Vice 467,238 -- -- -- -- 1,051,476(17)
President and Secretary
Daniel J. Taylor(18).... 153,192 41,667 -- 54,042(19) 116,250(19) 67,539(20)
Senior Executive Vice -- -- -- -- -- --
President and Chief
Financial Officer
</TABLE>
- ---------
(1) With respect to 1996, the Original Bonus Interests (as such term is defined
below) granted under the Original Plan (as such term is defined below) were
cancelled in connection with the amendment of the Original Plan in November
1997 as follows: 872,840, 261,877, 89,584, 79,792 and 58,125 granted to Messrs.
Mancuso, Pisano, Johnson, Jones and Taylor, respectively. With respect to 1997,
such number represents the number of Bonus Interests (as such term is defined
below) granted pursuant to the Senior Management Bonus Plan (as such term is
defined below) immediately after the cancellation in November 1997 of the
Original Bonus Interests which had been granted under the Original Plan. See
"--Incentive and Bonus Plans." 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) With respect to 1996, options granted under Original Plan were cancelled in
connection with the amendment of the Original Plan in November 1997 as follows:
872,840, 261,877, 89,584, 79,792 and 58,125 Series A Options and 958,549,
287,502, 98,334, 87,876 and 63,959 Series B Options granted to Messrs. Mancuso,
Pisano, Johnson, Jones and Taylor, respectively. With respect to 1997, such
number represents the number of options granted pursuant to the 1996 Incentive
Plan (as such term is defined below) immediately after the cancellation in
November 1997 of the options which had been granted under the Original Plan.
See "--Incentive and Bonus Plans--1996 Incentive Plan."
(3) Represents (i) the portion of the annual stock purchase payment for the
period of January 1, 1997 to November 17, 1997 and (ii) the annual stock
purchase payment paid in advance for the period of November 18, 1997 to
November 17, 1998, paid to Mr. Mancuso pursuant to his employment agreement,
out of the after-tax proceeds of which he was required to purchase shares of
the Common Stock at a purchase price of $24.00 per share. With respect to
shares of the Common Stock required to be purchased by Mr. Mancuso in
connection with annual stock purchase payments received after

70
<PAGE>

November 17, 1998, the price per share will equal the fair market value of such
shares. See "--Employment Agreements--Frank G. Mancuso."
(4) Represents the portion of the annual stock purchase payment paid to Mr.
Mancuso for the period of October 10, 1996 to December 31, 1996 pursuant to his
employment agreement, out of the after-tax proceeds of which he was required to
purchase shares of the Common Stock at a purchase price of $24.00 per share.
See "--Employment Agreements--Frank G. Mancuso."
(5) Represents life insurance premiums paid by the Company for the benefit of
Mr. Mancuso. See "--Employment Agreements--Frank G. Mancuso."
(6) Includes: $14,468,220 paid to Mr. Mancuso by CL in 1997 as additional
compensation as a result of the MGM Acquisition; $1,020,000 in cash and 63,751
shares of the Common Stock (valued at $24.00 per share) paid or issued to Mr.
Mancuso by the Company in connection with the MGM Acquisition, the waiver of
certain rights under his prior employment agreement and the execution of his
current employment agreement; and $209,885 in life insurance premiums paid by
the Company for the benefit of Mr. Mancuso. See "--Employment Agreements--Frank
G. Mancuso."
(7) Includes: a matching contribution of $6,400 paid by the Company for the
benefit of Mr. Pisano under the Savings Plan and $10,685 in life insurance
premiums paid by the Company for the benefit of Mr. Pisano. See "--Employment
Agreements--A. Robert Pisano."
(8) Includes: $1,200,963 paid to Mr. Pisano by CL in 1997 as additional
compensation in connection with the MGM Acquisition: $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."
(9) Michael G. Corrigan was appointed Senior Executive Vice President and Chief
Financial Officer of the Company on July 1, 1997. Accordingly, the amounts
shown in the table above with respect to "Annual Compensation" are for a period
of less than one year. Mr. Corrigan ceased to be employed by the Company on
June 15, 1998. On June 15, 1998, Daniel J. Taylor was appointed Chief Financial
Officer of the Company. See "--Employment Agreements--Daniel J. Taylor."

(10) Represents the number of Bonus Interests granted under the Senior
Management Bonus Plan and options granted under the 1996 Incentive Plan,
respectively. 89,584 Original Bonus Interests and 89,584 Series A Options and
98,334 Series B Options granted under the Original Plan to Mr. Corrigan in July
1997, which were cancelled in connection with the amendment of the Original
Plan in November 1997. All of Mr. Corrigan's options and Bonus Interests became
vested and exercisable upon the cessation of his employment with the Company.

(11) Represents moving allowance and reimbursement of moving expenses incurred
by Mr. Corrigan in connection with his relocation to Los Angeles.

(12) Mr. Johnson resigned from the Company effective August 20, 1998.

(13) All of Mr. Johnson's options and Bonus Interests became vested and
exercisable upon his resignation from the Company.

(14) Represents a matching contribution of $5,946 paid by the Company for the
benefit of Mr. Johnson under the Savings Plan.

(15) 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."

(16) Includes: a matching contribution of $6,400 paid by the Company for the
benefit of Mr. Jones under the Savings Plan and $27,909 in life insurance
premiums paid by the Company for the benefit of Mr. Jones. See "--Employment
Agreements--William A. Jones."

(17) 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, the waiver of certain rights under his prior
employment agreement and the execution of his current 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."

(18) Mr. Taylor was hired by the Company as Executive Vice President--Corporate
Finance in August 1997 and was appointed as Senior Executive Vice President and
Chief Financial Officer on June 15, 1998. Accordingly, the amounts shown in the
table above with respect to "Annual Compensation" are for a period of less than
one year.

(19) In addition, in connection with his appointment as Senior Executive Vice
President and Chief Financial Officer on June 15, 1998, Mr. Taylor was granted
(i) an additional 62,918 options at an exercise price of $24.00 per share on
August 3, 1998 and (ii) an additional bonus equivalent to 29,292 Bonus
Interests. See "--Employment Agreement--Daniel J. Taylor."

(20) Includes: $61,631 in moving allowance and reimbursement of moving expenses
incurred by Mr. Taylor in connection with his relocation to Los Angeles and a
matching contribution of $5,908 paid by the Company for the benefit of Mr.
Taylor under the Savings Plan. See "--Employment Agreements--Daniel J. Taylor."

71
<PAGE>

Option Grants and Long Term Incentive Awards. 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,
1997.

OPTION GRANTS IN FISCAL YEAR ENDED DECEMBER 31, 1997

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
INDIVIDUAL GRANTS
--------------------------------------------------------
POTENTIAL REALIZABLE
VALUE AT ASSUMED ANNUAL
PERCENT OF RATES OF STOCK PRICE
SHARES TOTAL OPTIONS APPRECIATION FOR OPTION
UNDERLYING GRANTED TO EXERCISE OR TERM ($)
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION -----------------------
NAME GRANTED (#)(1) FISCAL YEAR (%)(2) ($/SH) DATE 5% 10%
- ---- -------------- ------------------ ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Frank G. Mancuso........ 1,745,680 22.7 $24.00 10/9/2006 $26,348,371 $66,771,944
A. Robert Pisano........ 523,754 6.8 24.00 10/9/2006 7,905,266 20,033,496
Michael G. Corrigan..... 179,168 2.3 24.00 6/30/2007 2,704,267 6,853,144
David G. Johnson........ 179,168 2.3 24.00 10/9/2006 2,704,267 6,853,144
William A. Jones........ 159,584 2.1 24.00 10/9/2006 2,408,676 6,104,059
Daniel J. Taylor(3)..... 116,250 1.5 24.00 7/31/2007 1,754,616 4,446,541
</TABLE>
- ---------
(1) Represents options granted under the 1996 Incentive Plan after giving
effect to the cancellation of options previously granted under the Original
Plan as follows: 872,840, 261,877, 89,584, 89,584, 79,792 and 58,125 Series A
Options and 958,549, 287,502, 98,334, 98,334, 87,876 and 63,959 Series B
Options granted to Messrs. Mancuso, Pisano, Corrigan, Johnson, Jones and
Taylor, respectively. See "--Incentive and Bonus Plans."
(2) Based on a total of 7,696,592 employee stock options granted as of December
31, 1997.

(3) In addition, in connection with his appointment as Senior Executive Vice
President and Chief Financial Officer on June 15, 1998, Mr. Taylor was granted
an additional 62,918 options at an exercise price of $24.00 per share on August
3, 1998. See "--Employment Agreement--Daniel J. Taylor."

The following table sets forth information with respect to the ownership and
value of options as of December 31, 1997 held by the Named Executive Officers.
No Named Executive Officer exercised any options in the fiscal year ended
December 31, 1997.

AGGREGATED OPTION EXERCISES IN FISCAL YEAR ENDED DECEMBER 31, 1997 AND OPTION
VALUES AS OF DECEMBER 31, 1997

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
SECURITIES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE-MONEY
OPTIONS AT DECEMBER 31, 1997 OPTIONS AT DECEMBER 31, 1997
--------------------------------------- ---------------------------------------
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 G. Corrigan..... -- 179,168 -- --
David G. Johnson........ -- 179,168 -- --
William A. Jones........ -- 159,584 -- --
Daniel J. Taylor(4)..... -- 116,250 -- --
</TABLE>
- ---------
(1) Each option listed above is exercisable at $24.00 per share of the Common
Stock and none of such options were exercised during the fiscal year ended
December 31, 1997. Such options generally vest over a period of five years. See
"--Incentive and Bonus Plans--1996 Incentive Plan."
(2) Represents the number of options granted pursuant to the 1996 Incentive
Plan (as such term is defined below) immediately after the cancellation in
November 1997 of the options which had been granted under the Original Plan.
See "--Incentive and Bonus Plans--1996 Incentive Plan."
(3) The closing sale price of the Common Stock on the NYSE, as reported by the
Dow Jones News Retrieval, on December 31, 1997 was $20.00 per share, which is
less than the exercise price of the options granted to such executives under
the 1996 Incentive Plan.

(4) In addition, in connection with his appointment as Senior Executive Vice
President and Chief Financial Officer on June 15, 1998, Mr. Taylor was granted
an additional 62,918 options at an exercise price of $24.00 per share on August
3, 1998. See "--Employment Agreement--Daniel J. Taylor."

72
<PAGE>

The following table sets forth information with respect to the ownership of
Bonus Interests (as such term is defined below) granted under the Senior
Management Bonus Plan (as such term is defined below) as of December 31, 1997
and held by the Named Executive Officers. See "--Incentive and Bonus Plans--
Senior Management Bonus Plan."

LONG-TERM INCENTIVE PLANS--AWARDS IN FISCAL YEAR ENDED DECEMBER 31, 1997

<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 45 months
A. Robert Pisano......................... 243,544 45 months
Michael G. Corrigan...................... 83,334 54 months
David G. Johnson......................... 83,334 45 months
William A. Jones......................... 74,209 45 months
Daniel J. Taylor(3)...................... 54,042 55 months
</TABLE>
- ---------
(1) Represents the number of Bonus Interests granted pursuant to the Senior
Management Bonus Plan. 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) Bonus Interests generally vest 20% on the first anniversary of their grant
and 1.67% each month thereafter. The Senior Management Bonus Plan provides for
accelerated vesting and payment in the event of a Special Circumstance (as
defined below) (with payment at discounted present value in the event payment
is made in connection with a Designated Change in Control which occurs prior to
December 31, 2001), accelerated vesting in the event of termination of
employment in certain circumstances and a special Determination Date (as
defined below) and payment at discounted present value, for the officer
involved, in the event of death or Permanent Disability (as defined in the
Senior Management Bonus Plan). See "--Incentive and Bonus Plans--Senior
Management Bonus Plan."

(3) In addition, in connection with his appointment as Senior Executive Vice
President and Chief Financial Officer on June 15, 1998, Mr. Taylor was granted
an additional bonus equivalent to 29,292 Bonus Interests. See "--Employment
Agreement--Daniel J. Taylor."

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, Jones and
Taylor were credited with 4, 4, 15 and 6 years of service, respectively. As of
June 15, 1998, Mr. Corrigan was credited with no years of service. As of August
20, 1998, Mr. Johnson was credited with three 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 $68,400) 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. Corrigan and Mr. Johnson, 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

73
<PAGE>

Officer listed in the "Salary" column of the Summary Compensation Table. Mr.
Corrigan ceased to be employed by the Company effective June 15, 1998 and,
therefore, is no longer covered by the MGM Retirement Plan and, since Mr.
Corrigan did not complete five years of service with the Company, his benefits
under the MGM Retirement Plan did not vest. Mr. Johnson resigned from the
Company effective August 20, 1998 and, therefore, is no longer covered by the
MGM Retirement Plan and, since Mr. Johnson 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 and Mr. Pisano 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.

As of July 1, 1998, 8,125,065 shares of the Common Stock were reserved for
award under the 1996 Incentive Plan, of which options to purchase 7,534,252
shares of the Common Stock were outstanding. Of the outstanding options,
5,205,702 are held by the Named Executive Officers and certain other key
employees (the "Executive Options") and 2,328,550 are held by approximately 400
other employees of the Company (the "Employee Options"). All of the outstanding
options generally vest over a period of five years and are not exercisable
unless vested. In addition, 2,513,267 of the Executive Options cannot be
exercised until December 31, 2001 (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), which includes
(i) the Tracinda Group 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). The Executive Options are exercisable at $24.00 per
share and of the Employee Options, 2,315,550 are exercisable at $20.00 per
share, 13,000 are exercisable at $22.00 per share, 135,000 are exercisable at
$21.50 per share and 19,800 are exercisable at $19.63 per share. As of July 1,
1998, 2,021,424 Executive Options were vested (or would vest within 60 days),
of which 1,100,296 Executive Options were exercisable (or would become
exercisable within 60 days). None of the Employee Options are vested (or will
vest within 60 days).

In May 1998 the Company filed a registration statement on Form S-8 with the
Commission (which registration statement became effective upon filing) with
respect to the shares of the Common Stock underlying the options granted or
authorized to be granted under the 1996 Incentive Plan.

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 an aggregate of 18 present or former
key employees of the Company. Subject to certain vesting and other
requirements, each Bonus Interest entitles the holder to receive a cash payment
if (i) the sum of the average closing price of the Common Stock during the 20
trading days plus, in certain circumstances, per share distributions on the
Common Stock (together, the "Price") preceding a Determination Date (defined
below) is greater than (ii) $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 equals or exceeds $48.00, no payment will thereafter be due in respect of
any then-vested portion of a Bonus Interest.

74
<PAGE>

"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" (as defined in the Senior Management Bonus Plan)
or the taking of any action for the dissolution or liquidation of the Company
(each a "Special Circumstance"). In addition, with respect to the applicable
officer only, a Determination Date shall occur in the event of a termination of
such officer's employment due to death or "Permanent Disability" (as defined in
the Senior Management Bonus Plan"), if such death or Permanent Disability shall
have occurred prior to December 31, 2001, by the Company for "Cause" or by such
officer without "Good Reason" (each, as defined in the Senior Management Bonus
Plan).

Bonus Interests generally vest 20 percent on the first anniversary of the date
of their grant and 1.67% each month thereafter. The Senior Management Bonus
Plan provides for accelerated vesting and payment in the event of a Special
Circumstance (with payment at discounted present value in the event payment is
made in connection with a Designated Change in Control which occurs prior to
December 31, 2001), accelerated vesting in the event of termination of
employment in certain circumstances and payment at discounted present value,
for the officer 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 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. Concurrent with the amendment and
restatement, 5,205,702 of the options described above under "--1996 Incentive
Plan" and 2,420,685 of the Bonus Interests described above under "--Senior
Management Bonus Plan" 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 annually in advance) 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 November 17, 1998 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, participation in the Company's
1996 Incentive Plan, Senior Management Bonus Plan, Savings Plan, MGM Retirement
Plan and any other similar plan or program which the Company provides for its
senior officers generally, 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 and Bonus Interests. See "--Executive
Compensation" and "--Incentive and Bonus 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 June 30,
1998, the amount payable to Mr. Mancuso in the event of such circumstances
would be approximately $14.3 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

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agreement, Mr. Pisano is entitled to an annual salary of $950,000, an annual
guaranteed bonus of $750,000 and an annual discretionary bonus. 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, Senior Management Bonus Plan, Savings Plan, MGM Retirement 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 and the Senior Management Bonus Plan, Mr. Pisano holds
stock options to purchase shares of the Common Stock and Bonus Interests,
respectively. See "--Executive Compensation" and "--Incentive and Bonus Plan."
In connection with the MGM Acquisition, in consideration of the waiver by
Mr. Pisano of certain rights relating to the change of control under his
previous employment agreement with the Company and to induce him to enter into
his existing employment agreement, Mr. Pisano received 15,000 shares of the
Common Stock and $235,343 in cash. If Mr. Pisano's employment is terminated
without cause by the Company or if he terminates the agreement for "good
reason," which includes a "Designated Change in Control" of the Company (as
defined in the 1996 Incentive Plan), he will be entitled to receive the net
present value of the difference between (i) $8.5 million and (ii) the sum of
the annual salary and the guaranteed bonuses paid to him to the date of the
termination and, in addition, all insurance benefits for the remainder of the
term of the employment agreement. As of June 30, 1998, the amount payable to
Mr. Pisano in the event of such circumstances would be approximately
$5.6 million.

