<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
COMMISSION FILE NO. 0-13481
----------------
METRO-GOLDWYN-MAYER INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 95-4605850
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
2500 BROADWAY STREET, SANTA MONICA, CA 90404
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
----------------
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (310) 449-3000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, PAR VALUE $0.01
----------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. [X] Yes [_] No
The number of shares of the Registrant's common stock, $.01 par value,
outstanding as of July 31, 1998 was 65,803,185.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
METRO-GOLDWYN-MAYER INC. AND SUBSIDIARIES
FORM 10-Q
JUNE 30, 1998
INDEX
<TABLE>
<CAPTION>
PAGE
NO.
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 1998
(unaudited) and December 31, 1997............................. 1
Condensed Consolidated Statements of Operations for the
Quarters and Six Months ended June 30, 1998 and 1997
(unaudited)................................................... 2
Condensed Consolidated Statements of Stockholders' Equity for
the Six Months ended June 30, 1998 (unaudited)................ 3
Condensed Consolidated Statements of Cash Flows for the Six
Months ended June 30, 1998 and 1997 (unaudited)............... 4
Notes to Condensed Consolidated Financial Statements........... 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations......................................... 9
Item 3. Quantitative and Qualitative Disclosure About Market Risk...... 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.............................................. 17
Item 2. Changes in Securities and Use of Proceeds...................... 17
Item 4. Submission of Matters to a Vote of Security Holders............ 18
Item 5. Other Information.............................................. 19
Item 6. Exhibits and Reports on Form 8-K............................... 19
Signatures............................................................... 20
</TABLE>
i
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL INFORMATION
METRO-GOLDWYN-MAYER INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED)
ASSETS
------
<S> <C> <C>
Cash and cash equivalents............................. $ 23,512 $ 3,978
Accounts and contracts receivable (net of allowance
for doubtful accounts of $28,010 and $27,603,
respectively)........................................ 258,825 285,283
Film and television costs, net........................ 1,993,093 1,867,126
Investments and advances to affiliates................ 15,819 9,917
Property and equipment, net........................... 36,154 32,785
Excess of cost over net assets of acquired businesses,
net.................................................. 568,274 574,795
Other assets.......................................... 52,139 48,770
---------- ----------
$2,947,816 $2,822,654
========== ==========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Liabilities:
Bank and other debt................................. $1,158,304 $ 890,508
Accounts payable and accrued liabilities............ 100,762 147,476
Accrued participants' share......................... 211,980 216,530
Income taxes payable................................ 33,268 31,579
Advances and deferred revenues...................... 111,354 130,329
Other liabilities................................... 25,849 27,677
---------- ----------
Total liabilities................................. 1,641,517 1,444,099
---------- ----------
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value, 125,000,000 shares
authorized, 65,797,840 and 65,765,655 shares issued
and outstanding.................................... 658 658
Additional paid-in capital.......................... 1,506,315 1,504,850
Deficit............................................. (201,585) (127,948)
Accumulated other comprehensive income.............. 911 995
---------- ----------
Stockholders' equity.............................. 1,306,299 1,378,555
---------- ----------
$2,947,816 $2,822,654
========== ==========
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these statements.
1
<PAGE>
METRO-GOLDWYN-MAYER INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
QUARTER ENDED QUARTER ENDED ENDED ENDED
JUNE 30, 1998 JUNE 30, 1997 JUNE 30, 1998 JUNE 30, 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues................ $ 281,201 $ 153,385 $ 597,661 $ 351,014
Expenses:
Film and television
production and
distribution......... 285,110 138,721 571,780 317,912
General corporate
administrative
expenses............. 26,029 16,228 50,651 35,140
Goodwill amortization. 3,683 1,911 6,922 3,821
---------- ---------- ---------- ----------
Total expenses...... 314,822 156,860 629,353 356,873
---------- ---------- ---------- ----------
Operating loss.......... (33,621) (3,475) (31,692) (5,859)
Other income (expense):
Interest expense, net
of amounts
capitalized.......... (20,174) (9,583) (38,428) (20,599)
Interest and other
income (expense),
net.................. 1,070 (242) 1,745 1,388
---------- ---------- ---------- ----------
Total other expense. (19,104) (9,825) (36,683) (19,211)
---------- ---------- ---------- ----------
Loss from operations
before provision
for income taxes....... (52,725) (13,300) (68,375) (25,070)
Income tax provision.... (2,269) (1,512) (5,262) (3,935)
---------- ---------- ---------- ----------
Net loss................ $ (54,994) $ (14,812) $ (73,637) $ (29,005)
========== ========== ========== ==========
Basic and diluted loss
per share.............. $ (0.84) $ (0.88) $ (1.12) $ (1.73)
========== ========== ========== ==========
Weighted average number
of common shares
outstanding............ 65,790,698 16,810,509 65,781,329 16,766,426
========== ========== ========== ==========
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements
are an integral part of these statements.
2
<PAGE>
METRO-GOLDWYN-MAYER INC
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK
---------------- ADD'L ACCUM. OTHER TOTAL
NO. OF PAR PAID-IN COMPREHENSIVE STOCKHOLDERS'
SHARES VALUE CAPITAL DEFICIT INCOME EQUITY
---------- ----- ---------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
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... 65,797,840 $658 $1,506,315 $(201,585) $911 $1,306,299
========== ==== ========== ========= ==== ==========
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements
are an integral part of these statements.
3
<PAGE>
METRO-GOLDWYN-MAYER INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED JUNE ENDED JUNE
30, 1998 30, 1997
---------- ----------
<S> <C> <C>
Net cash provided by operating activities................. $ 247,213 $ 160,056
--------- ---------
Investing activities:
Additions to film costs, net............................ (477,558) (269,722)
Additions to property and equipment..................... (7,119) (5,294)
Other investing activities.............................. (10,672) (5,588)
--------- ---------
Net cash used in investing activities................... (495,349) (280,604)
--------- ---------
Financing activities:
Proceeds from issuance of preferred and common stock.... -- 2,847
Net bank advances....................................... 267,794 121,831
--------- ---------
Net cash provided by financing activities............... 267,794 124,678
--------- ---------
Net change in cash and cash equivalents from operating,
investing and financing activities....................... 19,658 4,130
Net decrease in cash due to foreign currency fluctuations. (124) (256)
--------- ---------
Net change in cash and cash equivalents................... 19,534 3,874
Cash and cash equivalents at beginning of the period...... 3,978 16,381
--------- ---------
Cash and cash equivalents at end of the period............ $ 23,512 $ 20,255
========= =========
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these statements.
4
<PAGE>
METRO-GOLDWYN-MAYER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
NOTE 1--BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
include the accounts of Metro-Goldwyn-Mayer Inc. ("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 that was formed
on July 10, 1996 specifically to acquire MGM Studios, and is majority owned by
an investor group comprised of Tracinda Corporation ("Tracinda"), Seven
Network Limited ("Seven") and certain executive officers of the Company. The
acquisition of MGM Studios by MGM was completed on October 10, 1996, at which
time MGM commenced principal operations. The acquisition of Orion was
completed on July 10, 1997 (see Note 2 ). 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.
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial statements and the instructions to Form 10-Q related to
interim period financial statements. Accordingly, these condensed consolidated
financial statements do not include certain information and footnotes required
by generally accepted accounting principles for complete financial statements.
However, the accompanying unaudited condensed consolidated financial
statements contain all adjustments (consisting only of normal recurring
accruals) which, in the opinion of management, are necessary in order to make
the financial statements not misleading. The results of operations for interim
periods are not necessarily indicative of the results to be expected for the
full year. The Company's condensed consolidated financial statements should be
read in conjunction with the Company's audited financial statements and notes
thereto included in the Company's Form 10-K for the year ended December 31,
1997. 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 condensed consolidated balance sheets.
NOTE 2--ACQUISITION OF ORION
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 pro forma results of operations set forth below for the six
months ended June 30, 1997 are stated as if the Orion Acquisition, the
conversion of the Company's Series A Cumulative Convertible Preferred Stock
(the "Preferred Stock") into the Company's common stock and the 41.667 stock
split (see Note 5) had occurred at the beginning of the period (in thousands,
except share and per share data):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1997
----------------
(UNAUDITED)
<S> <C>
Revenues.................................................. $ 413,131
Operating loss............................................ $ (23,567)
Net loss.................................................. $ (62,911)
Pro forma loss per share.................................. $ (1.20)
Pro forma weighted average shares......................... 52,643,546
</TABLE>
5
<PAGE>
METRO-GOLDWYN-MAYER INC.
NOTES TO CONDENSED 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,
1998 1997
---------- ------------
<S> <C> <C>
Theatrical productions:
Released......................................... $1,408,396 $1,418,446
Completed not released........................... 16,940 7,662
In process and development....................... 287,322 174,386
Television programming............................. 280,435 266,632
---------- ----------
$1,993,093 $1,867,126
========== ==========
</TABLE>
Interest costs capitalized to theatrical productions were $4,152,000 and
$7,317,000 during the quarter and six months ended June 30, 1998, and
$3,165,000 and $4,241,000 during the quarter and six months ended June 30,
1997, respectively.
NOTE 4--BANK AND OTHER DEBT
Bank and other debt is summarized as follows (in thousands):
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
---------- ------------
<S> <C> <C>
Revolving Facility................................ $ 445,000 $175,000
Term Loans........................................ 700,000 700,000
Capitalized lease obligations and other
borrowings....................................... 13,304 15,508
---------- --------
$1,158,304 $890,508
========== ========
</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" and, collectively with the Tranche A Loan, 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). The Tranche B Loan bears interest at 2.50
percent over the Adjusted LIBOR rate (8.22 percent at June 30, 1998).
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.
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. The Amended Credit Facility was amended, effective March 30, 1998, to
amend certain of these financial covenants (the "March Amendment").
6
<PAGE>
METRO-GOLDWYN-MAYER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5--RECAPITALIZATION
On November 18, 1997, the Company effected a recapitalization pursuant to
which the Company (i) converted each share of the Preferred Stock into one
share of common stock, $.01 par value per share, of the Company ("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 for the quarter and six months
ended June 30, 1997 have been retroactively restated to reflect this
recapitalization.
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 offering expenses, for net proceeds of approximately $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 IPO, 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.
Basic earnings per share for the quarter and six months ended June 30, 1997
decreased by $.49 and $.96 per share due to the adoption of SFAS No. 128,
"Earnings Per Share," effective for the year ending December 31, 1997.
Dilutive securities of 618,547 and 439,264 shares are not included in the
calculation of diluted earnings per share in the quarter and six months ended
June 30, 1998, and 21,104,455 dilutive shares are not included in the
calculation of diluted earnings per share in the quarter and six months ended
June 30, 1997, respectively, because they are antidilutive.
NOTE 6--COMMITMENTS AND CONTINGENCIES
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.
NOTE 7--SUPPLEMENTARY CASH FLOW INFORMATION
The Company paid interest, net of capitalized interest, of $28,192,000 and
$14,743,000 during the six months ended June 30, 1998 and 1997, respectively.
The Company paid income taxes of $4,051,000 during the six months ended June
30, 1998, and received foreign remittance tax refunds of $4,845,000 during the
six months ended June 30, 1997, respectively.
