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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
METRO-GOLDWYN-MAYER, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
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[LOGO OF METRO-GOLDWYN-MAYER INC.]
METRO-GOLDWYN-MAYER INC.
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 12, 1998
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To our Stockholders:
The Annual Meeting of Stockholders of Metro-Goldwyn-Mayer Inc., a Delaware
corporation (the "Company"), will be held at The Beverly Hilton, 9876 Wilshire
Boulevard, Beverly Hills, California 90210, on May 12, 1998, at 10:00 a.m.,
local time (the "Annual Meeting"), for the following purposes:
1. To elect a Board of Directors;
2. To consider and act upon the proposed 1998 Non-Employee Director Stock
Plan;
3. To consider and act upon the approval and ratification of the Senior
Management Bonus Plan;
4. To consider and act upon the ratification of the selection of Arthur
Andersen LLP as independent auditors of the Company for the fiscal
year ending December 31, 1998; and
5. To transact such other business as may properly come before the
Annual Meeting or any adjournments thereof.
Stockholders of record at the close of business on April 3, 1998 are
entitled to notice of and to vote at the Annual Meeting. A list of such
stockholders will be available for examination by any stockholder, during
ordinary business hours, at the Company's executive offices, located at 2500
Broadway Street, Santa Monica, California 90404, for a period of 10 days prior
to the meeting date.
Please date, sign and return the enclosed proxy whether or not you plan to
attend the Annual Meeting. If you plan to attend the Annual Meeting, please
also check the appropriate box on the enclosed proxy and detach the admission
ticket to present at the meeting.
PLEASE DATE, SIGN AND MAIL THE ENCLOSED PROXY.
USE THE ENCLOSED ENVELOPE WHICH REQUIRES NO POSTAGE FOR MAILING IN THE UNITED
STATES.
By Order of the Board of Directors
/s/ William Allen Jones
William Allen Jones
Senior Executive Vice
President and Secretary
Santa Monica, California
April 17, 1998
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METRO-GOLDWYN-MAYER INC.
2500 BROADWAY STREET
SANTA MONICA, CALIFORNIA 90404
(310) 449-3000
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PROXY STATEMENT
APRIL 17, 1998
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GENERAL
The accompanying form of proxy and the persons named therein as proxies have
been approved by, and this solicitation is made on behalf of, the Board of
Directors of Metro-Goldwyn-Mayer Inc. in connection with the Annual Meeting of
Stockholders of Metro-Goldwyn-Mayer Inc. (the "Annual Meeting") to be held at
10:00 a.m., local time, on May 12, 1998 at The Beverly Hilton, 9876 Wilshire
Boulevard, Beverly Hills, California 90210, and at any and all postponements
and adjournments thereof. Metro-Goldwyn-Mayer Inc., together, unless the
context indicates otherwise, with its direct and indirect subsidiaries, is
hereinafter referred to as the "Company."
This Proxy Statement and accompanying proxy were first mailed to
stockholders on or about April 17, 1998. The costs of solicitation of proxies
will be paid by the Company. In addition to soliciting proxies by mail, the
Company's officers, directors and other regular employees, without additional
compensation, may solicit proxies personally or by other appropriate means.
The Company will reimburse brokers, banks, fiduciaries and other custodians
and nominees holding the common stock, $.01 par value per share, of the
Company (the "Common Stock") in their names or in the names of their nominees
for their reasonable out-of-pocket charges and expenses in forwarding proxies
and proxy materials to the beneficial owners of the Common Stock.
VOTING RIGHTS AND OUTSTANDING SHARES
Only stockholders of record of the Common Stock as of April 3, 1998 will be
entitled to vote at the Annual Meeting. The authorized capital stock of the
Company presently consists of 125,000,000 shares of the Common Stock and
25,000,000 shares of preferred stock, $.01 par value per share. On April 3,
1998, there were outstanding 65,779,852 shares of the Common Stock, which
constituted all of the outstanding voting securities of the Company entitled
to vote at the Annual Meeting. Each share of the Common Stock is entitled to
one vote on all matters to come before the Annual Meeting. No shares of the
Company's preferred stock are issued and outstanding.
The presence, in person or by proxy, of the holders of at least a majority
of the total number of shares of the Common Stock entitled to vote is
necessary to constitute a quorum at the Annual Meeting. Abstentions and broker
non-votes (i.e. shares held by brokers or nominees as to which instructions
have not been received from beneficial owners or persons entitled to vote that
the broker or nominee does not have discretionary power to vote on a
particular matter) are counted for the purpose of determining the presence or
absence of a quorum for the transaction of business. In the event that there
are not sufficient votes for a quorum at the time of the Annual Meeting, the
Annual Meeting may be adjourned in order to permit the further solicitation of
proxies.
Directors will be elected by a plurality of the votes of the shares of the
Common Stock present in person or represented by proxy. For each other
proposal to be acted upon at the Annual Meeting, the affirmative vote of the
holders of a majority of the outstanding shares of the Common Stock
represented in person or by proxy and entitled to vote on the item will be
required for approval.
With regard to the election of directors, votes may be cast in favor of or
withheld; votes that are withheld will be excluded entirely from the vote and
will have no effect. Abstentions may be specified on proposals other than the
election of directors and will be counted as present for purposes of the
proposal on which the abstention is voted. Therefore, such abstentions will
have the effect of a negative vote. Broker non-votes are not counted for
purposes of determining whether a proposal has been approved and, therefore,
have the effect of reducing the number of affirmative votes required to
achieve a majority of the votes cast for such proposal.
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Proxies must be written, signed by the stockholder and returned to the
Secretary of the Company. Any stockholder who signs and returns a proxy may
revoke it at any time before it is voted by filing with the Secretary of the
Company a written revocation or a duly executed proxy bearing a date later
than the date of the proxy being revoked. Any stockholder attending the Annual
Meeting in person may withdraw such stockholder's proxy and vote such
stockholder's shares.
The Common Stock does not have cumulative voting rights. The Company, Metro-
Goldwyn-Mayer Studios Inc. ("MGM Studios"), Tracinda Corporation ("Tracinda"),
Seven Network Limited ("Seven") and Frank G. Mancuso, Chairman of the Board
and Chief Executive Officer of the Company, are parties to an Amended and
Restated Investors Shareholder Agreement dated as of August 4, 1997 (the
"Investors Shareholder Agreement") pursuant to which they have agreed to vote
their respective shares of the Common Stock as a group with respect to certain
matters, including, but not limited to, certain corporate governance matters
and the election of the Board of Directors of the Company. See "Security
Ownership of Certain Beneficial Owners and Management--Investors Shareholder
Agreement."
All information contained in this Proxy Statement gives effect to a
recapitalization of the Company which occurred immediately prior to the
closing of the Company's initial public offering on November 18, 1997 and
consisted of (i) the conversion of each share of the Company's then
outstanding Series A Cumulative Convertible Preferred Stock into one share of
the Common Stock and (ii) a subsequent 41.667 for 1 stock split of the Common
Stock.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below sets forth the beneficial ownership of the Common Stock as
of April 3, 1998 of (i) each director of the Company, (ii) the Chief Executive
Officer and the other four most highly compensated executive officers of the
Company who were serving as executive officers on December 31, 1997 (the
"Named Executive Officers"), (iii) the directors and Named Executive Officers
of the Company as a group and (iv) each person who at such time, to the
Company's knowledge, beneficially owned more than five percent of the
outstanding shares of the Common Stock of the Company.
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES(1) OF CLASS
------------------------------------ ---------- ----------
<S> <C> <C>
Tracinda Corporation(2)............................... 42,856,251 65.0%
4835 Koval Lane
Las Vegas, NV 89109
Seven Network Limited(3).............................. 16,208,463 24.6
ATN7, Mobbs Lane
Epping NSW 2121 Australia
Frank G. Mancuso(4)................................... 787,098 1.2
A. Robert Pisano(5)................................... 193,950 *
James D. Aljian(6).................................... 5,000 *
Francis Ford Coppola.................................. -- --
Michael R. Gleason(7)................................. 218,451 *
Kirk Kerkorian(8)..................................... 42,856,251 65.0
Kerry M. Stokes(9).................................... 16,208,463 24.6
Alex Yemenidjian(6)................................... 5,000 *
Jerome B. York(6)..................................... 5,000 *
Michael G. Corrigan................................... 1,000 *
David G. Johnson(10).................................. 73,456 *
William A. Jones(11).................................. 79,420 *
All Directors and Named Executive Officers as a group
(12 persons)......................................... 60,403,089 90.2
</TABLE>
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* Less than 1 percent.
(1) The number of shares shown includes shares over which the person named has
either sole or shared voting or investment power and shares as to which
certain directors and executive officers disclaim beneficial ownership.
The shares of the Common Stock which a person has the right to acquire
within 60 days of April 3, 1998 and the shares of the Common Stock
underlying options that are vested as of April 3, 1998 or that will become
vested within 60 days are deemed to be outstanding for the purpose of
calculating the beneficial ownership of the holder of such options or
other rights, but are not deemed to be outstanding for the purpose of
computing the beneficial ownership of any other person. As a result, the
aggregate percentage ownership of the Common Stock shown herein may exceed
100 percent.
(2) Includes 156,251 shares of the Common Stock issuable at a price of $6.41
per share pursuant to a presently exercisable stock option which expires
on October 10, 2002. All of the shares of the Common Stock held by
Tracinda are pledged to a group of banks to secure a syndicated credit
facility to Tracinda. For a description of certain voting agreements
applicable to such shares, see "--Investors Shareholder Agreement."
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(3) Includes 150,000 shares of the Common Stock subject to an option granted
by an affiliate of Seven and held by Celsus (as defined in footnote seven
below), 30,000 of which are presently exercisable at a price of $24.00 per
share. For a description of certain voting agreements applicable to the
shares of Common Stock held by Seven, see "--Investors Shareholder
Agreement."
(4) Includes 581,893 shares of the Common Stock underlying options vested as
of April 3, 1998 or that will become vested within 60 days of such date.
Also includes 5,000 shares of the Common Stock which are owned by Mr.
Mancuso's children and grandchildren, and as to which Mr. Mancuso
disclaims beneficial ownership. For a description of certain voting
agreements applicable to the shares of Common Stock held by Mr. Mancuso,
see "--Investors Shareholder Agreement."
(5) Includes 174,568 shares of the Common Stock underlying options vested as
of April 3, 1998 or that will become vested within 60 days of such date
and 302 shares allocated to Mr. Pisano's account in the Savings Plan (as
defined in "Benefit Plans--MGM Savings Plan"). Also includes 3,080 shares
of the Common Stock which are held by the Pisano Children's Trust and as
to which Mr. Pisano disclaims beneficial ownership.
(6) Each of Messrs. Aljian and York is an employee of, and, along with Mr.
Yemenidjian, was nominated to the Board of Directors of the Company by,
Tracinda. Each of Messrs. Aljian, York and Yemenidjian is a director of,
and Mr. Yemenidjian is also an executive officer of, MGM Grand, Inc., an
affiliate of Tracinda.
(7) Mr. Gleason was nominated to the Board of Directors of the Company by
Seven. Mr. Gleason serves as the President of Celsus Financial Corp.
("Celsus"), an entity wholly owned by Mr. Gleason, which regularly
provides financial advisory services to Seven. Includes 156,251 shares of
the Common Stock issuable at a price of $6.41 per share pursuant to a
presently exercisable stock option which expires on October 10, 2002 held
by Celsus. Also includes 32,200 shares of the Common Stock beneficially
owned by Mr. Gleason and 30,000 shares of the Common Stock which may be
purchased at a price of $24.00 per share pursuant to a presently
exercisable stock option granted to Celsus by an affiliate of Seven, which
expires on the earlier of (i) the date on which Celsus ceases to represent
Seven in the United States, or (ii) December 31, 2002.
(8) Mr. Kerkorian is the Chief Executive Officer, President and sole
shareholder and director of, and was nominated to the Board of Directors
of the Company by, Tracinda. Represents 42,856,251 shares of the Common
Stock beneficially owned by Tracinda. For a description of certain voting
agreements applicable to such shares, see "--Investors Shareholder
Agreement."
(9) Mr. Stokes is the Chairman of, and was nominated to the Board of Directors
of the Company by, Seven. Represents 16,208,463 shares of the Common Stock
beneficially owned by Seven, as to which Mr. Stokes disclaims beneficial
ownership. For a description of certain voting agreements applicable to
such shares, see "--Investors Shareholder Agreement."
(10) Includes 59,723 shares of the Common Stock underlying options vested as
of April 3, 1998 or that will become vested within 60 days of such date
and 191 shares allocated to Mr. Johnson's account in the Savings Plan.
(11) Includes 53,195 shares of the Common Stock underlying options vested as
of April 3, 1998 or that will become vested within 60 days of such date
and 183 shares allocated to Mr. Jones' account in the Savings Plan.
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INVESTORS SHAREHOLDER AGREEMENT
The following is a summary description of the material terms of the
Investors Shareholder Agreement. This summary description does not purport to
be complete and is subject to and qualified in its entirety by reference to
the definitive Investors Shareholder Agreement, a copy of which was filed as
an exhibit to the Company's Registration Statement on Form S-1, as amended
(File No. 333-35411) (the "Registration Statement"), that became effective on
November 10, 1997.
Voting of Shares. Until November 18, 2012, (i) each of Tracinda and Seven
has agreed to vote all of the shares of capital stock of the Company
beneficially owned by such party and take all necessary or desirable action
within such party's control, (ii) the Company has agreed to vote all of the
shares of capital stock of MGM Studios beneficially owned by it and to take
all necessary or desirable action within its control, and (iii) Mr. Mancuso
has agreed to vote all his shares of capital stock of the Company and to take
all necessary or desirable action, in each case so that the Board of Directors
of the Company consists of 11 members (subject to the provisions described
below), up to four of whom are nominated by Tracinda (subject to reduction if
Tracinda does not maintain a certain level of ownership of the Common Stock),
up to two of whom are nominated by Seven (subject to reduction if Seven does
not maintain a certain level of ownership of the Common Stock), two of whom
are nominated by the Chairman and Chief Executive Officer of the Company (one
of whom shall be Mr. Mancuso as long as he serves as the Chief Executive
Officer of the Company), and three independent directors who are nominated by
the majority of the Board of Directors of the Company (which majority, so long
as Tracinda beneficially owns at least 16,666,800 shares of the Common Stock,
must include Tracinda's nominees on the Board of Directors of the Company) and
who are not affiliated or associated with either Tracinda or Seven and
otherwise meet the requirements of the New York Stock Exchange (the "NYSE")
for serving as independent directors; provided, however, that each of Tracinda
and Seven is only obligated to vote for nominees selected by the Board of
Directors of the Company which are acceptable to Tracinda or Seven, as the
case may be. The Board of Directors may determine to reduce the size of the
Board of Directors to ten persons, in which case the number of independent
directors will be reduced to two. Furthermore, each of Tracinda and Seven has
the exclusive right (which, to the extent the same may be required by law, may
be exercised indirectly) (i) to remove, with or without cause, any director
designated by it in accordance with the foregoing and (ii) to designate and
elect any replacement for a director designated by it in accordance with the
foregoing upon the death, resignation, retirement, disqualification or removal
from office of such director.
Until November 18, 2012, (i) each of Tracinda and Seven has agreed to vote
all of the shares of capital stock of the Company beneficially owned by such
party and take all necessary or desirable action within such party's control,
(ii) the Company has agreed to vote all of the shares of capital stock of MGM
Studios beneficially owned by it and take all necessary or desirable action
within its control and (iii) Mr. Mancuso has agreed to vote all his shares of
capital stock of the Company and to take all necessary or desirable action, in
each case so that the Compensation Committee of the Board of Directors of the
Company consists of one member of the Board of Directors of the Company
nominated by Tracinda (so long as Tracinda maintains a certain level of
ownership of the Common Stock), one member of the Board of Directors of the
Company nominated by Seven (so long as Seven maintains a certain level of
ownership of the Common Stock), and one independent director nominated by the
majority of the Board of Directors of the Company (which majority, so long as
Tracinda beneficially owns at least 16,666,800 shares of the Common Stock,
must include Tracinda's nominees on the Board of Directors of the Company) and
who is not affiliated or associated with either Tracinda or Seven and
otherwise meets the requirements of the NYSE for serving as an independent
director.
Until November 18, 2012, (i) each of Tracinda and Seven has agreed to vote
all of the shares of capital stock of the Company beneficially owned by such
party and take all necessary or desirable action within such party's control,
(ii) the Company has agreed to vote all of the shares of capital stock of MGM
Studios beneficially owned by it and to take all necessary or desirable action
within its control and (iii) Mr. Mancuso has agreed to vote all his shares of
capital stock of the Company and to take all necessary or desirable action, in
each case so that the Executive Committee of the Board of Directors of the
Company consists of three members
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of the Board of Directors of the Company nominated by Tracinda (so long as
Tracinda maintains a certain level of ownership of the Common Stock), one
member of the Board of Directors of the Company nominated by Seven (so long as
Seven maintains a certain level of ownership of the Common Stock), and two
members of the Board of Directors of the Company nominated by the Chairman and
Chief Executive Officer of the Company (one of whom shall be Mr. Mancuso as
long as he serves as the Chief Executive Officer of the Company).
Except to the extent consistent with the Investors Shareholder Agreement,
the Board of Directors of the Company shall not be authorized to fill a
vacancy on the Board of Directors of the Company caused by the death,
resignation, retirement, disqualification or removal of a director.
For as long as Mr. Mancuso serves as a member of the Board of Directors of
the Company and MGM Studios, Mr. Mancuso shall act as the Chairman of the
Board of Directors of the Company and MGM Studios. The Board of Directors of
the Company shall have the right to remove Mr. Mancuso as a director of the
Company, with or without cause, only upon the termination of his employment as
Chief Executive Officer of MGM Studios, subject to the terms of Mr. Mancuso's
employment agreement. See "Executive Compensation-- Employment Agreements--
Frank G. Mancuso." If Mr. Mancuso ceases to act as Chief Executive Officer of
the Company, Mr. Mancuso has agreed to resign as a director of the Company and
MGM Studios and all other positions held by Mr. Mancuso at the Company, MGM
Studios and their respective subsidiaries effective as of the time he ceases
to act as Chief Executive Officer of the Company. Any person selected by Mr.
Mancuso as the second management director must agree to resign as a director
of the Company and a member of the Executive and Compensation Committees of
the Board of Directors of the Company at such time as Mr. Mancuso ceases to
serve as the Chief Executive Officer of the Company, unless such other person
is acceptable to the new Chief Executive Officer of the Company. If Mr.
Mancuso ceases to act as the Chief Executive Officer of the Company, the
parties to the Investors Shareholder Agreement shall promptly remove the other
person nominated by Mr. Mancuso and then serving as a director of the Company
and a member of the Executive and Compensation Committees of the Board of
Directors of the Company, unless such other person is acceptable to the new
Chief Executive Officer of the Company.
Until October 10, 2001, the obligations described under the heading "--
Voting of Shares" above will be binding upon any transferee of Seven or
Tracinda except for any person (other than an affiliate of Tracinda or Seven)
who acquires (i) shares of the Common Stock from Tracinda or Seven pursuant to
a public offering registered under the Securities Act of 1933, as amended (the
"Securities Act"), or pursuant to Rule 144 or Regulation S promulgated
thereunder or (ii) not more than 4,166,700 shares of the Common Stock from
Tracinda or Seven, as the case may be, in one transaction or a series of
related transactions.
In addition, each of the Company, MGM Studios, Seven, Tracinda and Mr.
Mancuso has agreed that until the earlier to occur of (i) November 18, 2012
and (ii) the date that Seven no longer beneficially owns at least 10,416,750
shares of the Common Stock, neither the Company nor MGM Studios shall (a) sell
or agree to sell or (b) license or agree to license for a period of more than
three years, in substantially all major territories of the world in one
transaction, or a series of related transactions, all or 85 percent or more of
the films then in the library of the Company, MGM Studios, and their
subsidiaries unless such sale, license or agreement shall have been
unanimously approved by the Board of Directors of the Company. Thereafter, any
such sale, license or agreement shall only require the approval of a majority
of a quorum of directors at a duly called meeting of the Board of Directors of
the Company.
Business Operations. Each of the Company, MGM Studios, Tracinda, Seven and
Mr. Mancuso has agreed to use their best efforts (until November 18, 2012) to
ensure that neither the Company nor any of its subsidiaries engages in any
business activity except the entertainment business unless (i) all directors
of the Board of Directors shall have approved such engagement in other
business activities or (ii) a majority of the Board of Directors shall have
approved such engagement in other business activities and such engagement in
other business activities shall have been approved by the stockholders of the
Company in accordance with the applicable provisions of the Delaware General
Corporation Law ("DGCL"). For purposes of the Investors Shareholder Agreement,
the entertainment business shall include the acquisition, development,
production,
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marketing, distribution, exhibition, publication or use of intellectual
property for purposes of providing entertainment, education or information and
all services and activities reasonably related thereto, including the services
and activities currently provided or conducted by the Company and its
subsidiaries.