Michael G. Corrigan. The Company entered into an employment agreement with Mr.
Corrigan effective as of July 1, 1997, which provided that he would 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 was
entitled to an annual salary of $700,000 and an annual discretionary bonus
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 was entitled to receive certain other benefits, including a car
allowance, medical insurance, participation in the Company's 1996 Incentive
Plan Senior Management Bonus Plan, Savings Plan, MGM Retirement Plan and any
other similar plan or program which the Company provides for its senior
officers generally. Under the 1996 Incentive Plan and Senior Management Bonus
Plan, Mr. Corrigan holds options to purchase shares of the Common Stock and
Bonus Interests, respectively. See "--Executive Compensation" and "--Incentive
and Bonus Plans." Mr. Corrigan ceased to be employed by the Company on June 15,
1998. Pursuant to his employment agreement, Mr. Corrigan received 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. In addition, all of Mr. Corrigan's options
and Bonus Interests became vested and exercisable upon the cessation of his
employment with the Company.

David G. Johnson. The Company entered into an employment agreement with Mr.
Johnson effective as of October 10, 1996, which provided that he would 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 was entitled
to an annual salary of $600,000, which would increase by $50,000 each year for
three years, an annual guaranteed bonus of $100,000 and an annual discretionary
bonus 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 was entitled to receive certain other benefits, including a car
allowance, medical insurance, participation in the Company's 1996 Incentive
Plan, Senior Management Bonus Plan, Savings Plan, MGM Retirement Plan and any
other similar plan or program which the Company provides for its senior
officers generally. Under the 1996 Incentive Plan and Senior Management Bonus
Plan, Mr. Johnson holds stock options to purchase shares of the Common Stock
and Bonus Interests, respectively. 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.
Mr. Johnson resigned from the Company on August 20, 1998. Pursuant to his
employment agreement, Mr. Johnson received 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. In addition, all of Mr. Johnson's options and Bonus
Interests became vested and exercisable upon his resignation from the Company.

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 in October 1998 and then be
subject to adjustment as determined by the Company, and an annual discretionary
bonus which

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<PAGE>

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, Senior Management Bonus Plan, Savings Plan, MGM Retirement Plan and any
other similar plan or program which the Company provides for its senior
officers generally. The Company is also obligated to maintain a term life
insurance policy in the face amount of $2 million on Mr. Jones' life for his
benefit. Under the 1996 Incentive Plan and Senior Management Bonus Plan, Mr.
Jones holds stock options to purchase shares of Common Stock and Bonus
Interests, respectively. See "--Executive Compensation" and "--Incentive and
Bonus Plans." 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. As of June 30, 1998, the amount payable to Mr. Jones in the event of
such circumstances would be approximately $1.8 million.

Daniel J. Taylor. The Company has entered into an employment agreement with Mr.
Taylor effective as of August 1, 1997, as amended as of June 15, 1998, which
provides that he will serve as Senior Executive Vice President and Chief
Financial Officer of the Company for an initial term which ends on June 14,
2003. Pursuant to the agreement, as amended, Mr. Taylor is entitled to a
current annual salary of $700,000, which will increase by $50,000 on October
10, 1998 and by $50,000 in October each year thereafter for four years and an
annual discretionary bonus. In addition, Mr. Taylor may receive an additional
bonus, payable only in the event of a Designated Change in Control of the
Company (as defined in the 1996 Incentive Plan) (the "Taylor Cash Bonus"). The
amount of the Taylor Cash Bonus shall be determined as of the day before the
Designated Change in Control (the "Bonus Determination Date") and shall
otherwise be equivalent to the amount which would have been received with
respect to 29,292 Bonus Interests on such date. See "--Incentive and Bonus
Plans--Senior Management Bonus Plan." Such bonus, if any, will be paid within
five business days from and after the Bonus Determination Date. Mr. Taylor is
entitled to receive certain other benefits, including a car allowance, medical
insurance, participation in the Company's 1996 Incentive Plan, Senior
Management Bonus Plan, Savings Plan, MGM Retirement Plan and any other similar
plan or program which the Company provides for its senior officers generally.
Under the 1996 Incentive Plan and Senior Management Bonus Plan, Mr. Taylor
holds options to purchase 179,168 shares of the Common Stock (62,918 of which
were granted on August 3, 1998), each at an exercise price of $24.00 per share
and 54,042 Bonus Interests, respectively. See "--Executive Compensation" and
"--Incentive and Bonus Plans." If Mr. Taylor's employment is terminated without
cause by the Company or if he terminates the agreement for "good reason," his
account in the 1996 Incentive Plan and Senior Management Bonus Plan will vest
immediately and 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. As of June 30, 1998, the amount payable to Mr. Taylor in
the event of such circumstances would be approximately $3.6 million.

The employment agreement of each of Messrs. Pisano, Corrigan, Johnson, Jones
and Taylor 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 certain executive officers. Section 162(m) further provides,
however, that compensation will not be subject to the deduction limit if
certain conditions are met and the compensation qualifies as "performance-based
compensation." In addition, 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 corporation
complied with certain disclosure requirements. 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.

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<PAGE>

The Compensation Committee believes that any compensation paid or options
granted pursuant to the Company's incentive 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
Named Executive Officer will be subject to the limitations of Section 162(m)
unless they qualify 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
Compensation Committee believes they are structured to qualify as performance-
based compensation and, therefore, any payments after the reliance period
pursuant to the Senior Management Bonus Plan should not be subject to Section
162(m); provided, however, that the Taylor Cash Bonus was not granted pursuant
to the Senior Management Bonus Plan and may be subject to Section 162(m).

The Compensation Committee's current policy is to structure the performance-
based portion of the compensation of its Named Executive Officers in a manner
that complies with Section 162(m) whenever, in the judgment of the Compensation
Committee, doing so would be consistent with the objectives of the compensation
plan under which the compensation would be payable. However, the Compensation
Committee has the authority to award non-deductible compensation as it deems
appropriate and in the best interests of the Company. 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 Compensation Committee 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 $68,400) 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, early or deferred retirement 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 or
that a "ten-year certain and life" form, providing for 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 to his or her beneficiary 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.

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<PAGE>

Supplemental Executive Retirement Agreement. Pursuant to Mr. Pisano's previous
employment agreement and in place of certain benefits under a pension plan
maintained for Mr. Pisano's benefit by a prior employer (the "Prior Plan")
which Mr. Pisano forfeited when he joined the Company in 1993, the Company
entered into the Supplemental Executive Retirement Agreement with Mr. Pisano.
The Supplemental Executive Retirement Agreement provides Mr. Pisano with an
annual benefit equal to $150,000 (the "Benefit Amount"), less an amount equal
to the benefit Mr. Pisano is entitled to receive under the Prior Plan and
subject to certain adjustments, payable in the form of a single life annuity
commencing on the later of the date Mr. Pisano attains age 60 and the date Mr.
Pisano's employment with the Company is terminated, including due to Mr.
Pisano's death. The minimum aggregate amount payable to Mr. Pisano or his
beneficiaries will be $900,000, less all benefits to which Mr. Pisano is
entitled under the Prior Plan. All benefits under the Supplemental Executive
Retirement Agreement are fully vested. If Mr. Pisano continues in the
employment of the Company after attaining age 60, the Benefit Amount shall be
increased by 5/12ths of one percent for each month Mr. Pisano continues to be
employed by the Company after such date. In addition, after payments have
commenced under the Supplemental Executive Retirement Plan, the Benefit Amount
shall be increased effective each January 1 by the adjustment factor applied to
retiree payments for the calendar year under the Prior Plan. If Mr. Pisano is
unmarried on the date benefits commence, the benefit shall be payable monthly
for Mr. Pisano's life ("life only" basis). If, however, Mr. Pisano is married
on the date benefits commence, he may elect to have the benefits to which he is
entitled payable on the life only basis or have the actuarial equivalent of the
life only form payable in equal monthly payments to him during his lifetime
with an amount equal to 50% or 100% of such payments to continue after his
death to his spouse for the remainder of his spouse's life. In the event of a
Designated Change of Control of the Company (as defined in the 1996 Incentive
Plan and the Supplemental Executive Retirement Agreement) or the termination of
Mr. Pisano's employment agreement by the Company without cause or by Mr. Pisano
for good reason, the Company will deposit into escrow an amount sufficient to
provide on an actuarial basis the level of payments required under the
Supplemental Executive Retirement Agreement.

MGM Savings Plan. Employees, including officers, who have completed one year of
service have the opportunity to participate in the MGM Savings Plan (the
"Savings Plan") which is managed by the Merrill Lynch Asset Management L.P.
Participants in the Savings Plan may contribute a portion of their pre-tax
compensation (up to a maximum of $10,000) 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. Effective January
1, 1998, the Savings Plan was amended to allow the matching contributions to be
made in cash or 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.

On August 7, 1998 the Company filed a registration statement on Form S-8 with
the Commission (which registration statement became effective upon filing) with
respect to up to one million shares of the Common Stock authorized to be issued
pursuant to the Savings Plan.

DIRECTOR COMPENSATION

During 1997, no compensation was paid to the directors for services provided in
such capacity. On December 16, 1997 the Board of Directors adopted a policy,
whereby each director of the Company who is not a full-time employee of the
Company or its subsidiaries (a "Non-Employee Director"), currently consisting
of seven persons, will be paid (i) $25,000 per annum for serving as a director
of the Company, (ii) $15,000 per annum additional if such Non-Employee Director
is a member of the Executive Committee, (iii) $2,000 per meeting (up to a
maximum of $8,000 per annum) for attendance at Audit Committee meetings if such
Non-Employee Director is a member of the Audit Committee, and (iv) $1,000 per
meeting (up to a maximum of $4,000 per annum) for attendance at Compensation
Committee meetings if such Non-Employee Director is a member of the
Compensation Committee.

Pursuant to the 1998 Non-Employee Director Stock Plan ("Director Plan"), which
was approved by the stockholders of the Company at the Company's Annual Meeting
of Stockholders held May 12, 1998, each Non-Employee Director is entitled to
elect to receive all or a portion of the compensation received as a director
("Election Amount") in the form of shares of the Common Stock. Shares are
issued under the Director Plan in equal quarterly installments (based on the
Election Amount) and the actual number of shares of the Common Stock to be
received by a Non-Employee Director will be determined based on the fair market
value of the Common Stock on the date of issuance. Up to 100,000 shares of the
Common Stock, subject to certain adjustments, have been reserved for issuance
under the Director Plan. The Director Plan is administered

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<PAGE>

by a committee of the Board of Directors, which has the power to amend the
Plan, subject to certain limitations. For the 1998 Director Plan Year (i.e.,
the period commencing May 13, 1998 and ending on the date of the next Annual
Meeting of Stockholders), two Non-Employee Directors elected to participate in
the Director Plan: Mr. Aljian elected to receive 60% of his annual compensation
as a director in shares of the Common Stock and Mr. York elected to receive 50%
of his annual compensation as a director in shares of the Common Stock.

On May 18, 1998 the Company filed a registration statement on Form S-8 with the
Commission (which registration statement became effective upon filing) with
respect to the shares of the Common Stock authorized to be issued pursuant to
the Director Plan.

In addition, a Non-Employee Director will receive reimbursement for out-of-
pocket expenses in attending meetings of the Board of Directors and any
committees thereof on which they serve. See "Certain Transactions" for a
description of certain transactions involving directors or their affiliates and
the Company.

LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS

As permitted by applicable provisions of the DGCL, the Company's Certificate of
Incorporation contains a provision whereunder 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), to the fullest extent permitted by the DGCL as it exists or may in
the future be amended.

In addition, the Company has entered into indemnification agreements with its
directors, its executive officers and certain other officers providing for
indemnification by the Company, including under 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.

The Company currently maintains insurance on behalf of its officers and
directors against certain liabilities that may be asserted against any such
officer or director in his or her capacity as such, subject to certain
customary exclusions. The amount of such insurance is deemed by the Board of
Directors to be adequate to cover such liabilities.

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DESCRIPTION OF CAPITAL STOCK

COMMON STOCK

The Company's authorized common stock consists of 125,000,000 shares of the
Common Stock. All authorized shares of the Common Stock have a par value of
$0.01 per share and are entitled to one vote per share on all matters submitted
to a vote of stockholders. In the event of a liquidation, dissolution or
winding up of the Company, the holders of the Common Stock are entitled to
share ratably in all assets remaining after all liabilities and the liquidation
preference attributable to any outstanding preferred stock have been paid. The
holders of the Common Stock are entitled to one vote per share on all matters
submitted to a vote of stockholders. Other than as described under "Ownership
of Voting Securities--Investors Shareholder Agreement," the holders of the
Common Stock will have no pre-emptive rights or cumulative voting rights and no
rights to convert their Common Stock into any other securities.

As of July 1, 1998, there were outstanding 65,797,840 shares of the Common
Stock. As of July 1, 1998, there were reserved for issuance upon the exercise
of options 8,437,567 shares of the Common Stock, of which options for 7,846,754
shares of the Common Stock are outstanding (2,333,926 of which are vested or
will become vested within 60 days).

PREFERRED STOCK

As of July 1, 1998, the Company had no shares of preferred stock outstanding,
although the Company is authorized to issue up to 25 million shares of the
preferred stock. Pursuant to the Company's Certificate of Incorporation, the
Board of Directors is authorized to fix by resolution the voting power,
designations, powers, preferences and relative, participating, optional or
other special rights, and the qualifications, limitations, or restrictions
thereof, including, without limitation, the dividend rate, conversion or
exchange rights, redemption price and liquidation preference, of one or more
series of the preferred stock, and to fix the number of shares constituting any
such series. In the event of any dissolution, liquidation or winding up of the
affairs of the Company, whether voluntary or involuntary, after payment or
provision for payment of the debts and other liabilities of the Company, the
holders of each series of the preferred stock shall be entitled to receive, out
of the net assets of the Company, an amount for each share of the preferred
stock equal to the amount fixed and determined by the Board of Directors in the
resolution creating such series and providing for the issuance of such shares,
and no more, prior to any of the assets of the Company being distributed to the
holders of the Common Stock (the "Liquidation Preference"). The issuance of the
preferred stock could adversely affect the voting power and other rights of the
holders of the Common Stock.

The authority possessed by the Board of Directors to issue the preferred stock
could potentially be used to discourage attempts by third parties to obtain
control of the Company through a merger, tender offer, proxy contest or
otherwise by making such attempts more difficult or more costly to successfully
complete. See "Risk Factors--Possible Anti-takeover Effect of Certain Charter
Provisions."

There are no agreements or understandings for the issuance of the preferred
stock and the Board of Directors has no present intention to issue any of the
preferred stock.

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OWNERSHIP OF VOTING SECURITIES

The table below sets forth the beneficial ownership of the Common Stock as of
July 1, 1998 of (i) each director of the Company, (ii) the Named Executive
Officers, (iii) the directors and Named Executive Officers of the Company as a
group and (iv) each person who at such time, to the Company's knowledge,
beneficially owned more than five percent of the outstanding shares of the
Common Stock of the Company.

<TABLE>
<CAPTION>
---------------------
NUMBER OF PERCENTAGE
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES(1) OF CLASS
- ------------------------------------ ---------- ----------
<S> <C> <C>
The Tracinda Group(2).................................... 59,064,714 89.5%
4835 Koval Lane
Las Vegas, NV 89109
Frank G. Mancuso(3)...................................... 888,772 1.3
A. Robert Pisano(4)...................................... 222,372 *
James D. Aljian(5)....................................... 5,301 *
Francis Ford Coppola..................................... -- --
Kirk Kerkorian(5)(6)..................................... 59,064,714 89.5
Alex Yemenidjian(5)...................................... 5,000 *
Jerome B. York(5)........................................ 5,251 *
Michael G. Corrigan(7)................................... 180,168 *
David G. Johnson(8)...................................... 193,022 *
William A. Jones(9)...................................... 87,584 *
Daniel J. Taylor(10)..................................... 25,987 *
All Directors and Executive Officers
as a group (11 persons)................................. 60,648,171 90.1
</TABLE>
- ---------
* Less than 1 percent.
(1) The number of shares shown includes shares over which the person named has
either sole or shared voting or investment power and shares as to which certain
directors and executive officers disclaim beneficial ownership. The shares of
the Common Stock which a person has the right to acquire within 60 days of July
1, 1998 and the shares of Common Stock underlying options that are vested as of
July 1, 1998 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. Also includes 16,208,463 shares (representing, as of July 1,
1998, 24.6% of the outstanding shares) of the Common Stock which were acquired
by the Tracinda Group from Seven on September 1, 1998 pursuant to the
Tracinda/Seven Purchase Agreement. All of the shares of the Common Stock held
by the Tracinda Group are pledged to a group of banks to secure a syndicated
credit facility to the Tracinda Group. For a description of certain voting
agreements applicable to such shares, see "--Investors Shareholder Agreement."
Depending upon the number of Shares purchased by others, upon completion of the
Rights Offering, the percentage of the outstanding shares of Common Stock
beneficially owned by the Tracinda Group will range from approximately
percent to approximately percent.

(3) Includes: 669,817 shares of the Common Stock underlying options vested as
of July 1, 1998 or that will become vested within 60 days of such date. Also
includes 5,000 shares of the Common Stock which are owned by Mr. Mancuso's
children and grandchildren, and as to which Mr. Mancuso disclaims beneficial
ownership. For a description of certain voting agreements applicable to the
shares of the Common Stock held by Mr. Mancuso, see "--Investors Shareholder
Agreement."

(4) Includes: 200,964 shares of the Common Stock underlying options vested as
of July 1, 1998 or that will become vested within 60 days of such date and 328
shares allocated to Mr. Pisano's account in the Savings Plan (as defined in
"Benefit Plans--MGM Savings Plan"). Also includes 3,080 shares of the Common
Stock which are held by the Pisano's Children's Trust and as to which Mr.
Pisano disclaims beneficial ownership.

(5) Each of Messrs. Aljian, Kerkorian and York is an employee of, and, along
with Mr. Yemenidjian, was nominated to the Board of Directors of the Company
by, Tracinda. Each of Messrs. Alijian, Kerkorian, York and Yemenidjian is a
director

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of, and Mr. Yemenidjian is also an executive officer of, MGM Grand, Inc., an
affiliate of Tracinda. Includes as of July 1, 1998 with respect to Mr. Aljian,
301 shares which were issued to Mr. Aljian under the Director Plan and, with
respect to Mr. York, 251 shares which were issued to Mr. York under the
Director Plan. See "Management--Director Compensation."