During the six months ended June 30, 1998, the Company contributed 32,185
shares of the Common Stock valued at $695,000 to the Company's 401-k Savings
Plan.
7
<PAGE>
METRO-GOLDWYN-MAYER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8--COMPREHENSIVE INCOME (LOSS)
In 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income."
Comprehensive income (loss) for the quarters and six months ended June 30,
1998 and 1997 are as follows:
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
QUARTER ENDED QUARTER ENDED ENDED JUNE ENDED JUNE
JUNE 30, 1998 JUNE 30, 1997 30, 1998 30, 1997
------------- ------------- ---------- ----------
<S> <C> <C> <C> <C>
Foreign currency translation
adjustment.................. $ (36) $ (403) $ (84) $ (256)
Net loss..................... (54,994) (14,812) (73,637) (29,005)
-------- -------- -------- --------
$(55,030) $(15,215) $(73,721) $(29,261)
======== ======== ======== ========
</TABLE>
Accumulated other comprehensive income at June 30, 1997 consisted of
cumulative foreign currency translation adjustment of $889,000.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This report includes forward-looking statements. Generally, the words
"believes", "anticipates", "may", "will", "should", "expect", "intend",
"estimate", "continue" and similar expressions or the negative thereof or
comparable terminology are intended to identify forward-looking statements.
Such statements are subject to certain risks and uncertainties, including the
matters set forth in this report or other reports or documents the Company
files with the Securities and Exchange Commission from time to time, which
could cause actual results or outcomes to differ materially from those
projected. 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 publicly any revisions to these forward-looking
statements.
The following discussion and analysis should be read in conjunction with the
Condensed Consolidated Financial Statements and the related notes thereto and
other financial information contained elsewhere in this Form 10-Q, as well as
the Company's Audited Financial Statements included in Form 10-K for the year
ended December 31, 1997.
GENERAL
The Company is engaged primarily in the development, production and
worldwide distribution of theatrical motion pictures and television
programming.
The commercial potential of individual motion pictures and television
programming varies dramatically, and is not directly correlated with
production or acquisition costs. Therefore, it is difficult to predict or
project a trend of the Company's income or loss. However, the likelihood of
the Company reporting losses, particularly in the year of a motion picture's
release, is increased by the industry's method of accounting which requires
the immediate recognition of the entire loss (through increased amortization)
in instances where it is estimated the ultimate revenues of a motion picture
or television program will not recover the Company's costs. On the other hand,
the profit of a profitable motion picture or television program must be
deferred and recognized over the entire revenue stream generated by that
motion picture or television program. This method of accounting may also
result in significant fluctuations in reported income or loss, particularly on
a quarterly basis, depending on the Company's release schedule and the
relative performance of individual motion pictures or television programs. As
a result of the lack of movie production and distribution during the period
from January 1996 (when CDR announced its intention to sell MGM Studios)
through the sale of MGM Studios on October 10, 1996, the Company expects to
receive 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. 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.
9
<PAGE>
RESULTS OF OPERATIONS
Quarters and Six Months Ended June 30, 1998 and 1997
The following table sets forth EBITDA (defined as operating income (loss)
before depreciation and non-film amortization principally consisting of
goodwill related to business combinations) for the quarters and 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.
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.
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ------------------
1998 1997 1998 1997
-------- -------- -------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues:
Feature films ....................... $217,160 $128,249 $471,297 $296,197
Television programs.................. 47,093 20,134 105,839 47,914
Other................................ 16,948 5,002 20,525 6,903
-------- -------- -------- --------
Total revenues .................... $281,201 $153,385 $597,661 $351,014
======== ======== ======== ========
EBITDA:
Feature films ....................... $(14,953) $ 22,540 $ 18,103 $ 48,546
Television programs.................. 4,572 (1,343) 9,417 (3,215)
Other................................ 6,472 (6,533) (1,639) (12,229)
-------- -------- -------- --------
EBITDA before general and
administration expenses............. (3,909) 14,664 25,881 33,102
General and administration expenses.. (24,081) (14,592) (46,729) (31,904)
-------- -------- -------- --------
EBITDA............................. (27,990) 72 (20,848) 1,198
Depreciation and non-film amortization. (5,631) (3,547) (10,844) (7,057)
-------- -------- -------- --------
Operating loss......................... (33,621) (3,475) (31,692) (5,859)
Interest expense, net of amounts
capitalized........................... (20,174) (9,583) (38,428) (20,599)
Interest and other income(expense),
net................................... 1,070 (242) 1,745 1,388
-------- -------- -------- --------
Loss before provision for income taxes. (52,725) (13,300) (68,375) (25,070)
Income tax provision................... (2,269) (1,512) (5,262) (3,935)
-------- -------- -------- --------
Net loss .......................... $(54,994) $(14,812) $(73,637) $(29,005)
======== ======== ======== ========
</TABLE>
Quarter Ended June 30, 1998 as Compared to Quarter Ended June 30, 1997
Feature Films. Feature film revenues increased by $88.9 million, or 69
percent, to $217.2 million in the quarter ended June 30, 1998 (the "1998
Quarter") compared to the quarter ended June 30, 1997 (the "1997 Quarter").
Explanations for the increase in revenues are discussed in the following
paragraphs.
Worldwide theatrical revenues increased by $67.4 million to $71.4 million in
the 1998 Quarter 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.
Overall, in
10
<PAGE>
the 1998 Quarter, the Company released three new feature films domestically
and one new film internationally. In the 1997 Quarter, the Company released
only Warriors of Virtue in the domestic marketplace, and had no new films in
initial release internationally.
Worldwide home video revenues increased by $24.2 million, or 37 percent, to
$90.5 million in the 1998 Quarter, which included the release in the domestic
rental market of Tomorrow Never Dies and Red Corner, among others, as compared
to the releases of Touch and Mad Dog Time in the domestic rental market in the
1997 Quarter as well as the sell-through release of Larger Than Life. The
majority of the increase in home video revenues was attributable to the
significant revenues generated by the domestic release of Tomorrow Never Dies
as well as the distribution in the 1998 Quarter of the Orion film library,
which was not included in the 1997 Quarter as it was not acquired by the
Company until July 10, 1997.
Worldwide pay television revenues decreased by $8.6 million, or 28 percent,
to $21.6 million in the 1998 Quarter, primarily due to the delivery in the
1997 Quarter of The Birdcage in the domestic marketplace. There were no
comparable releases in the 1998 Quarter. Network television revenues increased
by $0.8 million, or 15 percent, to $5.8 million in the 1998 Quarter,
principally due to the delivery of two new films, Rob Roy and Fluke, to
network television in the 1998 Quarter as compared to only one film, Stargate,
delivered in the 1997 Quarter. Worldwide syndicated television revenues
increased by $2.2 million, or 10 percent, to $25.0 million in the 1998
Quarter, principally due to higher international library sales.
Other feature film revenues increased $2.9 million in the 1998 Quarter due
to miscellaneous rebates and other income collected in the period.
EBITDA from feature films decreased by $37.5 million, or 166 percent, to a
loss of $15.0 million in the 1998 Quarter as compared to the 1997 Quarter. The
decrease in operating results in the 1998 Quarter reflects feature film write-
downs of $30.8 million, as well as lower profit margins on certain releases in
the period. There were no feature film write-downs in the corresponding 1997
Quarter.
Television Programming. Television programming revenues increased by $27.0
million, or 134 percent, to $47.1 million in the 1998 Quarter as compared to
the 1997 Quarter. Network television revenues were $10.5 million in the 1998
Quarter, consisting of the delivery of the television mini-series Creature.
There were no series or television movies on network television in the 1997
Quarter. Worldwide pay television revenues increased by $2.2 million, or 38
percent, to $7.9 million in the 1998 Quarter, 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, in
the 1997 Quarter. Worldwide syndicated television revenues increased by $13.1
million, or 112 percent, to $24.8 million in the 1998 Quarter, 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 $1.0 million, or 46 percent, to $3.1 million in the 1998 Quarter due to the
domestic home video release of the television movie Twelve Angry Men, as well
as the international home video release of Stargate SG-1.
EBITDA from television programming increased by $5.9 million, or 440
percent, to a profit of $4.6 million in the 1998 Quarter as compared to a loss
of $1.3 million in the 1997 Quarter. The increase in EBITDA in the 1998
Quarter was principally a result of the aforementioned increase in revenues.
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. EBITDA from other businesses was a
profit of $6.5 million in the 1998 Quarter as compared to a loss of $6.5
million in the 1997 Quarter. Operating results in the 1998 Quarter 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 Quarter include interactive product and development costs of $3.9
million, as compared to similar costs of $4.4 million in the 1997 Quarter. In
addition, the 1998 Quarter includes aggregate start-up losses of $2.7 million
on the Company's newly
11
<PAGE>
launched cable programming joint venture MGM Networks Latin America, as
compared to $2.8 million for start-up losses in the 1997 Quarter on the
Company's investment in MGM Gold (Asia), whose operations were terminated in
April 1998. Music soundtrack and royalty income in the 1998 Quarter aggregated
$2.2 million as compared to $1.8 million in the 1997 Quarter, respectively.
General and Administration Expenses. General and administration expenses,
excluding depreciation, increased by $9.5 million, or 65 percent, to $24.1
million in the 1998 Quarter as compared to the 1997 Quarter, primarily due to
increased legal and professional fees of $2.5 million related to ongoing
litigation and executive severance expenses of $2.6 million. Additionally, the
1997 Quarter benefitted from certain insurance recoveries of $3.3 million.
There were no such recoveries in the 1998 Quarter.
Depreciation and Non-Film Amortization. Depreciation and non-film
amortization increased by $2.1 million, or 58 percent, to $5.6 million in the
1998 Quarter as compared to the 1997 Quarter as a result of higher goodwill
due to the Orion Acquisition.
Interest Expense, Net of Amounts Capitalized. Net interest expense increased
by $10.6 million, or 111 percent, to $20.2 million in the 1998 Quarter as
compared to the 1997 Quarter, primarily due to higher debt levels associated
with the financing of the Orion Acquisition, as well borrowings for increased
operating activities.
Income Tax Provision. The income tax provision of $2.3 million in the 1998
Quarter and $1.5 million in the 1997 Quarter primarily reflect foreign
remittance taxes attributable to international distribution revenues.
Six Months Ended June 30, 1998 as Compared to Six Months Ended June 30, 1997
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 film 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.
12
<PAGE>
Other feature film revenues increased $5.8 million in the 1998 Period due to
miscellaneous rebates and other income collected in the period.
EBITDA 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.
EBITDA 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 EBITDA 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. EBITDA from other businesses was a
loss 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,
excluding depreciation, increased by $14.8 million, or 46 percent, to $46.7
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.
Depreciation and Non-Film Amortization. Depreciation and non-film
amortization increased by $3.8 million, or 54 percent, to $10.8 million in the
1998 Period as compared to the 1997 Period as a result of higher goodwill due
to the Orion Acquisition.
13
<PAGE>
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 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.
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).
Other capital requirements, including the purchase of computer systems,
equipment and other improvements are not expected to exceed $15.0 million in
1998 and $10.3 million in 1999.
The Company's cash flow in 1998 has been adversely affected by, and the
Company determined to undertake the Rights Offering, as defined below, 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 92 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 1998/1999 television season.