First Refusal Rights. Each of Seven and Tracinda has agreed to be bound by
certain "first refusal" rights with respect to the sale, pledge, transfer,
assignment or other disposition ("Transfer") of their shares of capital stock
of the Company, subject to certain conditions. If, prior to October 10, 2001,
either Tracinda or Seven desires to Transfer, directly or indirectly, in whole
or part, all or any portion of the shares of capital stock of the Company
beneficially owned by it, such party must provide the other party with a
written notice detailing the terms and conditions of such proposed Transfer
and the other party shall have, subject to certain notice requirements, the
right to purchase such shares on the same terms and conditions as the proposed
Transfer. The provisions relating to the right of first refusal will
terminate, with respect to such capital stock of the Company, upon the
transfer, in compliance with the provisions described in this paragraph, by
Tracinda or Seven of such capital stock to any person other than Tracinda or
Seven or their respective affiliates. These first refusal rights do not apply
to any bona fide pledge to a bank or other institutional financial lender.
The provisions relating to the right of first refusal will not apply to, in
the case of each of Tracinda and Seven, (i) the transfer of, or the grant of
options for the acquisition of, up to 312,502 shares of the Common Stock (such
number to be appropriately adjusted in the event that the Company should
effect any stock dividend, stock split, reverse stock split or any similar
transaction) beneficially owned by it to officers, directors, employees,
consultants and affiliates so long as such transferee agrees in writing to be
bound by all the terms of the Investors Shareholder Agreement applicable to
its transferor as if the transferee originally had been a party to the
Investors Shareholder Agreement and (ii) the transfer and assignment of all or
any portion of the capital stock of the Company beneficially owned by it to
any direct or indirect wholly owned subsidiary of such entity so long as
(a) such transferee agrees in writing to be bound by all the terms of the
Investors Shareholder Agreement applicable to its transferor as if the
transferee originally had been a party to the Investors Shareholder Agreement
and (b) the transferor agrees to cause such direct or indirect wholly owned
subsidiary to continue to be a direct or indirect wholly owned subsidiary of
the transferor for so long as such direct or indirect wholly owned subsidiary
beneficially owns any such capital stock of the Company.
Pre-emptive Rights. The Company has granted to each of Seven, Tracinda and
Mr. Mancuso certain pre-emptive rights with respect to the Common Stock. If,
at any time prior to November 18, 2012, the Company proposes to issue to any
person any shares of the Common Stock or any securities exercisable for the
purchase of or convertible into the Common Stock, each of Seven, Tracinda and
Mr. Mancuso may subscribe for and purchase for cash a number of shares of the
Common Stock or securities exercisable for the purchase of or convertible into
the Common Stock, respectively, such that, after giving effect to such
issuance to such other persons and such purchase by any one or more of Seven,
Tracinda and Mr. Mancuso, as the case may be, such purchaser will continue to
beneficially own the same percentage of the outstanding Common Stock
(including securities exercisable for the purchase of or convertible into the
Common Stock) that such purchaser beneficially owned prior thereto.
Such pre-emptive rights shall not apply to: (i) the issuance of the Common
Stock or securities exercisable for the purchase of or convertible into the
Common Stock pursuant to a firm commitment underwritten public offering or
pursuant to Rule 144A or Regulation S promulgated under the Securities Act;
(ii) the issuance of the Common Stock or securities exercisable for the
purchase of or convertible into the Common Stock pursuant to a registration
statement directly or indirectly to the holders of the outstanding capital
stock of a corporation or other business entity with a class of equity
securities registered under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), in connection with the Company's acquisition of such
corporation or other business or substantially all of its assets (whether by
merger, consolidation, purchase of stock or assets or otherwise); (iii) the
grant of stock options to officers, directors or employees of the Company or
any of its subsidiaries pursuant to stock option plans approved by the Board
of Directors of the Company or the issuance of the Common Stock upon the
exercise of any such stock option; or (iv) the issuance of the Common Stock to
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officers, directors or employees of the Company or any of its subsidiaries to
fulfill the Company's obligations pursuant to any savings plans or retirement
plans approved by the Board of Directors of the Company.
The price to be paid in any such purchase by any one or more of Seven,
Tracinda and Mr. Mancuso and the other terms of purchase shall be the same as
applicable to the purchase of the Common Stock or such other securities by
such other person, except that in all cases the price to be paid by Seven,
Tracinda and Mr. Mancuso shall be paid in cash. If such shares of the Common
Stock or such other securities are to be issued to such other person for
property or services, the price per share or other security to be paid by
Seven, Tracinda and Mr. Mancuso shall be equal to the fair market value per
share or other security of the property or services to be received by the
Company from such other person, as such fair market value is determined by the
independent directors of the Company elected to the Board of Directors of the
Company.
Such pre-emptive rights will terminate, with respect to either Seven or
Tracinda, at such time as such party beneficially owns less than 10,416,750
shares of the Common Stock (as presently constituted) and, with respect to Mr.
Mancuso, at such time as Mr. Mancuso is no longer the Chief Executive Officer
of the Company.
SHAREHOLDERS AGREEMENT
The following is a summary description of the material terms of the Amended
and Restated Shareholders Agreement dated as of August 4, 1997 (the
"Shareholders Agreement"), by and among the Company, MGM Studios, Seven,
Tracinda, Mr. Mancuso and the other persons specified on the signature pages
thereto (Mr. Mancuso and such specified persons, collectively, the
"Executives"). This summary description does not purport to be complete and is
subject to and qualified in its entirety by reference to the definitive
Shareholders Agreement, a copy of which was filed as an exhibit to the
Registration Statement.
Tag-Along Rights. Each of Seven and Tracinda has agreed to be bound by
certain "tag-along" restrictions with respect to certain Transfers of their
shares of the Common Stock. If either Seven or Tracinda desires to Transfer
shares of the Common Stock beneficially owned by it, directly or indirectly,
in whole or in part (a "Tag-Along Sale"), then each of Seven, Tracinda, and
each of the Executives (collectively, the "Other Securityholders") shall have
certain "tag-along" rights, subject to certain notice provisions.
Specifically, each Other Securityholder shall have the right but not the
obligation, (i) in the case of the Executives, to exercise in the manner
provided in the Shareholders Agreement certain options held by such Executives
pursuant to the 1996 Incentive Plan (as such term is defined below in
"Executive Compensation--Incentive and Bonus Plans--1996 Incentive Plan") to
the extent required to realize the "tag-along" rights of such Executives and
(ii) to elect that Seven or Tracinda, as the case may be, be obligated to
require, as a condition to such Tag-Along Sale, that the proposed purchaser
purchase from each such electing Other Securityholder a proportional number of
shares (excluding shares of the Common Stock acquired pursuant to open market
purchases). Any such sales by any Other Securityholder shall be on the same
terms and conditions as the proposed Tag-Along Sale by Seven or Tracinda, as
the case may be, and on the same date as the closing of the proposed Tag-Along
Sale.
In exercising the tag-along rights with respect to an Executive's options:
(i) the Executive's Series A Options (as defined in the 1996 Incentive Plan)
must be exercised (to the extent then vested) before the Executive's Series B
Options as defined in the 1996 Incentive Plan) may be exercised; (ii)
thereafter, the Executive's Series B Options (to the extent then vested) must
be exercised before the Executive's Series A Options (to the extent not
vested) may be exercised; (iii) then, the balance of the Executive's Series A
Options must be exercised before the balance of the Executive's Series B
Options may be exercised; and (iv) thereafter, the balance of the Executive's
Series B Options may be exercised.
The tag-along rights shall not apply to: (i) any transaction in which shares
of the Common Stock are proposed to be sold publicly pursuant to a
registration statement filed under the Securities Act or pursuant to Rule 144
promulgated under the Securities Act; (ii) any one transaction or series of
related transactions involving the transfer of less than one percent of the
then issued and outstanding shares of the Common Stock; (iii) any bona fide
pledge to a bank or other institutional financial lender; or (iv) any sale
from one of the parties to the Shareholders Agreement to another party
thereto, and shall terminate with respect to each of Seven and Tracinda at
such time as such party beneficially owns less than 10,416,750 shares of the
Common Stock.
8
<PAGE>
In addition, the tag-along provisions shall not apply to, in the case of
each of Tracinda and Seven, (i) the transfer of, or the grant of options for
the acquisition of, up to 312,502 shares of the Common Stock (such number to
be appropriately adjusted in the event that the Company should effect any
stock dividend, stock split, reverse stock split, or any similar transaction)
beneficially owned by it to its officers, directors, employees, consultants
and affiliates so long as such transferee agrees in writing to be bound by all
the terms of the Shareholders Agreement applicable to its transferor as if the
transferee originally had been a party to the Shareholders Agreement and (ii)
the transfer and assignment of all or any portion of the capital stock of the
Company beneficially owned by it to any direct or indirect wholly owned
subsidiary of such entity so long as (a) such transferee agrees in writing to
be bound by all the terms of the Shareholders Agreement applicable to its
transferor as if the transferee originally had been a party to the
Shareholders Agreement and (b) the transferor agrees to cause such direct or
indirect wholly owned subsidiary to continue to be a direct or indirect wholly
owned subsidiary of the transferor for so long as such direct or indirect
wholly owned subsidiary beneficially owns any such capital stock of the
Company.
Demand Registration Rights. Seven, Tracinda and the Executives, at any time
after May 18, 1998, have the right to make up to three requests, in the case
of each of Seven and Tracinda, and up to two requests with respect to all of
the Executives, for registration ("Demand Registration") under the Securities
Act of all or part of the Common Stock or securities issued as a dividend on
or distribution with respect to or in exchange, replacement or in subdivision
of, any such Common Stock, which have not been sold pursuant to an effective
registration statement under the Securities Act or pursuant to Rule 144 under
the Securities Act (the "Registrable Securities") held by them; provided that
any request for a Demand Registration shall not be otherwise deemed to be
effective unless such request includes Registrable Securities with an
estimated value of no less than $50 million. Demand Registration requests may
be for shelf registrations (covering sales on a delayed or continuous basis)
if the Company is then eligible to effect shelf registrations. The Company
will pay all of the expenses of any such Demand Registration, including the
fees and expenses of a single counsel retained by the selling stockholders;
however, each selling stockholder will be responsible for the underwriting
discounts and commissions and transfer taxes in connection with shares sold by
such stockholder and any party requesting long-form registration when short-
form registration is available will bear the incremental cost thereof. Each
selling stockholder and the underwriters through whom shares are sold on
behalf of a selling stockholder will be entitled to customary indemnification
from the Company and MGM Studios, in the case of the selling stockholders, and
the Company, in the case of the underwriters, against certain liabilities,
including liabilities under the Securities Act.
The Company will not be obligated to effect any Demand Registration within
six months after the effective date of a previous Demand Registration and
during any two-year period, the Company may make a one-time election to
postpone the filing or the effectiveness of a registration statement for a
Demand Registration for up to six months if the Board of Directors of the
Company determines, in its good faith judgment, that (i) such Demand
Registration would reasonably be expected to have a material adverse effect
on, interfere with or delay any proposal or plan by the Company to engage in
any acquisition of assets (other than in the ordinary course of business) or
any merger, consolidation, tender offer or similar transaction, (ii) the
filing of a registration statement or a sale of Registrable Securities
pursuant thereto would require disclosure of material information that the
Company has a bona fide business purpose for preserving as confidential or
(iii) the Company is unable to comply with the registration requirements of
the Securities and Exchange Commission (the "Commission"); provided, that, in
such event, the holders of shares of Registrable Securities initially
requesting such Demand Registration will be entitled to withdraw such request
and, if such request is withdrawn, such request for Demand Registration will
not count as a request for Demand Registration under the Shareholders
Agreement and the Company will pay all Registration Expenses in connection
with such withdrawn registration request. The party requesting Demand
Registration may select the managing underwriters, who must be of national
prominence and reasonably acceptable to the Company.
"Piggyback" Registration Rights. If the Company proposes to register any of
its equity securities under the Securities Act (other than a registration on
Form S-4 or Form S-8 or any successor or similar forms) and the registration
form to be used may be used for the registration of Registrable Securities,
whether or not for sale for
9
<PAGE>
its own account, each of Tracinda, Seven and the Executives shall be entitled
to request that Registrable Securities of the same class beneficially owned by
such party be included in such registration (a "Piggyback Registration");
provided that if a Piggyback Registration is an underwritten primary
registration on behalf of the Company, and the managing underwriters advise
the Company in writing that in their opinion the number of shares of the
Common Stock requested to be included in such registration exceeds the number
which can be sold in such offering within a price range reasonably acceptable
to the Company, the Company will include in such registration (i) first, the
securities the Company proposes to sell and (ii) second, all other securities
requested to be included in such registration, pro rata among the respective
holders thereof on the basis of the number of securities owned by each such
holder; provided further, that if a Piggyback Registration is an underwritten
secondary registration on behalf of holders of securities of the Company, and
the managing underwriters advise the Company in writing that in their opinion
the number of securities requested to be included in such registration exceeds
the number which can be sold in such offering within a price range reasonably
acceptable to such holders, the Company will include in such registration the
securities requested to be included in such registration, pro rata among the
respective holders thereof on the basis of the number of securities owned by
each such holder. The Company will pay all of the expenses of any such
Piggyback Registration, including the fees and expenses of a single counsel
retained by the selling stockholders; however, each selling stockholder will
be responsible for the underwriting discounts and commissions and transfer
taxes in connection with shares sold by such stockholder. Each selling
stockholder and the underwriters through whom shares are sold on behalf of a
selling stockholder will be entitled to customary indemnification from the
Company and MGM Studios, in the case of the selling stockholders, and the
Company, in the case of the underwriters against certain liabilities,
including liabilities under the Securities Act.
Certain Holdback Agreements. Each of Seven, Tracinda and the Executives has
agreed, if requested in writing by the Company or any managing underwriters of
registration effected in accordance with the proceeding described in the
preceding three paragraphs, not to effect any public sale or distribution
(including sales pursuant to Rule 144) of shares of equity securities of the
Company, or any securities convertible into or exchangeable or exercisable for
equity securities, during the period reasonably requested by the managing
underwriters, not to exceed the period commencing with the date seven days
prior to and ending with the date 90 days, or such longer period, not to
exceed 180 days, as the managing underwriters shall request, after the
effective date of any underwritten registration by the Company of its
securities (except as part of such underwritten registration). The Company has
agreed to a similar restriction, if requested by the managing underwriters of
any such underwritten registration (except as part of such underwritten
registration or pursuant to registrations on Form S-4 or Form S-8 or any
successor forms), and to use its best efforts to cause certain holders of its
capital stock (other than in a registered public offering), to so agree.
Form S-8. Pursuant to the terms of the Shareholders Agreement, the Company
intends to file shortly a registration statement on Form S-8 with the
Commission with respect to shares of capital stock of the Company subject to
(i) options granted to the Executives pursuant to the 1996 Incentive Plan,
(ii) shares issued as employer matching contributions under the Savings Plan
and (iii) shares issued pursuant to the Non-Employee Director Stock Plan.
10
<PAGE>
PROPOSAL 1
ELECTION OF DIRECTORS
The following table sets forth the names of each nominee (the "Nominees")
for election as a director of the Company and provides information concerning
such Nominee's principal occupation for at least the past five years, age as
of April 3, 1998 and certain other matters. Directors of the Company hold
office until the next annual meeting of stockholders, until their respective
successors are duly qualified or until their earlier resignation or removal.
The Nominees are all current members of the Board of Directors. All proxies
received by the Board of Directors will be voted for such Nominees, unless
directions to the contrary are given. In the event that any Nominee is unable
to or declines to serve, an event that is not anticipated, the proxies will be
voted for the election of another nominee designated by the Board of Directors
or, if none is so designated, will be voted according to the judgment of the
person or persons voting the proxy.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE NOMINEES.
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATION AND OTHER DIRECTORSHIPS
---- --- --------------------------------------------
<C> <C> <S>
Frank G. Mancuso........ 64 Mr. Mancuso has been the Chairman of the Board
and Chief Executive Officer of the Company since
October 1996 and has been the Chairman of the
Board and Chief Executive Officer of MGM Studios
since July 1993. Prior to joining MGM Studios,
Mr. Mancuso was the Chairman and Chief Executive
Officer of Paramount Pictures Corporation from
September 1984 to March 1991, having served
Paramount in numerous other capacities beginning
in 1963, and was an entertainment industry
consultant and private investor from March 1991
to July 1993. Mr. Mancuso has served on the board
of directors of MGM Grand, Inc. since December
1997.
A. Robert Pisano........ 55 Mr. Pisano was appointed as a director and Vice
Chairman of the Board of Directors of the Company
in December 1997. Mr. Pisano has served as Vice
Chairman of the Company and MGM Studios since
March 1997 and, prior thereto, served as
Executive Vice President of MGM Studios from
August 1993 to March 1997. Prior to joining MGM
Studios, Mr. Pisano was Executive Vice President
of Paramount Pictures Corporation from June 1985
to May 1991, where he served as General Counsel
and a member of the Office of the Chairman. Prior
to 1985 and from February 1992 to August 1993,
Mr. Pisano was a partner with the law firm of
O'Melveny & Myers LLP.
James D. Aljian......... 65 Mr. Aljian has been a director of the Company
since October 1996. Mr. Aljian has served as an
executive of Tracinda since October 1987. In
addition, Mr. Aljian serves on the board of
directors of MGM Grand, Inc. and Chrysler
Corporation.
Francis Ford Coppola.... 58 Mr. Coppola has been a director of the Company
since January 1998. Since 1993 Mr. Coppola has
been the owner, Chairman and President of
American Zoetrope, a film company based in San
Francisco. Mr. Coppola is also a five-time Oscar-
winning director, writer and producer.
Mr. Coppola previously served on the board of
directors of MGM Studios from December 1993 to
October 1996.
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATION AND OTHER DIRECTORSHIPS
---- --- --------------------------------------------
<C> <C> <S>
Michael R. Gleason...... 43 Mr. Gleason has been a director of the Company
since October 1996. Mr. Gleason has served as
President of MPK Capital, Inc., the general
partner of Culmen Group, L.P., a Texas limited
partnership, since November 1993 and as President
of Celsus, a Delaware corporation, since July
1996. Celsus regularly provides financial
advisory services to Seven. Prior thereto, Mr.
Gleason served as Vice President of PaineWebber
Group, Inc. from February 1991 to November 1993.
Kirk Kerkorian.......... 80 Mr. Kerkorian has been a director of the Company
since October 1996 and has had a professional
relationship with MGM Studios and its
predecessors for over 25 years. Mr. Kerkorian has
served as Chief Executive Officer, President and
sole director and shareholder of Tracinda for
more than the past five years. In addition, Mr.
Kerkorian serves on the board of directors of MGM
Grand, Inc.
Kerry M. Stokes......... 57 Mr. Stokes has been a director of the Company
since October 1996. Mr. Stokes has served as the
Chairman of Australian Capital Equity Pty Ltd, an
Australian private holding company, for more than
the past fifteen years. Australian Capital Equity
has various interests, including a Caterpillar
dealership, print and electronic media and
investments in real estate, industrial and other
listed public companies. In addition, Mr. Stokes
has been the Chairman of Seven since June 1995.
Alex Yemenidjian........ 42 Mr. Yemenidjian became a director of the Company
in November 1997. Mr. Yemenidjian has served as
the President of MGM Grand, Inc. since July 1995,
as Chief Operating Officer of MGM Grand, Inc.
since June 1995, as Chief Financial Officer from
May 1994 to February 1998 and was an Executive
Vice President of MGM Grand, Inc. from June 1992
to July 1995. Prior thereto, Mr. Yemenidjian
served as the Chairman of the Executive Committee
of MGM Grand, Inc. from January 1991 to June
1992, and as the President and Chief Operating
Officer of MGM Grand, Inc. from March 1990 to
January 1991. Mr. Yemenidjian has been a director
of MGM Grand, Inc. since 1989. In addition,
Mr. Yemenidjian served as an executive of
Tracinda from January 1990 to January 1997.
Jerome B. York.......... 59 Mr. York has been a director of the Company since
October 1996. Mr. York has served as the Vice
Chairman of Tracinda since September 1995. Prior
to joining Tracinda, Mr. York served as
Senior Vice President and Chief Financial Officer
of IBM Corporation from May 1993 to September
1995 and as a director of IBM Corporation from
January 1995 to September 1995. Prior thereto,
Mr. York served as Executive Vice President-
Finance and Chief Financial Officer of Chrysler
Corporation from May 1990 to May 1993 and as a
director of Chrysler Corporation from April 1992
to May 1993. In addition, Mr. York serves on the
boards of directors of MGM Grand, Inc., Apple
Computer, Inc. and USA Waste Services, Inc.