(6) 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
59,064,714 shares of the Common Stock beneficially owned by the Tracinda Group.

(7) Mr. Corrigan ceased to be employed by the Company effective as of June 15,
1998. Includes: 179,168 shares of the Common Stock underlying options which,
pursuant to his employment agreement, became immediately vested and exercisable
upon the cessation of Mr. Corrigan's employment with the Company.

(8) Mr. Johnson resigned from the Company effective as of August 20, 1998.
Includes: 179,168 shares of the Common Stock underlying options which, pursuant
to his employment agreement, became immediately vested and exercisable upon the
resignation of Mr. Johnson from the Company and 312 shares allocated to Mr.
Johnson's account in the Savings Plan.

(9) Includes: 61,232 shares of the Common Stock underlying options vested as of
July 1, 1998 or that will become vested within 60 days of such date and 310
shares allocated to Mr. Jones' account in the Savings Plan.

(10) Includes: 25,191 shares of the Common Stock underlying options vested as
of July 1, 1998 or that will become vested within 60 days of such date and 296
shares allocated to Mr. Taylor's account in the Savings Plan.

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 November 2012 (i) Tracinda has agreed to vote all of
the shares of capital stock of the Company beneficially owned by it and take
all necessary or desirable action within its 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 nine 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), 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 Tracinda and otherwise meet the requirements of the NYSE for
serving as independent directors; provided, however, that Tracinda is only
obligated to vote for nominees selected by the Board of Directors of the
Company which are acceptable to Tracinda. The Board of Directors may determine
to reduce the size of the Board of Directors to eight persons, in which case
the number of independent directors will be reduced to two. Furthermore,
Tracinda 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 November 2012 (i) Tracinda has agreed to vote all of the shares of
capital stock of the Company beneficially owned by it and take all necessary or
desirable action within its 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 the remaining members of the Board of
Directors of the Company 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 Tracinda and otherwise meets the requirements of
the NYSE for serving as an independent director.

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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 the remaining members of the Board of Directors of the
Company, 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 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 paragraph heading
"--Voting of Shares" will be binding upon any transferee of Tracinda except for
any person (other than an affiliate of Tracinda) who acquires (i) shares of
Common Stock from Tracinda 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 the Common Stock from Tracinda in one
transaction or a series of related transactions.

Business Operations. Each of the Company, MGM Studios, Tracinda and Mr. Mancuso
has agreed to use their best efforts (until November 2012) 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.

Pre-emptive Rights. The Company has granted to each of Tracinda and Mr. Mancuso
certain pre-emptive rights with respect to the Common Stock. If, at any time
prior to November 2012, 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 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 either Tracinda or 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

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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 Tracinda or 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 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 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 Tracinda, at such time
as Tracinda 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, as amended July , 1998 and August , 1998, by and among the
Company, MGM Studios, Tracinda, Mr. Mancuso and the other persons specified on
the signature pages thereto (Mr. Mancuso and such specified persons,
collectively, "Executives"). This summary description does not purport to be
complete and is subject to and qualified in its entirety by reference to the
definitive Shareholders Agreement, a copy of which is filed as an exhibit to
the Registration Statement of which this Prospectus is a part. For purposes of
the Shareholder Agreement, any shares of the Common Stock beneficially owned,
directly or indirectly, by any Kerkorian Entity will be deemed to be owned by
Tracinda.

Tag-Along Rights. Tracinda has agreed to be bound by certain "tag-along"
restrictions with respect to certain Transfers of its shares of the Common
Stock. If 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 the Executives shall have certain "tag-along" rights, subject to
certain notice provisions. Specifically, each Executive shall have the right
but not the obligation, (i) to exercise in the manner provided in the
Shareholders Agreement or in the respective Executive's stock option 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 Tracinda, be obligated to require, as a condition to such
Tag-Along Sale, that the proposed purchaser purchase from each such electing
Executive a proportional number of shares (excluding shares of the Common Stock
acquired pursuant to open market purchases). Any such sales by any Executive
shall be on the same terms and conditions as the proposed Tag-Along Sale by
Tracinda, and on the same date as the closing of the proposed Tag-Along Sale.
Each of the Executives has waived the "tag-along" rights with respect to the
Seven Sale.

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 at such time as Tracinda beneficially owns less than 10,416,750
shares of the Common Stock.

In addition, the tag-along provisions shall not apply to, (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 Tracinda 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
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

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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
subsidiary to continue to be a direct or indirect subsidiary of the transferor
for so long as such direct or indirect subsidiary beneficially owns any such
capital stock of the Company.

Demand Registration Rights. Tracinda and the Executives, have the right to make
up to three requests, in the case of Tracinda, and up to two requests with
respect to all of the Executives, for registration ("Demand Registration")
under the Securities Act of all or part of the Common Stock or securities
issued as a dividend on or distribution with respect to or in exchange,
replacement or in subdivision of, any such Common Stock, which have not been
sold pursuant to an effective registration statement under the Securities Act
or pursuant to Rule 144 under the Securities Act (the "Registrable Securities")
held by them; provided that any request for a Demand Registration shall not be
otherwise deemed to be effective unless such request includes Registrable
Securities with an estimated value of no less than $50 million. Demand
Registration requests may be for shelf registrations (covering sales on a
delayed or contingent basis) if the Company is then eligible to effect shelf
registrations. The Company will pay all of the expenses of any such Demand
Registration, including the fees and expenses of a single counsel retained by
the selling stockholders; however, each selling stockholder will be responsible
for the underwriting discounts and commissions and transfer taxes in connection
with shares sold by such stockholder and any party requesting long-form
registration when short-form registration is available will bear the
incremental cost thereof. Each selling stockholder and the underwriters through
whom shares are sold on behalf of a selling stockholder will be entitled to
customary indemnification from the Company and MGM Studios, in the case of the
selling stockholders, and the Company, in the case of the underwriters, against
certain liabilities, including liabilities under the Securities Act.

The Company will not be obligated to effect any Demand Registration within six
months after the effective date of a previous Demand Registration and during
any two-year period, the Company may make a one-time election to postpone the
filing or the effectiveness of a registration statement for a Demand
Registration for up to six months if the Board of Directors of the Company
determines, in its good faith judgment, that (i) such Demand Registration would
reasonably be expected to have a material adverse effect on, interfere with or
delay any proposal or plan by the Company to engage in any acquisition of
assets (other than in the ordinary course of business) or any merger,
consolidation, tender offer or similar transaction, (ii) the filing of a
registration statement or a sale of Registrable Securities pursuant thereto
would require disclosure of material information that the Company has a bona
fide business purpose for preserving as confidential or (iii) the Company is
unable 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 the Company proposes to register any of its
equity securities under the Securities Act (other than (i) a registration on
Form S-4 or Form S-8 or any successor or similar forms or (ii) a registration
in connection with a pro rata distribution of rights to subscribe for shares of
the Common Stock to all holders of the Common Stock) 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, Tracinda and each of 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

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Company and MGM Studios, in the case of the selling stockholders, and the
Company, in the case of the underwriters against certain liabilities, including
liabilities under the Securities Act.

Certain Holdback Agreements. Tracinda and each of 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.

The Company anticipates that an amendment to the Shareholders Agreement will be
executed before the commencement of the Rights Offering. The amendment is
expected to eliminate any Piggyback Registration rights with respect to the
Rights Offering and any future pro-rata distribution to all holders of the
Common Stock of rights to purchase or subscribe for shares of the Common Stock
or securities convertible into or exchangeable or exercisable for the Common
Stock.

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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. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources" for a description of the Bridge Loan.

General. In October 1997 MGM Studios and Orion (collectively, the "Borrowers")
entered into the Amended Credit Facility with Morgan Guaranty Trust Company of
New York, 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 the Tranche A Loan, the Tranche B Loan and the Revolving Credit Facility.
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 Loan will require no substantial amortization until
2001, and thereafter will fully amortize by final maturity. The Tranche B Loan
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 domestic 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 1.25 percent (1.50 percent for the Tranche B Loan) plus the rate
established by the Agent from time to time as its base rate or (ii) the sum of
2.25 percent (2.50 percent for the Tranche B Loan) 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 are subject to
adjustment from time to time based on the Borrowers' performance under certain
financial tests and ratios.

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.

The Company has entered into three year fixed interest rate swap contracts in
relation to a portion of the Term Loans for a notional value of $500 million at
an average rate of 8.6 percent, which expire in November 2000.

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

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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 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 does 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, or if the directors nominated by Tracinda 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.

See "Risk Factors--Risk Relating to Liquidity and Financing Requirements" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."

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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.

RECENT SALES OF SECURITIES

Pursuant to an investment agreement dated May 2, 1997 among Seven, Tracinda and
the Company, and in connection with the Orion Acquisition, Tracinda purchased
13,375,107 shares of the Common Stock and Seven purchased 1,625,013 shares of
the Common Stock, for a purchase price of $24.00 per share and an aggregate
purchase price of $360 million.

Pursuant to Mr. Mancuso's employment agreement, Mr. Mancuso receives an annual
stock purchase payment of $3 million (payable annually in advance in November
of each year), out of the after tax proceeds of which he is required to
purchase shares of the Common Stock. As of July 1, 1998, Mr. Mancuso had
purchased 136,454 shares of the Common Stock for aggregate consideration of
approximately $3.3 million. Mr. Mancuso is next scheduled to purchase shares of
the Common Stock under his employment agreement in November 1998. See footnotes
3 and 4 to "Management--Executive Compensation--Summary Compensation Table."
"Management--Employment Agreements--Frank G. Mancuso." The Company believes
that the prior or future issuances of such shares to Mr. Mancuso were and will
be exempt from registration under Section 4(2) of the Securities Act.

Concurrent with the consummation of the IPO, Tracinda and the Company
consummated the Tracinda Purchase, pursuant to which Tracinda purchased
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.

During the six months ended June 30, 1998, the Company contributed an aggregate
of 32,185 shares of unregistered Common Stock valued at approximately $695,000
as its matching contribution to the MGM Savings Plan. Registration for such
shares was not required because the transaction did not constitute a "sale"
under Section 2(3) of the Securities Act.

INVESTORS SHAREHOLDER AGREEMENT AND SHAREHOLDERS AGREEMENT

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 "Ownership of Voting
Securities--Shareholders Agreement."

OTHER TRANSACTIONS WITH TRACINDA AND ITS AFFILIATES

In 1980 Old MGM granted to a predecessor-in-interest to MGM Grand, Inc., an
affiliate of Tracinda, 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 affiliate of Tracinda, 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 monetary
compensation for these licenses. See "Business--Trademarks and Consumer
Products." Tracinda owns a majority of the outstanding common stock of MGM
Grand, Inc., the parent of both MGM Grand Hotel ("Grand Hotel") and Grand Air.
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.

The Company 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, and one minute film clips of such releases in a clip reel program for
the benefit of a charitable foundation and to promote the sale of
videocassettes containing such releases at the MGM Grand Hotel/Casino in Las
Vegas. The Company did not receive any monetary compensation for these
licenses.

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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. For 1997
and the six months ended June 30, 1998, the Company recognized revenues of
$257,000 and $24,000, respectively, for such videocassettes and merchandise.

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 goods and services provided by Grand
Hotel in the amount of $462,000.

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 11, 1996 to June 30, 1998, the aggregate of the
payments made to Tracinda for the use of such aircraft was approximately
$320,000.

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 $8.0 million as of June 30, 1998, of which $5.2
million was allocated to MGM Studios.

Tracinda has agreed to purchase, at the Subscription Price, any Shares that are
not otherwise subscribed for by the Expiration Time. See "The Rights Offering--
Standby Agreement" and "--Conditions to the Rights Offering."

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 15 years. 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,
1997 and for the six months ended June 30, 1998, the Company recognized
revenues of $5.5 million and $2.4 million, 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. For 1997 and the six months ended June 30, 1998,
the Company recognized revenues of $3.1 million and $1.6 million, respectively,
under this license agreement. The Company believes that the terms of the
agreement are no less favorable to the Company than those contained in its
licenses with unaffiliated licensees. See "Business--Pay and Free Television."

Seven has agreed to reimburse the Company for losses that the Company may incur
in connection with the distribution of Joey, an Australian film with respect to
which the Company has acquired distribution rights from an unrelated third
party.

OTHER

The Company has an exclusive producer overhead arrangement with FGM
Entertainment for the services of Frank Mancuso, Jr., the son of Mr. Mancuso,
which expires on July 31, 2002. FGM Entertainment, a company wholly owned by

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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. FGM
Entertainment must submit all projects that it wishes to produce or develop to
the Company and receives a producing fee, as well as certain participations and
royalties, for each picture that is produced under the arrangement. From
October 11, 1996 to June 30, 1998, these fees, participations and royalties
(paid to Mr. Mancuso, Jr. for movies produced by him such as Species, Fled and
Hoodlum) have totalled approximately $3.5 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.

In connection with the commencement of Mr. Taylor's employment with the Company
and to assist Mr. Taylor with his relocation to the Los Angeles area, the
Company entered into an agreement with Mr. Taylor pursuant to which the Company
has agreed to purchase, if Mr. Taylor requests, Mr. Taylor's former residence
for the amount of $390,000. The residence is currently listed for sale.
Pursuant to the Company's relocation policies, until the sale of the residence
closes, the Company is reimbursing Mr. Taylor for the mortgage payments on the
residence, in the amount of $2,473 per month, and the Company is responsible
for the cost of maintaining the residence. In addition, the Company has made an
unsecured interest-free loan in the principal amount of $130,000 in order to
assist Mr. Taylor in the purchase of a residence in the Los Angeles area.

In December 1997 the Company entered into an agreement with Taliafilm, Inc.
("Taliafilm"), a company wholly owned by the sister of Francis Ford Coppola, a
director of the Company and the sole member of the Special Committee. Pursuant
to the agreement, subject to certain conditions being met, the Company has the
right to acquire all of Taliafilm's interest in the motion picture Never Say
Never Again for $2.5 million and approximately 20 percent of the adjusted gross
receipts received by the Company from the exploitation of the film. In
addition, the Company will assume certain obligations of Taliafilm relating to
such film.

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SHARES ELIGIBLE FOR FUTURE SALE

As of July 1, 1998 there were outstanding 65,797,840 shares of Common Stock.
Upon completion of the Rights Offering and exercise in full of the Rights, the
Company will have approximately shares of the Common Stock outstanding.
The 9,000,000 shares sold in the IPO are, and the shares sold upon the exercise
of the Rights 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.

Of the total outstanding shares prior to the Rights Offering, 56,765,655 are
"restricted" and 59,205,380 are held by "affiliates," as such terms are defined
in Rule 144. These shares, together with any Shares acquired by Tracinda or any
other affiliate pursuant to the Rights Offering, 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," is entitled to sell, within any three-month
period, a number of "restricted" or "affiliate" shares that does not exceed the
greater of one percent of the then outstanding shares of the Common Stock
(approximately shares immediately after the Rights 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 restricted 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.

As of July 1, 1998, the Company had granted outstanding employee stock options
to purchase an aggregate of 7,534,252 shares of the Common Stock under the 1996
Incentive Plan, of which options to purchase 2,724,436 shares were held by
affiliates of the Company. In May 1998 the Company filed a registration
statement on Form S-8 with the Commission (which registration statement became
effective upon filing) with respect to the shares of Common Stock underlying
options which have been or are authorized to be granted under the 1996
Incentive Plan. Upon exercise of the options, the shares issuable to non-
affiliates will be freely tradable without restriction under the Securities Act
and the shares issuable to affiliates of the Company will be tradable, subject
to the volume limitations of Rule 144 described above. See "Management--
Incentive and Bonus Plans."

Under the Director Plan, the Company is authorized to issue up to 100,000
shares of the Common Stock to Non-Employee Directors. See "Management--Director
Compensation." As of August 1, 1998 the Company had issued an aggregate of
552 shares under the Directors Plan. In May 1998 the Company filed a
registration statement on Form S-8 with the Commission (which registration
statement became effective upon filing) with respect to the shares of Common
Stock issuable under the Director Plan. Upon issuance, such shares will be
tradable, subject to the volume limitations of Rule 144 described above. 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. The shares
issuable upon exercise of the Tracinda and Celsus options will be "restricted"
shares and subject to the sale limitations described above.

As of August 6, 1998, the Company had issued an aggregate of 42,116 shares of
the Common Stock under the Savings Plan. On August 7, 1998 the Company filed a
registration statement on Form S-8 with the Commission (which registration
statement became effective upon filing) with respect to the shares of the
Common Stock authorized to be issued pursuant to the Savings Plan.

Pursuant to the Shareholders Agreement, Tracinda, and the Executives, have been
granted Piggyback Registration rights with respect to any pro-rata distribution
to all holders of the Common Stock of rights to purchase or subscribe for
shares of the Common Stock or securities convertible into, exchangeable for or
exercisable for the Common Stock, such as the Rights Offering. The Company
anticipates that an amendment to the Shareholders Agreement eliminating this
right will be executed before the commencement of the Rights Offering. See
"Ownership of Voting Securities--Shareholders Agreement."

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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CERTAIN FEDERAL INCOME TAX CONSEQUENCES

The following is a discussion of the material federal income tax consequences
of the Rights Offering to the holders of the Common Stock upon the distribution
of Rights (the "Issuance"), and to Holders upon the exercise and disposition of
the Rights.

GENERAL

The discussion is based on the Internal Revenue Code of 1986, as amended (the
"Code"), the Treasury regulations promulgated thereunder, judicial authority,
and current administrative rulings and practice, all of which are subject to
change on a prospective or retroactive basis. The tax consequences of the
Rights Offering under state, local and foreign law are not discussed. Moreover,
special considerations not described herein may apply to certain taxpayers or
certain types of taxpayers, such as financial institutions, broker-dealers,
life insurance companies, tax-exempt organizations and foreign taxpayers. The
discussion is limited to those who have held the Common Stock, and will hold
the Rights and any Shares acquired upon the exercise of Rights as capital
assets (generally, property held for investment) within the meaning of Section
1221 of the Code.