Second, although Tomorrow Never Dies and The Man in the Iron Mask performed
better than anticipated, the Company's two 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
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.
14
<PAGE>
In addition to the Rights Offering, the Company is taking certain other
steps in order to offset the adverse impact of the items described above on
its cash flow. In particular, the Company has reduced its theatrical
production target by approximately one to two films per year and may seek
partners (in co-production, split-rights or other partnering arrangements) for
certain of its theatrical releases. While such partnering arrangements can
reduce the Company's cash investment in a release (and thus reduce the risks
associated with an unsuccessful release), such arrangements can also have the
effect of reducing the Company's profits and cash flow on successful releases
in future periods.
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 Company's 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.
According to the Company's current business plan, the proceeds of the Rights
Offering, together with the remaining availability under the Amended Credit
Facility, should be adequate to meet the Company's current obligations and
commitments and to enable the Company to continue to conduct its operations in
accordance with such plan until at least the end of 1999. However, no
assurance can be given in this regard. The Company's belief as to the adequacy
of its capital resources after completion of the Rights Offering is based in
part on the assumption that its motion pictures will perform as planned. The
Company believes that this assumption is reasonable when applied to the
Company's release slate, taken as a whole. Any individual film, however, may
perform substantially better or worse than planned. Thus, depending upon
timing and other circumstances, the failure of one or more motion pictures
released by the Company to perform at least substantially as well as expected
could adversely affect the Company's liquidity. The Company's liquidity could
also be adversely affected by other factors, such as those discussed under
"Risk Factors" in the Registration Statement, as defined below. Many of these
factors are outside of the Company's control.
If the Company's liquidity deteriorates in the future, the Company would
need to seek to reduce its cash needs, to seek additional sources of
financing, or to consider other alternatives. In order to reduce 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 may 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 may adversely affect cash flow
and results of operations in subsequent periods. In the event that the Company
did seek additional debt or equity capital, there can be no assurance that any
capital needed by the Company would be available on terms acceptable to the
Company.
The Company is currently considering seeking alternative sources of film
financing to enhance the Company's liquidity situation and film production
schedule. However, no assurance can be given that the Company will be able to
obtain any such financing 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 acquisitions of smaller niche entertainment companies. The Company
would need to seek additional financing in order to complete any acquisitions.
On October 15, 1997, the Company and its principal lenders entered into the
Amended Credit Facility aggregating $1.3 billion consisting of the Revolving
Facility, Tranche A Loan and Tranche B Loan. The Amended Credit Facility also
contains provisions allowing, with the consent of lenders holding at least
15
<PAGE>
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 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 July 31, 1998, $132.0 million was available under the Amended Credit
Facility. The Company expects to apply substantially all of the net proceeds
from the Rights Offering to the reduction of amounts outstanding under the
Revolving Facility. However, the Company expects to subsequently reborrow such
amounts and further expects that, as a result of increased borrowings in the
future, its availability under the Amended Credit Facility may be below $20
million at various times through the end of 1999.
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 negotiate 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.
YEAR 2000 DATE CONVERSION
The Company has begun to identify, evaluate and implement the changes that
need to be made to computer systems and applications necessary to achieve a
year 2000 date conversion with no disruption of business operations. These
actions are necessary to ensure that the systems and applications will
recognize and process the year 2000 and beyond. The Company also is
communicating with suppliers, distributors, financial institutions and others
with which it does business to coordinate year 2000 conversion. Due to
recently completed and ongoing systems implementations, the Company does not
anticipate that the additional costs of completing the year 2000 date
conversion will be material to the Company's results of operations, liquidity
or its capital resources.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Pursuant to the general instructions to Rule 305 of Regulation S-K, the
disclosures called for by Item 3 and Rule 305 of Regulation S-K are
inapplicable to the Company.
16
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
MGM Studios was a defendant in an action filed in the Los Angeles County
Superior Court in March 1994, entitled Paretti v. CLBN, MGM et al. The
complaint sought damages totaling $3.9 billion dollars for breach of Mr.
Paretti's employment contract and other relief. MGM Studios' motions for final
judgment were granted by the trial court on all grounds. Mr. Paretti filed a
notice of appeal in August 1997. However, Mr. Paretti's appeal was dismissed
as a default, due to his inaction, on June 10, 1998.
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 1995 against, among others Metro-Goldwyn-Mayer Pictures Inc.
("MGM Pictures") and United Artists Pictures Inc. ("UA Pictures") and the
other major studios, the court denied class certification in August 1996 with
respect to the plaintiffs' claim 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 the 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 judgement on September 28, 1998.
In the matter entitled Danjaq, LLC, Metro-Goldwyn-Mayer Inc., el al. v. Sony
Corporation, Sony Pictures Entertainment ("Sony Pictures"), et al., on May 19,
1998, the Company and Danjaq LLC filed a motion for preliminary injunction on
copyright and trademark issues to preclude Sony Pictures from the preparation,
production, distribution, advertising or other exploitation of a James Bond
motion picture. On July 29, 1998, that motion was granted and Sony Pictures
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.
Reference is made to the Company's 1997 Form 10-K for a description of other
pending legal proceedings involving the Company.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
During the quarter ended June 30, 1998, the Company contributed an aggregate
of 17,988 shares of unregistered common stock valued at $421,000 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 of 1933, as amended (the "Act").
17
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Stockholders held on May 12, 1998, four proposals
were submitted to the Company's stockholders. The Company nominees for
directors were elected and each of the other proposals were approved. A brief
description of those proposals and the results of the voting are as follows:
PROPOSAL ONE--ELECTION OF NINE DIRECTORS TO SERVE FOR A YEAR TERM
<TABLE>
<CAPTION>
VOTES
NOMINEE VOTES FOR WITHHELD
------- ---------- --------
<S> <C> <C>
James Aljian......................................... 61,594,649 75
Francis Ford Coppola................................. 61,594,649 75
Michael R. Gleason................................... 61,594,649 75
Kirk Kerkorian....................................... 61,594,649 75
Frank G. Mancuso..................................... 61,594,649 75
A. Robert Pisano..................................... 61,594,649 75
Kerry M. Stokes...................................... 61,594,649 75
Alex Yemenidjian..................................... 61,594,649 75
Jerome B. York....................................... 61,594,649 75
</TABLE>
PROPOSAL TWO--APPROVAL AND RATIFICATION OF 1998 NON-EMPLOYEE DIRECTOR STOCK
PLAN.
<TABLE>
<CAPTION>
VOTING RESULTS
--------------
<S> <C>
For........................................................... 59,899,657
Against....................................................... 1,694,817
Abstain....................................................... 250
Broker Non-Votes.............................................. 0
</TABLE>
PROPOSAL THREE--APPROVAL AND RATIFICATION OF THE SENIOR MANAGEMENT BONUS PLAN.
<TABLE>
<CAPTION>
VOTING RESULTS
--------------
<S> <C>
For........................................................... 61,439,538
Against....................................................... 6,226
Abstain....................................................... 148,960
Broker Non-Votes.............................................. 0
</TABLE>
PROPOSAL FOUR--RATIFICATION OF APPOINTMENT OF ARTHUR ANDERSEN LLP AS
INDEPENDENT AUDITORS OF THE COMPANY FOR THE FISCAL YEAR ENDING DECEMBER 31,
1997.
<TABLE>
<CAPTION>
VOTING RESULTS
--------------
<S> <C>
For........................................................... 61,594,115
Against....................................................... 259
Abstain....................................................... 350
Broker Non-Votes.............................................. 0
</TABLE>
18
<PAGE>
ITEM 5. OTHER INFORMATION
On June 15, 1998 Michael G. Corrigan ceased to be employed as Senior
Executive Vice President and Chief Financial Officer of the Company.
Subsequently, Daniel J. Taylor, then Executive Vice President-Finance of the
Company was promoted to Senior Executive Vice President and Chief Financial
Officer.
The Company is filing on the date hereof a registration statement on Form S-
1 (the "Registration Statement") with the Securities and Exchange Commission
in connection with a distribution with respect to the Common Stock of
subscription rights, pursuant to which stockholders will receive transferable
rights to purchase shares of the Common Stock of the Company at a discount to
its market price, as determined on the date the registration statement becomes
effective (the "Rights Offering"). Stockholders who exercise their rights in
full will also have certain oversubscription privileges. The record date for
the distribution of the rights has yet to be determined by the Board of
Directors. The Rights Offering is expected to raise gross proceeds of
approximately $250 million of additional equity capital.
The discussion of the March Amendment contained in "Part I Financial
Information--Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources" is
incorporated herein by this reference.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S>
10.1 Employment Agreement of Daniel J. Taylor dated as of August 1, 1997
10.2 Amendment to Employment Agreement of Daniel J. Taylor dated as of
June 15, 1998
10.3 Indemnification Agreement of Daniel J. Taylor dated as of June 15,
1998
10.4 Amendment I to Amended and Restated Credit Agreement dated as of
March 30, 1998
27.1 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
A Current Report on Form 8-K dated July 24, 1998 was filed by the Registrant
pursuant to Section 13 of the Securities Exchange Act of 1934, reporting under
Item 5 thereto.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
METRO-GOLDWYN-MAYER INC.
August 5, 1998 By: /s/ Frank G. Mancuso
_________________________________
Frank G. Mancuso
Chairman of the Board of
Directors
and Chief Executive Officer
August 5, 1998 By: /s/ Daniel J. Taylor
_________________________________
Daniel J. Taylor
Senior Executive Vice President
and Chief Financial Officer
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EXHIBIT 10.1
PRIVILEGED AND
CONFIDENTIAL
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is entered into as of
August 1, 1997 between Metro-Goldwyn-Mayer Inc., a Delaware corporation (the
"Company"), and Daniel J. Taylor ("Executive").
The parties agree as follows:
1. Employment and Title. Effective as of August 1, 1997, the Company employs
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Executive as, and Executive accepts employment to serve as, Executive Vice
President, Corporate Finance, all upon the terms and conditions set forth in
this Agreement, including the powers and authority set forth in Paragraph 2
below.
2. Powers and Authority.
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(a) During the Term, as defined in Paragraph 6 below, Executive
shall be Executive Vice President, Corporate Finance, and shall have such duties
and responsibilities as may be assigned to Executive by the Senior Executive
Vice President and Chief Financial Officer (the "CFO"), the Vice Chairman of the
Company (the "VC") or the Chief Executive Officer of the Company (the "CEO"),
which duties and responsibilities shall include primary
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responsibility for treasury, taxation and internal audits, as well as special
projects at the discretion of the CFO, VC or CEO.
(b) Executive's services shall be exclusive to the Company and its
subsidiaries. Executive shall devote Executive's best efforts and Executive's
full business time (except as provided in the following sentence) to the
services to be performed hereunder. Executive may serve on the boards of
directors of (but in no other capacity for) other companies and non-profit
organizations, may manage the investment of Executive's personal assets, and may
make new investments of Executive's personal assets in other companies so long
as such activities do not materially interfere with Executive's duties hereunder
and (other than investments not to exceed 1% of the total outstanding in
publicly traded securities) such companies do not directly compete with the
Company.
(c) Executive agrees to comply with the Company's policies and
procedures applicable to employees of Executive's seniority, salary and title as
in effect from time to time to the extent that such policies are furnished to
Executive.