</TABLE>
ADDITIONAL DIRECTORS TO BE APPOINTED
Pursuant to the Investors Shareholder Agreement, it is anticipated that two
additional persons meeting the requirements of the NYSE for serving as
independent directors will be selected and added to the Board of Directors.
12
<PAGE>
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than ten percent (10%) of a
registered class of the Company's equity securities ("10% Stockholders") to
file with the Commission initial reports of ownership and reports of changes
in ownership of Common Stock and other equity securities of the Company.
Officers, directors and 10% Stockholders are required by the Commission's
regulations to furnish the Company with copies of all Section 16(a) reports
they file.
To the Company's knowledge (based solely upon a review of the copies of such
Section 16(a) reports furnished to the Company and written representations
that no other reports were required), during the year ended December 31, 1997,
the Company's officers, directors and 10% Stockholders have complied with all
applicable Section 16(a) filing requirements.
INFORMATION REGARDING THE BOARD OF DIRECTORS AND COMMITTEES
Board Meetings. The Board of Directors held six meetings during the fiscal
year ended December 31, 1997. All directors attended at least 83% of the
meetings of the Board of Directors, and all members of the committees of the
Board of Directors attended 100% of the meetings of those committees, in each
case, after the election of such individuals to the Board of Directors or to
such committee. The Board of Directors does not have a standing nominating
committee. The candidates for election at this Annual Meeting were nominated
by the Board of Directors.
Executive Committee. The Executive Committee of the Board of Directors of
the Company (the "Executive Committee") was established on December 16, 1997
and currently consists of Messrs. Mancuso, Pisano, Aljian, Gleason, Kerkorian
and York. The Executive Committee exercises all the powers and authority of
the Board of Directors during intervals between meetings of the Board of
Directors, except as limited by the DGCL. No meetings of the Executive
Committee were held from the date the Executive Committee was established
until December 31, 1997.
Audit Committee. The Audit Committee of the Board of Directors of the
Company (the "Audit Committee") was established on November 13, 1997 and
currently consists of Mr. Yemenidjian and Mr. Gleason. The function of the
Audit Committee is to: (i) review and approve the selection of, and all
services performed by, the Company's independent auditors; (ii) meet and
consult with, and receive reports from, the Company's independent auditors,
its financial and accounting staff and its internal audit department regarding
internal controls; and (iii) review and act with respect to the scope of audit
procedures, accounting practices and internal accounting and financial
controls of the Company. The Audit Committee is comprised exclusively of
directors who are not salaried employees of the Company and who are, in the
opinion of the Board of Directors, free from any relationship which would
interfere with the exercise of independent judgment as a committee member.
From the date the Audit Committee was established until December 31, 1997, the
Audit Committee met two times.
Compensation Committee; Compensation Committee Interlocks and Insider
Participation. In November 1997, a Compensation Committee of the Board of
Directors of the Company (the "Compensation Committee") was established,
consisting of Mr. Stokes and Mr. Yemenidjian. Mr. Coppola was appointed to the
Compensation Committee on March 12, 1998. The Compensation Committee is
responsible for administering the Company's stock incentive plans and
monitoring, reviewing and making recommendations to the Board of Directors
with respect to the Company's compensation policies, including the granting of
awards under the incentive plans. See "Compensation Committee Report on
Executive Compensation." From the date the Compensation Committee was
established through December 31, 1997, the Compensation Committee held one
meeting by written consent.
Mr. Stokes is an affiliate of Seven, Mr. Yemenidjian is a director and
executive officer of MGM Grand, Inc., an affiliate of Tracinda, and Mr.
Coppola is the brother of the sole shareholder of Taliafilm, Inc., with which
the Company has entered into an agreement. See "Certain Relationships and
Related Transactions." Mr. Mancuso has served on the board of directors of MGM
Grand, Inc. since December, 1997. In addition, Mr. Pisano is a director and
serves on the compensation committee of Mr. Coppola's family trust.
13
<PAGE>
Prior to November 1997 the functions of the Compensation Committee were
performed by a management committee consisting of Messrs. Mancuso and Pisano,
as well as Mr. Michael Hope (until he ceased to be employed by the Company in
January 1997). Each of Messrs. Mancuso and Pisano is, and Mr. Hope was, an
executive officer of the Company.
Bonus Plan Committee. The Bonus Plan Committee of the Board of Directors of
the Company (the "Bonus Plan Committee") was established in November 1997 and
is comprised of the same members of, and holds its meetings at the same time
as, the Compensation Committee. The Bonus Plan Committee is responsible for
administering the Senior Management Bonus Plan. See "Proposal 3--Approval of
Senior Management Bonus Plan."
DIRECTOR COMPENSATION
During 1997, no compensation was paid to the directors for services provided
in such capacity. On December 16, 1997 the Board of Directors adopted a
policy, whereby each director of the Company who is not a full-time employee
of the Company or its subsidiaries (a "Non-Employee Director") will be paid
(i) $25,000 per annum for serving as a director of the Company, (ii) $15,000
per annum additional if such Non-Employee Director is a member of the
Executive Committee, (iii) $2,000 per meeting (up to a maximum of $8,000 per
annum) for attendance at Audit Committee meetings if such Non-Employee
Director is a member of the Audit Committee, and (iv) $1,000 per meeting (up
to a maximum of $4,000 per annum) for attendance at Compensation Committee
meetings if such Non-Employee Director is a member of the Compensation
Committee. Subject to approval by stockholders of the Directors Plan (as
defined below), a Non-Employee Director will be entitled to elect to receive
all or a portion of such compensation in the form of shares of the Common
Stock. See "Proposal 2--Approval of 1998 Non-Employee Director Stock Plan." In
addition, a Non-Employee Director will receive reimbursement for out-of-pocket
expenses in attending meetings of the Board of Directors and any committees
thereof on which they serve. See "Certain Relationships and Related
Transactions" for a description of certain transactions involving directors or
their affiliates and the Company.
14
<PAGE>
EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION SUMMARY
Compensation Summary. The following table sets forth the cash compensation
(including bonuses) paid or awarded by the Company for the fiscal years ended
December 31, 1997 and 1996 to the Named Executive Officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
---------------------------
ANNUAL COMPENSATION AWARDS
----------------------------------- ---------------------------
BONUS SECURITIES
NAME AND PRINCIPAL OTHER ANNUAL INTERESTS UNDERLYING ALL OTHER
POSITION YEAR SALARY($) BONUS($) COMPENSATION($) (#)(1) OPTIONS (#)(2) COMPENSATION($)
------------------ ---- ---------- -------- --------------- --------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Frank G. Mancuso........ 1997 $2,020,400 -- $5,780,769(3) 811,756 1,745,680 $ 168,228(5)
Chairman of the 1996 2,691,408 750,000 576,923(4) -- -- 17,228,129(6)
Board and Chief
Executive Officer
A. Robert Pisano........ 1997 965,600 750,000 -- 243,544 523,754 17,085(7)
Vice Chairman of the 1996 816,984 -- -- -- -- 1,800,706(8)
Board of Directors
Michael G. Corrigan(9).. 1997 328,185 -- -- 83,334(10) 179,168(10) 104,845(11)
Senior Executive Vice 1996 -- -- -- -- -- --
President and Chief
Financial Officer
David G. Johnson........ 1997 573,483 100,000 -- 83,334 179,168 5,946(12)
Senior Executive Vice 1996 482,893 122,692 -- -- -- 538,858(13)
President and
General Counsel
William A. Jones ....... 1997 546,626 -- -- 74,209 159,584 34,309(14)
Senior Executive Vice 1996 467,238 -- -- -- -- 1,051,476(15)
President and Secretary
</TABLE>
- --------
(1) With respect to 1996, the Original Bonus Interests (as such term is
defined below) granted under the Original Plan (as such term is defined
below) were cancelled in connection with the amendment of the Original
Plan in November, 1997 as follows: 872,840, 261,877, 89,584, and 79,792
granted to Messrs. Mancuso, Pisano, Johnson and Jones, respectively. With
respect to 1997, such number represents the number of Bonus Interests (as
such term is defined below) granted pursuant to the Senior Management
Bonus Plan (as such term is defined below) immediately after the
cancellation in November 1997 of the Original Bonus Interests which had
been granted under the Original Plan. See "--Incentive and Bonus Plans."
If approved by the stockholders, each Bonus Interest entitles the
participant to receive up to $24.00 under certain circumstances. See "--
Incentive and Bonus Plans--Senior Management Bonus Plan" and "Proposal 3--
Approval of Senior Management Bonus Plan." With respect to Mr. Corrigan,
see footnote 10 below.
(2) With respect to 1996, options granted under the Original Plan were
cancelled in connection with the amendment of the Original Plan in
November, 1997 as follows: 872,840, 261,877, 89,584, and 79,792 Series A
Options and 958,549, 287,502, 98,334 and 87,876 Series B Options granted
to Messrs. Mancuso, Pisano, Johnson and Jones, respectively. With respect
to 1997, such number represents the number of options granted pursuant to
the 1996 Incentive Plan (as such term is defined below) immediately after
the cancellation in November 1997 of the options which had been granted
under the Original Plan. See "--Incentive and Bonus Plans--1996 Incentive
Plan." With respect to Mr. Corrigan, see footnote 10 below.
(3) Represents (i) the portion of the annual stock purchase payment for the
period of January 1, 1997 to November 17, 1997 and (ii) the annual stock
purchase payment paid in advance for the period of November 18, 1997 to
November 17, 1998, paid to Mr. Mancuso pursuant to his employment
agreement,
15
<PAGE>
out of the after-tax proceeds of which he was required to purchase shares
of the Common Stock at a purchase price of $24.00 per share. With respect
to shares of the Common Stock required to be purchased by Mr. Mancuso in
connection with annual stock purchase payments received after November 17,
1998, the price per share will equal the fair market value of such shares.
See "--Employment Agreements--Frank G. Mancuso."
(4) Represents the portion of the annual stock purchase payment paid to Mr.
Mancuso for the period of October 10, 1996 to December 31, 1996 pursuant
to his employment agreement, out of the after-tax proceeds of which he
was required to purchase shares of the Common Stock at a purchase price
of $24.00 per share. See "--Employment Agreements--Frank G. Mancuso."
(5) Represents life insurance premiums paid by the Company for the benefit of
Mr. Mancuso. See "-- Employment Agreements--Frank G. Mancuso."
(6) Includes: $14,468,220 paid to Mr. Mancuso by Credit Lyonnais S.A. ("CL")
in 1997 as additional compensation as a result of the sale of MGM Studios
to the Company in October 1996 (the "MGM Acquisition"); $1,020,000 in
cash and 63,751 shares of the Common Stock (valued at $24.00 per share)
paid or issued to Mr. Mancuso by the Company in connection with the MGM
Acquisition, the waiver of certain rights under his prior employment
agreement and the execution of his current employment agreement; and
$209,885 in life insurance premiums paid by the Company for the benefit
of Mr. Mancuso. See "--Employment Agreements--Frank G. Mancuso."
(7) Includes: a matching contribution of $6,400 paid by the Company for the
benefit of Mr. Pisano under the Savings Plan and $10,685 in life
insurance premiums paid by the Company for the benefit of Mr. Pisano. See
"--Employment Agreements--A. Robert Pisano."
(8) Includes: $1,200,963 paid to Mr. Pisano by CL in 1997 as additional
compensation in connection with the MGM Acquisition; $235,343 in cash and
15,000 shares of the Common Stock (valued at $24.00 per share) paid or
issued to Mr. Pisano by the Company in connection with the MGM
Acquisition, the waiver of certain rights under his prior employment
agreement and the execution of his current employment agreement; and
$4,400 in life insurance premiums paid by the Company for the benefit of
Mr. Pisano. See "--Employment Agreements--A. Robert Pisano."
(9) Michael G. Corrigan was appointed Chief Financial Officer of the Company
on July 1, 1997. Accordingly, the amounts shown in the table above with
respect to "Annual Compensation" are for a period of less than one year.
See "--Employment Agreements--Michael G. Corrigan."
(10) Represents the number of Bonus Interests granted under the Senior
Management Bonus Plan and options granted under the 1996 Incentive Plan,
respectively. 89,584 Original Bonus Interests and 89,584 Series A Options
and 98,334 Series B Options granted under the Original Plan to Mr.
Corrigan in July 1997 were cancelled in connection with the amendment of
the Original Plan in November 1997. See footnotes 1 and 2 above.
(11) Represents moving allowance and reimbursement of moving expenses incurred
by Mr. Corrigan in connection with his relocation to Los Angeles.
(12) Represents a matching contribution of $5,946 paid by the Company for the
benefit of Mr. Johnson under the Savings Plan.
(13) Includes: $213,850 in cash and 13,542 shares of the Common Stock (valued
at $24.00 per share) paid or issued to Mr. Johnson by the Company in
connection with the MGM Acquisition, the waiver of certain rights under
his prior employment agreement and the execution of his current
employment agreement. See "--Employment Agreements--David G. Johnson."
(14) Includes: a matching contribution of $6,400 paid by the Company for the
benefit of Mr. Jones under the Savings Plan and $27,909 in life insurance
premiums paid by the Company for the benefit of Mr. Jones. See "--
Employment Agreements--William A. Jones."
(15) Includes: $416,178 in cash and 26,042 shares of the Common Stock (valued
at $24.00 per share) paid or issued to Mr. Jones by the Company in
connection with the MGM Acquisition, the waiver of certain rights under
his prior employment agreement and the execution of his current
employment agreement; and $10,290 in life insurance premiums paid by the
Company for the benefit of Mr. Jones. See "--Employment Agreements--
William A. Jones."
16
<PAGE>
Option Grants and Long Term Incentive Awards. The following table sets forth
information with respect to grants of employee stock options issued by the
Company to the Named Executive Officers for the fiscal year ended December 31,
1997. See "--Incentive and Bonus Plans--1996 Incentive Plan."
OPTION GRANTS IN FISCAL YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED ANNUAL
RATES OF STOCK PRICE
APPRECIATION FOR OPTION
INDIVIDUAL GRANTS TERM ($)
-------------------------------------------- -----------------------
PERCENT OF
SHARES TOTAL OPTIONS
UNDERLYING GRANTED TO EXERCISE
OPTIONS EMPLOYEES IN OR BASE
GRANTED FISCAL YEAR PRICE EXPIRATION
NAME (#)(1) (%)(2) ($/SH) DATE 5% 10%
- ---- ---------- ------------- -------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Frank G. Mancuso........ 1,745,680 22.7% $24.00 10/9/06 $26,348,371 $66,771,944
A. Robert Pisano........ 523,754 6.8 24.00 10/9/06 7,905,266 20,033,496
Michael G. Corrigan..... 179,168 2.3 24.00 6/30/07 2,704,267 6,853,144
David G. Johnson........ 179,168 2.3 24.00 10/9/06 2,704,267 6,853,144
William A. Jones........ 159,584 2.1 24.00 10/9/06 2,408,676 6,104,059
</TABLE>
- --------
(1) Represents options granted under the 1996 Incentive Plan after giving
effect to the cancellation of options previously granted under the
Original Plan as follows: 872,840, 261,877, 89,584, 89,584, and 79,792
Series A Options and 958,549, 287,502, 98,334, 98,334, and 87,876 Series B
Options granted to Messrs. Mancuso, Pisano, Corrigan, Johnson and Jones,
respectively. See "--Incentive and Bonus Plans."
(2) Based on a total of 7,696,952 employee stock options granted during the
year ended December 31, 1997.
The following table sets forth information with respect to the ownership and
value of options as of December 31, 1997 held by the Named Executive Officers.
No Named Executive Officer exercised any options in the fiscal year ended
December 31, 1997.
AGGREGATED OPTION EXERCISES IN FISCAL YEAR ENDED DECEMBER 31, 1997
AND OPTION VALUES AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
SECURITIES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE-MONEY
OPTIONS AT DECEMBER 31, 1997 OPTIONS AT DECEMBER 31, 1997
-------------------------------------- ------------------------------------
NAME EXERCISABLE(#)(1) UNEXERCISABLE (#)(2) EXERCISABLE ($) UNEXERCISABLE ($)(3)
- ---- ----------------- -------------------- --------------- --------------------
<S> <C> <C> <C> <C>
Frank G. Mancuso........ -- 1,745,680 $ -- $ --
A. Robert Pisano........ -- 523,754 -- --
Michael G. Corrigan..... -- 179,168 -- --
David G. Johnson........ -- 179,168 -- --
William A. Jones........ -- 159,584 -- --
</TABLE>
- --------
(1) Each option listed above is exercisable at $24.00 per share of the Common
Stock and none of such options were exercised during the fiscal year ended
December 31, 1997. Such options generally vest over a period of five
years. See "--Incentive and Bonus Plans--1996 Incentive Plan."
(2) Represents the number of options granted pursuant to the 1996 Incentive
Plan (as such term is defined below) immediately after the cancellation in
November 1997 of the options which had been granted under the Original
Plan. See "--Incentive and Bonus Plans--1996 Incentive Plan."
17
<PAGE>
(3) The closing sale price of the Common Stock on the NYSE, as reported by the
Dow Jones News Retrieval, on December 31, 1997 was $20.00 per share, which
is less than the exercise price of the options granted to such executives
under the 1996 Incentive Plan.
The following table sets forth information with respect to the ownership of
Bonus Interests (as such term is defined below) granted under the Senior
Management Bonus Plan (as such term is defined below) as of December 31, 1997
and held by the Named Executive Officers. See "--Incentive and Bonus Plans--
Senior Management Bonus Plan."
LONG-TERM INCENTIVE PLANS--AWARDS IN FISCAL YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER OF SHARES, PERFORMANCE OR
UNITS OR OTHER OTHER PERIOD UNTIL
NAME RIGHTS (#)(1) MATURATION OR PAYOUT(2)
---- ----------------- -----------------------
<S> <C> <C>
Frank G. Mancuso................... 811,756 45 months
A. Robert Pisano................... 243,544 45 months
Michael G. Corrigan................ 83,334 54 months
David G. Johnson................... 83,334 45 months
William A. Jones................... 74,209 45 months
</TABLE>
- --------
(1) Represents the number of Bonus Interests granted pursuant to the Senior
Management Bonus Plan. If the Senior Management Bonus Plan is approved by
the stockholders, each Bonus Interest entitles the participant to receive
up to $24.00 under certain circumstances. See "--Incentive and Bonus
Plans--Senior Management Bonus Plan and "Proposal 3--Approval of Senior
Management Bonus Plan."
(2) Bonus Interests generally vest 20% on the first anniversary of their grant
and 1.67% each month thereafter. The Senior Management Bonus Plan provides
for accelerated vesting and payment in the event of a Special Circumstance
(as defined below) (with payment at discounted present value in the event
payment is made in connection with a Designated Change in Control which
occurs prior to December 31, 2001), accelerated vesting in the event of
termination of employment in certain circumstances and a special
Determination Date (as defined below) and payment at discounted present
value, for the officer involved, in the event of death or Permanent
Disability (as defined in the Senior Management Bonus Plan). See "--
Incentive and Bonus Plans--Senior Management Bonus Plan" and "Proposal 3--
Approval of Senior Management Bonus Plan."
Pension Plans. The Company maintains a retirement plan (the "MGM Retirement
Plan"), which covers substantially all of the employees of the Company. See
"Benefit Plans--MGM Retirement Plan." The Company also has entered into the
MGM Supplemental Executive Retirement Agreement dated April 22, 1996, as
amended and restated as of July 18, 1997 (the "Supplemental Executive
Retirement Agreement"), with Mr. Pisano. See "Benefit Plans--Supplemental
Executive Retirement Agreement." The following table sets forth estimated
annual benefits payable upon retirement with regard to the MGM Retirement
Plan.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE(1)
-----------------------------------------
REMUNERATION(2) 15 20 25 30 35
--------------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
$ 50,000.......................... $11,625 $15,500 $19,375 $ 23,250 $ 27,125
100,000.......................... 25,067 33,422 41,778 50,133 58,489
150,000.......................... 39,317 52,422 65,528 78,633 91,739
160,000.......................... 42,167 56,222 70,278 84,333 98,389
200,000.......................... 53,567 71,422 89,278 107,133 124,989
</TABLE>
- --------
(1) As of April 3, 1998, Messrs. Mancuso, Pisano, Corrigan, Johnson and Jones
were credited with 4, 4, 0, 3 and 15 years of service, respectively.