Issuance of Rights. Holders of the Common Stock will not recognize taxable
income for federal income tax purposes upon distribution of the Rights.

Stockholder Basis and Holding Period of the Rights. Except as provided in the
following sentence, the basis of the Rights received by a stockholder as a
distribution with respect to such stockholder's Common Stock will be zero. If,
however, either (i) the fair market value of the Rights on the date of Issuance
is 15% or more of the fair market value (on the date of Issuance) of the Common
Stock with respect to which they are received or (ii) the stockholder properly
elects, in his or her federal income tax return for the taxable year in which
the Rights are received, to allocate part of the basis of such Common Stock to
the Rights, then upon exercise or transfer of the Rights, the stockholder's
basis in such Common Stock will be allocated between the Common Stock and the
Rights in proportion to the fair market values of each on the date of Issuance.

The holding period of a stockholder with respect to the Rights received as a
distribution on such stockholder's Common Stock will include the stockholder's
holding period for the Common Stock with respect to which the Rights were
distributed.

In the case of a purchaser of Rights (a "Purchaser"), the tax basis of such
Rights will be equal to the purchase price paid therefor, and the holding
period for such Rights will commence on the day following the date of the
purchase.

Transfer of the Rights. A Holder or Purchaser who sells the Rights received in
the Issuance prior to exercise will recognize gain or loss equal to the
difference between the sale proceeds and the basis (if any) in the Rights sold.
Such gain or loss will be capital gain or loss if gain or loss from a sale of
the Common Stock held by such Holder would be characterized as capital gain or
loss at the time of such sale. Any gain or loss recognized on a sale of Rights
by a Purchaser will be capital gain or loss if the Common Stock would be a
capital asset in the hands of such Purchaser.

Lapse of the Rights. Holders who allow the Rights received by them at the
Issuance to lapse will not recognize any gain or loss, and no adjustment will
be made to the basis of the Common Stock, if any, owned by such Rights Holders.

Purchasers of the Rights will recognize a loss equal to their tax basis in the
Rights, if such Rights expire unexercised. Any loss recognized on the
expiration of the Rights acquired by a Purchaser will be a capital loss if the
Common Stock would be a capital asset in the hands of the Purchaser.

Exercise of the Rights; Basis and Holding Period of the Common Stock. Holders
will not recognize any gain or loss upon the exercise of Rights. The basis of
the Shares acquired through exercise of the Rights will be equal to the sum of
the Subscription Price therefor and the Holder's basis in such Rights (if any).

The holding period for the Shares acquired through exercise of the Rights will
begin on the date the Rights are exercised.

Sale of Shares. The sale of Shares will result in the recognition of gain or
loss to the stockholder in an amount equal to the difference between the amount
realized and the stockholder's basis in the Shares. Provided the stockholder
holds the

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Shares as a capital asset, gain or loss upon the sale of the Shares will be
long-term or short-term capital gain or loss, depending on whether the Shares
have been held for more than one year.

INFORMATION REPORTING AND BACKUP WITHHOLDING

Under the backup withholding rules of the Code, holders may be subject to
backup withholding at the rate of 31 percent with respect to payments made
pursuant to the Rights offering unless such Holder (i) is a corporation or
comes within certain other exempt categories and, when required, demonstrates
this fact, or (ii) provides a correct taxpayer identification number and
certifies under penalties of perjury that the taxpayer identification number is
correct and that the Holder is not subject to backup withholding because of a
failure to report all dividends and interest income. Any amount withheld under
these rules will be credited against such Holder's federal income tax
liability. The Company may require Holders to establish exemption from backup
withholding or to make arrangements satisfactory to the Company with respect to
the payment of backup withholding.

THE FOREGOING SUMMARY IS INCLUDED FOR GENERAL INFORMATION ONLY. ACCORDINGLY,
EACH HOLDER IS URGED TO CONSULT WITH HIS OR HER OWN TAX ADVISOR WITH RESPECT TO
THE TAX CONSEQUENCES OF THE RIGHTS OFFERING APPLICABLE TO HIS OR HER OWN
PARTICULAR TAX SITUATION, INCLUDING THE APPLICATION AND EFFECT OF STATE AND
LOCAL INCOME AND OTHER TAX LAWS.

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DEALER MANAGER AND FINANCIAL ADVISOR ARRANGEMENTS

The Common Stock offered pursuant to the Rights Offering is being offered by
the Company directly to holders of the Common Stock. The Company has retained
J.P. Morgan Securities Inc. and Merrill Lynch, Pierce, Fenner & Smith
Incorporated, ("Merrill Lynch") to act as the Dealer Managers in connection
with the Rights Offering. The Dealer Managers will provide marketing assistance
in connection with the Rights Offering and will solicit the exercise of Rights
by Holders.

The Company has agreed to pay the Dealer Managers a selling commission of $
for each Share issued in connection with the Rights Offering except Shares
purchased by the Tracinda Group and Shares purchased by Record Date Holders
upon exercise of such Holders' Basic Subscription Privilege and
Oversubscription Privilege. In addition, the Company has agreed to reimburse
certain of the Dealer Managers' expenses.

The Company has agreed to indemnify the Dealer Managers with respect to certain
liabilities, including civil liabilities under the Securities Act, or
contribute to payments which the Dealer Managers may be required to make in
respect thereof.

Neither of the Dealer Managers has prepared any report or opinion constituting
a recommendation or advice to the Company or its stockholders, nor has either
Dealer Manager prepared an opinion as to the fairness of the Subscription Price
or the terms of the Rights Offering to the Company or its current stockholders.
Neither of the Dealer Managers expresses an opinion nor makes any
recommendation to Holders as to the purchase by any person of any Shares.
Neither of the Dealer Managers expresses an opinion as to the prices at which
shares to be distributed in connection with the Rights Offering may trade if
and when they are issued or at any future time.

Other than the Dealer Managers, the Company has not employed any brokers,
dealers or underwriters in connection with the solicitation of exercise of
Rights, and, except as described herein, no other commissions, fees or
discounts will be paid in connection with the Rights Offering. Certain
employees of the Company may solicit responses from Holders, but such employees
will not receive any commissions or compensation for such services other than
their normal employment compensation.

The Dealer Managers may engage in stabilizing transactions in accordance with
Regulation M under the Exchange Act. Stabilizing transactions permit bids to
purchase the underlying security so long as the stabilizing bids do not exceed
a specified maximum. Such stabilizing transactions may cause the price of the
securities to be higher than it would otherwise be in the absence of such
transactions. These transactions may be effected on the NYSE or otherwise and,
if commenced, may be discontinued at any time.

J.P. Morgan Securities Inc. is acting as financial advisor in connection with
the Rights Offering. In its capacity as financial advisor, J.P. Morgan
Securities Inc. is advising the Company regarding the structure of the Rights
Offering, including assisting the Company in determining the Subscription
Price, and with respect to marketing the shares of Common Stock to be issued in
the Rights Offering.

Certain affiliates of both Dealers Managers have performed in the past and may
perform in the future other financial advisory and investment and commercial
banking services for the Company, for which such parties have received and may
in the future receive compensation. An affiliate of J.P. Morgan Securities Inc.
will receive proceeds from the Rights Offering in connection with its role as
agent for a syndicate of lenders and as a lender under the Amended Credit
Facility.

The Special Committee has retained Hambrecht & Quist as its financial advisor
in connection with the Rights Offering to advise the Special Committee
regarding the terms, structure and timing of the Rights Offering.

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 Rights Offering
will be passed upon for the Dealer Managers 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.

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EXPERTS

The Audited Consolidated Financial Statements of the Company for the year ended
December 31, 1997 and for the period from October 11, 1996 to December 31, 1996
and for MGM Studios for the period from January 1, 1996 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 year ended December
31, 1995 were audited by PricewaterhouseCoopers LLP, independent accountants as
stated in their report appearing herein. The consolidated financial statements
of Orion for the year ended December 31, 1996 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.

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INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
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<S> <C>
METRO-GOLDWYN-MAYER INC.
SUCCESSOR CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Public Accountants................................. F-2
Consolidated Balance Sheets as of December 31, 1997 and 1996 and June 30,
1998 (Unaudited)........................................................ F-3
Consolidated Statements of Operations for the Year Ended December 31,
1997, the Period From October 11, 1996 to December 31, 1996 and for the
Six Months Ended June 30, 1998 and 1997 (Unaudited)..................... F-4
Consolidated Statements of Stockholders' Equity for the Year Ended
December 31, 1997, the Period From October 11, 1996 to December 31, 1996
and for the Six Months Ended June 30, 1998 (Unaudited).................. F-5
Consolidated Statements of Cash Flows for the Year Ended December 31,
1997, the Period From October 11, 1996 to December 31, 1996 and for the
Six Months Ended June 30, 1998 and 1997 (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-21
Report of Independent Accountants........................................ F-22
Consolidated Balance Sheets as of October 10, 1996 and December 31, 1995. F-23
Consolidated Statements of Operations for the Period Ended October 10,
1996 and for the Year Ended December 31, 1995........................... F-24
Consolidated Statements of Stockholder's Equity for the Period Ended
October 10, 1996 and for the Year Ended December 31, 1995............... F-25
Consolidated Statements of Cash Flows for the Period Ended October 10,
1996 and for the Year Ended December 31, 1995........................... F-26
Notes to Consolidated Financial Statements............................... F-27

ORION PICTURES CORPORATION

CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Public Accountants................................. F-38
Consolidated Balance Sheet as of December 31, 1996....................... F-39
Consolidated Statement of Operations for the Year Ended December 31,
1996.................................................................... F-40
Consolidated Statement of Shareholder's Equity (Capital Deficiency) for
the Year Ended December 31, 1996........................................ F-41
Consolidated Statement of Cash Flow for the Year Ended December 31, 1996. F-42
Notes to Consolidated Financial Statements............................... F-43

FINANCIAL STATEMENT SCHEDULES
Report of Independent Public Accountants................................. F-52
Schedule I: Condensed Financial Information of the Registrant............ F-53
Report of Independent Public Accountants................................. F-57
Schedule II: Valuation and Qualifying Accounts and Reserves.............. F-58
</TABLE>

F-1
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Metro-Goldwyn-Mayer Inc.:

We have audited the accompanying consolidated balance sheets of Metro-Goldwyn-
Mayer Inc. (a Delaware corporation) and subsidiaries as of December 31, 1997
and 1996, and the related consolidated statements of operations, stockholders'
equity and cash flows for the year ended December 31, 1997 and 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 audits.

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 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, 1997 and 1996, and the results of
their operations and their cash flows for the year ended December 31, 1997 and
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 26, 1998

F-2
<PAGE>

METRO-GOLDWYN-MAYER INC.

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
---------------------------------------
JUNE 30, DECEMBER 31, DECEMBER 31,
1998 1997 1996
In thousands, except share data ----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents................ $ 23,512 $ 3,978 $ 16,381
Accounts and contracts receivable (net of
allowance for doubtful accounts of
$28,010, $27,603 and $11,730,
respectively)........................... 258,825 285,283 271,106
Film and television costs, net........... 1,993,093 1,867,126 1,099,201
Investments and advances to affiliates... 15,819 9,917 16,107
Property and equipment, net.............. 36,154 32,785 27,347
Excess of cost over net assets of
acquired businesses, net................ 568,274 574,795 302,741
Other assets............................. 52,139 48,770 41,785
---------- ---------- ----------
$2,947,816 $2,822,654 $1,774,668
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Bank and other debt..................... $1,158,304 $ 890,508 $ 444,427
Accounts payable and accrued
liabilities............................ 100,762 147,476 90,933
Accrued participants' share............. 211,980 216,530 173,094
Income taxes payable.................... 33,268 31,579 29,269
Advances and deferred revenues.......... 111,354 130,329 104,516
Other liabilities....................... 25,849 27,677 29,307
---------- ---------- ----------
Total liabilities...................... 1,641,517 1,444,099 871,546
---------- ---------- ----------
Commitments and contingencies
Stockholders' equity:
Preferred Stock, $.01 par value,
25,000,000 shares authorized, 501,006
shares issued and outstanding at
December 31, 1996...................... -- -- 5
Common Stock, $.01 par value,
125,000,000 shares authorized,
65,797,840, 65,765,655 and 16,700,342
shares issued and outstanding.......... 658 658 167
Additional paid-in capital.............. 1,506,315 1,504,850 901,639
Retained earnings (deficit)............. (201,585) (127,948) 166
Accumulated other comprehensive income.. 911 995 1,145
---------- ---------- ----------
Stockholders' equity................... 1,306,299 1,378,555 903,122
---------- ---------- ----------
$2,947,816 $2,822,654 $1,774,668
========== ========== ==========
</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 AND COMPREHENSIVE INCOME (LOSS)

<TABLE>
<CAPTION>
-----------------------------------------------------------
SIX MONTHS SIX MONTHS YEAR ENDED OCTOBER 11 TO
ENDED JUNE 30, ENDED JUNE 30, DECEMBER 31, DECEMBER 31,
In thousands, except share 1998 1997 1997 1996
data -------------- -------------- ------------ -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues.................. $ 597,661 $ 351,014 $ 831,302 $ 228,686
Expenses:
Film and television
production and
distribution............ 571,780 317,912 799,539 195,076
General and
administrative expenses. 50,651 35,140 87,644 18,319
Goodwill amortization.... 6,922 3,821 11,230 1,717
----------- ----------- ---------- ----------
Total expenses.......... 629,353 356,873 898,413 215,112
----------- ----------- ---------- ----------
Operating income (loss)... (31,692) (5,859) (67,111) 13,574
Other income (expense):
Interest expense, net of
amounts capitalized..... (38,428) (20,599) (53,105) (9,875)
Interest and other
income, net............. 1,745 1,388 2,447 813
----------- ----------- ---------- ----------
Total other expense..... (36,683) (19,211) (50,658) (9,062)
----------- ----------- ---------- ----------
Income (loss) from
operations before
provision for income
taxes.................... (68,375) (25,070) (117,769) 4,512
Income tax provision...... (5,262) (3,935) (10,345) (4,346)
----------- ----------- ---------- ----------
Net income (loss)......... (73,637) (29,005) (128,114) 166
Other comprehensive income
(loss), net of tax:
Foreign currency
translation adjustment.. (84) (256) (150) 1,145
----------- ----------- ---------- ----------
Comprehensive income
(loss)................... $ (73,721) $ (29,261) $ (128,264) $ 1,311
=========== =========== ========== ==========
Earnings (loss) per share:
Basic.................... $ (1.12) $ (1.73) $ (4.47) $ 0.01
Diluted.................. $ (1.12) $ (1.73) $ (4.47) $ 0.00
Weighted average number of
common shares
outstanding:
Basic.................... 65,781,329 16,766,426 28,634,362 16,692,217
Diluted.................. 65,781,329 16,766,426 28,634,362 37,796,672
</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

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
PREFERRED STOCK COMMON STOCK
------------------- ---------------- ADD'L RETAINED ACCUM. OTHER TOTAL
NO. OF PAR NO. OF PAR PAID-IN EARNINGS COMPREHENSIVE STOCKHOLDERS'
In thousands, except SHARES VALUE SHARES VALUE CAPITAL (DEFICIT) INCOME EQUITY
share data ---------- ------- ---------- ----- ---------- --------- ------------- -------------
<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....... 1,914 -- 28,110,145 281 603,416 -- -- 603,697
Conversion of preferred
stock into common
stock.................. (502,920) (5) 20,955,168 210 (205) -- -- --
Foreign currency
translation adjustment. -- -- -- -- -- -- (150) (150)
Net loss................ -- -- -- -- -- (128,114) -- (128,114)
---------- ----- ---------- ---- ---------- --------- ------------ ----------
BALANCE DECEMBER 31,
1997................... -- -- 65,765,655 658 1,504,850 (127,948) 995 1,378,555
Issuance of common
stock.................. -- -- 32,185 -- 695 -- -- 695
Amortization of deferred
stock compensation..... -- -- -- -- 770 -- -- 770
Foreign currency
translation adjustment. -- -- -- -- -- -- (84) (84)
Net loss................ -- -- -- -- -- (73,637) -- (73,637)
---------- ----- ---------- ---- ---------- --------- ------------ ----------
BALANCE JUNE 30, 1998
(UNAUDITED)............ -- $-- 65,797,840 $658 $1,506,315 $(201,585) $ 911 $1,306,299
========== ===== ========== ==== ========== ========= ============ ==========
</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