3. Location. The location of Executive's principal place of
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employment shall be in the Company's principal executive offices in the greater
Los Angeles, California area; provided, however, that Executive shall perform
such occasional services outside of Los Angeles as are, in the reasonable
determination of the Executive, the CFO, the CEO or the VC, reasonably required
for the proper performance of Executive's duties under this Agreement.
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4. Reporting. Executive shall report directly to the CFO.
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5. Availability. Each party represents and warrants to the other
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that it has the full power and authority to enter into and perform its
obligations under this Agreement and that its execution of and performance under
this Agreement shall not constitute a default under or breach of the terms of
any other agreement or order of any court or governmental authority to which it
is a party or under which it is bound. Each party shall defend and hold
harmless the other for any and all claims, demands, losses or damages (including
reasonable attorneys' fees) arising from any action against any such party due
to a breach of any representation and warranty contained in this Paragraph or
based upon any allegations of interference with contractual obligations or the
like relating to the negotiation or execution of this Agreement.
6. Term. Subject to the provisions for earlier termination set
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forth in Paragraph 11, the term of Executive's employment hereunder shall
commence on August 1, 1997, and continue for five years from and including such
date (the "Term"). Neither the Company nor Executive will have any obligation
to renew or extend this Agreement beyond the Term.
7. Compensation.
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(a) Salary and Bonus. In full consideration for the services
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to be rendered by Executive, and in full discharge of the Company's salary
obligations, Company shall pay to Executive and Executive shall accept:
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(i) an annualized base salary of $400,000 during the first
twelve month period of the Term and an amount during each of the subsequent
twelve month periods to be determined by the Company after a good faith
review of Executive's base salary and performance prior to the beginning of
each such period, but in no event less than the annualized base salary
being paid to Executive as of the date of such good faith review (each
amount less tax withholdings required by law and other voluntary deductions
authorized by Executive), payable bi-weekly in arrears commencing on the
first regular bi-weekly payment date; and
(ii) an annual guaranteed bonus of $100,000 during each twelve
month period of the Term, and pro rated for any periods less than twelve
months (less tax withholdings required by law and other voluntary
deductions authorized by Executive), payable on or before January 10
following the expiration of each calendar year and payable at the end of
the Term for the last year of the Term; and
(iii) an annual discretionary bonus, or such applicable prorated
portion thereof for any partial Company fiscal year during the Term (less
tax withholdings required by law and other voluntary deductions authorized
by Executive), to be determined in the sole discretion of the CEO, payable
on the first day of the second month following the completion of each
Company fiscal year ending in the Term (and within forty-five days
following the end of the Term with respect to the last partial Company
fiscal year); and
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(iv) participation in the P&F Acquisition Corp. and Metro-
Goldwyn-Mayer Inc. 1996 Management Stock Option and Bonus Plan(s) (the
"Plan") in the amounts designated on page A-9 of Exhibit A thereto (i.e.,
1,433 Series A Options (and Bonus Interests) and 1,573 Series B Options).
(b) Other Benefits. Executive shall be entitled to the following
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additional benefits: first-class air travel, a car allowance and vacation time,
all in accordance with Company policy applicable to employees of Executive's
seniority, salary and title.
(c) Business Expenses. During the Term, the Company shall pay or
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reimburse Executive promptly for all reasonable business expenses incurred by
Executive in the performance of Executive's duties under this Agreement if
properly substantiated and in accordance with the Company's policies and
procedures applicable to employees of Executive's seniority, salary and title.
(d) Insurance. During the Term, Executive shall be entitled to and
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shall be accorded all rights and benefits under any life insurance, disability
insurance, health and major medical insurance policy or policies which the
Company provides for its officers or employees generally. Nothing in this
paragraph shall require the Company to retain any particular policy or plan, but
a reasonable insurance benefit package shall be maintained.
(e) Employee Benefit Plans. Executive shall be entitled to
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participate in and/or receive all other employee benefits under any 401(k) plan,
savings plan, pension plan
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and any other similar plan or program which the Company provides for its senior
officers or employees generally, all subject to the terms and conditions of the
various benefit plans. To the extent any such benefit plan or program permits
crediting for periods of prior employment with the Company (including for
purposes of determining vacation time, but excluding for any purpose the Plan),
Executive's commencement date hereunder shall be deemed to be March 4, 1992.
8. Compensation in the Event of Termination.
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(a) If the Agreement is terminated under Paragraph 11(a),
Executive or his estate shall receive the compensation provided in Paragraphs
7(a)(i), 7(a)(ii) and 7(a)(iii), if any, prorated to the date of termination,
and all amounts accrued under benefit plans in which Executive is a participant
as of such termination date, including without limitation the benefits provided
in Paragraph 7(a)(iv) in accordance with the provisions of the Plan.
(b) If the Agreement is terminated under Paragraph 11(b),
Executive shall receive the same compensation and benefits set forth in
Paragraph 8(a), except that the benefits provided in Paragraph 7(d) shall
continue for what would be the remainder of the Term but for such termination
(the "Full Term") in accordance with the terms of each respective policy or plan
(provided, however, that if prior to the expiration of the Full Term Executive
receives any of the types of benefits specified in Paragraph 7(d) from a
subsequent employer, the Company shall immediately cease to provide such types
of benefits received from the subsequent employer).
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(c) If the Agreement is terminated under Paragraph 11(c) or
11(e) below, or expires pursuant to its terms, Executive shall receive the net
present value of the compensation provided in Paragraphs 7(a)(i) and 7(a)(ii)
through the Full Term, discounted at the 30-day LIBOR rate in effect at the date
of termination and the compensation provided in Paragraph 7(a)(iii), if any, pro
rated as specified therein, the benefits provided in Paragraph 7(a)(iv) in
accordance with the provisions of the Plan, and the benefits provided in
Paragraph 7(d) for the Full Term in accordance with the terms of each respective
policy or plan (provided, however, that if prior to the expiration of the Full
Term Executive receives any of the types of benefits specified in Paragraph 7(d)
from a subsequent employer, the Company shall immediately cease to provide such
types of benefits received from the subsequent employer).
(d) If the Agreement is terminated under Paragraph 11(d),
Executive shall not be entitled to receive any payment or benefits following the
date of termination, except as may be accrued to the date of termination, or
vested under the Plan, or any other plan or policies of the Company.
9. Property Rights.
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(a) Executive agrees that all results and proceeds of
Executive's services, including any ideas, programs, formats, plans and
arrangements, composed, conceived or created by Executive during the period of
this employment, solely or in collaboration with others (collectively, the
"Creations"), whether or not same is made at the request or suggestion of the
Company, or during or outside regular hours of work, shall at all times be and
remain the
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sole and exclusive property of the Company. Executive further agrees that
Executive will, at the request of the Company, execute and deliver to the
Company, in form satisfactory to the Company, documents evidencing the Company's
ownership to the foregoing; but notwithstanding that no such documents are
executed, the Company, as Executive's employer, shall be deemed the owner
thereof immediately upon creation. Anything in this Agreement to the contrary
notwithstanding, the provisions of this paragraph shall survive the termination,
for any reason, of this Agreement.
(b) Notwithstanding Paragraph 9(a) above, the Company shall not
own any Creations created by Executive prior to the Term or solely during
Executive's leisure hours during the Term, which Creation is not related in any
manner to, or derived in any manner from, any projects, concepts and/or
intellectual property of any nature of the Company or any of its affiliates.
Notwithstanding the foregoing, Executive agrees to submit to the Company any
such Creation which Executive desires to commercially exploit, and the Company
will notify Executive within ten (10) business days of receipt if the Company
desires to start negotiations for rights thereto. If no agreement is reached
within thirty (30) days after the start of negotiations, then Executive will
make an offer to the Company for such rights and if the Company does not accept,
Executive may negotiate elsewhere the rights so offered.
10. Intentionally omitted.
11. Termination. Executive's employment and this Agreement (other
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than those provisions set forth in Paragraph 14(j) below) shall terminate:
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(a) Upon the death of Executive.
(b) At the option of the Company, if Executive is disabled.
Disability shall mean Executive's inability to substantially perform his duties
hereunder due to a medically determinable physical or mental impairment that can
reasonably be expected to result in death within twelve (12) months or which has
lasted or can be expected to last for a continuous period of not less than
twelve (12) months.
(c) After thirty (30) days written notice by the Company to
Executive without "Cause".
(d) Upon written notice by the Company to Executive for "Cause"
which shall include only:
(i) the continued failure of Executive to substantially
perform Executive's duties with the Company, or any subsidiary of the
Company (other than any such failure resulting from illness, temporary
absence, legal incapacity or disability) for thirty (30) days after a
demand for substantial performance is delivered in writing to Executive by
the Company which specifically identifies the manner in which Executive has
not substantially performed his duties;
(ii) Executive's continued failure to follow reasonable and
lawful directives (consistent with the terms of this Agreement) of the
Board of Directors of the Company (or, if applicable, the CEO, VC or CFO)
for thirty (30) days after a demand for Executive to follow such directives
is delivered in writing to Executive by the Company
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that specifically identifies the manner in which Executive has not followed
such directives;
(iii) the engaging by Executive in willful, reckless or grossly
negligent misconduct in connection with his employment, unless Executive
ceases such misconduct within ten (10) days and remedies the adverse effect
of such misconduct within thirty (30) days, after a demand to cease
engaging in such misconduct is delivered in writing to Executive by Company
that specifically identifies such misconduct;
(iv) Executive's conviction of an offense involving moral
turpitude or a felony (it being understood that the first conviction of
Executive, if any, after commencement of the Term, for driving under the
influence of alcohol shall not constitute Cause hereunder); or
(v) material breach by Executive of this Agreement and failure
to cure such breach within thirty (30) days of delivery of a written notice
to Executive by the Company that specifically identifies the breach.
If the remedy, cure or cessation of an act or omission which is the
subject of a notice under this Paragraph 11(d) would reasonably require more
than thirty (30) days to complete and Executive commences such remedy, cure or
cessation within thirty (30) days after receipt of such notice and diligently
pursues the same to completion, said act or omission shall not constitute
"Cause." Cause shall continue to exist with respect to Executive only for a
period of ninety (90) days after the event or action (and the expiration of any
notice or cure period specified) giving rise to Cause.
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(e) Upon thirty (30) days written notice by Executive to the
Company for "Good Reason" which shall include:
(i) a substantial and adverse change in Executive's status or
position with the Company as the same existed on the commencement of the
Term hereof which is not cured within thirty (30) days after written notice
thereof to the Company from Executive;
(ii) a reduction (other than for Cause) by the Company of
Executive's aggregate compensation under Paragraphs 7(a)(i) and 7(a)(ii)
above as in effect on the commencement of the Term hereof or as in effect
thereafter if such compensation has been increased, unless such reduction
is restated retroactively not later than thirty (30) days after written
notice thereof to the Company from Executive;
(iii) a material reduction by the Company in the overall value
of benefits provided to the Executive as in effect on the commencement of
the Term hereof or as in effect thereafter if such benefits have been
increased (as used in the preceding clause, "benefits" shall include all
profit-sharing, retirement, pension, health, medical, dental, disability
insurance, automobile and similar benefits), unless such reduction is
restated retroactively not later than thirty (30) days after written notice
thereof to the Company from Executive;
(iv) a relocation of Executive's principal place of employment
to any place outside the greater Los Angeles area, except for reasonable
amounts of required travel by the Executive on the Company's business; or
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(v) any material breach by the Company of any provision of
this Agreement which is not cured within thirty (30) days after written
notice thereof to the Company from Executive; or
(f) At the expiration of the Term.