18
<PAGE>
(2) The compensation covered by the MGM Retirement Plan includes base salary
only, and not bonus or other amounts. The amount of the benefit to which a
participant is entitled is an annual amount equal to 1.55% of annual base
salary up to the Social Security wage base (currently $68,400) plus 1.9%
of annual base salary above that amount up to the maximum allowable under
the MGM Retirement Plan (currently $160,000 per year) for each year of
credited service up to a maximum of 35 years, at which time the applicable
percentage is 1.55% of the annual base salary for each year of service in
excess of 35. Benefits become vested upon completion of five years of
service. For each of the Named Executive Officers, the current
compensation covered by the MGM Retirement Plan is the maximum allowable
under the MGM Retirement Plan, which is substantially less than the annual
compensation for each such Named Executive Offices listed above in the
"Salary" column of the Summary Compensation Table.
INCENTIVE AND BONUS PLANS
1996 Incentive Plan. The Company has an Amended and Restated 1996 Stock
Incentive Plan (the "1996 Incentive Plan"), which is administered by the
Compensation Committee. Awards under the 1996 Incentive Plan are generally not
restricted to any specific form or structure and may include, without
limitation, qualified or non-qualified stock options, incentive stock options,
restricted stock awards and stock appreciation rights (collectively,
"Awards"). Awards may be conditioned on continued employment, have various
vesting schedules and accelerated vesting and exercisability provisions in the
event of, among other things, a change in control of the Company.
As of March 31, 1998, 8,125,065 shares of the Common Stock were reserved for
award under the 1996 Incentive Plan, of which options to purchase 7,568,252
shares of the Common Stock were outstanding. Of these outstanding options,
5,205,702 are held by the Named Executive Officers and certain other key
employees (the "Executive Options") and 2,362,550 are held by approximately
400 other employees of the Company (the "Employee Options"). All of the
outstanding options generally vest over a period of five years and are not
exercisable unless vested. No options can be exercised prior to May 18, 1998
and 2,602,851 of the Executive Options cannot be exercised until December 31,
2001 (subject in each case to early vesting and, depending on the
circumstances, early exercisability in certain events, including the death or
permanent disability of the optionee, termination of the optionee's employment
under certain circumstances or a "Designated Change in Control" of the Company
(as defined in the 1996 Incentive Plan), which includes (i) Tracinda and Seven
ceasing to beneficially own in the aggregate 50.1% or more of the voting
securities of the Company and any other person, other than an entity
controlled by the Company, beneficially owning 30% or more of the voting
securities of the Company or (ii) the sale of substantially all of the assets
of the Company). The Executive Options are exercisable at $24.00 per share and
the Employee Options are exercisable at $20.00 per share. As of April 3, 1998,
1,516,566 Executive Options were vested (or would vest within 60 days), of
which 758,283 Executive Options were exercisable (or would become exercisable
within 60 days). None of the Employee Options are vested (or will vest within
60 days).
Senior Management Bonus Plan. The Company has a proposed Senior Management
Bonus Plan (the "Senior Management Bonus Plan") under which the bonus
interests ("Bonus Interests") have been granted to certain key employees. For
information concerning the Senior Management Bonus Plan, which is being
submitted to stockholders for approval at the meeting, see "Proposal 3--
Approval of Senior Management Bonus Plan."
Original Plan; Repricing of Options and Cancellation of Bonus
Interests. Options to purchase 2,602,851 shares of the Common Stock at $24.00
per share ("Series A Options"), 2,859,648 shares of the Common Stock at $78.43
per share ("Series B Options") and 2,602,851 bonus interests ("Original Bonus
Interests") that were granted in tandem with Series A Options were outstanding
under the 1996 Incentive Plan prior to its amendment and restatement (the
"Original Plan"). Subject to vesting, which generally was to occur over a
five-year period ending October 1, 2001 and was subject to acceleration under
certain circumstances, these Original Bonus Interests entitled the holder to
$22.32 per Original Bonus Interest if the fair market value of the outstanding
capital stock of the Company (as determined in the Original Plan) was more
than $1.26 billion (subject to adjustment to reflect certain capital
distributions and contributions) at any determination date specified in the
Original Plan.
19
<PAGE>
In connection with the amendment and restatement of the Original Plan, the
optionees and holders of Original Bonus Interests agreed with the Company that
the Series A Options, Series B Options and Original Bonus Interests
outstanding under the Original Plan would be canceled. Concurrently with the
amendment and restatement, 5,205,702 of the options described above under "--
1996 Incentive Plan" and 2,420,685 of the Bonus Interests described below in
"Proposal 3--Approval of Senior Management Bonus Plan" were granted.
EMPLOYMENT AGREEMENTS
Frank G. Mancuso. The Company has entered into an employment agreement with
Frank G. Mancuso, effective as of October 10, 1996, as amended as of August 4,
1997, which provides that he will serve as Chairman and Chief Executive
Officer of the Company for a term of five years. Mr. Mancuso is entitled to an
annual base salary of $2 million, subject to increase at the discretion of the
Board of Directors of the Company and an annual stock purchase payment of $3
million (payable annually in advance), out of the after tax proceeds of which
he is required to purchase shares of the Common Stock at a price of $24.00 per
share until November 17, 1998 and, thereafter, at the fair market value of
such shares. In addition, Mr. Mancuso is entitled to receive certain other
benefits, including a car allowance, medical insurance participation in the
Company's 1996 Incentive Plan, Senior Management Bonus Plan, Savings Plan, MGM
Retirement Plan and any other similar plan or program which the Company
provides for its senior officers generally, and other benefits customarily
afforded to executives of similar stature in the motion picture industry. The
Company is also obligated to maintain a five year, reducing-term life
insurance policy in the initial face amount of $25 million on Mr. Mancuso's
life for his benefit. Pursuant to his employment agreement, Mr. Mancuso holds
stock options to purchase shares of the Common Stock under the 1996 Incentive
Plan and Bonus Interests under the Senior Management Bonus Plan. See "--
Executive Compensation Summary" and "--Incentive and Bonus Plans." In
connection with the MGM Acquisition, in consideration of the waiver by Mr.
Mancuso of certain rights relating to the change of control under his previous
employment agreement with the Company and to induce him to enter into the
existing employment agreement, Mr. Mancuso received 63,751 shares of the
Common Stock and $1,020,000 in cash. If Mr. Mancuso's employment is terminated
without cause by the Company or if Mr. Mancuso terminates the agreement for
"good reason," which includes a Designated Change in Control of the Company
(as defined in the 1996 Incentive Plan), he will be entitled to receive as
severance an amount equivalent to the present value of the sum of the base
salary and the stock purchase payment for the entire remaining term of the
employment agreement, and his account in the 1996 Incentive Plan and Senior
Management Bonus Plan will vest immediately. As of December 31, 1997, the
amount payable to Mr. Mancuso in the event of such circumstances would be
approximately $14.9 million. Mr. Mancuso is entitled to resign at any time on
not less than 30 days' prior notice.
A. Robert Pisano. The Company has entered into an employment agreement with
Mr. Pisano effective as of October 10, 1996, which provides that he will serve
as Vice Chairman of the Company for an initial term of five years. Pursuant to
the agreement, Mr. Pisano is entitled to an annual salary of $950,000, an
annual guaranteed bonus of $750,000 and an annual discretionary bonus. In
addition, Mr. Pisano is entitled to receive certain other benefits, including
a car allowance, medical insurance, participation in the Company's 1996
Incentive Plan, Senior Management Bonus Plan, Savings Plan, MGM Retirement
Plan and any other similar plan or program which the Company provides for its
senior officers generally. The Company is also obligated to maintain a term
life insurance policy in the face amount of $5 million on Mr. Pisano's life
for his benefit. Furthermore, Mr. Pisano is entitled to receive certain
additional retirement benefits under his Supplemental Executive Retirement
Agreement. See "Benefit Plans--Supplemental Executive Retirement Agreement."
Mr. Pisano holds stock options to purchase shares of the Common Stock under
the 1996 Incentive Plan, and Bonus Interests under the Senior Management Bonus
Plan. See "--Executive Compensation Summary" and "--Incentive and Bonus
Plans." In connection with the MGM Acquisition, in consideration of the waiver
by Mr. Pisano of certain rights relating to the change of control under his
previous employment agreement with the Company and to induce him to enter into
his existing employment agreement, Mr. Pisano received 15,000 shares of the
Common Stock and $235,343 in cash. If Mr. Pisano's employment is terminated
without cause by the Company or if he terminates the agreement for "good
reason," which includes a Designated Change in Control of the Company (as
defined in the 1996 Incentive Plan), his account in the 1996 Incentive Plan
and Senior
20
<PAGE>
Management Bonus Plan will vest immediately and he will be entitled to receive
the net present value of the difference between (i) $8.5 million and (ii) the
sum of the annual salary and the guaranteed bonuses paid to him to the date of
the termination and, in addition, all insurance benefits for the remainder of
the term of the employment agreement. As of December 31, 1997, the amount
payable to Mr. Pisano in the event of such circumstances would be
approximately $6.4 million.
Michael G. Corrigan. The Company has entered into an employment agreement
with Mr. Corrigan effective as of July 1, 1997, which provides that he will
serve as Senior Executive Vice President and Chief Financial Officer of the
Company for an initial term of five years. Pursuant to the agreement, Mr.
Corrigan is entitled to an annual salary of $700,000 and an annual
discretionary bonus. In addition, Mr. Corrigan is entitled to receive certain
other benefits, including a car allowance, medical insurance, participation in
the Company's 1996 Incentive Plan, Senior Management Bonus Plan, Savings Plan,
MGM Retirement Plan and any other similar plan or program which the Company
provides for its senior officers generally. Mr. Corrigan holds options to
purchase shares of the Common Stock under the 1996 Incentive Plan, and Bonus
Interests under the Senior Management Bonus Plan. See "--Executive
Compensation Summary" and "--Incentive and Bonus Plans." If Mr. Corrigan's
employment is terminated without cause by the Company or if he terminates the
agreement for "good reason," his account in the 1996 Incentive Plan and Senior
Management Bonus Plan will vest immediately and he will be entitled to receive
the net present value of the sum of the annual salary through the entire
remaining term of the employment agreement and all insurance benefits for the
remainder of the term of the employment agreement. As of December 31, 1997,
the amount payable to Mr. Corrigan in the event of such circumstances would be
approximately $2.3 million.
David G. Johnson. The Company has entered into an employment agreement with
Mr. Johnson effective as of October 10, 1996, which provides that he will
serve as Senior Executive Vice President and General Counsel of the Company
for an initial term of five years. Pursuant to the agreement, Mr. Johnson is
entitled to a current annual salary of $600,000, which will increase by
$50,000 each year for three years, an annual guaranteed bonus of $100,000 and
an annual discretionary bonus. In addition, Mr. Johnson is entitled to receive
certain other benefits, including a car allowance, medical insurance,
participation in the Company's 1996 Incentive Plan and Senior Management Bonus
Plan, Savings Plan, MGM Retirement Plan and any other similar plan or program
which the Company provides for its senior officers generally. Mr. Johnson
holds stock options to purchase shares of the Common Stock under the 1996
Incentive Plan, and Bonus Interests under the Senior Management Bonus Plan.
See "--Executive Compensation Summary" and "--Incentive and Bonus Plans." In
connection with the MGM Acquisition, in consideration of the waiver by Mr.
Johnson of certain rights relating to the change in control under his previous
employment agreement with the Company and to induce him to enter into his
existing employment agreement, Mr. Johnson received 13,542 shares of the
Common Stock and $213,850 in cash. If Mr. Johnson's employment is terminated
without cause by the Company or if he terminates the agreement for "good
reason," which includes a Designated Change in Control of the Company (as
defined in the 1996 Incentive Plan), his account in the 1996 Incentive Plan
and Senior Management Bonus Plan will vest immediately and he will be entitled
to receive the net present value of the sum of the annual salary and the
guaranteed bonus through the entire remaining term of the agreement and all
insurance benefits for the remainder of the term of the employment agreement.
As of December 31, 1997, the amount payable to Mr. Johnson in the event of
such circumstances would be approximately $2.7 million.
William A. Jones. The Company has entered into an employment agreement with
Mr. Jones effective as of October 10, 1996, which provides that he will serve
as Senior Executive Vice President of the Company for an initial term of five
years. Pursuant to the agreement, Mr. Jones is entitled to a current annual
salary of $575,000, which will increase $50,000 next year and then be subject
to adjustment as determined by the Company, and an annual discretionary bonus.
In addition, Mr. Jones is entitled to receive certain other benefits,
including a car allowance, medical insurance, participation in the Company's
1996 Incentive Plan, Senior Management Bonus Plan, Savings Plan, MGM
Retirement Plan and any other similar plan or program which the Company
provides for its senior officers generally. The Company is also obligated to
maintain a term life insurance policy in the face amount of $2 million on
Mr. Jones' life for his benefit. Mr. Jones holds stock options to purchase
shares of Common Stock under the 1996 Incentive Plan, and Bonus Interests
under the Senior Management Bonus Plan. See "--Executive Compensation" and "--
Incentive and Bonus Plans." In connection with the MGM
21
<PAGE>
Acquisition, in consideration of the waiver by Mr. Jones of certain rights
relating to the change in control under his previous employment agreement with
the Company and to induce him to enter into his existing employment agreement,
Mr. Jones received 26,042 shares of the Common Stock and $416,178 in cash. If
Mr. Jones' employment is terminated without cause by the Company or if he
terminates the agreement for "good reason," his account in the 1996 Incentive
Plan and Senior Management Bonus Plan will vest immediately and he will be
entitled to receive the net present value of the sum of the annual salary
through the entire remaining term of the employment agreement and all
insurance benefits for the remainder of the term of the employment agreement.
As of December 31, 1997, the amount payable to Mr. Jones in the event of such
circumstances would be approximately $2.1 million.
The employment agreement of each of Messrs. Pisano, Corrigan, Johnson and
Jones also contains: (i) a nondisclosure provision which is effective for the
term of such individual's employment with the Company and for an indefinite
period thereafter; (ii) noninterference and non-competition provisions, each
of which is effective for the term of such individual's employment with the
Company and one year thereafter; and (iii) a provision prohibiting the
solicitation for employment and employment of certain Company employees, or
making public statements concerning the Company, for a period of one year
following termination of employment.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
As permitted by applicable provisions of the DGCL, the Company's Certificate
of Incorporation contains a provision whereunder the Company will indemnify
each of the officers and directors of the Company (or their estates, if
applicable), and may indemnify any employee or agent of the Company (or their
estates, if applicable), to the fullest extent permitted by the DGCL as it
exists or may in the future be amended.
In addition, the Company has entered into indemnification agreements with
its directors, its executive officers and certain other officers providing for
indemnification by the Company, including under circumstances in which
indemnification is otherwise discretionary under Delaware law. These
agreements constitute binding agreements between the Company and each of the
other parties thereto, thus preventing the Company from modifying its
indemnification policy in a way that is adverse to any person who is a party
to such an agreement.
The Company currently maintains insurance on behalf of its officers and
directors against any liability which may be asserted against any such officer
or director in his or her capacity as such, subject to certain customary
exclusions. The amount of such insurance is deemed by the Board of Directors
to be adequate to cover any such liability.
22
<PAGE>
COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
COMPENSATION POLICIES
The Compensation Committee of the Board of Directors was established in
November 1997 and is responsible for administering the Company's incentive
plans and monitoring, reviewing, approving and/or making recommendations to
the Board of Directors with respect to the Company's compensation policies.
The Compensation Committee believes that the most effective executive
compensation program is one that provides incentives to achieve both current
and long-term strategic management goals of the Company, with the ultimate
objective of enhancing stockholder value. In this regard, the Compensation
Committee believes executive compensation should: (i) be effective in
attracting, motivating and retaining key executives; (ii) correlate with the
performance of the Company as a whole and the executive's individual
performance; and (iii) provide the executives with a financial interest in the
Company similar to the interests of the Company's stockholders.
The Company's executives are compensated through a combination of salary,
bonuses and long-term incentive arrangements (where appropriate), including
grants of stock options and other stock-based awards under the 1996 Incentive
Plan and Bonus Interests under the Senior Management Bonus Plan. Annual
salaries of the Named Executive Officers are set forth in such executive's
employment agreements, which were all entered into as of dates prior to the
creation of the Compensation Committee. The Compensation Committee believes
the salaries of the Company's executives to be competitive with the salaries
paid by companies with which the Company competes.
Discretionary bonuses, where appropriate, are generally determined by the
Chief Executive Officer of the Company with the concurrence of the
Compensation Committee after the end of the Company's fiscal year and are
based on an assessment of the Company's results and the level of a particular
individual's performance for that year. In its review of bonuses for the
Company's senior executives, the Compensation Committee will consider the
following: improvement in the financial performance of the Company (including
improvements in cash flow, operating income and return on equity); the
executives' levels of responsibility and performance (based upon evaluations
and the recommendation of Mr. Mancuso as to proposed bonuses for executives
other than himself); and the other components of their compensation. No
discretionary bonuses were awarded to the Named Executive Officers for 1997.
The Compensation Committee believes that a significant component of the
compensation paid to the Company's executives over the long-term should be
derived from stock options and other stock-based awards. The Compensation
Committee strongly believes that stock ownership in the Company is a valuable
incentive to executives and that the grant of stock options and other stock-
based awards to them serves to align their interests with the interests of the
stockholders as a whole and encourages them to manage the Company in such a
way that endeavors to maximize its long-term profitability. Long-term
incentive arrangements are considered on a case-by-case basis, and may be
determined as part of an overall compensation package in conjunction with
demonstrable enhancements to stockholder values. The Compensation Committee
determines whether to grant stock options and other stock-based awards, as
well as the amount of the grants, by taking into account the proposed
recipient's past and prospective value to the Company; the performance of the
proposed recipient (based upon evaluations and the recommendation of Mr.
Mancuso as to proposed grants for executives other than himself); and the
amount of stock options or other stock-based awards previously granted. In
November 1997, in connection with the amendment of the Original Plan and the
cancellation of options granted thereunder, the Compensation Committee
approved the grant of options to purchase shares of the Common Stock under the
1996 Incentive Plan to the Named Executive Officers in the following amounts:
Mr. Mancuso, 1,745,680, Mr. Pisano, 523,754 shares, Mr. Corrigan, 179,168
shares, Mr. Johnson, 179,168 shares, and Mr. Jones, 159,584 shares. See
"Executive Compensation--Executive Compensation Summary" and "Executive
Compensation--Incentive and Bonus Plans." The Compensation Committee may grant
additional options or other stock-based awards to the Named Executive Officers
in the future.
23
<PAGE>
In addition, in November 1997, in connection with the amendment of the
Original Plan and the cancellation of the Original Bonus Interests granted
thereunder, the Compensation Committee approved the grant of Bonus Interests
under the Senior Management Bonus Plan to the Named Executive Officers in the
following amounts: Mr. Mancuso, 811,756, Mr. Pisano, 243,544, Mr. Corrigan,
83,334, Mr. Johnson, 83,334 and Mr. Jones, 74,209. The Senior Management Bonus
Plan and the grants thereunder are subject to stockholder approval. No
additional Bonus Interests will be granted under the Senior Management Bonus
Plan. See "Executive Compensation--Executive Compensation Summary," "Executive
Compensation--Incentive and Bonus Plans" and "Proposal 3--Approval of Senior
Management Bonus Plan."
The Compensation Committee intends to review the compensation arrangements
of the Company's senior executives from time to time and to make
recommendations where appropriate.
COMPENSATION AWARDED TO THE CHIEF EXECUTIVE OFFICER
Mr. Mancuso became Chairman of the Board and Chief Executive Officer of the
Company in October 1996 and has been Chairman of the Board and Chief Executive
Officer of MGM Studios since July 1993. Mr. Mancuso is eligible to participate
in the same executive compensation plans and to receive the same benefits
generally available to the Company's other senior executives. Pursuant to the
terms of his employment agreement, Mr. Mancuso's annual base salary is $2
million, plus an annual stock purchase payment of $3 million, and the Company
maintains a five-year reducing term life insurance policy in the initial face
amount of $25 million for Mr. Mancuso's benefit. In addition, Mr. Mancuso was
granted 1,745,680 options under the 1996 Incentive Plan and, subject to
stockholder approval, 811,756 Bonus Interests under the Senior Management
Bonus Plan. Mr. Mancuso did not receive a discretionary bonus with respect to
1997. See "Executive Compensation--Executive Compensation Summary," "Executive
Compensation--Incentive and Bonus Plans," "Executive Compensation--Employment
Agreements--Frank G. Mancuso" and "Proposal 3--Approval of Senior Management
Bonus Plan."
DEDUCTIBILITY OF COMPENSATION
Section 162(m) of the Internal Revenue Code, as amended, generally disallows
a tax deduction to a publicly held corporation for compensation in excess of
$1 million paid in any fiscal year to certain executive officers.