<TABLE>
<CAPTION>
---------------------------------------------------
SIX MONTHS SIX MONTHS YEAR ENDED OCTOBER 11 TO
ENDED JUNE ENDED JUNE DECEMBER 31, DECEMBER 31,
30, 1998 30, 1997 1997 1996
--------- ----------- ------------ -------------
In thousands (UNAUDITED)
<S> <C> <C> <C> <C>
Operating activities:
Net income (loss)......... $ (73,637) $ (29,005) $ (128,114) $ 166
Adjustments to reconcile
net income from
operations to net cash
provided by operating
activities:
Amortization of film and
television costs and
participants' share..... 393,774 155,938 429,003 83,508
Depreciation and
amortization of property
and equipment........... 3,922 3,236 6,783 1,418
Amortization of goodwill
and deferred financing
costs................... 9,183 6,316 16,323 2,761
Amortization of deferred
compensation............ 770 -- -- --
Reduction in goodwill due
to realization of tax
benefits................ -- -- -- 1,206
Increase in bad debt and
other reserves.......... 332 -- 6,382 --
Losses (gains) on equity
investments, net........ 5,991 13,838 17,620 (2,592)
Shares contributed to
employee savings plan... 695 -- -- --
Decrease in accounts and
contracts receivable and
other assets............ 20,447 122,268 35,054 12,895
Decrease in accounts
payable, accrued and
other liabilities,
accrued participants'
share and domestic and
foreign taxes........... (95,328) (92,631) (99,455) (31,542)
Decrease in advances and
deferred revenues....... (18,975) (20,968) (40,468) (6,258)
Foreign currency exchange
(gain) loss............. 39 1,064 2,190 (234)
--------- --------- ----------- ----------
Net cash provided by
operating activities... 247,213 160,056 245,318 61,328
--------- --------- ----------- ----------
Investing activities:
Acquisition of Metro-
Goldwyn-Mayer Studios
Inc...................... -- -- -- (1,331,430)
Acquisition of Orion
Pictures Corporation, net
of cash acquired......... -- -- (561,617) --
Additions to film costs,
net...................... (477,558) (269,722) (703,222) (55,814)
Additions to property and
equipment................ (7,119) (5,294) (9,555) (2,079)
Other investing
activities............... (10,672) (5,588) (11,280) (1,538)
--------- --------- ----------- ----------
Net cash used in
investing activities... (495,349) (280,604) (1,285,674) (1,390,861)
--------- --------- ----------- ----------
Financing activities:
Proceeds from issuance of
initial public offering.. -- -- 165,000 --
Proceeds from issuance of
preferred and common
stock to related parties. -- 2,847 438,697 901,811
Proceeds from debt
issuance................. -- -- 200,000 475,000
Additions to borrowed
funds.................... 304,583 147,425 452,600 4,036
Repayments of borrowed
funds.................... (36,789) (25,594) (217,473) (35,453)
Financing costs and other. -- -- (10,040) --
--------- --------- ----------- ----------
Net cash provided by
financing activities... 267,794 124,678 1,028,784 1,345,394
--------- --------- ----------- ----------
Net change in cash and cash
equivalents from
operating, investing and
financing activities...... 19,658 4,130 (11,572) 15,861
Net increase (decrease) in
cash due to foreign
currency fluctuations..... (124) (256) (831) 520
--------- --------- ----------- ----------
Net change in cash and cash
equivalents............... 19,534 3,874 (12,403) 16,381
Cash and cash equivalents
at beginning of period.... 3,978 16,381 16,381 --
--------- --------- ----------- ----------
Cash and cash equivalents
at end of the period...... $ 23,512 $ 20,255 $ 3,978 $ 16,381
========= ========= =========== ==========
</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, 1997
(INFORMATION AS OF JUNE 30, 1998 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1997 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"), Metro-Goldwyn-Mayer Studios Inc. and its majority
owned subsidiaries ("MGM Studios") and Orion Pictures Corporation and its
majority owned subsidiaries ("Orion") (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 and 7), at which time MGM commenced principal operations. The
acquisition of Orion was completed on July 10, 1997 (see Notes 2 and 7). 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, 1998 and 1997. The accompanying
consolidated financial statements as of June 30, 1998 and 1997 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 from 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, Orion and all of their 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, 1998, December 31, 1997
and 1996 is approximately $11,601,000, $4,905,000 and $11,357,000,
respectively, of cash restricted by various escrow agreements. The carrying
value of the Company's cash equivalents approximated cost at each balance sheet
date.

F-7
<PAGE>

METRO-GOLDWYN-MAYER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
related costs, in the period in which the product is available for sale by the
Company's customers. Revenues from television licensing, together with related
costs, are recognized when the feature film or television program is available
to the licensee for telecast. Long-term non-interest-bearing receivables
arising from licensing agreements are discounted to present value.

Accounting for Film and Television Costs. Except for purchase accounting
adjustments, film costs include the costs of production, prints, pre-release
and other advertising expected to benefit future periods and capitalized
overhead and interest. These costs, as well as participations and talent
residuals, are charged against earnings on an individual film basis in the
ratio that the current year's gross film revenues bear to management's estimate
of total remaining ultimate gross film revenues from all sources. The cost
allocated to films revalued in purchase accounting is being amortized over
their estimated economic lives not to exceed 20 years.

Film costs are stated at the lower of cost or estimated net realizable value on
an individual film basis. Revenue and cost forecasts are continually reviewed
by management and revised when warranted by changing conditions. When estimates
of total revenues and costs indicate that a feature film or television program
will result in an ultimate loss, additional amortization is recognized to the
extent required to produce a zero gross margin over the remaining life of the
film or television program.

Property and Equipment. Except for purchase accounting adjustments, property
and equipment are stated at cost. Property and equipment acquired as part of
the acquisitions of MGM Studios and Orion 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 improvements 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. During the year ended
December 31, 1997, the Company reduced goodwill and accrued tax reserves by
$11,075,000 due to the favorable resolution of certain pre-acquisition
contingencies. Accumulated amortization of goodwill was $19,869,000,
$12,947,000 and $1,717,000 as of June 30, 1998 and December 31, 1997 and 1996,
respectively.

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 accumulated other comprehensive income
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.

F-8
<PAGE>

METRO-GOLDWYN-MAYER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

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 2.50 percent
(approximately 8.03 percent, 8.31 percent and 8.38 percent at June 30, 1998,
December 31, 1997 and 1996, respectively), which approximates the Company's
current effective borrowing 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.

Accounts and Contracts Receivable. At December 31, 1997, accounts and contracts
receivable aggregated $312,886,000 (before allowance for doubtful accounts), of
which approximately $259,544,000 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, 1997,
there were no significant customers accounting for greater than 10 percent of
the Company's accounts and contracts receivable. At December 31, 1996,
approximately 27 percent of the Company's accounts and contracts receivable
arose from an exclusive home video servicing agreement with Warner Home Video.

Earnings Per Share. The Company has adopted SFAS No. 128, "Earnings Per Share"
("EPS"), effective for the year ending December 31, 1997 and has restated its
earnings per share disclosures for prior periods to comply with SFAS No. 128.
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. When dilutive,
stock options are included as share equivalents in computing diluted earnings
per share using the treasury stock method. The per share computations for all
periods presented reflect the 41.667 stock split (see Note 7). Basic EPS for
the period from October 11, 1996 to December 31, 1996 increased by $.01 per
share, and for the six months ended June 30, 1997 decreased by $.96 per share
due to the adoption of SFAS No. 128. Included in the computation of weighted
average shares for diluted EPS for the period from October 11, 1996 to December
31, 1996 are 21,104,455 shares of dilutive securities. Dilutive securities of
439,264 and 21,104,455 shares for the six months ended June 30, 1998 and 1997
are not included in the calculation of diluted EPS because they are
antidilutive.

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.

New Accounting Pronouncements. In June 1997, the Financial Accounting Standards
Board ("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.

In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits", which is effective for the
Company's fiscal year ending December 31, 1998. This statement revises
employers' disclosures about pension and other postretirement benefit plans.

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which is effective for all quarters of
fiscal years beginning after June 15, 1999. This statement establishes
accounting and reporting

F-9
<PAGE>

METRO-GOLDWYN-MAYER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities.

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--ACQUISITIONS

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
former 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.

On July 10, 1997, the Company acquired all the outstanding common stock of
Orion, for an aggregate purchase price of $573,000,000 (the "Orion
Acquisition"). 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 net proceeds of $360,000,000, (ii)
borrowings by Orion under a new $250,000,000 Orion credit facility, which was
subsequently refinanced (see Note 6), and (iii) assumption of certain
liabilities.

The Orion Acquisition has been accounted for as a purchase. Orion's 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.................................... $ 51,015
Film and television costs............................................ 396,437
Other assets......................................................... 14,953
Excess of cost over net assets of acquired businesses................ 294,355
Liabilities assumed, including reserve for severance of $36,000...... (190,795)
Cash on hand......................................................... (4,348)
---------
Cash purchase price.................................................. $ 561,617
=========
</TABLE>

The results of operations of MGM Studios have been included in the consolidated
financial statements from October 11, 1996, date of commencement of principal
operations. The results of operations of Orion have been included in the
consolidated financial statements from July 10, 1997, date of acquisition. The
Company has made severance and other payments associated with the Orion
Acquisition aggregating $35,095,000 from the date of acquisition to June 30,
1998. The pro forma results of operations for the years ended December 31,
1997, 1996 and the six months ended June 30, 1997 as if the Acquisition, the
Orion Acquisition, the 41.667 stock split and the conversion of the Preferred
Stock had occurred at the beginning of each period are as follows (in
thousands, except share data):

----------------------------
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED YEAR ENDED
ENDED JUNE DECEMBER 31, DECEMBER 31,
30, 1997 1997 1996
----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Revenues................................. $413,131 $ 902,083 $1,315,128
Operating loss........................... $ (23,567) $ (81,952) $ (598,742)
Net loss................................. $ (62,911) $(155,628) $ (669,251)
Pro forma loss per share................. $ (1.20) $ (2.86) $ (12.73)
Pro forma weighted average shares........ 52,643,546 54,458,427 52,567,754
</TABLE>

F-10
<PAGE>

METRO-GOLDWYN-MAYER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3--FILM AND TELEVISION COSTS

Film and television costs, net of amortization, are summarized as follows (in
thousands):

<TABLE>
-----------------------------
<CAPTION>
JUNE 30, DECEMBER 31, DECEMBER 31,
1998 1997 1996
----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Theatrical productions:
Released............................... $ 1,934,564 $ 1,688,378 $ 962,108
Less: Accumulated amortization......... (526,168) (269,932) (49,892)
----------- ----------- -----------
Released, net.......................... 1,408,396 1,418,446 912,216
Completed not released................. 16,940 7,662 --
In process and development............. 287,322 174,386 59,077
----------- ----------- -----------
Subtotal: theatrical productions..... 1,712,658 1,600,494 971,293
----------- ----------- -----------
Television programming................. 454,965 361,514 140,888
Less: Accumulated amortization......... (174,530) (94,882) (12,980)
----------- ----------- -----------
Subtotal: television programming..... 280,435 266,632 127,908
----------- ----------- -----------
$ 1,993,093 $ 1,867,126 $ 1,099,201
=========== =========== ===========
</TABLE>

Interest costs capitalized to theatrical productions were $7,317,000 and
$4,241,000 for the six months ended June 30, 1998 and 1997, respectively, and
$15,242,000 and $524,000 during the year ended December 31, 1997 and the period
from October 11, 1996 to December 31, 1996, respectively.

Based on the Company's estimates of projected gross revenues as of December 31,
1997, approximately 61% of unamortized film costs applicable to released
theatrical films and released television programs will be amortized during the
six years ending December 31, 2003.

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, 1998, December 31, 1997 and 1996 was $4,613,000, $6,623,000 and
$12,490,000, respectively.

In May 1996, the Company entered into a joint venture agreement with Encore
International, Inc., an indirect subsidiary of Tele-Communications, Inc., to
develop MGM Gold Networks (Asia) ("MGM Gold Asia"), a satellite and cable
delivery channel based in Asia. The partners in MGM Gold Asia subsequently
terminated the operations of the venture in April 1998. In May 1998, the
Company invested in a new television channel joint venture based in Latin
America, MGM Networks Latin America ("MGM Latin America"), in which the Company
obtained a 50 percent equity interest. The Company's share of MGM Gold Asia's
and MGM Latin America's start-up losses in the six months ended June 30, 1998
and the year ended December 31, 1997 were $5,769,000 and $11,754,000,
respectively.

NOTE 5--PROPERTY AND EQUIPMENT

Property and equipment are summarized as follows (in thousands):

---------------------------
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, DECEMBER 31,
1998 1997 1996
----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Leasehold improvements................ $ 17,210 $ 14,845 $ 13,691
Furniture, fixtures and equipment..... 30,905 26,141 15,074
-------- ---------- ----------
48,115 40,986 28,765
Less accumulated depreciation and
amortization......................... (11,961) (8,201) (1,418)
-------- ---------- ----------
$ 36,154 $ 32,785 $ 27,347
======== ========== ==========
</TABLE>

F-11
<PAGE>

METRO-GOLDWYN-MAYER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6--BANK AND OTHER DEBT

Bank and other debt is summarized as follows (in thousands):

----------------------------
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, DECEMBER 31,
1998 1997 1996
----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Revolving Facility....................... $ 445,000 $175,000 $ 94,000
Term Loans............................... 700,000 700,000 349,750
Capitalized lease obligations and other
borrowings.............................. 13,304 15,508 677
---------- ---------- ----------
$1,158,304 $890,508 $444,427
========== ========== ==========
</TABLE>

On October 15, 1997, the Company entered into an amended and restated credit
facility with a syndicate of banks aggregating $1.3 billion (the "Amended
Credit Facility") consisting of a six year $600 million revolving credit
facility (the "Revolving Facility"), a $400 million seven and one-half year
term loan ("Tranche A Loan") and a $300 million eight and one-half year term
loan ("Tranche B Loan") (collectively, the "Term Loans"). The Amended Credit
Facility contains provisions allowing, with the consent of the requisite
lenders and subject to syndication thereof, for an additional $200 million
tranche, raising the potential amount of Amended Credit Facility to $1.5
billion. The Revolving Facility and the Tranche A Loan bear interest at 2.25
percent over the Adjusted LIBOR rate, as defined (7.97 percent at June 30, 1998
and 8.06 percent at December 31, 1997). The Tranche B Loan bears interest at
2.50 percent over the Adjusted LIBOR rate (8.22 percent at June 30, 1998 and
8.31 percent at December 31, 1997). Scheduled amortization of the Term Loans
under the Amended Credit Facility commences with $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
matures in October 2003, subject to extension under certain conditions.

The Company has entered into three year fixed interest rate swap contracts in
relation to a portion of the Term Loans for a notional value of $500,000,000 at
an average rate of 8.6 percent, which expire in November 2000. At December 31,
1997, the Company would have to pay approximately $2,151,000 to terminate such
swap contracts.

The Company's borrowings under the Amended Credit Facility are secured by
substantially all the assets of the Company. The Amended Credit Facility
contains various covenants including limitations on dividends, capital
expenditures and indebtedness, and the maintenance of certain financial ratios.

Lease and other borrowings. Capitalized lease and other borrowings relate
principally to contractual liabilities and computer equipment financing at
interest rates of approximately 10%.

Maturity schedule. Credit facilities, lease and other borrowings at December
31, 1997 are scheduled to mature as follows (in thousands):

<TABLE>
<S> <C>
1998.................................................................. $ 9,352
1999.................................................................. 1,618
2000.................................................................. 1,386
2001.................................................................. 32,977
2002.................................................................. 73,739
Thereafter............................................................ 771,436
--------
$890,508
========
</TABLE>

NOTE 7--STOCKHOLDERS' EQUITY

Recapitalization. On November 18, 1997, the Company effected a recapitalization
pursuant to which the Company, immediately prior to the closing of the IPO and
the Tracinda Purchase (as such terms are defined below) (i) converted each
share of its Preferred Stock into one share of Common Stock, (ii) effected a
41.667 for 1 stock split and (iii) increased the number of authorized shares of
the Common Stock 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.

F-12
<PAGE>

METRO-GOLDWYN-MAYER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Orion Acquisition. The Company financed a portion of the Orion Acquisition
through the issuance of 13,375,107 and 1,625,013 shares of the Common Stock to
Tracinda and Seven, respectively, for aggregate net proceeds of $360,000,000
(see Note 2).

Initial Public Offering and Tracinda Purchase. On November 18, 1997, the
Company issued and sold 9,000,000 new shares of the Common Stock at a price per
share of $20, less an underwriting discount and IPO expenses, for net proceeds
of $165,000,000, in an initial public offering (the "IPO"). Concurrent with the
consummation of the IPO, Tracinda purchased directly from the Company 3,978,780
shares of the Common Stock, at a price per share of $20 less an amount equal to
the underwriting discount per share for shares issued in the Offering, for net
proceeds of $75,000,000 (the "Tracinda Purchase"). Subsequently, $190,000,000
of the net proceeds of the IPO and the Tracinda Purchase were used to repay
existing bank debt and the remaining net proceeds were retained and used for
working capital purposes.

1996 Incentive Plan. The Company has an Amended and Restated 1996 Stock
Incentive Plan (the "1996 Incentive Plan"). 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"). Outstanding stock options under the 1996 Incentive
Plan generally vest over a period of five years and are not exercisable until
vested. 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.

Stock option transactions as of June 30, 1998, December 31, 1997 and 1996 under
the 1996 Incentive Plan were as follows:

<TABLE>
<S> <C>
Balance as of October 11, 1996...................................... --
Granted at $24.00 per share......................................... 1,745,680
---------
Balance as of December 31, 1996..................................... 1,745,680
Granted at a weighted average price of $22.33 per share............. 5,948,672
Forfeited at $20.00 per share....................................... (10,400)
---------
Balance as of December 31, 1997 at a weighted average price of
$22.71 per share................................................... 7,683,952
Granted at $22.00 per share......................................... 13,000
Forfeited at $20.00 per share....................................... (162,700)
---------
Balance as of June 30, 1998 at a weighted average price of $22.77
per share.......................................................... 7,534,252
=========
Number of shares authorized for grant............................... 8,125,065
=========
Number of options exercisable at $24.00 per share................... 5,205,702
=========
Number of options exercisable at $22.00 per share................... 13,000
=========
Number of options exercisable at $20.00 per share................... 2,315,550
=========
Weighted average remaining contractual life
As of December 31, 1997............................................ 9.2 years
=========
As of June 30, 1998................................................ 8.7 years
=========
</TABLE>

Of the outstanding employee options, as of June 30, 1998 and December 31, 1997
there are 1,937,483 and 608,751 options vested, and as of June 30, 1998 there
were 1,058,326 of these options exercisable (or will vest or become exercisable
within 60 days). None of the options were exercisable at December 31, 1997.