12. No Mitigation; No Right of Offset. Except as provided in
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Paragraphs 8(b) and 8(c) regarding benefits provided by a subsequent employer,
and without limiting any other provision hereof, any income and any other
employment benefits received by Executive from any and all sources other than
the Company before or after the expiration or termination of this Agreement for
any reason whatsoever shall in no way reduce or otherwise affect the Company's
obligation to make payments and afford benefits hereunder. In the event this
Agreement or Executive's employment is terminated for any reason, Executive
shall have no duty to mitigate damages or seek employment, and (except as
provided in the first sentence of this Paragraph 12) the Company shall have no
right to offset against monies or other items it may owe Executive any sums that
Executive may earn during what would otherwise have been the Full Term hereof.
13. Confidential Material.
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(a) Disclosure. Executive acknowledges that, in the
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performance of duties on behalf of the Company, Executive shall have access to,
receive and be entrusted with confidential information, including but in no way
limited to development, marketing, organizational, financial, management,
administrative, production, distribution and sales information, data,
specifications and processes presently owned or at any time in the future
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developed by, the Company or its agents or consultants, or used presently or at
any time in the future in the course of its business that is not otherwise part
of the public domain (collectively, the "Confidential Material"). All such
Confidential Material is considered secret and will be available to Executive in
confidence. Except in the performance of Executive's duties on behalf of the
Company or as required by law, Executive shall not, directly or indirectly for
any reason whatsoever, either during the time Executive is employed by the
Company or at any time thereafter, disclose or use any such Confidential
Material, unless such Confidential Material ceases (through no fault of
Executive's) to be confidential because it has become publicly available. All
records, files, drawings, documents, equipment and other tangible items,
wherever located, relating in any way to the Confidential Material or otherwise
to the Company's business, which Executive prepares, uses, or encounters, shall
be and remain the Company's sole and exclusive property and shall be included in
the Confidential Material. Upon termination of this Agreement by any means, or
whenever requested by the Company, Executive shall promptly deliver to the
Company any and all of the Confidential Material not previously delivered to the
Company that may be or at any previous time has been in Executive's possession
or under Executive's control; provided, however, Executive may keep Executive's
rolodex or other personal list of addresses and telephone numbers.
(b) Unfair Competition. Executive hereby acknowledges that the
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sale or unauthorized use or disclosure of any of the Company's Confidential
Material by Executive by any means whatsoever (except as provided in Paragraph
13(a) above) at any time before, during or after Executive's employment with the
Company shall constitute "Unfair Competition".
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(c) Other. In the event of the termination of Executive's
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employment for any reason, Executive (and any corporation or entity of which
Executive is a director, officer, employee or greater than five percent (5%)
shareholder) shall not, for a period of one (1) year:
(i) solicit for employment and then employ any employee of the
Company or any of its affiliates or subsidiaries (except Executive's
secretary or secretaries and personal assistant(s)); or
(ii) make any public statement concerning the Company, any of its
affiliates or subsidiaries, or Executive's employment unless previously
approved by the Company, except (aa) as may be required by law, or (bb) any
primarily personal publicity issued by Executive that includes incidental,
non-derogatory reference to the Company or its affiliates and/or
Executive's employment thereby.
Notwithstanding the foregoing, it shall not be a breach of this Paragraph 13(c)
by Executive if an entity which Executive does not own (i.e., over 50% equity
ownership) or control violates such Paragraph and Executive is not materially
involved in such violation.
14. Miscellaneous.
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(a) Arbitration.
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(i) Any and all disputes between Executive and the Company,
however significant, arising out of, relating in any way to or in
connection with this Agreement (including the validity, scope and
enforceability of this arbitration clause) shall be solely settled by an
arbitration conducted in accordance with the rules of the
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American Arbitration Association or any similar successor body and to be
held in Los Angeles, California.
(ii) Any arbitration hereunder shall be held before a single
arbitrator mutually agreed to by the parties thereto, except that, if the
parties shall fail to agree to such an arbitrator within twenty (20) days
from the date on which the claimant's request for arbitration is delivered
to the other party to the arbitration, such arbitration shall be held
before an arbitrator appointed by the American Arbitration Association.
(iii) Discovery may be taken in the arbitration proceedings
pursuant to the provisions of California Code of Civil Procedure Section
1283.05, which are incorporated herein by reference and made applicable to
any arbitration held pursuant to this Paragraph.
(iv) The award of the arbitrator shall be made within ninety
(90) days from the date on which the arbitrator is selected. The award of
the arbitrator shall be final, and the parties agree to waive their right
to any form of appeal, to the greatest extent allowed by law. The
arbitrator shall award costs and fees, including the fees of the arbitrator
and reasonable attorneys' fees, to the prevailing party. Judgment upon any
award of the arbitrator may be entered in any court having jurisdiction or
application may be made to such court for the judicial acceptance of the
award and for order of enforcement.
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(b) Applicable Law and Venue. This Agreement and any disputes
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or claims arising hereunder shall be construed in accordance with, governed by
and enforced under the laws of the State of California without regard for any
rules of conflicts of law. The arbitrator appointed as described above located
in Los Angeles, California shall be the sole fora for any action for relief
arising out of or pursuant to, or to enforce or interpret, this Agreement. Each
party to this Agreement consents to the personal jurisdiction and arbitration in
such fora and courts and each party hereto covenants not to, and waives any
right to, seek a transfer of venue from such jurisdiction on any grounds.
(c) Interpretation. The provisions of this Agreement were
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negotiated by each of the parties hereto and this Agreement shall be deemed to
have been drafted by each party.
(d) Representations of the Company. The Company represents and
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warrants that this Agreement is validly binding on the Company and enforceable
in accordance with its terms.
(e) No Waivers. The failure of either party to enforce any
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provision of this Agreement shall not be construed as a waiver of any such
provision, nor prevent such party thereafter from enforcing such provision or
any other provision of this Agreement. Rights granted the parties hereto herein
are cumulative and the election of one shall not constitute a waiver of such
party's right to assert all other legal remedies available under the
circumstances.
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(f) Notices. Any notice to be given under the terms of this
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Agreement shall be in writing and may be delivered personally, by telecopy,
telex or other form of written electronic transmission, by overnight courier or
by registered or certified mail, postage prepaid, and shall be addressed as
follows:
TO THE COMPANY:
Metro-Goldwyn-Mayer Inc.
2500 Broadway Street
Santa Monica, California 90404-3061
Attention: Director of Human Resources
WITH A COPY TO:
Metro-Goldwyn-Mayer Inc.
2500 Broadway Street
Santa Monica, California 90404-3061
Attention: Legal Department
TO THE EXECUTIVE:
Mr. Daniel J. Taylor
Metro-Goldwyn-Mayer Inc.
2500 Broadway Street
Santa Monica, California 90404-3061
WITH A COPY TO:
Mr. Daniel J. Taylor
3419 Bayview Drive
Manhattan Beach, California 90266
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Either party may hereafter notify the other in writing of any change in address.
Any notice hereunder shall be deemed duly given when received by the person to
whom it was sent.
(g) Severability. The provisions of this Agreement are severable and
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if any provision of this Agreement shall be held to be invalid or otherwise
unenforceable, in whole or in part, the remainder of the provisions, or
enforceable parts thereof, shall not be affected thereby unless as a result of
such severing the remaining provisions or enforceable parts do not substantially
reflect the intention of the parties in entering into this Agreement.
(h) Successors and Assigns. The rights and obligations of the
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parties under this Agreement shall inure to the benefit of and be binding upon
their successors and assigns, including the survivor upon any merger,
consolidation or combination of the Company with any other entity.
(i) Entire Agreement. This Agreement supersedes all prior agreements
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and understandings between the parties hereto, oral or written, and may not be
modified or terminated orally. No modification, termination or attempted waiver
shall be valid unless in writing, signed by the party against whom such
modification, termination or waiver is sought to be enforced.
(j) Survival. The provisions of Paragraphs 8, 9, 10, 11, 12, 13, and
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14 of this Agreement shall survive the Term, it being understood that the
foregoing shall not limit Executive's rights with respect to amounts due him and
unpaid at the expiration of the Term.
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(k) Confidentiality and Publicity. This Agreement shall remain
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confidential and the terms shall not be divulged to any person (other than
Executive's professional advisors and family) except to the extent required by
law or legal process. Any press release or announcement of or relating to this
Agreement and the timing of any such announcement shall only be made with the
agreement of Executive and the Company.
(l) Attorneys. Each party may be represented by counsel of its
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choice even though such counsel may have represented the other party in matters
related to the business of the Company, and each party agrees to execute an
appropriate waiver to effectuate this clause.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
METRO-GOLDWYN-MAYER INC.
By /s/ Michael G. Corrigan
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Michael G. Corrigan
Senior Executive Vice President
and Chief Executive Officer
/s/ Daniel J. Taylor
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Daniel J. Taylor
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EXHIBIT 10.2
[LETTERHEAD OF METRO-GOLDWYN-MAYER INC.]
As of June 15, 1998
Daniel J. Taylor
c/o Metro-Goldwyn-Mayer Inc.
2500 Broadway Street
Santa Monica, CA 90404
Dear Mr. Taylor:
Kindly refer to the Employment Agreement dated As of August 1, 1997 between
you ("Executive") and Metro-Goldwyn-Mayer Inc. ("the Company"), herein called
the "Employment Agreement."
The Company and Executive mutually agree to amend the Employment Agreement,
effective as of June 15, 1998, as follows:
1. Executive's title as set forth in Paragraph 1 of the Employment Agreement
shall be Senior Executive Vice President and Chief Financial Officer.
2. Paragraph 2(a) of the Employment Agreement shall be amended to read as
follows:
"During the Term, as defined in Paragraph 6 below, Executive shall be
Senior Executive Vice President and Chief Financial Officer and shall have
such duties and responsibilities as may be assigned to Executive by the
Vice Chairman of the Company (the "VC") or the Chief Executive Officer of
the Company (the "CEO"), which duties and responsibilities shall include
responsibility for and authority over finance, accounting, information
systems, tax and business planning functions."
3. Paragraph 3 of the Employment Agreement shall be amended by deleting the
words "the CFO" from line 4 thereof.
4. Paragraph 4 of the Employment Agreement shall be amended to read as follows:
"4. Reporting. Executive shall report jointly to the CEO and the VC."
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5. The term of the Employment Agreement shall be extended so that it will now
expire on June 14, 2003. The period commencing June 15, 1998 and ending
June 14, 2003 is herein referred to as the "New Term," and the word "Term"
as used in the Employment Agreement shall be deemed to include the New
Term.