Section 162(m) further provides, however, that compensation will not be
subject to the deduction limit if certain conditions are met and the
compensation qualifies as "performance-based compensation." In addition, in
the case of a privately held corporation that undergoes an initial public
offering, the Treasury Regulations under Section 162(m) provide that the
deduction limit does not apply to any compensation paid, during a specified
"reliance period," pursuant to a plan or agreement that existed while the
corporation was privately held, if the corporation complied with certain
disclosure requirements. The reliance period terminates on the earliest to
occur of (i) the expiration of the plan or agreement, (ii) the material
modification of the plan or agreement, (iii) the issuance of all stock and
other compensation allocated under the plan and (iv) the first meeting of the
shareholders at which directors are to be elected that occurs after the close
of the third calendar year following the calendar year in which the initial
public offering occurs. In the case of stock options, the reliance period
applies to the date of grant and not exercise.
The Compensation Committee believes that any compensation paid or options
granted pursuant to the Company's incentive plans or agreements during the
reliance period will not be subject to the deduction limit of Section 162(m).
However, compensation paid and options granted after the reliance period to a
Named Executive Officer will be subject to the limitations of Section 162(m)
unless they qualify as performance-based compensation. In general, any salary
paid after the reliance period, including salary paid pursuant to the
employment agreements, will not qualify as performance-based compensation and
will be subject to Section 162(m). With respect to the Bonus Interests, the
Compensation Committee believes they are structured to qualify as performance-
based compensation and, therefore, any payments after the reliance period
pursuant to the Senior Management Bonus Plan should not be subject to Section
162(m). See "Proposal 3--Approval of Senior Management Bonus Plan."
24
<PAGE>
The Compensation Committee's current policy is to structure the performance-
based portion of the compensation of its Named Executive Officers in a manner
that complies with Section 162(m) whenever, in the judgment of the
Compensation Committee, doing so would be consistent with the objectives of
the compensation plan under which the compensation would be payable. However,
the Compensation Committee has the authority to award non-deductible
compensation as it deems appropriate and in the best interests of the Company.
In addition, because of ambiguities and uncertainties as to the application
and interpretation of Section 162(m) and the Treasury Regulations issued
thereunder, no assurance can be given that compensation intended by the
Compensation Committee to satisfy the requirements for deductibility under
Section 162(m) will so qualify.
Compensation Committee:
/s/ Kerry M. Stokes
-------------------------------------
Kerry M. Stokes
/s/ Alex Yemenidjian
-------------------------------------
Alex Yemenidjian
/s/ Francis Ford Coppola
-------------------------------------
Francis Ford Coppola
25
<PAGE>
COMPANY STOCK PRICE PERFORMANCE GRAPH
The following graph compares the Company's cumulative total shareholder
return with those of Standard & Poor's 500 Composite Stock Price Index and the
Standard & Poor's Entertainment Group Index for the period commencing November
13, 1997 (the first day of trading of the Common Stock on the NYSE) and ending
December 31, 1997, including the reinvestment of any dividends. No dividends
were paid in respect of the Company's securities during the period.
COMPARISON OF CUMULATIVE TOTAL RETURNS
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
S&P
ENTERTAINMENT S&P
MEASUREMENT DATE COMPANY GROUP INDEX 500 INDEX
- ---------------- ------- ------------- ---------
<S> <C> <C> <C>
November 13, 1997.............................. $100.00 $100.00 $100.00
December 31, 1997.............................. $ 95.24 $118.11 $106.43
</TABLE>
26
<PAGE>
BENEFIT PLANS
MGM RETIREMENT PLAN
The MGM Retirement Plan was adopted in March 1986 to provide retirement
income to certain employees who have completed at least one year of service.
The MGM Retirement Plan is a defined benefit plan under which all
contributions are made by the Company. The compensation covered by the MGM
Retirement Plan includes base salary only, and not bonus or other amounts.
Subject to certain limits, the amount of the pension to which a participant is
entitled is an annual amount equal to 1.55 percent of annual base salary up to
the Social Security wage base (currently $68,400) plus 1.9 percent of annual
base salary above that amount up to the maximum amount allowable under the MGM
Retirement Plan (currently $160,000 per year) for each year of credited
service up to 35 years, at which time the applicable percentage is 1.55
percent of the annual base salary for each year of service in excess of 35.
Participants become vested upon completion of five years of service.
Participants, or their beneficiaries, are entitled to receive benefits which
have vested under the MGM Retirement Plan upon their normal or early
retirement (or deferred retirement if the participant has been an executive
for at least two years and will be entitled to receive at least $44,000 of
retirement income annually) or upon the total and permanent disability, death
or other termination of such participant's employment and after attaining
normal or early retirement age. Benefits are normally payable on a monthly
basis either (i) in a "life only" form to a unmarried participant during his
or her life or (ii) in a qualified "joint and survivor" form to married
participants, which shall be the actuarial equivalent of the life only form
and which shall provide equal monthly payments to the participant during his
or her lifetime with an amount equal to 50 percent (or 75 percent or 100
percent at the election of the participant) of such payments continued after
his or her death payable to his or her spouse for the remainder of such
spouse's life. Alternatively, participants may, under certain circumstances,
elect that a single lump-sum death benefit be payable to his or her
beneficiary or a "ten-year certain and life" form, providing that equal
monthly payments be made to the participant during his or her lifetime with
the provision that in the event the participant dies prior to the expiration
of ten years, such payments would continue for the remainder of the ten-year
period.
It is the intention of the Company to continue the MGM Retirement Plan;
however, the Company has the right to amend or terminate the MGM Retirement
Plan at any time. If the plan is terminated, the available assets held in
trust will be used to pay benefits to retired employees (including
beneficiaries), terminated vested employees entitled to benefits and active
employees. If termination occurs when the MGM Retirement Plan assets are not
sufficient to pay all benefits accrued to the date of the termination, the
assets held in trust under the plan will be allocated among employees and
beneficiaries in accordance with the provisions of the Employee Retirement
Income Security Act of 1974, as amended. The Company is not liable for the
payment of MGM Retirement Plan benefits from its own assets. Upon full
satisfaction of the MGM Retirement Plan's liability to employees and their
beneficiaries, any amount remaining in the plan will be returned to the
Company.
The Internal Revenue Code requires certain provisions for benefit accruals
if a defined benefit plan becomes "top heavy," that is, if the value of
accrued benefits for "key employees" is more than 60 percent of the total
value of all accrued benefits. While the Company believes that it is unlikely
that the MGM Retirement Plan will ever become top heavy, in such an event, it
may become necessary to amend the MGM Retirement Plan to conform it to the
applicable Internal Revenue Code requirements.
SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT
Pursuant to Mr. Pisano's previous employment agreement and in place of
certain benefits under a pension plan maintained for Mr. Pisano's benefit by a
prior employer (the "Prior Plan") which Mr. Pisano forfeited when he joined
the Company in 1993, the Company entered into the Supplemental Executive
Retirement Agreement with Mr. Pisano. The Supplemental Executive Retirement
Agreement provides Mr. Pisano with an annual benefit equal to $150,000 (the
"Benefit Amount"), less an amount equal to the benefit Mr. Pisano is entitled
to receive under the Prior Plan and subject to certain adjustments, payable in
the form of a single life annuity commencing on the later of the date Mr.
Pisano attains age 60 and the date Mr. Pisano's employment with the Company is
terminated, including due to Mr. Pisano's death. The minimum aggregate amount
payable to Mr. Pisano or his
27
<PAGE>
beneficiaries will be $900,000, less all benefits to which Mr. Pisano is
entitled under the Prior Plan. All benefits under the Supplemental Executive
Retirement Agreement are fully vested. If Mr. Pisano continues in the
employment of the Company after attaining age 60, the Benefit Amount shall be
increased by 5/12ths of one percent for each month Mr. Pisano continues to be
employed by the Company after such date. In addition, after payments have
commenced under the Supplemental Executive Retirement Plan, the Benefit Amount
shall be increased effective each January 1 by the adjustment factor applied
to retiree payments for the calendar year under the Prior Plan. If Mr. Pisano
is unmarried on the date benefits commence, the benefit shall be payable
monthly for Mr. Pisano's life ("life only" basis). If, however, Mr. Pisano is
married on the date benefits commence, he may elect to have the benefits to
which he is entitled payable on the life only basis or have the actuarial
equivalent of the life only form payable in equal monthly payments to him
during his lifetime with an amount equal to 50% or 100% of such payments to
continue after his death to his spouse for the remainder of his spouse's life.
In the event of a Designated Change of Control of the Company (as defined in
the 1996 Incentive Plan and the Supplemental Executive Retirement Agreement)
or the termination of Mr. Pisano's employment agreement by the Company without
cause or by Mr. Pisano for good reason, the Company will deposit into escrow
an amount sufficient to provide on an actuarial basis the level of payments
required under the Supplemental Executive Retirement Agreement.
MGM SAVINGS PLAN
Employees, including officers, who have completed one year of service have
the opportunity to participate in the MGM Savings Plan (the "Savings Plan")
which is managed by the Merrill Lynch Asset Management L.P. Participants in
the Savings Plan may contribute a portion of their pre-tax compensation (up to
a maximum of $10,000) and after-tax compensation (subject to certain
limitations) into the Savings Plan and direct the investment of such
contributions. The Company matches 100 percent of such employee contributions
up to four percent of such employee's eligible compensation. Effective January
1, 1998, the Savings Plan was amended such that the matching contributions may
be made in cash or shares of the Common Stock in the sole discretion of the
Company. The employee contributions to the Savings Plan and the earnings
thereon are always 100 percent vested. The matching contributions and the
earnings thereon vest 20 percent for each full year of service and employees
become 100 percent vested (i) after five years of service, (ii) upon their
total and permanent disability or (iii) upon their death. Employees receive a
lump sum payment of the vested portion of their respective Savings Plan
account when their employment is terminated. In addition, an employee may,
under certain conditions, withdraw or borrow from the vested portion of his or
her respective Savings Plan account.
28
<PAGE>
PROPOSAL 2
APPROVAL OF 1998 NON-EMPLOYEE DIRECTOR STOCK PLAN
The Company has adopted, subject to the approval of the stockholders, the
1998 Non-Employee Director Stock Plan (the "Director Plan") pursuant to which
a Non-Employee Director (currently seven persons) may elect to receive all or
a portion (the "Election Amount") of the compensation received for service on,
and for service as a member of certain committees of, the Board of Directors
of the Company in the form of shares of the Common Stock. The Director Plan
will facilitate increases by the participating directors in their proprietary
interest in the Company, further aligning their financial interests with those
of the Company's stockholders. Shares will be issued under the Director Plan
in equal quarterly installments (based on the Election Amount) and the actual
number of shares of the Common Stock to be received by a Non-Employee Director
will be determined based on the fair market value of the Common Stock on the
date of issuance. Up to 100,000 shares of the Common Stock, subject to certain
adjustments, have been reserved for issuance pursuant to the Director Plan.
The Director Plan is to be administered by the Board of Directors, or a
committee thereof, which will have the power to amend the Director Plan,
subject to certain limitations.
The following table sets forth information with respect to the estimated
benefits or amounts, if any, that will be received by or allocated to: (i) the
Named Executive Officers, individually and as a group; (ii) the directors of
the Company, as a group, who are not Named Executive Officers; and
(iii) employees of the Company, as a group, other than the Named Executive
Officers, under the Director Plan during the Company's next fiscal year, based
on a price per share of the Common Stock as of December 31, 1997 of $20.00.
1998 NON-EMPLOYEE DIRECTOR STOCK PLAN
<TABLE>
<CAPTION>
DOLLAR NUMBER OF
NAME VALUE($)(1) SHARES(#)
- ---- ----------- ---------
<S> <C> <C>
Frank G. Mancuso.......................................... -- 0
A. Robert Pisano.......................................... -- 0
Michael G. Corrigan....................................... -- 0
David G. Johnson.......................................... -- 0
William A. Jones.......................................... -- 0
Named Executive Officers as a Group....................... -- 0
Non-Executive Director Group(1)........................... $266,000 13,300
Non-Executive Officer Employee Group...................... -- 0
</TABLE>
- --------
(1) Assuming that each Non-Employee Director (currently seven persons) elected
to participate in the Director Plan to the maximum extent allowable under
the plan and that each such Non-Employee Director received aggregate
compensation of $38,000 (the average compensation received by a Non-
Employee Director, assuming that Non-Employee Directors comprise four of
the members of the Executive Committee, two of the members of the Audit
Committee, and three of the members of the Committee Compensation and that
the maximum number of meetings for which compensation was payable were
held). Any shares of the Common Stock issued to a Non-Employee Director
under the Director Plan will reduce the cash compensation received by such
Non-Employee Director.
The foregoing description of the Director Plan is qualified in all respects
by the actual provisions of such plan which is attached to this Proxy
Statement as Appendix A.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" PROPOSAL 2.
29
<PAGE>
PROPOSAL 3
APPROVAL OF SENIOR MANAGEMENT BONUS PLAN
The Company's Senior Management Bonus Plan is a plan under which 2,420,685
Bonus Interests have been granted to an aggregate of 18 officers, subject to
stockholder approval. No additional Bonus Interests will be granted under the
Senior Management Bonus Plan. The Senior Management Bonus Plan will be
administered and may be amended by the Bonus Plan Committee of the Board of
Directors; provided, however, that the Senior Management Bonus Plan may only
be amended with the consent of: (i) the Board of Directors; (ii) the Board of
Directors of Metro-Goldwyn-Mayer Studios Inc.; and (iii) persons then holding
a majority in interest of the outstanding Bonus Interests.
Subject to certain vesting and other requirements, each Bonus Interest
entitles the holder to receive a cash payment if (i) the sum of the average
closing price of the Common Stock during the 20 trading days plus, in certain
circumstances, per share distributions on the Common Stock (together, the
"Price") preceding a Determination Date (defined below) is greater than (ii)
$24.00 and less than $48.00 (adjusted for stock splits, reverse stock splits
and similar events). The cash payment will be equal to (i) the vested portion
of the Bonus Interest at the Determination Date multiplied by (ii) the amount
by which the Price at the Determination Date is less than $48.00 (i.e., a
maximum of $24.00 per Bonus Interest). Once a payment is made in respect of
the vested portion of a Bonus Interest, no further payment is due in respect
of that portion. If at any Determination Date the Price equals or exceeds
$48.00, no payment will thereafter be due in respect of any then-vested
portion of a Bonus Interest.
"Determination Dates" occur on June 30 and December 31 of each year,
commencing December 31, 2001 and ending December 31, 2006, and will also occur
upon a Designated Change in Control (as defined in the Senior Management Bonus
Plan) or the taking of any action for the dissolution or liquidation of the
Company (each a "Special Circumstance"). In addition, with respect to the
applicable officer only, a Determination Date shall occur in the event of a
termination of such officer's employment due to death or Permanent Disability
(as defined in the Senior Management Bonus Plan), if such death or Permanent
Disability shall have occurred prior to December 31, 2001, by the Company for
Cause or by such officer without Good Reason (each, as defined in the Senior
Management Bonus Plan).
Bonus Interests generally vest 20 percent on the first anniversary of the
date of their grant and 1.67% each month thereafter. The Senior Management
Bonus Plan provides for accelerated vesting and payment in the event of a
Special Circumstance (with payment at discounted present value in the event
payment is made in connection with a Designated Change in Control which occurs
prior to December 31, 2001), accelerated vesting in the event of termination
of employment in certain circumstances and payment at discounted present
value, for the officer involved, in the event of death or Permanent
Disability.
Section 162(m) of the Internal Revenue Code of 1986, as amended, limits the
deductibility of certain compensation paid to certain top executive officers
of a publicly held corporation. This limitation does not apply to compensation
that is "performance-based" and is approved by the stockholders. The Company
believes that compensation payable under the Senior Management Bonus Plan
qualifies as "performance-based." The Company is, therefore, submitting the
Senior Management Bonus Plan for stockholder approval. There is no assurance
that amounts, if any, ultimately payable by the Company pursuant to the Senior
Management Bonus Plan will be deductible for tax purposes.
If the Senior Management Bonus Plan is not approved by the holders of a
majority of the outstanding shares of the Common Stock present at a meeting at
which a quorum is present (or by the written consent of a majority of the
Common Stock), the Senior Management Bonus Plan will be null and void and no
amounts will be paid pursuant to the Bonus Interests. Tracinda and Seven,
which together will own in excess of the majority of the outstanding shares of
the Company after the Offering, have committed to the holders of the Bonus
Interests to vote their shares in favor of the approval of the Senior
Management Bonus Plan and the grants of Bonus Interests thereunder.
30
<PAGE>
The following table sets forth information with respect to the benefits or
amounts, if any, that will be received by or allocated to: (i) the Named
Executive Officers, individually and as a group; (ii) the directors of the
Company, as a group, who are not Named Executive Officers; and (iii) employees
of the Company, as a group, other than the Named Executive Officers, under the
Senior Management Bonus Plan.
SENIOR MANAGEMENT BONUS PLAN
<TABLE>
<CAPTION>
NUMBER OF
DOLLAR BONUS
NAME VALUE($)(1) INTERESTS(#)
- ---- ----------- ------------
<S> <C> <C>
Frank G. Mancuso....................................... -- 811,756
A. Robert Pisano....................................... -- 243,544
Michael G. Corrigan.................................... -- 83,334
David G. Johnson....................................... -- 83,334
William A. Jones....................................... -- 74,209
Named Executive Officers as a Group.................... -- 1,296,177
Non-Executive Director Group........................... -- 0
Non-Executive Officer Employee Group................... -- 1,124,508
</TABLE>
- --------
(1) As of December 31, 1997, the Price (as defined above) was lower than the
minimum level necessary to entitle a participant in the Senior Management
Bonus Plan to any payment with respect to the Bonus Interests. As
described above, the maximum amount payable would be $24.00 per Bonus
Interest in the event the Price equaled $24.00 per share and would decline
to zero as the price increased up to $48.00 per share.
The foregoing description of the Senior Management Bonus Plan is qualified
in all respects by the actual provisions of such plan which is attached to
this Proxy Statement as Appendix B.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" PROPOSAL 3.
PROPOSAL 4
RATIFICATION OF THE SELECTION OF INDEPENDENT AUDITORS
The Company's Board of Directors, with the concurrence of the Audit
Committee, has selected Arthur Andersen LLP as the Company's independent
auditors for the fiscal year ending December 31, 1998. Although the
appointment of Arthur Andersen LLP is not required to be submitted to a vote
of the stockholders, the Board of Directors believes it appropriate as a
matter of policy to request that the stockholders ratify the appointment for
the current fiscal year. In the event a majority of the votes cast at the
meeting are not voted in favor of the appointment, the Board of Directors will
reconsider its selection. Proxies solicited by the Board will be voted in
favor of the appointment unless stockholders specify otherwise in such
proxies.
A representative of Arthur Andersen LLP is expected to be present at the
Annual Meeting with the opportunity to make a statement if he or she so
desires and to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" PROPOSAL 4.
31
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company believes the transactions described below that were entered into
by the Company (including its subsidiaries) were beneficial to the Company,
and were no less favorable to the Company than could have been obtained from
unaffiliated third parties pursuant to arm's-length negotiations.
RECENT SALES OF SECURITIES
In connection with the Company's acquisition of all of the outstanding
common stock of Orion Pictures Corporation, together with certain of its
subsidiaries, from Metromedia International Group, Inc., on July 10, 1997
Tracinda purchased 13,375,107 shares of the Common Stock and Seven purchased
1,625,013 shares of the Common Stock, for a purchase price of $24.00 per share
and an aggregate purchase price of $360 million.
For the year ended December 31, 1997, Mr. Mancuso purchased 124,746 shares
of the Common Stock for aggregate consideration of $2,993,904 pursuant to his
employment agreement. See footnote 3 to "Executive Compensation--Executive
Compensation Summary--Summary Compensation Table" and "Executive
Compensation--Employment Agreements--Frank G. Mancuso."
Pursuant to an investment agreement dated November 18, 1997 between Tracinda
and the Company, Tracinda purchased 3,978,780 shares of the Common Stock for a
purchase price of $18.85 per share (the same price as shares were offered to
the public in the Company's initial public offering less the applicable
underwriting discounts) at an aggregate purchase price of $75 million.
INVESTORS SHAREHOLDER AGREEMENT AND SHAREHOLDERS AGREEMENT
Seven, Tracinda, Mr. Mancuso, the Company and MGM Studios are parties to the
Investors Shareholder Agreement and, along with the other persons specified in
the signature pages thereto, the Shareholders Agreement, each of which
contains certain provisions relating to the corporate governance of the
Company and provides for certain rights relating to the shares of the Common
Stock, including registration rights and transfer restrictions. See "Security
Ownership of Certain Beneficial Owners and Management--Investors Shareholder
Agreement" and "Security Ownership of Certain Beneficial Owners and
Management--Shareholders Agreement."