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. Subject 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 Common Stock during the
20 trading days and, in certain circumstances, per share distributions on the
Common Stock (together, the "Price")

F-13
<PAGE>

METRO-GOLDWYN-MAYER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
preceding a Determination Date, as defined, 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., maximum of $24.00
per Bonus Interest). Bonus Interests generally vest 20% at October 1, 1997 and
1.67% each month thereafter. Compensation expense of $9,750,000 and $2,921,000
relating to this plan was charged to income for the year ended December 31,
1997 and for the period from October 11, 1996 to December 31, 1996,
respectively.

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 SIX MONTHS YEAR ENDED OCTOBER 11, TO
ENDED JUNE ENDED JUNE DECEMBER 31, DECEMBER 31,
30, 1998 30, 1997 1997 1996
---------- ---------- ------------ --------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net income (loss):
As reported.................. $(73,637) $(29,005) $(128,114) $ 166
Pro forma.................... $(78,364) $(29,955) $(136,187) $ (15)
Pro forma loss per share..... $ (1.19) $ (1.79) $ (4.76) $(.00)
</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 Options
granted in the six months ended June 30, 1998 and 1997, the year ended
December 31, 1997 and the period from October 11 to December 31, 1996 was
$8.74, $6.55, $5.41 and $6.94, respectively. The dividend yield and expected
volatility was 0 percent in all periods, except for options granted in the six
months ended June 30, 1998 which volatility was 33.72 percent. Also, the
calculation uses a weighted average expected life of 5.0 years in the six
months ended June 30, 1998, 1997 and the year ended December 31, 1997, and 5.5
years in the period from October 11, 1996 to December 31, 1996. The calculation
assumes a weighted average assumed risk-free interest rate of 5.63 percent,
6.38 percent, 5.9 percent and 6.2 percent for the six months ended June 30,
1998 and 1997, the year ended December 31, 1997 and the period from October 11
to December 31, 1996, respectively.

NOTE 8--INCOME TAXES

The Company's domestic and foreign tax liability balances consist of the
following (in thousands):

<TABLE>
<CAPTION>
-------------------------
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Current............................................... $30,879 $29,269
Deferred.............................................. 700 --
---------- ----------
$31,579 $29,269
========== ==========
</TABLE>

F-14
<PAGE>

METRO-GOLDWYN-MAYER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

For income 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
income tax effects of temporary differences between book value and tax basis of
assets and liabilities are as follows (in thousands):

<TABLE>
<CAPTION>
--------------------------
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Deferred tax assets:
Film and television costs $ 21,143 $ 6,594
Film revenue....................................... -- 4,444
Participations and residuals payable............... 10,886 15,574
Reserves and investments........................... 52,375 50,521
Net miscellaneous tax assets....................... 34,780 25,368
Operating loss carryforwards....................... 74,069 4,564
---------- ----------
Subtotal gross tax assets......................... 193,253 107,065
Valuation allowance................................ (173,867) (107,065)
---------- ----------
Total tax assets.................................. 19,386 --
---------- ----------
Deferred tax liabilities:
Film revenue....................................... (18,709) --
Goodwill........................................... (1,377) --
---------- ----------
Total deferred tax liabilities.................... (20,086) --
---------- ----------
Net deferred tax asset(liability)................... $ (700) $ --
========== ==========
</TABLE>

As of December 31, 1997, the Company and its subsidiaries for U.S. federal
income tax purposes had net operating loss carryforwards of $30,323,000 and
$159,598,000, which expire in 2011 and 2012, respectively. Presently, there are
no limitations on the use of these carryforwards.

At December 31, 1997, management has determined that $173,867,000 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.

Details of the provision for income taxes are as follows (in thousands):

<TABLE>
<CAPTION>
--------------------------
YEAR ENDED OCTOBER 11 TO
DECEMBER 31, DECEMBER 31,
1997 1996
------------ -------------
<S> <C> <C>
Current taxes:
Foreign taxes....................................... $ 9,645 $ 3,140
Deferred taxes:
Federal and state taxes(benefit).................... (66,102) 6,055
Adjustment for change in valuation allowance........ 66,802 (4,849)
--------- ----------
Total tax provision................................ $ 10,345 $ 4,346
========= ==========
</TABLE>

F-15
<PAGE>

METRO-GOLDWYN-MAYER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The following is a summary reconciliation of the effective tax rate to the
assumed federal tax rate:

<TABLE>
<CAPTION>
----------------------------
YEAR ENDED OCTOBER 11 TO
DECEMBER 31, DECEMBER 31,
1997 1996
------------ -------------
<S> <C> <C>
Assumed federal tax rate on pre-tax book
income(loss).................................... (35)% 35%
Goodwill and other permanent differences......... 3 % 14%
Foreign taxes, net of available federal tax
benefit......................................... 8 % 45%
Loss carryforward not benefitted................. 32 % --
--------- ----------
Effective tax rate............................... 8 % 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.

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, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Actuarial present value of benefit obligations
(including vested benefits of $7,735 and $7,427).. $ 8,834 $ 8,469
========== ==========
Projected benefit obligations...................... $10,500 $ 9,913
Plan assets at fair value (primarily debt
securities)....................................... 8,741 8,403
---------- ----------
Projected benefit obligations in excess of plan
assets............................................ (1,759) (1,510)
Unrecognized net asset as of beginning of year..... (160) (180)
Unrecognized net loss.............................. 860 505
Unrecognized prior service cost.................... (163) (177)
---------- ----------
Accrued pension liability.......................... $(1,222) $(1,362)
========== ==========
Key assumptions used in the actuarial computations
were as follows:
Discount rate...................................... 7.50% 7.50%
========== ==========
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.

F-16
<PAGE>

METRO-GOLDWYN-MAYER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Pension costs includes the following components (in thousands):

<TABLE>
<CAPTION>
---------------------------
YEAR ENDED OCTOBER 11 TO
DECEMBER 31, DECEMBER 31,
1997 1996
------------ -------------
<S> <C> <C>
Service cost....................................... $1,213 $ 244
Interest cost on projected benefit obligation...... 841 163
Actual(return) loss on plan assets................. (636) 224
Net amortization and deferral...................... (34) (330)
------------ ------------
Net periodic pension cost.......................... $1,384 $ 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 $12,366,000 and $2,824,000 for such plans in year
ended December 31, 1997 and 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"). The Company
contributed approximately $1,172,000 and $219,000 to the Savings Plan in the
year ended December 31, 1997 and the period from October 11, 1996 to December
31, 1996.

NOTE 10--RELATED PARTY TRANSACTIONS

In 1980 a predecessor-in-interest to MGM Studios granted to a predecessor-in-
interest to MGM Grand, Inc. an exclusive open-ended royalty-free license to use
certain trademarks, tradenames and logos in MGM Grand Inc.'s hotel/gaming
business and other businesses that are not entertainment-related. Tracinda owns
a majority of the outstanding common stock of MGM Grand, Inc., the parent of
MGM Grand Hotel, Inc. ("Grand Hotel").

The Company has granted to Grand Hotel, or certain of its affiliates, limited
short-term, nonexclusive licenses to (i) key art and still photographs of
artwork from certain theatrical of the Company for use in an "in room" only
publication at the Grand Hotel and one minute film clips of such releases in a
clip reel program for the benefit of a charitable foundation and to promote the
sale of the Company's videocassettes containing such releases at the Grand
Hotel. The Company did not receive any monetary compensation for these
licenses.

The Company sells to Grand Hotel, and certain of its affiliates, on a wholesale
basis videocassettes and 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. During the
six months ended June 30, 1998 and 1997, the year ended December 31, 1997 and
the period from October 11, 1996 to December 31, 1996, the Company recognized
revenues of $24,000, $90,000, $257,000 and $70,000, respectively, for such
videocassettes and merchandise.

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. During the six months ended June 30,
1998, the year ended December 31, 1997 and the period from October 11, 1996 to
December 31, 1996, the aggregate of the payments made to Tracinda for such
charters was approximately $2,000, $308,000 and $10,000, respectively.

F-17
<PAGE>

METRO-GOLDWYN-MAYER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

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 six months ended June 30, 1998 and
1997, the year ended December 31, 1997 and the period from October 11, 1996 to
December 31, 1996, the Company recognized revenues of $2,353,000, $2,395,000,
$4,454,000 and $1,055,000, 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.

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 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
recognized revenues of $1,577,000, $965,000, $3,056,000 and $292,000, during
the six months ended June 30, 1998 and 1997, the year ended December 31, 1997
and the period from October 11, 1996 to December 31, 1996, respectively. The
Company believes that the terms of the agreement are no less favorable to the
Company than those contained in its licenses with unaffiliated licensees.

Seven has agreed to reimburse the Company for losses that the Company may incur
in connection with the distribution of an Australian film with respect to which
the Company has acquired distribution rights from an unrelated third party.

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 $1,499,000,
$351,000, $1,916,000 and $39,000 during the six months ended June 30, 1998 and
1997, the year ended December 31, 1997 and the period from October 11, 1996 to
December 31, 1996, 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.

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 1991. The potential insurance proceeds 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. The Company received $8,031,000 in insurance proceeds under such
policies during the year ended December 31, 1997, of which $2,811,000 was paid
to Tracinda.

In December 1997, the Company entered into an agreement with Taliafilm, Inc.
("Taliafilm"), a company wholly owned by the sister of Francis Ford Coppola, a
director of the Company. Pursuant to the agreement, subject to certain
conditions being met, the Company has the right to acquire all of Taliafilm's
interest in a motion picture for $2,500,000 and for approximately 20 percent of
the adjusted gross receipts received by the Company from the exploitation of
the film. In addition, the Company will assume certain obligations of Taliafilm
relating to such film.

F-18
<PAGE>

METRO-GOLDWYN-MAYER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

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 were as follows (in
thousands):

------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 11 TO
DECEMBER 31, DECEMBER 31,
1997 1996
------------ -------------
<S> <C> <C>
Europe............................................... $255,396 $62,298
Latin America........................................ 21,173 12,485
Other................................................ 95,756 16,743
----------- -----------
$ 372,325 $ 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 $12,915,000 and $2,936,000 for the year ended
December 31, 1997 and the period from October 11, 1996 to December 31, 1996,
respectively.

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 1999.

Future minimum annual commitments under non-cancelable operating leases,
employment agreements, and creative talent agreements as of December 31, 1997
are as follows (in thousands):

<TABLE>
<S> <C>
1998................................................................... $ 67,263
1999................................................................... 42,372
2000................................................................... 34,340
2001................................................................... 23,411
2002................................................................... 11,086
Thereafter............................................................. 6,278
--------
$184,750
========
</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
likely to be not material in relation to the Company's financial condition.

F-19
<PAGE>

METRO-GOLDWYN-MAYER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 13--SUPPLEMENTARY CASH FLOW INFORMATION

The Company paid interest, net of capitalized interest, of $28,192,000,
$14,743,000, $45,394,000 and $7,103,000 during the six months ended June 30,
1998 and 1997, the year ended December 31, 1997 and the period from October 11,
1996 to December 31, 1996, respectively. The Company paid income taxes of
$4,051,000, $8,425,000 and $922,000 during the six months ended June 30, 1998,
the year ended December 31, 1997 and the period from October 11, 1996 to
December 31, 1996, respectively. The Company received foreign remittance tax
refunds of $12,296,000 during the year ended December 31, 1997 and $4,845,000
during the six months ended June 30, 1997.

NOTE 14--QUARTERLY FINANCIAL DATA (UNAUDITED)

Certain quarterly information is presented below (in thousands):

<TABLE>
<CAPTION>
------------------
FIRST SECOND
QUARTER QUARTER
OF 1998 OF 1998
-------- --------
<S> <C> <C>
Revenues................................. $316,460 $281,201
Operating income (loss).................. $ 1,929 $(33,621)
Interest expense, net of amounts
capitalized............................. $ 18,254 $ 20,174
Net loss................................. $(18,643) $(54,994)
Basic and diluted loss per share......... $ (.28) $ (.84)
</TABLE>

<TABLE>
<CAPTION>
--------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
OF 1997 OF 1997 OF 1997 OF 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues............................... $197,629 $153,385 $221,068 $259,220
Operating income (loss)................ $ (1,084) $ (4,775) $ 1,254 $(62,506)
Interest expense, net of amounts
capitalized........................... $ 11,016 $ 9,583 $ 15,415 $ 17,091
Net loss............................... $(14,193) $(14,812) $(16,560) $(82,549)
Basic and diluted loss per share....... $ (.85) $ (.88) $ (.55) $ (1.64)
</TABLE>

F-20
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholder of Metro-Goldwyn-Mayer Studios Inc.:

We have audited the accompanying consolidated balance sheet of Metro-Goldwyn-
Mayer Studios Inc. (formerly known as Metro-Goldwyn-Mayer Inc.) and its
subsidiaries (the "Company") as of October 10, 1996, and the related
consolidated statements of operations and equity and cash flows for the period
from January 1, 1996 to October 10, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company as of
October 10, 1996 and the results of their operations and their cash flows for
the period from January 1, 1996 to October 10, 1996 in conformity with
generally accepted accounting principles.

Arthur Andersen LLP

Los Angeles, California
December 16, 1996

F-21
<PAGE>

REPORT OF INDEPENDENT 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 the year 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 audit. We have not audited
the consolidated financial statements of the Company and its subsidiaries for
any period subsequent to December 31, 1995.

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 the year ended December 31, 1995, in
conformity with generally accepted accounting principles.

PricewaterhouseCoopers LLP

Century City, California
February 29, 1996, except for the incentive bonus
described in Note 12, as to which the date
is July 31, 1996

F-22
<PAGE>

METRO-GOLDWYN-MAYER STUDIOS INC.

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
-------------------------
OCTOBER 10, DECEMBER 31,
1996 1995
In thousands, except share data ----------- ------------
<S> <C> <C>
ASSETS
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 distribution
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
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
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
Deficit............................................... (2,221,816) (1,472,783)
Accumulated other comprehensive income................ (318) (413)
----------- -----------
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-23
<PAGE>

METRO-GOLDWYN-MAYER STUDIOS INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

<TABLE>
<CAPTION>
--------------------------
PERIOD ENDED YEAR ENDED
OCTOBER 10, DECEMBER 31,
1996 1995
In thousands ------------ ------------
<S> <C> <C>
Revenues........................................... $ 912,706 $ 860,971
Expenses:
Film and television production and distribution... 953,820 894,280
General and administrative........................ 60,056 64,175
Goodwill amortization............................. 11,570 14,876
Provision for impairment.......................... 563,829 --
---------- ---------
Total expenses................................... 1,589,275 973,331
---------- ---------
Operating loss..................................... (676,569) (112,360)
Other income (expense):
Interest expense, net of amounts capitalized...... (71,375) (66,386)
Interest and other income, net.................... 3,179 10,372
---------- ---------
Total other expense.............................. (68,196) (56,014)
---------- ---------
Loss from operations before provision for income
taxes............................................. (744,765) (168,374)
Income tax provision............................... (273) (935)
---------- ---------
Net loss........................................... (745,038) (169,309)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment........... 95 (703)
---------- ---------
Comprehensive loss................................. $ (744,943) $(170,012)
========== =========
</TABLE>

The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.

F-24
<PAGE>

METRO-GOLDWYN-MAYER STUDIOS INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY

<TABLE>
<CAPTION>
-------------------------------------------------------------------------
COMMON STOCK ADDITIONAL ACCUM. OTHER TOTAL
NUMBER OF PAR PAID-IN COMPREHENSIVE STOCKHOLDER'S
SHARES VALUE CAPITAL DEFICIT INCOME EQUITY
--------- --------- ---------- ----------- ------------- -------------
In thousands, except
share data
<S> <C> <C> <C> <C> <C> <C>
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-25
<PAGE>

METRO-GOLDWYN-MAYER STUDIOS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
--------------------------
PERIOD ENDED YEAR ENDED
OCTOBER 10, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
In thousands
Operating activities:
Net loss.......................................... $(745,038) $(169,309)
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
Depreciation and amortization of property and
equipment....................................... 4,645 4,021
Provision for impairment and amortization of
intangibles..................................... 575,399 14,876
(Decrease) increase in bad debt and other
reserves........................................ 430 (17,425)
Losses (gains) on equity investments............. (1,967) 1,620
Increase in accounts and contracts receivable,
advances to affiliates and other assets......... (28,192) (65,454)
Increase (decrease) in accounts payable, accrued
and other liabilities, accrued participants'
share and domestic and foreign taxes............ (19,970) 680
Decrease in advances and deferred revenues....... (51,199) (24,597)
Foreign currency exchange (gain) loss and other.. 325 (1,175)
--------- ----------
Net cash provided by operating activities....... 343,137 371,657
--------- ----------
Investing activities:
Additions to film costs, net...................... (369,148) (701,436)
Additions to property and equipment............... (6,901) (9,376)
Other investing activities........................ (4,093) --
--------- ----------
Net cash used in investing activities........... (380,142) (710,812)
--------- ----------
Financing activities:
Additions to borrowed funds....................... 165,866 375,909
Repayments of borrowed funds...................... (114,854) (35,761)
Contribution received from parent................. -- 5,900
Dividends paid.................................... (6,160) (13,283)
Financing costs and other......................... -- (4,736)
--------- ----------
Net cash provided by financing activities....... 44,852 328,029
--------- ----------
Net change in cash and cash equivalents from
operating, investing and financing activities..... 7,847 (11,126)
Net decrease in cash due to foreign currency
fluctuations...................................... (258) (543)
--------- ----------
Net change in cash and cash equivalents............ 7,589 (11,669)
Cash and cash equivalents at beginning of period... 17,128 28,797
--------- ----------
Cash and cash equivalents at end of the period..... $ 24,717 $ 17,128
========= ==========
</TABLE>

The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.

F-26
<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.

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).

F-27
<PAGE>

METRO-GOLDWYN-MAYER STUDIOS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

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 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.