6 (a) During the New Term, notwithstanding the provisions of subparagraph
7(a)(i) of the Employment Agreement, Executive's annualized base
salary shall be $700,000 during the period commencing June 15, 1998
and ending October 9, 1998, $750,000 during the twelve-month period
commencing October 10, 1998, $800,000 during the twelve-month period
commencing October 10, 1999, $850,000 during the twelve-month period
commencing October 10, 2000, $900,000 during the twelve-month period
commencing October 10, 2001 and $950,000 during the period commencing
October 10, 2002 until the end of the New Term (each amount less tax
withholdings required by law and other voluntary deductions authorized
by Executive), payable bi-weekly in arrears commencing on the first
regular bi-weekly payment date.
(b) Subparagraph 7(a)(ii) of the Employment Agreement is hereby deleted in
its entirety. The Company agrees to pay Executive, and Executive
shall accept, the sum of $45,333.33 (less tax withholdings required by
law and other voluntary deductions authorized by Executive) in full
satisfaction of any guaranteed bonus obligation accrued and unpaid as
of June 15, 1998.
7. Subject to approval by the Company's Board of Directors, in addition to the
compensation provided in the Employment Agreement, as amended hereby,
Executive shall be entitled to receive, in the event of a Designated Change
in Control, a cash bonus (the "Cash Bonus") equal to the result obtained by
calculating the difference between (a) the amount that would have been
payable to Executive had he been granted as of August 1, 1997 an aggregate
of 83,334 bonus interests pursuant to the Bonus Interest Agreement and (b)
the amount payable to Executive pursuant to bonus interests heretofore
granted to him (the "Bonus Interests"). The Cash Bonus shall vest, and the
amount thereof determined and paid, on the same respective dates as the
Bonus Interests.
8. The Company presently maintains the Stock Incentive Plan pursuant to which
Executive presently holds 58,125 Series A Options and 58,125 Series B
Options (collectively, the "Current Options") under the Executive Stock
Option Agreement. Subject to approval by the Company's Board of Directors,
Executive shall be granted 62,918 additional Series A Options (the
"Additional Options") at an exercise price which shall be the greater of
$24 per share or the closing price of the Common Stock on the New York
Stock Exchange on the date of grant.
The Additional Options shall be governed by a new stock option agreement to
be executed by Executive and the Company, applicable only to the Additional
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Options, which shall be in the form of the Executive Stock Option
Agreement, except that one-half of the Additional Options shall become
exercisable, to the extent then vested, from and after December 31, 2001,
except as otherwise provided in Section 5 of the Executive Stock Option
Agreement.
For the sake of clarity and the avoidance of doubt, the parties hereby
agree that none of the Additional Options are intended to be "incentive
stock options" within the meaning of Section 422 of the Internal Revenue
Code of 1986, as amended.
9. As used herein, certain terms shall have the meanings ascribed to them
below:
"Bonus Interest Agreement" means the form of Metro-Goldwyn-Mayer Inc. and
Metro-Goldwyn-Mayer Studios Inc. Bonus Interest Agreement Pursuant to the
Senior Management Bonus Plan.
"Senior Management Bonus Plan" means the Metro-Goldwyn-Mayer Inc. and
Metro-Goldwyn-Mayer Studios Inc. Senior Management Bonus Plan as adopted by
the Board of Directors of such companies on November 7, 1997 and approved
by the stockholders of the Company on May 12, 1998.
"Designated Change in Control," has the meaning set forth in Schedule 1 to
the Executive Stock Option Agreement.
"Executive Stock Option Agreement" means the stock option agreement
previously entered into between Executive and the Company as of August 1,
1997.
"Stock Incentive Plan" means the Amended and Restated 1996 Stock Incentive
Plan adopted by the Board of Directors and stockholders of the Company on
November 7, 1997.
10. Paragraph 7(b) of the Employment Agreement is hereby amended to read as
follows:
"7 (b) Other Benefits. Executive shall be entitled to the following
--------------
additional benefits: a car allowance and four (4) weeks vacation in
accordance with the Company policy applicable to employees of Executive's
seniority, salary and title; first-class air travel for Executive and
Executive's spouse when accompanying Executive on travel to the extent, in
Executive's reasonable judgment, the presence of Executive's spouse is
required or advisable in the Company's interest in the discharge of
Executive's duties."
11. The first parenthetical on the third line of subparagraph (ii) of Paragraph
11(d) shall be amended to read "(or, if applicable, the CEO or VC)."
3
<PAGE>
12. Except as herein specifically provided, the Employment Agreement shall not
be amended in any respect whatsoever and shall continue in full force and
effect.
If the foregoing is in accordance with your understanding and agreement,
please so indicate by signing in the place for your signature below.
Very truly yours,
METRO-GOLDWYN-MAYER INC.
By /s/ William A. Jones
-------------------------------
William A. Jones
Senior Executive Vice President
AGREED:
/s/ Daniel J. Taylor
- -----------------------------
Daniel J. Taylor
4
<PAGE>
EXHIBIT 10.3
JOINT AND SEVERAL INDEMNITY AGREEMENT
AGREEMENT dated as of June 15, 1998 by and between Metro-Goldwyn-Mayer
Inc., a Delaware corporation (the "Corporation") and Metro-Goldwyn-Mayer
-----------
Studios, a Delaware corporation ("MGM Studios." and together with the
------------
Corporation, the "Indemnitors") on the one hand, and Daniel J. Taylor (the
-----------
"Indemnitee"), on the other.
- -----------
RECITALS
The Indemnitee is a director and/or officer of the Corporation, MGM
Studios and/or an Affiliate Indemnitee (as hereinafter defined). Each of the
Indemnitors and the Indemnitee recognize the increased risk of litigation and
other claims being asserted against directors and officers in today's
environment.
The Bylaws of the Corporation require the Corporation and the Bylaws
of MGM Studios require MGM Studios to indemnify their respective directors and
officers as currently provided therein, and the Indemnitee has been serving and
continues to serve as a director and/or officer of the Corporation and/or MGM
Studios in part in reliance on such provisions. The Bylaws of each of the
Indemnitors permit such Indemnitor to purchase and maintain insurance or to
furnish similar protection or make other arrangements (any such insurance,
protection or arrangement, an "Indemnification Arrangement") on behalf of the
---------------------------
Indemnitee against personal liability (including, but not limited to, providing
for Advanced Amounts as hereinafter defined) asserted against him or incurred by
or on behalf of him in such capacity as a director or officer of such Indemnitor
or as an Affiliate Indemnitee, or arising out of his status as such, whether or
not such Indemnitor would have the power to indemnify him against such liability
under the provisions of this Agreement or under the Delaware General Corporation
Law (the "DGCL"), as it may then be in effect.
----
In part to provide the Indemnitee with specific contractual assurance
of substantial protection against personal liability (regardless of, among other
things, any amendment to or revocation of the aforementioned provisions of any
of the Indemnitor's Bylaws or any change in the composition of such Indemnitor's
Board of Directors or control of such Indemnitor), each of the Indemnitors
desires to enter into this Agreement. DGCL Section 145(f) expressly recognizes
that the indemnification provisions of the DGCL are not exclusive of any other
rights to which a person seeking indemnification may be entitled under the
Certificate of Incorporation or Bylaws of any of the Indemnitors, or an
agreement providing for indemnification, or a resolution of stockholders or
directors, or otherwise, and the Bylaws of each of the Indemnitors expressly
recognizes that the indemnification provisions of the Bylaws of such Indemnitor
shall not be deemed exclusive of, and shall not affect, any other rights to
which a person seeking indemnification may be entitled under any agreement, and
this Agreement is being entered into pursuant to the Bylaws of each of the
Indemnitors, as permitted by the DGCL, and has been authorized by the
stockholders of the Indemnitors.
In order to induce the Indemnitee to serve as a director and/or
officer of the Corporation and/or MGM Studios and in consideration of the
Indemnitee's so serving, each of the Indemnitors desires jointly and severally
to hold harmless and indemnify the Indemnitee and to make arrangements pursuant
to which the Indemnitee may be advanced or reimbursed expenses incurred by the
Indemnitee in certain proceedings, in every case to the fullest extent
authorized or permitted by the DGCL, or any other applicable law, or by any
amendment thereof or other statutory provisions authorizing or permitting such
<PAGE>
indemnification which are adopted after the date hereof (but, in the case of any
such amendment, only to the extent that such amendment permits the Indemnitor to
provide broader indemnification rights than the DGCL, or other applicable law,
permitted such Indemnitor to provide prior to such amendment).
NOW, THEREFORE, in consideration of the foregoing recitals and of the
Indemnitee's continuing to serve the Corporation and/or MGM Studios as a
director and/or officer, the parties agree as follows:
1. Indemnification. To the fullest extent allowed by law, each of
---------------
the Indemnitors, jointly and severally, shall hold harmless and indemnify the
Indemnitee, his executors, administrators or assigns against any and all
expenses, liabilities and losses (including, without limitation, investigation
expenses, expert witnesses' and attorneys' fees and expenses, judgments,
penalties, fines, amounts paid or to be paid in settlement any interest,
assessments, or other charges imposed thereon and any federal, state, local or
foreign taxes imposed as a result of actual or deemed receipt of any payment
hereunder) actually incurred by the Indemnitee (net of any related insurance
proceeds or other amounts received by the Indemnitee or paid by or on behalf of
an Indemnitor on the Indemnitee's behalf in compensation of such expenses,
liabilities or losses) in connection with any actual or threatened action, suit
or proceeding, whether civil, criminal, administrative or investigative or in
arbitration, to which the Indemnitee is a party or participant or is threatened
to be made a party or participant (a "Proceeding"), as a plaintiff, defendant,
----------
respondent, witness or otherwise, based upon, arising from, relating to or by
reason of the fact that the Indemnitee: (a) is, was, shall be or shall have been
a director and/or officer of the Corporation or (b) is or was serving, shall
serve, or shall have served at the request of the Corporation as a director,
officer, partner, trustee, fiduciary, employee or agent ("Affiliate Indemnitee")
--------------------
of another foreign or domestic corporation or non-profit corporation,
cooperative, partnership, joint venture, trust, employee benefit plan, or other
incorporated or unincorporated enterprise (each, a "Company Affiliate"); or
-----------------
arising from or relating to any action or omission to act taken by the
Indemnitee in any of the foregoing capacities; provided, however, that, except
as provided in Section 9(b) hereof, an Indemnitor shall indemnify the Indemnitee
in connection with a Proceeding initiated by the Indemnitee only if such
proceeding (or part thereof) was authorized by a two-thirds vote of the Board of
Directors of such Indemnitor.
The Indemnitee shall be presumed to be entitled to such
indemnification under this Agreement upon submission of a written claim pursuant
to Section 4 hereof. Thereafter, the Indemnitors shall have the burden of proof
to overcome the presumption that the Indemnitee is so entitled. Such
presumption shall only be overcome by a judgment or other final adjudication,
after all appeals and all time for appeals has expired ("Final Determination"),
-------------------
which is adverse to the Indemnitee and which establishes (i) that his acts were
committed in bad faith, or were the result of active and deliberate dishonesty,
and were material to the cause of action so adjudicated and (ii) that the
Indemnitee in fact personally gained a financial profit or other advantage to
which he was not legally entitled. If the Indemnitee is not wholly successful
in any Proceeding but is successful on the merits or otherwise, as to one or
more but less than all claims, issues or matters in such Proceeding the
Indemnitors agree, jointly and severally, to indemnify the Indemnitee to the
maximum extent permitted by law against all losses and expenses incurred by the
Indemnitee in connection with each successfully resolved claim, issue or matter.