OTHER TRANSACTIONS WITH TRACINDA AND ITS AFFILIATES
In 1980 a predecessor-in-interest to the Company granted to a predecessor-
in-interest to MGM Grand, Inc., an affiliate of Tracinda, an exclusive open-
ended royalty-free license to use certain trademarks and tradenames that
include the letters "MGM," as well as logos consisting of a stylized depiction
of a lion in its hotel/gaming business and other businesses that are not
entertainment-related. In 1986 a predecessor-in-interest to the Company
("MGM/UA") granted to MGM Grand Air, Inc. ("Grand Air"), an affiliate of
Tracinda, an exclusive open-ended royalty-free license to use one of its logos
consisting of a stylized depiction of a lion in Grand Air's airline business.
The Company did not receive any monetary compensation for these licenses.
Tracinda owns a majority of the outstanding common stock of MGM Grand, Inc.,
the parent of both MGM Grand Hotel ("Grand Hotel") and Grand Air.
Additionally, the Company and affiliates of Tracinda occasionally conduct
cross-promotional campaigns, in which the Company's motion pictures and the
affiliates' hotels are promoted together; however, the Company believes that
the amounts involved are immaterial.
A subsidiary of the Company has granted to Grand Hotel, or certain of its
affiliates, limited short-term, nonexclusive licenses to (i) key art and still
photographs of artwork from certain Metro-Goldwyn-Mayer Pictures Inc. and
United Artists Pictures Inc. theatrical releases for use in an "in-room" only
publication at the MGM Grand Hotel/Casino in Las Vegas and (ii) one minute
film clips of such releases in a clip reel program for the benefit of a
charitable foundation and to promote the sale of videocassettes containing
such releases at the MGM Grand Hotel/Casino in Las Vegas. The Company did not
receive any monetary compensation for these licenses.
The Company sells to Grand Hotel, and certain of its affiliates, on a
wholesale basis videocassettes and merchandise such as baseball caps,
clothing, keychains and watches bearing the Company's trademarks and
32
<PAGE>
logos for resale to consumers in retail shops located within Grand Hotel's
hotels. Grand Hotel currently is the Company's largest wholesale customer of
the Company's merchandise and, consequently, receives customary volume
discounts from the Company. In fiscal 1997, the Company recognized revenues of
$257,000 for such videocassettes and merchandise.
In 1997 MGM Studios and Grand Hotel entered into a site location agreement
with respect to production of a pilot episode of a television series being
developed by a unit of MGM Studios. Grand Hotel was not compensated for the
use of the site but was compensated, on customary terms, for goods and
services provided by Grand Hotel in the amount of $462,000 in fiscal 1997.
From time to time, the Company uses aircraft owned by Tracinda for use in
the Company's business. The Company believes that the terms of such
arrangements are no less favorable to the Company than those that could be
obtained from unrelated parties. During the year ended December 31, 1997, the
aggregate of the payments made to Tracinda for the use of such aircraft was
approximately $308,000.
In January 1997 MGM Studios entered into an agreement with Tracinda and
certain former directors of MGM/UA (including Mr. Kerkorian) (the "Insurance
Allocation Agreement") to allocate the proceeds of directors and officers
liability insurance policies relating to litigation filed prior to 1991
against MGM/UA, Tracinda and such former directors. The Insurance Allocation
Agreement provides for the proceeds of such policies (and certain legal fees
incurred to obtain such proceeds) to be allocated 65 percent to MGM Studios
and 35 percent to Tracinda (on behalf of such former directors). The Company
believes that the terms of the Insurance Allocation Agreement were fair and
equitable to the respective parties and were the result of arm's-length
negotiations between MGM Studios and Tracinda (on behalf of such former
directors). The total proceeds of such policies aggregated $8.0 million as of
December 31, 1997, of which $5.2 million was allocated to MGM Studios.
OTHER TRANSACTIONS WITH SEVEN AND ITS AFFILIATES
In 1995 the Company licensed to a subsidiary of Seven the right to
distribute certain motion picture and television product in the Australian
free television market. This agreement was amended on September 9, 1997. The
product licensed includes certain motion pictures and television series,
miniseries and made-for-television movies produced or distributed by the
Company (the "Library") during the term of the agreement. The license fees for
such Library product are at a rate which the Company believes is arm's-length.
The term of the output portion of the agreement is 20 years, subject to
reduction to 10 years if there is a change of control of Seven or Seven no
longer beneficially owns shares of the Common Stock having a value of at least
$185 million. The license fees for output product television series,
television movies and television mini-series are on a "most favored nations"
basis with prices paid by the Seven subsidiary for comparable programming. For
the year ended December 31, 1997, the Company recognized revenues of
$4,454,000 under this agreement.
The Company and a subsidiary of Seven also recently agreed in principle to
enter into a two year, non exclusive agency agreement, pursuant to which the
subsidiary will, as the Company's agent, promote and negotiate licenses
relating to certain of the Company's movie and television-based properties in
Australia. The subsidiary will receive either 20 or 30 percent of all
royalties generated by its efforts, depending on the right licensed. The
Company may terminate the agreement if the royalties generated under the
agreement fall below certain thresholds of approximately $85,000 for the first
year of the agreement and approximately $215,000 for the second year.
In 1994, in connection with the formation of MovieVision, a joint venture in
which the Company and a subsidiary of Seven have non-controlling interests,
the Company licensed to the joint venture certain of its current theatrical
and television motion pictures, as well as a number of the Library pictures,
for distribution on Australian pay and basic cable television. The agreement
expires on June 30, 2000, with all motion pictures covered by the agreement
reverting to the Company within one year after that date, but both the Company
and MovieVision have the right to extend the license for a further five years.
The Company receives a license fee for
33
<PAGE>
each picture that is based on the number of MovieVision's subscribers. For the
year ended December 31, 1997, the Company recognized revenues of $3,056,000
under this agreement. The Company believes that the terms of the agreement are
no less favorable to the Company than those contained in its licenses with
unaffiliated licensees.
Seven has agreed to reimburse the Company for losses that the Company may
incur in connection with the distribution of Joey, an Australian film with
respect to which the Company has acquired distribution rights from an
unrelated third party.
OTHER
The Company has an exclusive producer term agreement with FGM Entertainment
for the services of Frank Mancuso, Jr., the son of Mr. Mancuso, which expires
on July 31, 2002. FGM Entertainment, a company wholly owned by Mr. Mancuso,
Jr., will receive $400,000 each year for overhead expenses, subject to five to
ten percent annual increases, as well as a development fund and a production
fund to pay for the costs of developing and producing projects. FGM
Entertainment must submit all projects that it wishes to produce or develop to
the Company and will receive a producing fee, as well as certain
participations and royalties, for each picture that is produced under the
arrangement. For the fiscal year ended December 31, 1997, these fees,
participations and royalties (paid to Mr. Mancuso Jr. for movies produced by
him such as Species, Fled and Hoodlum) totaled approximately $1.9 million. The
Company has the right to acquire the domestic or worldwide rights to each
picture produced under the arrangement and controls all remake, sequel and
television rights.
In connection with the commencement of Mr. Corrigan's employment with the
Company, the Company entered into a loan agreement dated July 30, 1997 with
Mr. Corrigan pursuant to which the Company made an unsecured and interest-free
loan to Mr. Corrigan in the principal amount of $91,000 in order to assist
Mr. Corrigan in the purchase of a residence in the Los Angeles area. Mr.
Corrigan has repaid all amounts borrowed under this loan agreement.
In December 1997, the Company entered into an agreement with Taliafilm, Inc.
("Taliafilm"), a company wholly owned by the sister of Mr. Coppola, a director
of the Company and a nominee for re-election. Pursuant to the agreement,
subject to certain conditions being met, the Company will acquire all of
Taliafilm's interest in the motion picture Never Say Never Again for $2.5
million and for approximately 20 percent of the adjusted gross receipts
received by the Company from the exploitation of the film. In addition, the
Company will assume certain obligations of Taliafilm relating to such film.
STOCKHOLDER PROPOSALS AND NOMINATIONS
Any stockholder intending to submit to the Company a proposal for inclusion
in the Company's Proxy Statement and proxy relating to the fiscal year ending
December 31, 1998 must submit such proposal so that it is received by the
Company no later than December 18, 1998. Stockholder proposals should be
submitted to the Secretary of the Company.
OTHER MATTERS
While the Notice of Annual Meeting of Stockholders calls for the transaction
of such other business as may properly come before the meeting, the Board of
Directors has no knowledge of any matters to be presented for action by the
stockholders other than as set forth above. The enclosed proxy gives
discretionary authority to the proxies, however, to consider and vote upon any
additional matters that may be presented.
34
<PAGE>
ANNUAL REPORT TO STOCKHOLDERS AND ANNUAL REPORT ON FORM 10-K
The Company's Annual Report to Stockholders and Annual Report on Form 10-K
(without exhibits thereto) for the year ended December 31, 1997 accompanies
this Proxy Statement. Exhibits to the Annual Report on Form 10-K may be
obtained from the Company upon request. To obtain any such exhibits contact
the Corporate Secretary, Metro-Goldwyn-Mayer Inc., 2500 Broadway Street, Santa
Monica, California 90404.
STOCKHOLDERS ARE URGED TO IMMEDIATELY MARK, DATE, SIGN AND RETURN THE
ENCLOSED PROXY IN THE ENVELOPE PROVIDED, TO WHICH NO POSTAGE NEED BE AFFIXED
IF MAILED IN THE UNITED STATES.
By order of the Board of Directors,
/s/ William Allen Jones
William Allen Jones
Senior Executive Vice
President and Secretary
Santa Monica, California
April 17, 1998
35
<PAGE>
APPENDIX A
METRO-GOLDWYN-MAYER INC.
1998 NON-EMPLOYEE DIRECTOR STOCK PLAN
Metro-Goldwyn-Mayer Inc., a Delaware corporation (the "Company"), hereby
establishes a stock plan for non-employee directors of the Company, to be
known as the "Metro-Goldwyn-Mayer Inc. 1998 Non-Employee Director Stock Plan"
(the "Plan"), as set forth herein.
SECTION 1. PURPOSE OF PLAN
The purpose of this Plan is to promote the achievement of long-term
objectives of the Company by linking the personal interests of non-employee
directors (as defined below) to those of Company stockholders.
SECTION 2. PERSONS ELIGIBLE UNDER THE PLAN
Any member of the Board of Directors (the "Board") of the Company who is not
otherwise an officer or employee of the Company or any of its subsidiaries (a
"Non-Employee Director") is eligible to participate in the Plan.
Pursuant to this Plan, each Non-Employee Director shall be given the
opportunity to elect (the "Election") to receive all or a portion of his or
her Total Compensation (as defined below) in the form of shares of the Common
Stock, par value $.01 (the "Common Stock"), of the Company pursuant to the
terms and provisions set forth in Section 5 hereof. A Non-Employee Director
making an Election under this Plan shall be referred to as a "Participant."
As used herein, "Total Compensation" shall mean the amount payable as
compensation to the Non-Employee Director for service on the Board and for
service as a member of the Executive Committee, Audit Committee, Compensation
Committee or any other committee of the Board during the period commencing on
the day immediately following the date of an annual meeting of stockholders of
the Company in which directors of the Company are elected (an "Annual
Meeting") and ending on the date of the subsequent Annual Meeting (the "Plan
Year").
SECTION 3. DURATION OF PLAN
Upon approval by the stockholders of the Company, the Plan shall become
effective as of May 12, 1998 (the "Effective Date"), and shall remain in
effect, subject to the right of the Plan Committee (as defined below) to
terminate the Plan at any time pursuant to Section 6 or Section 8 hereof,
until all of the shares of Common Stock subject to the Plan pursuant to
Section 4 hereof shall have been issued according to the Plan's provisions. In
no event, however, may shares of Common Stock be issued under the Plan on or
after May 1, 2008. Without limiting the immediately preceding sentence, the
Plan and the issuance of Common Stock thereunder will be void ab initio, and
of no force and effect, if the Plan is not approved by the Company's
stockholders on or before May 12, 1998.
SECTION 4. STOCK SUBJECT TO PLAN
The aggregate number of shares of Common Stock that may be issued under this
Plan shall not exceed One Hundred Thousand (100,000), subject to adjustment as
provided in Section 7 of this Plan.
SECTION 5. ELECTION
(a) On or before the Annual Meeting of each year during the term of this
Plan (the "Election Date"), a Non-Employee Director shall have the ability to
make an Election (in accordance with subsection (c) below) and receive all or
any portion of his or her Total Compensation for the forthcoming Plan Year in
the form of shares of Common Stock; provided, however, that with respect to
the Plan Year in which the Effective Date occurs, such Election shall be made
on or within 10 days after the Effective Date.
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(b) Notwithstanding subsection (a) above, in the case of a newly appointed
Non-Employee Director who has his or her first opportunity to make an Election
(a "First Time Non-Employee Director"), the Election Date with respect of such
Non-Employee Director shall be at any time within ten (10) days of such Non-
Employee Director's appointment as a director of the Company, and shall relate
to his or her Total Compensation earned during the balance of the Plan Year in
respect of which he or she is making the Election.
(c) The Election shall be irrevocable, and shall be made by means of a
written notice (the "Election Notice") on a form acceptable to the Plan
Committee (as defined below), delivered to the Secretary of the Company on or
before the Election Date. The Election Notice shall state the percentage
and/or dollar amount of the Non-Employee Director's Total Compensation (the
"Election Amount") which is to be received in shares of Common Stock and the
name in which such common stock shall be registered. The Plan Committee
reserves the right to accept or reject, in its sole discretion, any Election
Notice.
(d) The aggregate number of shares of Common Stock to be received by a
Participant with respect to the Election Amount shall be derived according to
the following formula:
<TABLE>
<C> <C> <S>
Election Amount
Aggregate Number of Shares = ____________________________________________
Fair Market Value of the Common Stock on the
applicable Date of Issuance (as defined
below)
</TABLE>
(e) Only whole shares will be issued under this Plan. Any fractional shares
resulting from the above calculation will be settled in cash.
(f) Subject to the Plan Committee in its sole discretion determining
otherwise, Common Stock issued to a Participant under this Plan during a Plan
Year shall be issued in equal installments on January 31, April 30, July 31
and October 31 of each year (each a "Date of Issuance"); provided, however,
with respect to a First Time Non-Employee Director, Common Stock issued to
such First Time Non-Employee Director under this Plan during a Plan Year shall
be issued in such number of equal installments as there are Dates of Issuance
during the balance of the Plan Year.
SECTION 6. ADMINISTRATION OF PLAN
(a) This Plan will be administered by a committee designated by the Board
(the "Plan Committee"). Subject to the provisions of this Plan, the Plan
Committee is authorized and empowered in its sole discretion to do all things
necessary or desirable in connection with the administration of this Plan,
including, without limitation, the following:
(i) adopting, amending, altering, repealing and rescinding rules and
regulations relating to this Plan;
(ii) determining which persons are Non-Employee Directors and accepting
or rejecting Election Notices;
(iii) issuing shares of Common Stock to Participants and determining the
terms and conditions thereof;
(iv) determining whether and the extent to which adjustments are required
pursuant to Section 7 of this Plan;
(v) interpreting and construing this Plan and the terms and conditions of
any Common Stock issued under this Plan and otherwise supervising the
administration of the Plan; and
(vi) entering into any type of arrangement with a Participant that is not
inconsistent with the provisions of this Plan and that, by its terms,
involves the issuance of shares of Common Stock of the Company.
(b) All interpretations, determinations and decisions made by the Plan
Committee pursuant to the provisions of the Plan, and all related orders or
resolutions of the Plan Committee, shall be final, conclusive, and binding on
all persons, including the Company, its stockholders, Participants, and their
estates and beneficiaries.
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(c) All expenses of the Plan Committee will be paid by the Company and the
Company will furnish the Plan Committee with such clerical and other
assistance as is necessary in the performance of its duties. No member of the
Plan Committee will be liable for any act or omission hereunder of any other
member of the Committee nor for any act or omission on his or her own part
hereunder, excepting only his or her own willful misconduct or gross
negligence. To the extent permitted by law, the Company will indemnify and
hold harmless each member of the Plan Committee against any and all expenses
and liabilities arising out of his or her membership on the Plan Committee,
excepting only expenses and liabilities arising out of his or her own willful
misconduct or gross negligence, as determined by the Board of Directors.
SECTION 7. ADJUSTMENTS
If the outstanding number of shares of Common Stock are increased, decreased
or exchanged for or converted into cash, property or a different number or
kind of securities, or if cash, property or securities are distributed in
respect of those outstanding securities, in any case as a result of a
reorganization, merger, consolidation, recapitalization, restructuring,
reclassification, dividend (other than a regular quarterly cash dividend) or
other distribution, stock split, reverse stock split or the like, or if
substantially all of the property and assets of the Company are sold, then,
unless the terms of the transaction provide otherwise, the Plan Committee will
make appropriate and proportionate adjustments in the maximum number and type
of shares or other securities that may be issued pursuant to this Plan.
SECTION 8. AMENDMENT AND TERMINATION OF THE PLAN
Notwithstanding Section 6 of this Plan, the Plan Committee may amend, modify
or terminate this Plan at any time and in any manner, subject to the following
limitations:
(a) No amendment, modification or termination may deprive a Participant
of any shares of Common Stock previously issued under this Plan or of any
rights thereunder or with respect thereto, without the consent of such
Participant; provided, however, the Board may make any amendment or
modification to this Plan to the extent such amendment or modification is
required in order for the Plan to comply with any applicable laws; and
(b) Any amendment to or modification of this Plan will require approval
by the Company's stockholders but only to the extent such approval is
required in order for the Plan to continue to comply with Rule 16b-3 (if
applicable) of the Securities Exchange Act of 1934 as amended (the
"Exchange Act") and Sections 422 and 162(m) and other applicable provisions
of or rules under the Internal Revenue Code of 1986, as amended from time
to time (the "Code"), and only if the amendment or modification would:
(i) change the class of persons eligible to be a Participant under
this Plan;
(ii) extend the duration of the Plan;
(iii) increase the number of shares of Common Stock issuable under
this Plan (other than pursuant to Section 7 hereof);
(iv) otherwise materially increase the benefits under this Plan
accruing to Participants who are subject to Section 16 of the Exchange
Act in a manner not specifically contemplated by this Plan; or
(v) adversely affect compliance of this Plan with Rule 16b-3 (if
applicable) or applicable provisions of the Code.
SECTION 9. TRANSFERABILITY
No Participant may assign the right to receive any payment of Common Stock
or any other right of interest under the Plan, contingent or otherwise, or to
cause or permit any encumbrance, pledge or charge of any nature to be imposed
on any such Stock Payment (prior to the issuance of stock certificates
evidencing such Stock Payment) or any such right or interest.
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SECTION 10. STOCKHOLDER RIGHTS
Participants shall not be deemed for any purpose to be or have rights as
stockholders of the Company with respect to any shares of Common Stock issued
hereunder except as and when such shares are issued and then only from the
Date of Issuance. No adjustment shall be made for dividends or distributions
or other rights for which the record date precedes the Date of Issuance
(except pursuant to Section 7 hereof).
SECTION 11. CONTINUATION OF DIRECTORS IN SAME STATUS
Nothing in the Plan or in any instrument executed pursuant to the Plan or
any action taken pursuant to the Plan shall be construed as creating or
constituting evidence of any agreement or understanding, express or implied,
that a Participant will have any right to continue as a director or in any
other capacity for any period of time or at a particular retainer or other
rate of compensation.
SECTION 12. COMPLIANCE WITH GOVERNMENT REGULATIONS
Neither the Plan nor the Company shall be obligated to issue any shares of
Common Stock pursuant to the Plan at any time unless and until all applicable
requirements imposed by any federal or state securities or other laws, rules
and regulations, by any regulatory agencies or by any stock exchanges upon
which the Common Stock may be listed have been fully met. As a condition
precedent to any issuance of shares of Common Stock and delivery of
certificates evidencing such shares pursuant to the Plan, the Plan Committee
may require a Participant to take any such action and to make any such
covenants, agreements and representations as the Plan Committee in its
discretion deems necessary or advisable to ensure compliance with such
requirements. The Company shall in no event be obligated to register the
shares of Common Stock deliverable under the Plan pursuant to the Securities
Act of 1933, as amended (the "Securities Act"), or to qualify or register such
shares under any securities laws of any state upon their issuance under the
Plan or at any time thereafter, or to take any other action in order to cause
the issuance and delivery of such shares under the Plan or any subsequent
offer, sale or other transfer of such shares to comply with any such law,
regulation or requirement. Participants are responsible for complying with all
applicable federal and state securities and other laws, rules and regulations
in connection with any offer, sale or other transfer of the shares of Common
Stock issued under the Plan or any interest therein including, without
limitation, compliance with the registration requirements of the Securities
Act (unless an exemption therefrom is available), or with the provisions of
Rule 144 promulgated thereunder, if available, or any successor provisions.