F-28
<PAGE>

METRO-GOLDWYN-MAYER STUDIOS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

amounts of assets and liabilities. Management estimates ultimate revenues and
costs for feature films and television programs for each market based on
anticipated release patterns, public acceptance and historical results for
similar products. Actual results could differ from those estimates.

NOTE 2--FILM AND TELEVISION COSTS, INCLUDING FILM DISTRIBUTION ORGANIZATION

Film costs, net of amortization, are summarized as follows (in thousands):
<TABLE>
<CAPTION>
--------------------------
OCTOBER 10, DECEMBER 31,
1996 1995
----------- ------------
<S> <C> <C>
Theatrical productions:
Released........................................... $ 3,120,016 $ 2,698,926
Less: Accumulated amortization..................... (2,323,301) (1,873,303)
----------- -----------
Released, net...................................... 796,715 825,623
Completed not released............................. 25,782 --
In process and development......................... 72,678 210,955
----------- -----------
Subtotal: theatrical productions.................. 895,175 1,036,578
----------- -----------
Television programming.............................. 498,056 453,316
Less: Accumulated amortization...................... (386,829) (338,100)
----------- -----------
Subtotal: 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 and
$21,498,000 during the period ended October 10, 1996 and the year ended December
31, 1995, 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 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 depreciation and amortization....... (41,727) (40,871)
--------- ----------
$ 26,686 $ 32,078
========= ==========
</TABLE>

F-29
<PAGE>

METRO-GOLDWYN-MAYER STUDIOS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

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):

<TABLE>
<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 obligations 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 16) 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 16) was $298,936,000.

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 16) 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 16). 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%.

F-30
<PAGE>

METRO-GOLDWYN-MAYER STUDIOS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

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 16). 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.

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-31
<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
========= ==========

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):

<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.

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

F-32
<PAGE>

METRO-GOLDWYN-MAYER STUDIOS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

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
OCTOBER 10, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Current taxes:
Foreign taxes...................................... $ 273 $ 935
Deferred taxes:
Federal and state taxes (benefit).................. (241,630) 1,997
Adjustment for change in enacted tax rate.......... -- --
Adjustment for change in valuation allowance....... 241,630 (1,997)
--------- ----------
Total tax provision............................... $ 273 $ 935
========= ==========
</TABLE>

The following is a summary reconciliation of the effective tax rate to the
assumed federal tax rate:

<TABLE>
<CAPTION>
---------------------------
PERIOD ENDED YEAR ENDED
OCTOBER 10, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Assumed federal tax rate on loss................. (35)% (35)%
Goodwill and other permanent differences......... 8 % 3 %
Foreign taxes, net of available federal tax
benefit......................................... 1 % (2)%
Loss carryforward not benefited.................. 27 % 35 %
--------- ----------
Effective tax rate.............................. 1 % 1 %
========= ==========
</TABLE>

The Company has various foreign subsidiaries formed or acquired to produce or
distribute motion pictures outside the United States. In the opinion of
management, the earnings of these subsidiaries are not permanently invested
outside the United States. Pursuant to APB 23, tax expense has accordingly been
provided for these unremitted earnings.

Federal income tax returns for the periods ended through March 25, 1986 have
been examined by the Internal Revenue Service. In the opinion of management,
any adjustments which may result from the examination of subsequent periods for
which the Company is responsible will not have a material effect on the
Company's consolidated financial position or results of operations.

F-33
<PAGE>

METRO-GOLDWYN-MAYER STUDIOS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 9--RETIREMENT PLANS

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
OCTOBER 10, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Service cost........................................ $ 854 $ 658
Interest cost on projected benefit obligation....... 570 630
Actual return on plan assets........................ (521) (797)
Net amortization and deferral....................... 148 329
--------- ----------
Net periodic pension cost........................... $1,051 $ 820
========= ==========
</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 and $11,950,000 in 1996 and 1995,
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 and $58,000,000 was charged by the Bank
during the period ended October 10, 1996 and the year ended December 31, 1995,
respectively. Pursuant to the terms of its credit facilities, the Company also

F-34
<PAGE>

METRO-GOLDWYN-MAYER STUDIOS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
paid to the Bank charges related to letters of credit and other fees of
approximately $19,000 and $52,000, 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 for the year
ended December 31, 1995. 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 year ended December 31, 1995,
the Company incurred legal fees of approximately $1,735,000 and $2,737,000,
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 year ended December 31, 1995 were as follows (in
thousands):
<TABLE>
<CAPTION>
-------------------------
PERIOD ENDED YEAR ENDED
OCTOBER 10, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Europe................................................ $215,588 $223,830
Western Hemisphere.................................... 24,066 29,882
Other................................................. 102,466 90,274
--------- ----------
$342,120 $343,986
========= ==========
</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 and $8,630,000 for the period ended
October 10, 1996 and the year ended December 31, 1995, respectively.

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

F-35
<PAGE>

METRO-GOLDWYN-MAYER STUDIOS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

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 16, 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
$10,000,000 for the year ended December 31, 1995. 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 year ended December
31, 1995, respectively. Income taxes paid were $17,856,000 and $5,140,000 in
the period ended October 10, 1996 and the year ended December 31, 1995,
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).

NOTE 14--QUARTERLY FINANCIAL DATA (UNAUDITED)

Certain quarterly information is presented below (in thousands):

<TABLE>
<CAPTION>
------------------------------------------------
FIRST QUARTER OF SECOND QUARTER OF
1996 1995 1996 1995
--------- -------- -------- -----------------
<S> <C> <C> <C> <C>
Revenues...................... $ 286,947 $156,804 $308,185 $162,029
Operating loss................ (24,724) (27,144) (25,086) (29,562)
Interest expense, net......... 22,361 13,014 22,725 15,256
Net loss...................... (53,678) (38,716) (49,874) (45,814)
<CAPTION>
------------------------------------------------
THIRD QUARTER OF FOURTH QUARTER OF
1996 1995 1995
--------- -------- -----------------
<S> <C> <C> <C>
Revenues...................... $ 317,574 $206,239 $335,845
Operating loss................ (626,759) (27,114) (18,540)
Interest expense, net......... 26,289 17,281 20,835
Net loss...................... (641,486) (46,048) (28,731)
</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 1995 interim financial information was not reviewed by the Company's
independent accountants in accordance with standards established for such
review.

F-36
<PAGE>

METRO-GOLDWYN-MAYER STUDIOS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

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-37
<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-38
<PAGE>

ORION PICTURES CORPORATION

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
-------------------------
JUNE 30, DECEMBER 31,
1997 1996
----------- ------------
(UNAUDITED)
<S> <C> <C>
In thousands
ASSETS
Cash and cash equivalents........................... $ 1,252 $ 2,922
Accounts receivable, net............................ 45,878 50,661
Film and television costs, net...................... 237,558 252,299
Property, plant and equipment, net.................. 39,287 38,470
Goodwill, net....................................... 129,439 132,139
Other assets........................................ 12,901 13,797
---------- ----------
Total assets...................................... $ 466,315 $ 490,288
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Bank and other debt................................ $ 292,434 $ 269,410
Accounts payable and accrued expenses.............. 38,082 35,489
Participations and residuals payable............... 56,657 62,916
Due to Parent...................................... 85,168 84,637
Deferred revenues.................................. 64,829 64,912
---------- ----------
Total liabilities................................. 537,170 517,364
---------- ----------
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................................ (421,629) (377,850)
---------- ----------
Total shareholder's equity (capital deficiency)... (70,855) (27,076)
---------- ----------
Total liabilities and shareholder's equity
(capital deficiency)............................. $ 466,315 $ 490,288
========== ==========
</TABLE>

See accompanying notes to consolidated financial statements

F-39
<PAGE>

ORION PICTURES CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
---------------------------
SIX MONTHS TWELVE MONTHS
ENDED ENDED
JUNE 30, DECEMBER 31,
1997 1996
In thousands ------------ -------------
(UNAUDITED)
<S> <C> <C>
Revenues.......................................... $ 90,910 $ 165,164
Costs and expenses:
Cost of rentals and operating expenses........... 99,181 139,307
Selling, general, and administrative............. 19,302 24,709
Depreciation and amortization.................... 4,984 5,555
------------ ------------
Operating loss.................................... (32,557) (4,407)
Interest expense.................................. 11,019 17,166
Interest income................................... (197) (286)
------------ ------------
Interest expense, net............................ 10,822 16,880
Loss before extraordinary items and provision for
income taxes..................................... (43,379) (21,287)
Provision for income taxes........................ 400 1,000
------------ ------------
Loss before extraordinary items................... (43,779) (22,287)
Extraordinary loss on extinguishment of debt...... -- 4,505
------------ ------------
Net loss.......................................... $ (43,779) $ (26,792)
============ ============
</TABLE>

See accompanying notes to consolidated financial statements

F-40
<PAGE>

ORION PICTURES CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
(CAPITAL DEFICIENCY)

<TABLE>
<CAPTION>
--------------------------------------------
COMMON STOCK
ADDITIONAL
NUMBER OF PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT
In thousands, except share data --------- --------- ---------- -----------
<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-41
<PAGE>

ORION PICTURES CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOW

<TABLE>
<CAPTION>
------------ -------------
SIX MONTHS TWELVE MONTHS
ENDED ENDED
JUNE 30, DECEMBER 31,
1997 1996
------------ -------------
(UNAUDITED)
In thousands
<S> <C> <C>
OPERATIONS:
Net loss.......................................... $(43,779) $ (26,792)
Adjustments to reconcile loss to cash provided by
operations:
Amortization of film costs....................... 53,660 61,472
Amortization of discount on notes, subordinated
debt and guarantee.............................. 1,039 2,243
Depreciation and amortization.................... 4,984 5,555
Loss on early extinguishment of debt............. -- 4,505
Payroll charge due to restricted stock........... 532 528
(Increase) decrease in accounts receivable....... 3,793 16,122
Increase (decrease) in accounts payable.......... (416) 219
Increase (decrease) in accrued expenses.......... 4,145 371
Accrual of participations and residuals.......... 9,192 34,255
Payments of participations and residuals......... (15,451) (27,364)
Decrease in deferred revenues.................... (83) (20,984)
------------ ------------
Cash provided by operations....................... 17,616 50,130
------------ ------------
INVESTING ACTIVITIES:
Investment in film inventories.................... (38,919) (67,176)
Additions to property, plant and equipment........ (3,252) (3,648)
Cash acquired, net of contributions from parent... -- 843
Other investing activities........................ 193 (4,370)
------------ ------------
Cash used in investment activities................ (41,978) (74,351)
------------ ------------
FINANCING ACTIVITIES:
Additions to notes and subordinated debt.......... 36,200 307,658
Payments on notes and subordinated debt........... (13,508) (275,829)
Payments of deferred financing costs.............. -- (10,700)
Increase (decrease) in due to/from parent......... -- (270)
------------ ------------
Cash provided by financing activities............. 22,692 20,859
------------ ------------
Net decrease in cash.............................. (1,670) (3,362)
Cash and cash equivalents at beginning of period.. 2,922 6,284
------------ ------------
Cash and cash equivalents at end of period........ $ 1,252 $ 2,922
============ ============
</TABLE>

See accompanying notes to consolidated financial statements

F-42
<PAGE>

ORION PICTURES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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. The Company is a wholly-owned subsidiary of Metromedia
International Group Inc. ("MIG").

Unaudited Information as of June 30, 1997

The accompanying unaudited consolidated financial statements as of June 30,
1997 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. 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 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.

F-43
<PAGE>

ORION PICTURES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

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 $5.7 million and $2.9 million at June 30, 1997 and December 31,
1996, 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.

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.

F-44
<PAGE>

ORION PICTURES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

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 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 $13.6 million and $11.6 million at
June 30, 1997 and December 31, 1996, 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.

F-45
<PAGE>

ORION PICTURES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Approximately $4.6 million and $4.8 million was payable to an officer of a
subsidiary of the Company and was included in participation and residuals
payable as of June 30, 1997 and December 31, 1996, 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.

4. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consists of the following (in thousands):

<TABLE>
<CAPTION>
-------------------------
JUNE 30, DECEMBER 31,
1997 1996
----------- ------------
(UNAUDITED)
<S> <C> <C>
Land and buildings................................... $ 7,461 $ 7,461
Theatre leasehold interests.......................... 19,301 18,633
Leasehold improvements............................... 8,685 7,678
Equipment, furniture and fixtures.................... 9,916 8,535
---------- -----------
45,363 42,307
Accumulated depreciation............................. (6,076) (3,837)
---------- ----------
$39,287 $38,470
========== ===========
</TABLE>

4. FILM AND TELEVISION COSTS, NET

Film and television costs, net of amortization, are summarized as follows (in
thousands):

<TABLE>
<CAPTION>
------------------------
JUNE 30, DECEMBER 31,
1997 1996
----------- ------------
(UNAUDITED)
<S> <C> <C>
Theatrical and television product released............. $186,214 $193,391
Completed not released................................. 3,730 8,255
In process and development............................. 47,614 50,653
---------- -----------
$237,558 $252,299
========== ===========
</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-46
<PAGE>

ORION PICTURES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

6. BANK AND OTHER DEBT

Bank and other debt is comprised of the following (in thousands):

<TABLE>
<CAPTION>
------------------------
JUNE 30, DECEMBER 31,
1997 1996
----------- ------------
(UNAUDITED)
<S> <C> <C>
Notes payable to banks under Credit, Security &
Guaranty Agreement................................... $276,200 $247,500
Capital leases, other guarantees and notes payable,
net of unamortized discount
of $2,346 and $2,699................................. 16,234 21,910
---------- -----------
Total notes payable................................... $292,434 $269,410
========== ===========
</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 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 the six months ended June 30, 1997 and calendar 1996, $12.6 million and
$18.4 million of interest costs were incurred of which $1.6 million and
$1.2 million were capitalized to film inventories. Cash utilized for the
payment of interest during the six months ended June 30, 1997 and calendar 1996
was $10.0 million and $16.5 million, respectively.

F-47
<PAGE>

ORION PICTURES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 the six months ended June 30, 1997 and
calendar 1996, all of which is current, consists of the following (in
thousands):

<TABLE>
<CAPTION>
------------------------
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1997 1996
----------- ------------
(UNAUDITED)
<S> <C> <C>
Federal................................................ $ -- $ --
State and local........................................ 100 100
Foreign................................................ 300 900
---------- ----------
Current................................................ 400 1,000
Deferred............................................... -- --
---------- ----------
Total.................................................. $400 $1,000
========== ==========
</TABLE>

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 the six months ended June 30, 1997 and calendar 1996 was $0.3 million
and $0.7 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

F-48
<PAGE>

ORION PICTURES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.

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>

F-49
<PAGE>

ORION PICTURES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 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 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-50
<PAGE>

ORION PICTURES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

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-51
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Metro-Goldwyn-Mayer Inc.:

We have audited in accordance with generally accepted auditing standards, the
financial statements of Metro-Goldwyn-Mayer Inc. included in this Registration
Statement on Form S-1 and have issued our report thereon dated February 26,
1998. Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying schedules are the
responsibility of the Company's management and are presented for purposes of
complying with the Securities and Exchange Commission's rules and are not part
of the basic financial statements. These schedules have been subjected to the
auditing procedures applied in the audit of the basic financial statements and,
in our opinion, fairly state in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.

Arthur Andersen LLP

Los Angeles, California
February 26, 1998

F-52
<PAGE>

SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT

METRO-GOLDWYN-MAYER INC.
(PARENT ONLY)

BALANCE SHEETS

<TABLE>
<CAPTION>
------------------------------
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
In thousands, except share data
<S> <C> <C> <C>
ASSETS
Investments and advances to affiliates............ $1,378,555 $1,323,756
Other assets...................................... -- 24,569
---------- ----------
$1,378,555 $1,348,325
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Bank debt........................................ $ -- $ 443,750
Accrued interest................................. -- 1,453
---------- ----------
Total liabilities............................... -- 445,203
---------- ----------
Commitments and contingencies
Stockholders' equity:
Preferred Stock, $.01 par value, 25,000,000
shares authorized, 501,006 shares issued and
outstanding at December 31, 1996................ -- 5
Common Stock, $.01 par value, 125,000,000 shares
authorized, 65,765,655 and 16,700,342 shares
issued and outstanding.......................... 658 167
Additional paid-in capital....................... 1,504,850 901,639
Retained earnings (deficit)...................... (127,948) 166
Cumulative translation adjustment................ 995 1,145
---------- ----------
Stockholders' equity............................ 1,378,555 903,122
---------- ----------
$1,378,555 $1,348,325
========== ==========
</TABLE>

The accompanying Notes to Financial Statements are an integral part of these
statements.

F-53
<PAGE>

METRO-GOLDWYN-MAYER INC.
(PARENT ONLY)

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
--------------------------------
YEAR ENDED OCTOBER 11 TO
DECEMBER 31, DECEMBER 31,
1997 1996
------------ -------------
In thousands, except share data
<S> <C> <C> <C>
Revenues........................................ $ -- $ --
Expenses:
Equity in net (income) losses of subsidiaries.. 94,760 (9,776)
Interest expense, net.......................... 33,354 9,610
---------- ----------
Total expenses................................ 128,114 (166)
---------- ----------
Net income (loss)............................... (128,114) $ 166
========== ==========
Basic and diluted earnings (loss) per share..... $ (4.47) $ 0.01
========== ==========
Weighted average number of common and common
equivalent shares outstanding.................. 28,634,362 16,692,217
========== ==========
</TABLE>

The accompanying Notes to Financial Statements are an integral part of these
statements.