Neither the failure of any of the Indemnitors (including their respective Boards
of Directors, legal counsel or stockholders) to have made a determination prior
to the commencement of such Proceeding that indemnification of the Indemnitee is
proper in the circumstances because such person has met the applicable standard
of conduct set forth in the DGCL, nor an actual determination by such Indemnitor
(including its Board of Directors, its legal counsel or its stockholders) that
the Indemnitee has not met the applicable standard of conduct, shall be a
defense to the
<PAGE>
action or create a presumption that the Indemnitee has not met the applicable
standard of conduct. The purchase, establishment or maintenance of any
Indemnification Arrangement shall not in any way diminish, restrict, limit or
adversely affect the rights and obligations of any of the Indemnitors or of the
Indemnitee under this Agreement, except as expressly provided herein, and the
execution and delivery of this Agreement by the Indemnitors and the Indemnitee
shall not in any way diminish, restrict, limit or adversely affect the
Indemnitee's right to indemnification from the Indemnitors or any other party or
parties under any other Indemnification Arrangement, the Certificate of
Incorporation or Bylaws of any of the Indemnitors, or the DGCL.
2. Period of Limitations. No legal action shall be brought and no
---------------------
cause of action shall be asserted by or on behalf of an Indemnitor or any
affiliate of an Indemnitor against the Indemnitee, Indemnitee's spouse, heirs,
executors, or personal or legal representatives after the expiration of two
years from the date of accrual of such cause of action, or such longer period as
may be required by applicable law under the circumstances. Any claim or cause
of action of the Indemnitor or its affiliate shall be extinguished and deemed
released unless asserted by the timely filing of a legal action within such
period; provided, however, that if any shorter period of limitations is
otherwise applicable to any such cause of action the shorter period shall
govern.
3. Insurance. Subject only to the provisions of this Section 3, as
---------
long as the Indemnitee shall continue to serve as a director and/or officer of
an Indemnitor (or shall continue at the request of an Indemnitor to serve as an
Affiliate Indemnitee) and, thereafter, as long as the Indemnitee shall be
subject to any possible Proceeding by reason of the fact that the Indemnitee was
a director and/or officer of the Corporation and/or MGM Studios (or served in
any of said other capacities), the Indemnitors shall, unless no such policies
are available in any market, purchase and maintain in effect for the benefit of
the Indemnitee one or more valid, binding and enforceable policies (the
"Insurance Policies") of directors' and officers' liability insurance ("D&O
- ------------------- ---
Insurance") providing adequate liability coverage for the Indemnitee's acts as a
- ---------
director and/or officer of the Indemnitors or as an Affiliate Indemnitee. Each
Indemnitor shall promptly notify the Indemnitee of any lapse, amendment or
failure to renew said policy or policies or any provision thereof relating to
the extent or nature of coverage provided thereunder. In the event any
Indemnitor does not purchase and maintain in effect said policy or policies of
D&O Insurance pursuant to the provisions of this Section 3, such Indemnitor
shall, in addition to and not in limitation of the other rights granted the
Indemnitee under this Agreement, hold harmless and indemnify the Indemnitee to
the full extent of coverage which would otherwise have been provided for the
benefit of the Indemnitee pursuant to the Insurance Policies.
4. Claims for Payments. The Indemnitee shall have the right to
-------------------
receive from the Indemnitors on demand or, at his option, to have any of the
Indemnitors pay promptly on his behalf, in advance of a Final Determination of a
Proceeding, all amounts payable by the Indemnitors pursuant to the terms of this
Agreement as corresponding amounts are expended or incurred by the Indemnitee in
connection with any Proceeding or otherwise (such amounts so expended or
incurred being referred to as "Advanced Amounts"). In making any claim for
----------------
payment by the Indemnitors of any amount, including any Advanced Amount,
pursuant to this Agreement, the Indemnitee shall submit to the Indemnitors a
written request for payment (a "Claim") which includes a schedule setting forth
-----
in reasonable detail the dollar amount expended (or incurred or expected to be
expended or incurred). Each item on such schedule shall be supported by the
bill, agreement, or other documentation relating thereto, a copy of which shall
be appended to the schedule as an exhibit.
<PAGE>
Where the Indemnitee is requesting Advanced Amounts, the Indemnitee
must also provide an undertaking to repay such Advanced Amounts if a Final
Determination is made that the Indemnitee is not entitled to indemnification
hereunder.
5. Section 16(b) Liability. No Indemnitor shall be liable under this
-----------------------
Agreement to make any payment in connection with any claim made against the
Indemnitee for an accounting of profits made from the purchase or sale by the
Indemnitee of securities of an Indemnitor within the meaning of Section 16(b) of
the Securities Exchange Act of 1934, and amendments thereto, or similar
provisions of any state statutory law or common law.
6. Continuation of Indemnity. All agreements and obligations of the
-------------------------
Indemnitors contained herein shall continue during the period the Indemnitee is
a director and/or officer of such Indemnitor (or is serving at the request of an
Indemnitor as an Affiliate Indemnitee) and shall continue thereafter so long as
the Indemnitee shall be subject to any possible Proceeding by reason of the fact
that the Indemnitee was a director or officer of such Indemnitor or served as
such an Affiliate Indemnitee.
7. Successors: Binding Agreement. This Agreement shall be binding
------------------------------
on, and shall inure to the benefit of and be enforceable by, each of the
Indemnitor's successors and assigns and by the Indemnitee's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
divisees and legatees. Each Indemnitor shall require any successor or assignee
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of such Indemnitor, by
written agreement in form and substance reasonably satisfactory to such
Indemnitor and to the Indemnitee, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent that such Indemnitor would
be required to perform if no such succession or assignment had taken place.
8. Notification and Defense of Claim. Promptly after receipt by the
---------------------------------
Indemnitee of notice of the commencement of any Proceeding, the Indemnitee
shall, if a claim in respect thereof is to be made against an Indemnitor under
this Agreement, notify such Indemnitor of the commencement thereof, but the
failure to so notify such Indemnitor will not relieve the Indemnitors from any
liability which it may have to the Indemnitee. With respect to any such
Proceeding:
(i) Each Indemnitor shall be entitled to participate therein at its
own expense;
(ii) Except with prior written consent of the Indemnitee, the
Indemnitors shall not be entitled to assume the defense of any Proceeding;
and
(iii) No Indemnitor shall settle any Proceeding in any manner which
would impose any penalty or limitation on the Indemnitee without the
Indemnitee's prior written consent.
The Indemnitee shall not settle any Proceeding with respect to which the
Indemnitee has received indemnified amounts or Advanced Amounts without the
Indemnitors' prior written consent, nor will the Indemnitee unreasonably
withhold consent to any proposed settlement.
9. Enforcement. (a) Each Indemnitor has entered into this Agreement
-----------
and assumed the obligations imposed on such Indemnitor hereby in order to induce
the Indemnitee to act as a director and/or officer of the Corporation and/or MGM
Studios or as an Affiliate Indemnitee and acknowledges that the Indemnitee is
relying upon this Agreement in continuing in such capacity.
<PAGE>
(b) All expenses incurred by the Indemnitee in connection with the
preparation and submission of the Indemnitee's request for indemnification
hereunder shall be borne, jointly and severally, by the Indemnitors. In the
event the Indemnitee has requested payment of any amount under this Agreement
and has not received payment thereof within thirty (30) days of such request,
the Indemnitee may bring any action to enforce rights or collect moneys due
under this Agreement, and, if the Indemnitee is successful in such action, the
Indemnitors shall reimburse the Indemnitee for all of the Indemnitee's fees and
expenses in bringing and pursuing such action. If it is determined that the
Indemnitee is entitled to indemnification for part (but not all) of the
indemnification so requested, expenses incurred in seeking enforcement of such
partial indemnification shall be reasonably prorated among the claims, issues or
matters for which the Indemnitee is entitled to indemnification for claims,
issues or matter for which the Indemnitee is not so entitled. The Indemnitee
shall be entitled to the advancement of such amounts to the full extent
contemplated by Section 4 hereof in connection with such Proceeding.
10. Separability. If any provision or provisions of this Agreement
------------
shall be held to be invalid, illegal or unenforceable for any reason whatsoever,
(i) the validity, legality and enforceability of the remaining provisions of
this Agreement (including, without limitation, all portions of any sections or
subsections of this Agreement containing any such provision held to be invalid,
illegal or unenforceable, that are not by themselves invalid, illegal or
unenforceable) shall not in any way be affected or impaired thereby, and (ii) to
the fullest extent possible, the provisions of any section or subsections of
this Agreement containing any such provisions held to be invalid, illegal or
unenforceable shall be construed so as to give effect to the intent of the
parties that the Indemnitors (or any of them) provide protection to the
Indemnitee to the fullest extent enforceable.
11. Miscellaneous. No provision of this Agreement may be modified,
-------------
waived or discharged unless such modification, waiver or discharge is agreed to
in writing signed by the Indemnitee and an officer of each of the Indemnitors
designated by the Board of Directors of such Indemnitor. No waiver by either
party at any time of any breach by the other party of, or of compliance with,
any condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same time or at any prior or subsequent time. The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws of
the State of Delaware, without giving effect to the principles of conflicts of
laws thereof. The Indemnitee may bring an action seeking resolution of disputes
or controversies arising under, or in any way related to, this Agreement in the
state or federal court jurisdiction in which the Indemnitee resides or in which
his place of business is located and in any related appellate courts, and each
of the Indemnitors hereby consents to the jurisdiction of such courts and to
such venue.
12. Notices. For the purposes of this Agreement, notices and all
-------
other communications provided for in the Agreement shall be in writing and shall
be deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, as follows:
If to the Indemnitee: Daniel J. Taylor
Fifth Floor
2500 Broadway Street
Santa Monica, CA 90404
<PAGE>
If to the Corporation: Metro-Goldwyn-Mayer Inc.
Fifth Floor
2500 Broadway Street
Santa Monica, CA 90404
Attn: General Counsel
If to MGM Studios: Metro-Goldwyn-Mayer Studios
Fifth Floor
2500 Broadway Street
Santa Monica, CA 90404
Attn: General Counsel
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
13. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
13. Effectiveness. This Agreement shall be effective as of the day
-------------
and year first above written.
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed as of the day and year first above written.
METRO-GOLDWYN-MAYER INC.
By: ________________________________
Name:
Title:
METRO-GOLDWYN-MAYER STUDIOS
By: ________________________________
Name:
Title:
INDEMNITEE
____________________________________
Daniel J. Taylor
<PAGE>
EXHIBIT 10.4
AMENDMENT I
TO AMENDED AND RESTATED CREDIT AGREEMENT
AMENDMENT I dated as of March 30, 1998 to the Amended and Restated Credit
Agreement dated as of October 15, 1997 (the "CREDIT AGREEMENT") among METRO-
GOLDWYN-MAYER STUDIOS INC. ("MGM"), ORION PICTURES CORPORATION ("ORION" and,
together with MGM, the "BORROWERS"), the LENDERS listed on the signature pages
thereof, the L/C ISSUERS named therein, MORGAN GUARANTY TRUST COMPANY OF NEW
YORK, as Agent (the "AGENT") and BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION, as Syndication Agent.