SECTION 13. DEFINITION OF "FAIR MARKET VALUE"
For purposes of this Plan, "Fair Market Value" means the fair market value
of a share of Common Stock. The fair market value will be the closing sale
price per share of the Common Stock on the New York Stock Exchange on the
trading day nearest preceding the day in question (or, if no sales of Common
Stock were made on such day, on the nearest preceding trading day on which
sales of Common Stock were made), as reported in The Wall Street Journal,
Western Edition.
SECTION 14. GOVERNING LAW
The validity of this Plan or any of its provisions will be construed,
administered and governed in all respects under and by the laws of the State
of Delaware. If any provisions of this instrument is held by a court of
competent jurisdiction to be invalid or unenforceable, the remaining
provisions hereof will continue to be fully effective.
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APPENDIX B
METRO-GOLDWYN-MAYER INC.
AND
METRO-GOLDWYN-MAYER STUDIOS INC.
SENIOR MANAGEMENT BONUS PLAN
This is the Senior Management Bonus Plan (the "Bonus Plan") of Metro-
Goldwyn-Mayer Inc., a Delaware corporation formerly known as P&F Acquisition
Corp. ("MGM"), and Metro-Goldwyn-Mayer Studios Inc., a Delaware corporation
formerly known as Metro-Goldwyn-Mayer Inc. ("Studios" and, collectively with
MGM, the "Company").
SECTION 1. PURPOSE OF THE BONUS PLAN
The purpose of this Bonus Plan is to provide incentives to members of the
Company's senior management by providing them with an opportunity to receive
cash bonuses. The compensation payable pursuant to Bonus Interests granted
under this Bonus Plan is intended to qualify as "performance-based
compensation" under Section 162(m) of the Internal Revenue Code of 1986 as
amended (the "Code") and the regulations thereunder.
SECTION 2. PERSONS ELIGIBLE UNDER THE BONUS PLAN
The only persons eligible (each a "Participant") for the grant of Bonus
Interests ("Bonus Interests") under this Bonus Plan are persons who, (i)
immediately prior to the date the Underwriting Agreement referred to in
Section 7 is signed, held bonus interests under the Company's 1996 Management
Stock Option and Bonus Plan (the "Original Plan"), prior to its amendment and
restatement (the "Amendment and Restatement") and (ii) agree to the Amendment
and Restatement and to the cancellation of their Series A Options, Series B
Options and bonus interests granted under the Original Plan pursuant to
Modification and Cancellation Agreements (the "Modification and Cancellation
Agreements").
SECTION 3. GRANT OF BONUS INTERESTS
Each Participant will receive Bonus Interests as determined by the "Bonus
Plan Committee" (defined in Section 6 hereof). The performance goal set forth
in Section 5 of the "Bonus Interest Agreements" (defined below) has been
preestablished by the Bonus Plan Committee.
SECTION 4. PAYMENTS IN RESPECT OF BONUS INTERESTS
(a) Each Bonus Interest will, subject to the terms and conditions of this
Bonus Plan and related Bonus Interest Agreement in the form of Exhibit A
hereto to be entered into by MGM, Studios and each Participant (the "Bonus
Interest Agreements"), entitle the Participant holding the Bonus Interest
to receive up to $1,000. The obligations to make all payments due from time
to time in respect of Bonus Interests are the joint and several obligations
of MGM and Studios.
(b) No payments shall be made pursuant to any Bonus Interest unless the
Bonus Plan Committee certifies that the performance goal condition to
payment (the "Condition") has been satisfied. The Condition is solely that
set forth in Section 5 of the Bonus Interest Agreement with respect to the
"Fair Market Value per Common Share" as of the "Determination Date" in
question (the quoted terms in this sentence have the meanings given to them
in the Bonus Interest Agreement). The members of the Bonus Plan Committee
must timely make the certification required for payments pursuant to the
Bonus Interests, if the Condition to the payment in question is met.
SECTION 5. MAXIMUM NUMBER OF BONUS INTERESTS; NO ADDITIONAL BONUS INTERESTS
The maximum number of Bonus Interests that may initially be issued and that
may be outstanding at any time is 58,095 Bonus Interests (subject to
adjustments in the number of Bonus Interests outstanding pursuant to Section 8
of each Participant's Bonus Interest Agreement). Subject to the same
adjustment, the maximum number
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<PAGE>
of Bonus Interests that may be granted in any calendar year to any person may
not exceed 20,000 Bonus Interests. No Bonus Interests will be issued except
those as permitted by Section 3 and any Bonus Interests issued to a "Permitted
Transferee" (defined in Exhibit A hereto) in substitution for the Bonus
Interests issued to the transferor.
SECTION 6. ADMINISTRATION OF THE BONUS PLAN
(a) This Bonus Plan will be administered by a committee (the "Bonus Plan
Committee") appointed by the Board of Directors of MGM. The Bonus Plan
Committee will be comprised solely of two or more "outside directors" within
the meaning of Section 162(m) of the Code and the regulations thereunder.
(b) Subject to the provisions of this Bonus Plan, with the approval of (or
delegation of authority by) a majority of the then authorized number of
members of each of the Boards of Directors of MGM and Studios (other than any
holder of Bonus Interests who serves on either of those Board of Directors),
the Committee (or, if applicable, the Prior Committee) is authorized and
empowered to do all things necessary or desirable in connection with the
administration of this Bonus Plan, including, without limitation, to:
(i) adopt rules and regulations relating to this Bonus Plan that are not
inconsistent with this Bonus Plan and which do not adversely affect any
outstanding Bonus Interests, unless the holder of the Bonus Interest has
consented or is deemed to have consented to the rules and regulations
pursuant to the terms of the holder's Bonus Interest Agreement; and
(ii) interpret and construe this Bonus Plan and the terms and conditions
of all Bonus Interests granted under it.
SECTION 7. AMENDMENT AND EARLY TERMINATION OF THIS BONUS PLAN
This Bonus Plan may not be amended or terminated early without the consent
of (i) MGM and Studios (by vote of the Boards of Directors of each of MGM and
Studios, excluding any holder of Bonus Interests who then is a member of
either Board), and (ii) persons then holding a majority in interest of the
outstanding Bonus Interests; provided, however, that no amendment or early
termination will deprive the holder of any Bonus Interest, without his or her
consent, of any of his or her rights under this Bonus Plan and the Bonus
Interest Agreement to which he or she is a party.
SECTION 8. EFFECTIVE DATE OF THE BONUS PLAN
All of the conditions to the effectiveness of this Bonus Plan have been
satisfied, and this Bonus Plan became effective as of November 11, 1997.
SECTION 9. PAYMENTS IN RESPECT OF BONUS INTERESTS
No payments may be made with respect to any Bonus Interest until this Bonus
Plan has been approved by a majority of the shares of Common Stock of MGM, the
holders of which are present in person or by proxy at a meeting of
shareholders at which a quorum is present (or a majority of the outstanding
shares of Common Stock of MGM if approval is by written consent), provided
that the Bonus Plan and the Bonus Interests granted under this Bonus Plan will
be null and void if that approval is not received before December 31, 1998. If
any payments become due in respect of any Bonus Interests before shareholder
approval is received, those payments will be made (without interest) if, and
within 30 days after, shareholder approval is received, provided such approval
is received on or before December 31, 1998.
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SECTION 10. TERM
This Bonus Plan will terminate when no unexpired Bonus Interests remain
outstanding and no new Bonus Interests may be issued under this Bonus Plan.
METRO-GOLDWYN-MAYER INC.
/s/ A. Robert Pisano
By: _________________________________
A. Robert Pisano, Vice Chairman
METRO-GOLDWYN-MAYER STUDIOS INC.
/s/ A. Robert Pisano
By: _________________________________
A. Robert Pisano, Vice Chairman
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EXHIBIT A
TO THE SENIOR MANAGEMENT BONUS PLAN
FORM OF
METRO-GOLDWYN-MAYER INC.
AND
METRO-GOLDWYN-MAYER STUDIOS INC.
BONUS INTEREST AGREEMENT
PURSUANT TO THE
SENIOR MANAGEMENT BONUS PLAN
This Bonus Interest Agreement (this "Agreement") is entered into as of
November 6, 1997 by Metro-Goldwyn-Mayer Inc., a Delaware corporation formerly
known as P&F Acquisition Corp. ("MGM"), Metro-Goldwyn-Mayer Studios Inc., a
Delaware corporation formerly known as Metro-Goldwyn-Mayer Inc. ("Studios"
and, collectively with MGM, the "Company") and the person named below as
Participant.
THE BONUS INTERESTS REPRESENTED BY THIS AGREEMENT MAY BE SECURITIES. THE
BONUS INTERESTS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), OR REGISTERED OR QUALIFIED UNDER THE SECURITIES
LAWS OF ANY STATE, AND THEY MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF UNLESS REGISTERED UNDER THE ACT AND REGISTERED OR QUALIFIED
UNDER APPLICABLE STATE SECURITIES LAW OR THE COMPANY HAS RECEIVED AN
OPINION OF COUNSEL (WHICH COUNSEL AND OPINION SHALL BE SATISFACTORY TO THE
COMPANY'S COUNSEL) THAT REGISTRATION UNDER THE ACT AND REGISTRATION OR
QUALIFICATION UNDER APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.
1. Bonus Interests. Pursuant to the Company's Senior Management Bonus Plan
(the "Bonus Plan") and a Modification and Cancellation Agreement, dated as of
November 5, 1997, among MGM, Studios and Participant (the "Modification and
Cancellation Agreement"), Participant has been granted the number of Bonus
Interests (as defined in the Bonus Plan) set forth after Participant's
signature below, on the terms and conditions set forth in the Bonus Plan, the
Modification and Cancellation Agreement and this Agreement.
2. Certain Definitions. The definitions in Schedule 1 hereto of the
following terms are incorporated in, and used in, this Agreement: "Affiliate",
"Cause", "Common Shares", "Control", "Designated Change in Control", "Good
Reason", "Permanent Disability", "Seven" and "Tracinda". In addition, the
definitions set forth below in this Section 2 are also used in this Agreement.
"Amended and Restated Plan" means the Original Plan as it is amended and
restated as of the date of this Agreement.
"Date of Grant" means the first date under the Original Plan that
Participant was granted bonus interests under the Original Plan.
"Determination Date" means June 30 and December 31 of each year, commencing
December 31, 2001 and ending December 31, 2006. In addition, in the case of
the death of Participant (as to Participant only and if the date of death is
before December 31, 2001), the Permanent Disability of Participant (as to
Participant only and if the date of Permanent Disability is before December
31, 2001), the dissolution or liquidation of MGM or a Designated Change in
Control, a Determination Date will occur on the date of death or Permanent
Disability (as to Participant only), the later of the dates the Board of
Directors or stockholders of MGM takes any action authorizing the dissolution
or liquidation or the day before the Designated Change in Control,
respectively, in each case if on or prior to December 31, 2006. In addition,
if Participant ceases to be employed by at least one of MGM, Studios or any
subsidiary of MGM or Studios due to termination of his or her employment for
Cause or Participant's resignation from his or her employment without Good
Reason, a Determination Date will occur on the date that Participant so ceases
to be employed. The effect of this definition is that the only Determination
Dates for determining Bonus Amounts are those set forth in Sections 4(a)(ii)
and 5(a), (b), (c) and (d).
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"Majority in Interest" means, as of any date, the holders on that date of a
majority of the Bonus Interests then outstanding, whether or not vested.
"Original Plan" means the 1996 Management Stock Option and Bonus Plan of MGM
and Studios, before it was amended and restated to become the Amended and
Restated Plan.
"Permitted Transferee" means, with respect to Participant, (i) the
successors in interest to Participant upon the death or incompetence of
Participant and (ii) Participant's spouse; provided that, in respect of any
transfer by Participant to Participant's spouse during Participant's lifetime
pursuant to clause (ii) of this sentence, Participant must retain power to
make all decisions under this Agreement or otherwise with respect to the Bonus
Interests being transferred; and, provided, further, that prior written notice
of any the transfer has been given to MGM by Participant (except in the case
of the death of Participant) and that the Permitted Transferee agrees (in
advance of the transfer in any case other than the death of Participant), in a
written agreement reasonably satisfactory to MGM and Participant, to be bound
by the terms of this Agreement and the Amended and Restated Shareholders
Agreement dated as of August 4, 1997 among MGM, Studios, Seven, Tracinda and
certain employees of MGM or one or more of its subsidiaries. All references to
Participant in this Agreement will include Participant's Permitted Transferees
unless the context otherwise requires.
3. General Vesting Provisions. Except as otherwise provided in Section 4 of
this Agreement, the Bonus Interests that Participant has been granted as of
the date of this Agreement will vest or be vested as follows:
(a) if Section 3(a) is applicable to Participant (as set forth following
Participant's signature below), then on October 1, 1997 Participant became
vested with respect to 20% of his or her Bonus Interests and thereafter will
vest with respect to 1/60 of his or her Bonus Interests on the first day of
each month thereafter through and including October 1, 2001, except to the
extent the Bonus Interests are earlier terminated in whole or in part; or
(b) if Section 3(b) is applicable to Participant (as set forth following
Participant's signature below), then Participant will vest with respect to 20%
of his or her Bonus Interests on the first anniversary of the Date of Grant of
bonus interests to Participant under the Original Plan, as set forth following
Participant's signature below, and thereafter will vest with respect to 1/60
of his or her Bonus Interests on the first day of each month thereafter
through and including the fifth anniversary of that Date of Grant, except to
the extent the Bonus Interests are earlier terminated in whole or in part.
Except as provided in Section 4 hereof, vesting will cease at any time that
Participant ceases to be an employee of at least one of MGM, Studios or any
subsidiary of MGM or Studios.
4. Acceleration of Vesting of Bonus Interests.
(a) Termination of Employment.
(i) Death or Permanent Disability. If Participant ceases to be employed
by at least one of MGM, Studios or any subsidiary of MGM or Studios by
reason of his or her death or Permanent Disability, then (A) the portion of
his or her Bonus Interests that have not become vested on or prior to the
date of death or Permanent Disability will become fully vested on that date
and (B) Participant's Bonus Interests will be payable on the dates and
subject to the conditions provided in Sections 5 and 6 hereof.
(ii) Termination for Cause or Resignation without Good Reason. If
Participant ceases to be employed by at least one of MGM, Studios or any
subsidiary of MGM or Studios due to termination of his or her employment
for Cause or Participant's resignation from his or her employment without
Good Reason, then (A) the portion of his or her Bonus Interests that have
not become vested on or prior to the date of such termination or
resignation will terminate immediately without the payment of any
consideration to Participant, (B) a Determination Date with respect to the
portion of his or her Bonus Interests that have become vested on or prior
to the date of such termination or resignation will occur on the date that
Participant so ceases to be employed and (C) if the Fair Market Value per
Common Share as of that
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Determination Date is greater than $1,000 but less than $2,000, Participant
will be entitled to receive payment (without interest) on April 15, 2002
with respect to the portion of his or her Bonus Interests that are vested
on the date his or her employment so ceased, in an amount equal to (x) the
amount by which the Fair Market Value per Common Share as of such
Determination Date is less than $2,000 per share multiplied by (y) the
portion of the Bonus Interests that are vested on the date his or her
employment so ceased, expressed as a percentage. Except as expressly
provided in clause (C) of the immediately preceding sentence, Participant
will not be entitled to receive any payments in respect of the vested or
unvested portions of Participant's Bonus Interests on the date
Participant's employment so ceases due to termination of his or her
employment for Cause or Participant's resignation from his or her
employment without Good Reason.
(iii) Termination without Cause or Resignation with Good Reason. If
Participant ceases to be employed by at least one of MGM, Studios or any
subsidiary of MGM or Studios due to his or her termination without Cause or
his or her resignation from his or her employment for Good Reason, then
(A) the portion of his or her Bonus Interests that have not become vested
on or prior to the date of such termination or resignation will become
fully vested on the date of such termination and (B) Participant's Bonus
Interests will be payable on the dates and subject to the conditions
provided in Sections 5 and 6 hereof.
(b) Designated Change in Control. On the date of a Designated Change in
Control, (A) the portion of Participant's Bonus Interests that have not become
vested on or prior to the Designated Change in Control will become fully
vested and (B) Participant's Bonus Interests will be payable on the dates and
subject to the conditions provided in Sections 5 and 6 hereof. The Company
will, not later than 15 business days after the occurrence of any Designated
Change in Control, provide Participant with written notice outlining the
transaction and Designated Change in Control in reasonable detail and
describing the arrangements, if any, made or proposed to be made so that
prejudice to Participant is avoided in connection with the transaction and
Designated Change in Control.
(c) Dissolution or Liquidation. Upon the taking of any action by the Board
of Directors or stockholders of MGM to authorize the dissolution or
liquidation of MGM, whichever occurs later, but subject to the dissolution or
liquidation occurring, (A) the portion of Participant's Bonus Interests that
have not become vested will become fully vested, (B) Participant's Bonus
Interests will be payable on the date and subject to the conditions provided
in Sections 5 and 6 hereof and (C) Participant's Bonus Interests will
terminate upon the consummation of the dissolution or liquidation of MGM. MGM
will, no later than the earlier to occur of (x) 15 days after the date the
Board of Directors or stockholders of MGM authorizes the dissolution or
liquidation of MGM or (y) 15 business days prior to the consummation of any
dissolution or liquidation of MGM, provide Participant with written notice
outlining the transaction and the dissolution or liquidation in reasonable
detail and describing the arrangements, if any, made or proposed to be made so
that prejudice to the Participant is avoided in connection with the
dissolution or liquidation.
5. Determination of Bonus Amounts.
(a) Subject to Sections 5(e), 8 and 9 hereof and except as provided in
Sections 5(b), (c) and (d) hereof, on the first Determination Date, if any,
that the Fair Market Value per Common Share as of that Determination Date is
greater than $1,000 but less than $2,000, Participant will be paid, with
respect to each Bonus Interest held by the Participant, to the extent then
vested, an amount equal to (x) the amount by which the Fair Market Value per
Common Share as of that Determination Date is less than $2,000 per share
multiplied by (y) the portion of the Bonus Interest that is vested, expressed
as a percentage.
(b) Subject to the Sections 5(e), 8 and 9 hereof, if Participant dies or
becomes subject to a Permanent Disability before December 31, 2001,
Participant or Participant's estate will be paid, (i) if the Fair Market Value
per Common Share is greater than $1,000 but less than $2,000 as of the date of
death or Permanent Disability, the "Present Value" (determined as provided in
Section 5(f) hereof) of each full Bonus Interest held by
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Participant on the date of death or Permanent Disability (or a proportionate
amount for fractions of a Bonus Interest) or (ii) if no payment is due under
clause (i) because the Fair Market Value per Common Share is $1,000 or less as
of the date of death or Permanent Disability, the amount, if any, that is
payable for the Bonus Interests at any subsequent Determination Date.
(c) Subject to Sections 5(e), 8 and 9 hereof, if a Designated Change in
Control occurs before December 31, 2001, Participant will be paid, (i) if the
Fair Market Value per Common Share is greater than $1,000 but less than $2,000
as of the date of the Designated Change in Control, the "Present Value"
(determined as provided in Section 5(f) hereof) of each full Bonus Interest
held by Participant on the date of the Designated Change in Control (or a
proportionate amount for fractions of a Bonus Interest) or (ii) if no payment
is due under clause (i) because the Fair Market Value per share is $1,000 or
less as of the date of the Designated Change in Control, the amount, if any,
that is payable for those Bonus Interests at any subsequent Determination
Date.
(d) Subject to Sections 5(e), 8 and 9 hereof, if any action is taken by the
Board of Directors or stockholders of MGM to authorize the dissolution or
liquidation of MGM, Participant will be paid, if the Fair Market Value per
Common Share is greater than $1,000 but less than $2,000 on the date of
approval of the dissolution or liquidation by the Board of Directors or
stockholders of MGM, whichever occurs later, for each full Bonus Interest he
or she holds, the amount by which the Fair Market Value per Common Share on
that date is less than $2,000 (or proportionate amount for fractions of a
Bonus Interest), provided that no amount will be due under this Section 5(d)
if the dissolution or liquidation does not occur.