F-54
<PAGE>

METRO-GOLDWYN-MAYER INC.
(PARENT ONLY)

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
--------------------------------
YEAR ENDED OCTOBER 11 TO
DECEMBER 31, DECEMBER 31,
1997 1996
------------ -------------
In thousands
<S> <C> <C> <C>
Operating activities:
Net income (loss)............................ $(128,114) $ 166
Adjustments to reconcile net income from
operations to net cash provided by operating
activities:
Losses (gains) on equity investments, net... 94,760 (9,776)
Amortization of debt issuance costs......... 3,934 1,068
Increase (decrease) in accrued liabilities.. (1,453) 1,453
--------- -----------
Net cash used by operating activities...... (30,873) (7,089)
--------- -----------
Investing activities:
Acquisition of MGM Studios Inc............... -- (1,331,430)
Acquisition of Orion Pictures Corporation.... (565,965) --
--------- -----------
Net cash used in investing activities...... (565,965) (1,331,430)
--------- -----------
Financing activities:
Proceeds from issuance of preferred and
common stock................................ 603,697 901,811
Proceeds from debt issuance.................. -- 475,000
Net bank repayments.......................... (443,750) (31,417)
Net intercompany advances (repayments)....... 436,891 (6,875)
--------- -----------
Net cash provided by financing activities.. 596,838 1,338,519
--------- -----------
Net change in cash and cash equivalents....... -- --
Cash and cash equivalents at beginning of
period....................................... -- --
--------- -----------
Cash and cash equivalents at end of the
period....................................... $ -- $ --
========= ===========
</TABLE>

The accompanying Notes to Financial Statements are an integral part of these
statements.

F-55
<PAGE>

METRO-GOLDWYN-MAYER INC.
(PARENT ONLY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1997

NOTE 1--BASIS OF PRESENTATION

The accompanying financial statements include the accounts of Metro-Goldwyn-
Mayer Inc. (formerly known as P&F Acquisition Corp.) ("MGM", or "the Company")
presented on a separate company (parent only) basis. 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), 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.

NOTE 2--BANK DEBT

On October 15, 1997, MGM Studios entered into an amended and restated credit
facility with a syndicate of banks aggregating $1.3 billion (the "Amended
Credit Facility"). Concurrent with the Amended Credit Facility, MGM Studios
repaid $739,653,000 of bank debt and accrued interest on behalf of the Company.
For additional information regarding the Registrant's borrowings under debt
agreements and other borrowings, see Note 6 to the Consolidated Financial
Statements.

F-56
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Metro-Goldwyn-Mayer Studios Inc.:

We have audited in accordance with generally accepted auditing standards, the
financial statements of Metro-Goldwyn-Mayer Studios Inc. for the period from
January 1, 1996 to October 10, 1996 included in this Registration Statement on
Form S-1 and have issued our report thereon dated December 16, 1996. Our audit
was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The accompanying schedule is the responsibility of
the Company's management and are presented for the purposes of complying with
the Securities and Exchange Commission's rules and are not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly state in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.

Arthur Andersen LLP

Los Angeles, California
December 16, 1996

F-57
<PAGE>

METRO-GOLDWYN-MAYER INC.

SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

------------------------------------
<TABLE>
<CAPTION>
ADDITIONS
BALANCE CHARGED BALANCE
AT TO COSTS AT END
BEGINNING AND OF
In Thousands OF PERIOD EXPENSES ACQUIRED DEDUCTIONS PERIOD

------------------------------------
<S> <C> <C> <C> <C> <C>
Successor
FOR THE YEAR ENDED DECEMBER 31,
1997:
Reserve for allowances and
doubtful accounts.............. $11,730 $ 3,166 $13,600 $ (893) $27,603
======= ======= ======= ======== =======
FOR THE PERIOD FROM OCTOBER 11,
1996 TO DECEMBER 31, 1996:
Reserve for allowances and
doubtful accounts.............. $12,718 $ (21) $ -- $ (967) $11,730
======= ======= ======= ======== =======
<CAPTION>
Predecessor
<S> <C> <C> <C> <C> <C>
FOR THE PERIOD FROM JANUARY 1,
1996 TO OCTOBER 10, 1996:
Reserve for allowances and
doubtful accounts.............. $18,479 $ 430 $ -- $(6,191) $12,718
======= ======= ======= ======== =======
Reserve for home video inventory
obsolescence, shrinkage,
and reduplication.............. $ 1,769 $ -- $ -- $(1,769) $ --
======= ======= ======= ======== =======
FOR THE YEAR ENDED DECEMBER 31,
1995:
Reserve for allowances and
doubtful accounts.............. $26,059 $(2,565) $ -- $(5,015) $18,479
======= ======= ======= ======== =======
Reserve for home video inventory
obsolescence, shrinkage,
and reduplication.............. $ 5,933 $ -- $ -- $(4,164) $ 1,769
======= ======= ======= ======== =======
</TABLE>

F-58
<PAGE>

[LOGO OF METRO GOLDWYN MAYER (TM)]
<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The estimated expenses in connection with the Offering are as follows:

<TABLE>
<CAPTION>
EXPENSES AMOUNT
-------- --------
<S> <C>
SEC Registration Fee............................................... $147,500
NASD Fee........................................................... 30,500
NYSE Fee........................................................... *
Printing Expenses.................................................. *
Legal Fees and Expenses............................................ 500,000
Transfer Agent and Registrar Fees.................................. *
Subscription Agent's Fees.......................................... *
Accounting Fees and Expenses....................................... 135,000
Miscellaneous Expenses............................................. *
--------
Total............................................................ $ *
========
</TABLE>
- --------
* To be submitted by amendment.

ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.

As permitted by applicable provisions of the DGCL, the Company's Certificate
of Incorporation contains a provision whereunder 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), to the fullest extent permitted by the DGCL as it
exists or may in the future be amended.

In addition, the Company has entered into indemnification agreements with
its directors, its executive officers and certain other officers providing for
indemnification by the Company, including under 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.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

On October 10, 1996, the Company sold 8,333,400 shares of the Common Stock
to each of Tracinda and Seven, and 450,000 and 50,000 shares of Series A
Cumulative Convertible Preferred Stock (which were converted into 18,750,150
and 2,083,350 shares of the Common Stock, respectively, immediately prior to
the completion of the IPO) to Tracinda and Seven, respectively, in connection
with the MGM Acquisition for aggregate consideration of $900 million. The
Company believes that these sales were exempt from registration under Section
4(2) of the Securities Act.

On July 10, 1997, the Company sold 13,375,107 and 1,625,013 shares of the
Common Stock to Tracinda and Seven, respectively, in connection with the Orion
Acquisition for aggregate consideration of $360 million. The Company believes
that these sales were exempt from registration under Section 4(2) of the
Securities Act.

II-1
<PAGE>

In connection with MGM Acquisition and the renegotiation of employment
agreements with certain employees of the Company, including certain members of
management, the Company issued to such employees an aggregate of 66,667 shares
of the Common Stock and 2,000 shares of the Company's Series A Cumulative
Convertible Preferred Stock (which were converted into 83,334 shares of the
Common Stock prior to the completion of the IPO). The Company received no cash
consideration from such issuance. Company believes that the issuance of such
shares to such employees was exempt from registration under Section 4(2) of
the Securities Act.

Concurrently with the consummation of the IPO, Tracinda and the Company
consummated the Tracinda Purchase, pursuant to which Tracinda purchased
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.

Pursuant to Mr. Mancuso's employment agreement, Mr. Mancuso receives an
annual stock purchase payment of $3 million (payable annually in advance in
November of each year), out of the after tax proceeds of which he is required
to purchase shares of the Common Stock. As of July 1, 1998, Mr. Mancuso had
purchased 136,454 shares of the Common Stock for aggregate consideration of
approximately $3.3 million. Mr. Mancuso is next scheduled to purchase shares
of the Common Stock under his employment agreement in November 1998.
See footnotes 3 and 4 to "Management--Executive Compensation--Summary
Compensation Table" and "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.

During the six months ended June 30, 1998, the Company contributed an
aggregate of 32,185 shares of unregistered Common Stock valued at
approximately $694,000 as its matching contribution to the MGM Savings Plan.
Registration for such shares was not required because the transaction did not
constitute a "'sale" under Section 2(3) of the Securities Act.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Exhibits.

See Exhibit Index attached hereto and incorporated herein by reference.

(b) Financial Statement Schedules. The following financial statement
schedule is filed with Part II of this Registration Statement:

Schedule II--Valuation and Qualifying Accounts and Reserves.

All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under
the applicable instructions or are inapplicable and therefore have been
omitted.

ITEM 17. UNDERTAKINGS.

Insofar as indemnification for liabilities arising out of the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that, in the opinion of the Commission, such indemnification
is against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense in any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.

II-2
<PAGE>

The undersigned registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

II-3
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 2 to the Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Santa Monica, California, on September 11, 1998.

METRO-GOLDWYN-MAYER INC.

/s/ Daniel J. Taylor
By: _________________________________

Daniel J. Taylor

Senior Executive Vice President

and Chief Financial Officer

Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 2 to the Registration Statement has been signed by the following
persons in the capacities indicated on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----

<S> <C> <C>
* Frank G. Mancuso Chairman of the Board of Directors September 11, 1998
________________________ and Chief Executive Officer
Frank G. Mancuso (Principal Executive Officer)

* A. Robert Pisano Vice Chairman and Director September 11, 1998
________________________
A. Robert Pisano

/s/ Daniel J. Taylor Chief Financial Officer (Principal September 11, 1998
________________________ Financial and Accounting Officer)
Daniel J. Taylor

* James D. Aljian Director September 11, 1998
________________________
James D. Aljian

* Francis Ford Coppola Director September 11, 1998
________________________
Francis Ford Coppola

* Kirk Kerkorian Director September 11, 1998
________________________
Kirk Kerkorian

* Alex Yemenidjian Director September 11, 1998
________________________
Alex Yemenidjian

* Jerome B. York Director September 11, 1998
________________________
Jerome B. York

*By: /s/ Daniel J. Taylor September 11, 1998
_________________________
Daniel J. Taylor

As attorney-in-fact pursuant
to power of attorney previously
filed with the Commission
</TABLE>

II-4
<PAGE>

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
1.1 Form of Dealer Manager Agreement*..............................
2.1 Stock Purchase Agreement, dated as of July 16, 1996, by and
among the Company (f/k/a P&F Acquisition Corp.), CDR, MGM
Holdings, MGM Group Holdings Corporation and MGM Studios
(f/k/a Metro-Goldwyn-Mayer, Inc.)+(1).........................
2.2 Stock Purchase Agreement, dated as of May 2, 1997, by and among
the Company, Orion and Metromedia International Group, Inc.
("MIG")+(1)...................................................
2.3 Agreement and Plan of Merger, dated as of January 31, 1996, by
and among MIG, SGC Merger Corp. and the Samuel Goldwyn Company
(the "Goldwyn Merger Agreement")+(1)..........................
2.4 Amendment No. 1 to Goldwyn Merger Agreement dated as of May 29,
1996(1).......................................................
2.5 Amendment and Restated Plan of Merger, dated as of May 17,
1996, between MIG, MPCA Merger Corp., Bradley Krevoy, Steven
Stabler and MPCA+(1)..........................................
3.1 Form of Amended and Restated Certificate of Incorporation of
the Company(1)................................................
3.2 Form of Amended and Restated Bylaws of the Company(1)..........
4.1 Form of Subscription Warrant*..................................
5.1 Opinion of Gibson, Dunn & Crutcher LLP*........................
10.1 Credit Agreement, dated as of October 10, 1996, among the
Company, MGM Studios, certain lenders and Morgan, as
agent+(1).....................................................
10.2 Credit Agreement, dated as of July 10, 1997, among Orion,
certain lenders and Morgan Guaranty Trust Company of New York
("Morgan"), as agent+(1)......................................
10.3 Amended and Restated Credit Agreement, dated as of October 15,
1997, among the Company, MGM Studios, Orion, certain lenders,
Morgan, as agent and Bank of America, as syndication
agent+(1).....................................................
10.4 Amendment I to Amended and Restated Credit Agreement, dated as
of March 30, 1998, among the Company, MGM Studios, Orion,
certain lenders, Morgan, as agent and Bank of America, as
syndication agent**...........................................
10.5 Form of Modification and Cancellation Agreement, dated as of
November 5, 1997(1)...........................................
10.6 Amended and Restated 1996 Stock Incentive Plan dated as of
November 11, 1997 and form of related Stock Option
Agreement(1)..................................................
10.7 Senior Management Bonus Plan dated as of November 11, 1997 and
form of related Bonus Interest Agreement(1)...................
10.8 Form of Amended and Restated Employment Agreement of Frank G.
Mancuso dated as of August 4, 1997(1).........................
10.9 Employment Agreement of A. Robert Pisano dated as of October
10, 1996(1)...................................................
10.10 Employment Agreement of David G. Johnson dated as of October
10, 1996(1)...................................................
10.11 Employment Agreement of William A. Jones dated as of October
10, 1996(1)...................................................
10.12 Employment Agreement of Daniel J. Taylor dated as of August 1,
1997**........................................................
10.13 Amendment to Employment Agreement of Daniel J. Taylor dated as
of June 15, 1998**............................................
10.14 Indemnification Agreement dated as of October 10, 1996--Frank
G. Mancuso(1).................................................
10.15 Indemnification Agreement dated as of October 10, 1996--A.
Robert Pisano(1)..............................................
10.16 Indemnification Agreement dated as of October 10, 1996--David
G. Johnson(1).................................................
10.17 Indemnification Agreement dated as of October 10, 1996--William
A. Jones(1)...................................................
10.18 Indemnification Agreement dated as of October 10, 1996--James
D. Aljian(1)..................................................
10.19 Indemnification Agreement dated as of October 10, 1996--Kirk
Kerkorian(1)..................................................
10.20 Indemnification Agreement dated October, 1997--Michael G.
Corrigan(1)...................................................
10.21 Indemnification Agreement dated as of October 10, 1996--Jerome
B. York(2)....................................................
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
10.22 Indemnification Agreement dated as of November 7, 1997--Alex
Yemenidjian(2)................................................
10.23 Indemnification Agreement dated as of January 28, 1998--Francis
Ford Coppola(2)...............................................
10.24 Indemnification Agreement dated as of June 15, 1998--Daniel J.
Taylor**......................................................
10.25 Amended and Restated Supplemental Executive Retirement
Agreement dated as of July 18, 1997--A. Robert Pisano(1)......
10.26 Form of Amended and Restated Shareholders Agreement dated as of
August 4, 1997(1).............................................
10.27 Waiver and Amendment No. 1 to Amended and Restated Shareholders
Agreement dated as of .*.................................
10.28 Waiver and Amendment No. 2 to Amended and Restated Shareholders
Agreement dated .*.......................................
10.29 Form of Amended and Restated Investors Shareholder Agreement
dated as of August 4, 1997(1).................................
10.30 Waiver and Amendment No. 1 to Amended and Restated Investors
Shareholder Agreement dated as of .*.....................
10.31 Form of Amended and Restated Stock Option Agreement between the
Company and Tracinda(1).......................................
10.32 Form of Amended and Restated Stock Option Agreement between the
Company and Celsus(1).........................................
10.33 Form of Inducement Agreement, dated as of November 5, 1997(1)..
10.34 Form of Investment Agreement dated November 12, 1997 between
the Company and Tracinda(1)...................................
10.35 Form of Standby Agreement, dated as of , 1998, between the
Company and Tracinda*.........................................
10.36 1998 Non-Employee Director Stock Plan(3).......................
21 List of Subsidiaries of Metro-Goldwyn-Mayer Inc. **............
23.1 Consent of Arthur Andersen LLP.................................
23.2 Consent of PricewaterhouseCoopers LLP..........................
23.3 Consent of KPMG Peat Marwick LLP...............................
23.4 Consent of Gibson, Dunn & Crutcher LLP (to be included in their
opinion filed as Exhibit 5.1)*................................
24 Power of Attorney**............................................
27 Financial Data Schedule**......................................
99.1 Form of Instructions to Stockholders as to use of Subscription
Warrants*.....................................................
99.2 Form of Notice of Guaranteed Delivery for Subscription
Warrants*.....................................................
99.3 Form of Letter to Common Stockholders who are record holders*..
99.4 Form of Letter to Common Stockholders who are beneficial
holders*......................................................
99.5 Form of Notice of Record Date*.................................
</TABLE>
- ----------
*To be filed by amendment.

**Previously filed.
+Filed without Schedules.
(1) Incorporated by reference to the Exhibits to the Company's Registration
Statement on Form S-1 (File no. 333-35411) and any amendments thereto.
(2) Incorporated by reference to the Exhibits to the Form 10-K for the fiscal
year ended December 31, 1997 (File no. 001-13481.)
(3) Incorporated by reference to the Exhibits to the Company's Form S-8 (File
no. 333-52953.)

<PAGE>

EXHIBIT 23.1

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Metro-Goldwyn-Mayer Inc.:

As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
Form S-1 Registration Statement.

Arthur Andersen LLP

Los Angeles, California

September 11, 1998

<PAGE>

EXHIBIT 23.2

We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated February 29, 1996,
except for the incentive bonus described in Note 12, as to which the date is
July 31, 1996, relating to the financial statements of Metro-Goldwyn-Mayer
Studios Inc. (formerly known as Metro-Goldwyn-Mayer Inc.) for the year ended
December 31, 1995, which appears in such Prospectus. We also consent to the
application of such report to the Financial Statement Schedule for the year
ended December 31, 1995 listed under Item 16(b) of this Registration Statement
when such schedule is read in conjunction with the financial statements
referred to in our report. The audit referred to in such report also included
such schedule. We also consent to the references to us under the heading
"Experts" and "Selected Consolidated Financial Data" in such prospectus.
However, it should be noted that PricewaterhouseCoopers LLP has not prepared
or certified such "Selected Consolidated Financial Data".

/s/ PricewaterhouseCoopers LLP
______________________________
PricewaterhouseCoopers LLP

Century City, California

September 11, 1998

<PAGE>

EXHIBIT 23.3

The Board of Directors
Metro-Goldwyn-Mayer Inc.

We consent to the use of our report included herein and to the reference to
our firm under the heading "Experts" in the prospectus.

KPMG Peat Marwick LLP

Los Angeles, California

September 11, 1998