WITNESSETH:
WHEREAS, the parties hereto desire to amend the Credit Agreement to modify
certain financial covenants;
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. Definitions; References. Unless otherwise specifically defined
herein, each term used herein which is defined in the Credit Agreement has the
meaning assigned to such term in the Credit Agreement. Each reference to
"hereof", "hereunder", "herein" and "hereby" and each other similar reference
and each reference to "this Agreement" and each other similar reference
contained in the Credit Agreement shall, from and after the date hereof, refer
to the Credit Agreement as amended hereby.
SECTION 2. Amendment to "Adjusted EBITDA to Cash Interest Expense"
Covenant. Section 5.11 of the Credit Agreement is amended by restating the
first three rows of the table set forth therein to read as follows:
<TABLE>
<S> <C>
03/31/98 1.10:1
06/30/98 1.10:1
09/30/98 1.10:1
</TABLE>
SECTION 3. Amendment to "Total Borrowed Funds to Adjusted EBITDA"
Covenant. Section 5.12 of the Credit Agreement is amended by deleting the first
four rows (from the row beginning "03/31/98" through and including the row
beginning "12/31/98") of the table set forth therein.
<PAGE>
SECTION 4. No Waiver. This Amendment shall not operate as a waiver of
any right, remedy, power or privilege of the Lenders under any Loan Document or
of any other term or condition thereof.
SECTION 5. Representations of Borrowers. Each of the Borrowers represents
and warrants that, on and as of the Amendment Effective Date (as hereinafter
defined) and after giving effect to this Amendment, (i) the representations and
warranties of the Obligors set forth in the Loan Documents will be true and
correct in all respects and (ii) no Default will have occurred and be
continuing.
SECTION 6. Governing Law. This Amendment shall be governed by and construed
in accordance with the laws of the State of New York.
SECTION 7. Counterparts. This Amendment may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
SECTION 8. Effectiveness. This Amendment shall become effective as of the
date hereof on the date (the "AMENDMENT EFFECTIVE DATE") when the Agent shall
have received from each of the Borrowers and the Required Lenders a counterpart
hereof signed by such party or facsimile or other written confirmation (in form
satisfactory to the Agent) that such party has signed a counterpart hereof.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the date first above written.
METRO-GOLDWYN-MAYER
STUDIOS INC.
By: /s/ Michael G. Corrigan
--------------------------------------
Title: Senior Executive Vice President
and Chief Financial Officer
ORION PICTURES CORPORATION
By: /s/ Michael G. Corrigan
--------------------------------------
Title: Senior Executive Vice President
and Chief Financial Officer
MORGAN GUARANTY TRUST
COMPANY OF NEW YORK, as Agent
and as Lender
By: /s/ R. Blake Witherington
--------------------------------------
Title: Vice President
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as
Syndication Agent and as Lender
By: /s/ Matthew J. Koening
--------------------------------------
Title: Vice President
3
<PAGE>
THE CHASE MANHATTAN BANK
By: /s/ John W. Miller
------------------------------------
Title: Managing Director
SOCIETE GENERALE
By: ____________________________________
Title:
THE BANK OF NOVA SCOTIA
By: /s/ Alan Pendergast
------------------------------------
Title: Relationship Manager
VAN KAMPEN AMERICAN CAPITAL
PRIME RATE INCOME TRUST
By: /s/ Jeffrey W. Maillet
------------------------------------
Title: Senior Vice President & Director
FLEET NATIONAL BANK
By: ____________________________________
Title:
4
<PAGE>
ING (U.S.) CAPITAL CORPORATION
By: _______________________________
Title:
ING HIGH INCOME PRINCIPAL
PRESERVATION FUND HOLDINGS, LDC
By ING Capital Advisors, Inc., as
Investment Advisor
By: /s/ Michael D. Hatley
-------------------------------
Title: Vice President & Portfolio Manager
KZH-ING-1 CORPORATION
By: _______________________________
Title:
ARCHIMEDES FUNDING LLC
By ING Capital Advisors, Inc., as
Collateral Manager
By: /s/ Michael D. Hatley
--------------------------------
Title: Vice President & Portfolio Manager
5
<PAGE>
MERRILL LYNCH SENIOR FLOATING
RATE FUND, INC.
By: __________________________
Title:
SENIOR HIGH INCOME PORTFOLIO, INC.
By: __________________________
Title:
DEBT STRATEGIES FUND, INC.
By: __________________________
Title:
THE BANK OF NEW YORK
By: __________________________
Title:
BANK OF SCOTLAND
By: /s/ Annie Chin Tat
__________________________
Title: Vice President
6
<PAGE>
THE INDUSTRIAL BANK OF JAPAN,
LIMITED, LOS ANGELES AGENCY
By: /s/ Vicente L. Timiraos
--------------------------------------
Title: Senior Vice President & Senior
Deputy General Manager
THE LONG-TERM CREDIT BANK OF
JAPAN, LTD., LOS ANGELES
AGENCY
By: /s/ Noboru Akahane
--------------------------------------
Title: Deputy General Manager
UNION BANK OF CALIFORNIA
By: /s/ Thomas P. Garry, Jr.
--------------------------------------
Title: Assistant Vice President
GENERAL ELECTRIC CAPITAL
CORPORATION
By: /s/ Janet K. Williams
--------------------------------------
Title: Duly Authorized Signatory
For ARAB BANKING CORPORATION
NEW YORK BRANCH
By: /s/ Richard B. Whelan
--------------------------------------
Title: Vice President & Manager
Los Angeles Representative
Office
7
<PAGE>
BANK OF HAWAII
By: /s/ Elizabeth O. MacLean
---------------------------------------
Title: Vice President
PILGRIM AMERICA PRIME RATE
TRUST
By Pilgrim America Investments, Inc., as its
Investment Manager
By: /s/ Thomas C. Hunt
---------------------------------------
Title: Assistant Portfolio Manager
SANWA BUSINESS CREDIT
CORPORATION
By: /s/ Raffi Shirinyan
---------------------------------------
Title: Vice President
GULF INTERNATIONAL BANK B.S.C.
By: /s/ Abdel-Fattah Tahoun
---------------------------------------
Title: Senior Vice President
By: /s/ Haytham F. Khalil
---------------------------------------
Title: Assistant Vice President
8
<PAGE>
MASSACHUSETTS MUTUAL LIFE
INSURANCE COMPANY
By: /s/ Richard E. Spencer II
------------------------
Title: Managing Director
BANQUE WORMS CAPITAL
CORPORATION
By: /s/ Frederic Gamet
------------------------
Title: Senior Vice President
By: /s/ Constance de Klerk
------------------------
Title: Vice President
CITY NATIONAL BANK, a National
Banking Association
By: /s/ Richard V. McCune
------------------------
Title: Vice President
FIRST HAWAIIAN BANK
By: /s/ Donald C. Young
------------------------
Title: Vice President
9
<PAGE>
INDOSUEZ CAPITAL FUNDING III,
LIMITED
By Indosuez Capital, as Portfolio Advisor
By:
--------------------------------------
Title:
CITIBANK, N.A.
By: /s/ Hans L. Christensen
--------------------------------------
Title: Vice President
PACIFIC LIFE INSURANCE COMPANY
By: /s/ Raymond J. Lee
--------------------------------------
Title: Senior Vice President
By: /s/ Elaine M. Havens
--------------------------------------
Title: Vice President
PFL LIFE INSURANCE COMPANY
By: /s/ Gregory W. Theobald
--------------------------------------
Title: Vice President & Assistant
Secretary
10
<PAGE>
PRIME INCOME TRUST
By:/s/ Sheila A. Finnerty
-----------------------------------
Title: Vice President
PAMCO CAYMAN LTD.
By Protective Asset Management Company,
as Collateral Manager
By:/s/ James Dondero
-----------------------------------
Title: President, Protective Asset
Management Company
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
By:/s/ Neil Brisson
-----------------------------------
Title: Director
KZH-ING-2 CORPORATION
By:
-----------------------------------
Title:
MORGAN STANLEY SENIOR
FUNDING, INC.
By:
----------------------------------
Title:
11
<PAGE>
CONTINENTAL ASSURANCE COMPANY
SEPARATE ACCOUNT (E)
By Protective Asset Management Company,
as Attorney-in-Fact
By:/s/ James Dondero
---------------------------------------
Title: President, Protective Asset
Management Company
ML CBO IV (CAYMAN) LTD.
By Protective Asset Management Company,
as Collateral Manager
By:/s/ James Dondero
---------------------------------------
Title: President, Protective Asset
Management Company
SENIOR DEBT PORTFOLIO
By Boston Management & Research, as
Investment Advisor
By:/s/ Payson F. Swaffield
---------------------------------------
Title: Vice President
ML CLO XII PILGRIM AMERICA
(CAYMAN) LTD. (as assignee)
By Pilgrim America Investments, Inc., as its
Investment Manager
By:/s/ Thomas C. Hunt
---------------------------------------
Title: Assistant Portfolio Manager
12
<PAGE>
CYPRESSTREE INVESTMENT
PARTNERS I, LIMITED
By CypressTree Investment Management
Company, as Portfolio Manager
By: /s/ Catherine C. McDermott
-----------------------------------
Title: Principal
MERRILL LYNCH PRIME RATE
PORTFOLIO
By: ___________________________________
Title:
MERRILL LYNCH DEBT STRATEGIES
PORTFOLIO
By: ___________________________________
Title:
ABN AMRO BANK N.V.
By: /s/ Frances O'R. Logan
-----------------------------------
Title: Group Vice President
By: /s/ William S. Bennett
-----------------------------------
Title: Vice President
13
<PAGE>
BDC FINANCE LLC
By:
--------------------------------------
Title:
NATEXIS BANQUE - BFCE
By: /s/ Daniel Touffu
--------------------------------------
Title: First Vice President and
Regional Manager
By: /s/ Joan M. Farrell
--------------------------------------
Title: Assistant Vice President
FC CBO LIMITED
By:
--------------------------------------
Title:
FREMONT FINANCIAL
CORPORATION
By: /s/ Cheri Rittman
--------------------------------------
Title: Vice President
THE FUJI BANK, LIMITED
By: /s/ Masahito Fukuda
--------------------------------------
Title: Joint General Manager
14
<PAGE>
GOLDMAN SACHS CREDIT PARTNERS L.P.
By: /s/ Stephen J. McGuinness
----------------------------
Title: Authorized Signatory
THE SUMITOMO BANK, LIMITED
By: /s/ B. Smith
----------------------------
Title: Senior Vice President
By: /s/ J.H. Broadley
----------------------------
Title: Vice President
THE TORONTO-DOMINION BANK
By: /s/ David G. Parker
----------------------------
Title: Manager, Credit Administration
KEYPORT LIFE INSURANCE COMPANY
By: /s/ Brian W. Good
----------------------------
Title: Vice President & Portfolio Manager
THE ING CAPITAL SENIOR SECURED
HIGH INCOME FUND, L.P.
By ING Capital Advisors, Inc., as
Investment Advisor
By: /s/ Michael D. Hatley
----------------------------
Title: Vice President & Portfolio Manager
15
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0
0
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