(e) Subject to Section 5(e)(v) below, but notwithstanding anything else to
the contrary in this Agreement, the following provisions govern Sections 5(a),
(b), (c) and (d) hereof:
(i) If a payment is made in respect of the vested portion of a Bonus
Interest in accordance with Sections 5(a), (b), (c) or (d) and Section 6,
no payment will thereafter be due, or any refund required, in respect of
that vested portion and that vested portion will be terminated upon the
payment being indefeasibly made, regardless of the Fair Market Value per
Common Share at any subsequent Determination Date;
(ii) If the Fair Market Value per share of Common Stock is $1,000 or less
at any Determination Date, Bonus Interests in respect of which a payment
may be made will continue to be eligible to receive payment, if the Fair
Market Value per share of Common Stock is greater than $1,000 but less than
$2,000 at any subsequent Determination Date;
(iii) If at any Determination Date the Fair Market Value per Common Share
is $2,000 or greater, no payment will then or thereafter be due in respect
of the vested portions of Bonus Interests outstanding on that Determination
Date and those vested portions will be terminated; and
(iv) The payments to be made to Participant will be made as provided in
Section 6 hereof;
(v) The provisions of this Section 5 shall not be applicable if Section
4(a)(ii) is applicable to Participant by reason of termination of his or
her employment for Cause or Participant's resignation from his or her
employment without Good Reason; and
(vi) No payments may be made with respect to any Bonus Interest until the
Bonus Plan has been approved by a majority of the shares of Common Stock of
MGM, the holders of which are present in person or by proxy at a meeting of
shareholders at which a quorum is present (or a majority of the outstanding
shares of Common Stock of MGM if approval is by written consent), provided
that the Bonus Plan and the Bonus Interests granted under this Bonus Plan
will be null and void if that approval is not received before December 31,
1998. If any payments become due in respect of the Bonus Interests before
shareholder approval is received, those payments will be made (without
interest) if, and within 30 days after, shareholder approval is received;
provided such approval is received on or before December 31, 1998.
(f) The "Present Value" of an amount payable prior to April 15, 2002 for
each full Bonus Interest pursuant to Sections 5(b) and 5(c) will be the amount
(a proportionate amount for fractions of a Bonus Interest) that, if invested
at the "Prime Rate" (defined below) on the date of death, Permanent Disability
or Designated Change
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in Control, as the case may be, would yield on April 15, 2002 an amount equal
to the amount by which the Fair Market Value per Common Share on the date of
death, Permanent Disability or Designated Change in Control, as applicable,
was less than $2,000.
"Prime Rate" as used in the immediately preceding sentence means the rate
published by Morgan Guaranty Trust Company of New York (or, if applicable, its
successor or, if a Prime Rate would not be so determinable, the then largest
United States state or national bank in terms of assets) as its prime
commercial lending rate seven days before the date of death, Permanent
Disability or Designated Change in Control, as applicable.
(g) The Bonus Interests hereunder are intended to qualify as "performance-
based compensation" under Section 162(m) of the Internal Revenue Code of 1986,
as amended, and the regulations thereunder.
6. Payments for Bonus Interests.
(a) Except as provided in Sections 6(b), (c), (d) or (e) hereof, payments
due with respect to Bonus Interests are to be made, if the Determination Date
is a December 31 or June 30, not later than five business days after the
latest to occur of (i) the April 15 next following a Determination Date that
is a December 31 or the October 15 next following a Determination Date that is
June 30 or (ii) final determination of the Fair Market Value per Common Share
at the Determination Date in question.
(b) Payments due, as determined in Section 5(b) hereof, with respect to the
Bonus Interests of Participant who has died or become subject to a Permanent
Disability are to be made not later than five business days after final
determination of the Fair Market Value per Common Share at the Determination
Date in question.
(c) Payments due, as determined in Section 5(c)(A) hereof, with respect to
Participant's Bonus Interests in the event of a Designated Change in Control
are to be made not later than five business days after final determination of
the Fair Market Value per Common Share at the Determination Date for the
Designated Change in Control.
(d) Payments due, if any, as determined in Section 5(d) hereof, with respect
to Participant's Bonus Interests in the event of the taking of any action by
the Board of Directors or stockholders of MGM to authorize the dissolution or
liquidation of MGM are to be made by the earliest to occur of the date and
time of (x) any distributions in connection with the dissolution or
liquidation made to any creditors or holders of equity securities of MGM, (y)
the dissolution or (z) the liquidation.
(e) Any payments due, as determined in Section 4(a)(ii) hereof, with respect
to Bonus Interests of Participant following his or her termination of
employment for Cause or his or her resignation without Good Reason, are to be
made on April 15, 2002.
(f) All payments due under this Section 6 are to be made by delivery to
Participant, within the time period required, of a bank or cashier's check
made payable to Participant for the full amount due.
(g) The obligation to make payments due under this Section 6 are the joint
and several obligations of MGM and Studios.
(h) Payments in respect of Bonus Interests will be due and payable only at
the times specified in this Section 6 and in the amounts determined pursuant
to Section 5 hereof or Section 4(a)(ii) hereof, as applicable.
(i) No payment will be made with respect to a Bonus Interest unless the
Bonus Plan Committee provided for under the Bonus Plan (the "Bonus Plan
Committee") certifies that the performance goal condition to payment (the
"Condition") has been satisfied. The Condition is solely that set forth in
Section 5 of this Agreement with respect to the Fair Market Value per Common
Share as of the Determination Date in question. The members of the Bonus Plan
Committee must timely make the certification required for payments pursuant to
the Bonus Interests, if the Condition to the payment in question is met.
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7. Fair Market Value. "Fair Market Value", with respect to a Common Share as
of any Determination Date, means an amount equal to:
(i) the sum of (x) the average of the closing prices per Common Share, if
traded on a national securities exchange, on the 20 business days
immediately preceding the Determination Date, as reported in The Wall
Street Journal, Western Edition plus (y) if applicable, the Minimum Amount
of Distributions per Common Share since the date of this Agreement, if any;
(ii) if the Common Shares were not traded on a national securities
exchange during each of the 20 business days immediately preceding the
Determination Date, the sum of (x) the average of the average of the high
bid and low asked prices per Common Share on each of the 20 business days
immediately preceding the Determination Date in the over-the-counter
market, as reported by NASDAQ or, if applicable, other system then in use
plus (y) if applicable, the Minimum Amount of Distributions per Common
Share since the date of this Agreement, if any; provided that, if the
Common Shares were traded on a national securities exchange for a portion
of the 20-business day period referred to in clause (i) and for the balance
of the 20-business day period on NASDAQ or other system referred to in
clause (ii), then the closing prices determined for each business day in
question in clause (i) and the average of the high bid and asked prices for
each business day in question in clause (ii) will be utilized for each of
the 20 business days in question, as applicable, and the prices so used for
the 20 business days will be averaged; or
(iii) if the Common Shares were not traded on a national securities
exchange or in the over-the-counter market on those immediately preceding
20 business days, the Fair Market Value per Common Share will be equal to
the sum of (x) the amount determined in good faith by the Boards of
Directors of each of MGM and Studios (excluding from the deliberations any
holder of Bonus Interests who is then a member of the Board of Directors of
MGM or Studios), as more fully described below in this Section 6, as being
the Fair Market Value per Common Share exclusive of Distributions per
Common Share since the date of this Agreement plus (y) if applicable, the
Minimum Amount of Distributions per Common Share since the date of this
Agreement, if any.
As used above in this definition of "Fair Market Value," "Minimum Amount"
means the least amount (and only that amount) of "Distributions per Common
Share" (as defined below), if any, that, when added to the amount determined
in clause (x) of the foregoing subparagraphs (i), (ii) or (iii) of this
Section 7, as applicable, causes the "Fair Market Value" with respect to a
Common Share to exceed $1,000 per Common Share by the minimum amount necessary
for payment to be due on a Bonus Interest, in respect of which no payment
would otherwise be due. By way of illustration, if (a) the amount per Common
Share determined pursuant to clause (x) of the foregoing subparagraphs (i),
(ii) or (iii) of this Section 7, as applicable, is $23, (b) by virtue of the
antidilution adjustment provided for in Section 8 of this Agreement, the Fair
Market Value at which payments would then be due on the Bonus Interests is any
amount in excess of $24 and less than $48 per Common Share and (c)
"Distributions per Common Share" (defined below) are then $4 per Common Share,
then (d) the Minimum Amount of Distributions per Common Share would be $1.01
(i.e., $23 + $1.01 = $24.01).
As used above in this definition of "Fair Market Value," (1) "Distributions
per Common Share" means the sum of (A) the per Common Share cash dividends and
per Common Share fair market value of other property paid as dividends and
distributions (except distributions of Common Shares or rights to purchase
Common Shares and "ordinary" cash dividends made by MGM out of the cumulative
consolidated net income of MGM and its consolidated subsidiaries earned from
continuing operations subsequent to September 30, 1997) made by MGM after the
date of this Agreement on or in respect of its Common Shares plus (B) the
amount obtained by dividing (w) the cash and fair market value of other
property paid by MGM or any of its subsidiaries for any repurchase or
redemption of Common Shares owned by Tracinda or Seven (or their respective
successors and assigns) by (x) the number of Common Shares outstanding
immediately after giving effect to such repurchase or redemption plus (C) the
amount obtained by dividing (y) the excess, if any, of the cash and fair
market value of other property paid by MGM or any of its subsidiaries for any
repurchase or redemption of Common Shares (other than a repurchase or
redemption of Common Shares owned by Tracinda or Seven (or their respective
successors or assigns)) over the market price of such Common Shares on the
date of such repurchase or
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redemption (the "Premium") by (z) the number of Common Shares outstanding
immediately after giving effect to such repurchase or redemption, provided
that dividends and distributions on securities other than Common Shares, to
the extent in excess of market rates, and amounts (whether in cash, other
property or a combination of both) paid to acquire such securities or provided
as liquidation or similar preferences thereon, in each case in excess of the
amount paid therefor plus unpaid dividends at not in excess of market rates,
will be treated as distributions on the Common Shares for the purposes of
clause (1)(A) of this sentence and, provided, further, that the fair market
value of all non-cash amounts distributed or paid, the determination of
whether a cash dividend constitutes an "ordinary" cash dividend and the
determination as to the existence and amount of any Premium each, as referred
to above in this sentence, will be determined in good faith by the Boards of
Directors of MGM and Studios (excluding from the deliberations any holder of
Bonus Interests who is then a member of the Board of Directors of MGM or
Studios), and (2) "business day" means a day when the national securities
exchange or over-the-counter market in question, as applicable, is open for
trading. Notwithstanding the foregoing provisions of this definition, if the
Fair Market Value of the Common Shares is to be determined pursuant to clause
(iii) at any time on or before the earlier to occur of the initial public
offering of MGM or December 30, 1997 (other than in connection with a
Designated Change in Control), the Fair Market Value of a Common Share will be
$1,000.
Each determination of the Fair Market Value pursuant to either clauses (i)
or (ii) of this definition of "Fair Market Value" must be in the form of a
certificate of the Boards of Directors of each of MGM and Studios, duly
executed by a member of each Board of Directors (other than any member thereof
who holds Bonus Interests) setting forth in reasonable detail the
determination. Each determination of Fair Market Value pursuant to clause
(iii) of this definition or of the value of non-cash distributions and
payments per Common Share must be made by a nationally recognized independent
investment banking firm or other valuation firm mutually acceptable to each of
the Boards of Directors of MGM and Studios and a Majority in Interest (a
"Third Party Appraiser"). If the Boards of Directors of MGM and Studios and a
Majority in Interest fail to mutually agree on a Third Party Appraiser with
respect to the determination of Fair Market Value (including with respect to
the value of non-cash distributions and payments per Common Share) as of any
Determination Date within 20 days after that Determination Date, the Boards of
Directors of MGM and Studios or any holder of Bonus Interests may request the
American Arbitration Association, in accordance with its then-established
procedures, to promptly appoint a Third Party Appraiser, provided that the
Third Party Appraiser appointed must not have (x) any direct or indirect
beneficial ownership of any equity interests in the Company or any of its
Affiliates or (y) received, during the two years preceding the Determination
Date, fees, underwriting discounts, commissions or other compensation from the
Company and its Affiliates aggregating more than $2,000,000.
In determining Fair Market Value, there shall not be taken into account any
(a) premiums for control, (b) discounts for minority interests, (c)
restrictions on transfer or other similar limitations imposed by applicable
law, (d) agreement to which the holder of any Common Shares is subject or (e)
discounts for any vesting schedules pertaining thereto. In determining Fair
Market Value of any Common Shares pursuant to clause (iii) of this definition
of "Fair Market Value," each outstanding option to acquire securities to be
issued by MGM or Studios will be deemed to have been exercised and the
exercise price thereof to have been received by the Company, if the Fair
Market Value on the relevant Determination Date would thereby be increased.
The Third Party Appraiser will be instructed to complete its determination
of the Fair Market Value of the Common Shares by no later than 30 days after
its appointment. Within 30 days after completion of the determination, either
the Company or a Majority in Interest may challenge the determination of the
Third Party Appraiser by delivery of notice to the Company, in the case of an
objection by a Majority in Interest, or to Participant and each other holder
of Bonus Interests, in the case of an objection by the Company. If the Company
and a Majority in Interest are unable to resolve the objections to the
determination within 20 days after the date of delivery of the objection
notice, the dispute will be resolved by arbitration pursuant to Section 16 of
this Agreement. If no objection to the determination is made within the 30-day
period, however, the determination of the Third Party Appraiser will be
conclusive and binding on the Company, Participant and all other holders of
Bonus Interests. The fees and expenses of the Third Party Appraiser will be
borne by the Company.
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In connection with any determination of Fair Market Value of Common Shares
pursuant to clause (iii) of this definition of "Fair Market Value," the
Company will furnish to the Third Party Appraiser a consolidated balance sheet
of MGM and its subsidiaries as at the most recent December 31 and consolidated
statements of operations and stockholders' equity (deficit) and consolidated
statements of cash flow of MGM and its subsidiaries for the fiscal year ended
on that December 31, setting forth comparisons to the previous fiscal year,
all in reasonable detail and accompanied by an opinion thereon of independent
public accountants of national standing. That opinion may not be qualified as
to scope and must state that (A) the financial statements were prepared in
accordance with generally accepted accounting principles applied on a basis
consistent with that of the previous fiscal year except to the extent stated
or referred to in the opinion, (B) the financial statements fairly present in
all material respects the consolidated financial condition, consolidated
results of operations and consolidated cash flows of MGM and its subsidiaries
as of the dates thereof and for the periods covered thereby and (C) the
examination by the accountants in connection with the financial statements was
made in accordance with generally accepted auditing standards. In addition, if
the Determination Date in question falls during the period from May 15 of any
year through and including December 30 of that year, the Company must furnish
to the Third Party Appraiser MGM's most recent unaudited consolidated quarter-
end balance sheet and statement of operations and statement of cash flows for
the period commencing on the first day of the year in question through the
quarter end in question, along with comparative unaudited data for the
preceding year. The Company will use its best efforts to cause the financial
statements and opinion of independent public accountants to be delivered
within the time periods specified above. If any of them nevertheless cannot be
timely delivered, the Company will cause them to be delivered as soon as
reasonably practicable and the time in which the Third Party Appraiser is
required to complete its determination will be extended by a reasonable amount
of time, up to the number of days of delay in such timely delivery.
In connection with any determination of Fair Market Value of Common Shares
by a Third Party Appraiser, the Company will also permit (and cause each of
its subsidiaries to permit) the Third Party Appraiser or its advisors to visit
and inspect any of the properties of the Company or any of its subsidiaries,
including its books of account (and to make copies thereof and to take
extracts therefrom), and to discuss its affairs, finances and accounts with
its officers or employees, all at such reasonable times and as often as may be
reasonably requested. Prior to providing any information that is confidential
or access to the books, records and properties of the Company or any of its
subsidiaries, persons to whom the information or access is to be furnished
must execute and deliver to the Company, upon the request of MGM, a
Confidentiality Agreement in a form reasonably approved by the Bonus Plan
Committee.
A copy of each determination of Fair Market Value by a Third Party Appraiser
will be delivered to Participant promptly (and in any event not later than
five days) after the determination is completed by the Third Party Appraiser.
The determination must be accompanied by a valuation report prepared by the
Third Party Appraiser with respect to the Common Shares and a certified
resolution of the Boards of Directors of each of MGM and Studios (in the form
of a certificate duly executed by a director of each of MGM and Studios (other
than any director who holds Bonus Interests)) setting forth the determination
by the Board of Fair Market Value. Each certification pertaining to a
Determination Date that is a December 31 Determination Date must be
accompanied by a letter from the accountants rendering the opinion referred to
in this definition of "Fair Market Value" for the fiscal year in question to
the effect that, in connection with their review and audit of the financial
statements of the Company and its consolidated subsidiaries for that fiscal
year, they have reviewed the calculations of the Boards of Directors of each
of MGM and Studios referred to in this definition and are in agreement with
each of the calculations and amounts referred to in that certificate. Those
calculations will then be conclusive and binding on Participant.
8. Antidilution Adjustments; Certain Acquisition Transactions.
(a) If MGM
(i) pays a dividend or makes a distribution on its Common Shares in
shares of its Common Shares;
(ii) subdivides its outstanding shares of Common Shares into a greater
number of shares;
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(iii) combines its outstanding shares of Common Shares into a smaller
number of shares; or
(iv) issues by reclassification of its Common Shares any shares of its
capital stock;
then the number of Bonus Interests set forth after Participant's signature
hereto and the $1,000 and $2,000 amounts in Section 5 hereof and the $1,000
amount in Section 7 hereof or, if those amounts have then been adjusted
pursuant to this Section 8, the then amounts shall be appropriately adjusted.
By way of illustration, if a Participant was initially granted 10,000 Bonus
Interests and the $1,000 and $2,000 amounts have not then been adjusted
pursuant to this Section 8, 10,000 Bonus Interests and the $1,000 and $2,000
amounts would become, if the Company (i) paid a dividend per Common Share of
one-tenth of a Common Share, 11,000 Bonus Interests, $909.09 and $1,818.18,
respectively, (ii) subdivides each of its outstanding Common Shares into 1.3
Common Shares, 13,000 Bonus Interests, $769.23 and $1,538.46, respectively,
(iii) combined its outstanding Common Shares into 75% of the number of Common
Shares outstanding before the combination, 7,500 Bonus Interests, $1,333.33
and $2,666.67, respectively, or (iv) reclassified its Common Shares so that
each of its Common Shares becomes 1.5 Class A Common Shares, 15,000 Bonus
Interests and $666.67 and $1,333.33 per Class A Common Share, respectively.
The adjustment shall become effective immediately after the record date in
the case of a dividend or distribution and immediately after the effective
date in the case of a subdivision, combination or reclassification.
If in a reclassification a holder of Common Shares receives shares of two or
more classes of capital stock of the Company, appropriate adjustments shall be
made in Section 5.
(b) If MGM is acquired by another person, however the acquisition is
structured, or consolidates with another person, and in either case the
holders of Common Shares of MGM receive equity securities of the acquiring
person or its parent or Affiliate or, in the case of a consolidation, receive
equity securities of the consolidated person, (i) appropriate adjustments
shall be made in the definition of Common Shares and in the $1,000 and $2,000
amounts in Section 5 hereof and the $1,000 amount in Section 7 hereof, as they
may have then been adjusted pursuant to this Section 8. By way of
illustration, if MGM is acquired by NewCo Inc. ("NewCo") and each Common Share
becomes, as part of the transaction, two shares of Common Stock of NewCo plus
the right to receive $500, then the number of Bonus Interests then outstanding
under this Agreement shall be multiplied by two, each Common Share will be
deemed to be two shares of Common Stock of NewCo, the $1,000 and $2,000
amounts, if not previously adjusted pursuant to this Section 8, will be deemed
to be $500 and $1,000 and, for the purposes of determining Fair Market Value
pursuant to Section 7, the acquisition transaction will be deemed to have
resulted in a distribution per one share of NewCo Common Stock of $250.
9. Payment of Withholding Taxes. If the Company becomes obligated to
withhold an amount on account of any tax imposed as a result of the exercise
of the payments on Bonus Interests pursuant to Section 6 hereof including,
without limitation, any federal, state, local or other income tax, or any
F.I.C.A., state disability insurance tax or other employment tax (each a
"Withholding Liability"), the Company is authorized to withhold from the
payments on the Bonus Interests all Withholding Liability relating to the
payment. Participant agrees that the withholding, and payment of any such
amounts by MGM (or Studios or a subsidiary of MGM or Studios) to the relevant
taxing authority will constitute full satisfaction of the obligation of any of
them to pay such compensation or other amounts to Participant. Participant
will indemnify the Company and hold it harmless from and against any federal,
state or local withholding tax liability (including interest and penalties)
that results from the payments in respect of Bonus Interests to Participant,
except to the extent that (i) any such penalties result from the failure of
the Company to make a good faith determination of the amounts to withhold from
Participant or (ii) any such liabilities, interest or penalties result from
the failure of the Company to pay over to the relevant taxing authorities any
sums withheld from, or paid to the Company by, Participant to satisfy any
Withholding Liability.
10. Notices. All notices and other communications required or permitted to
be given pursuant to this Agreement must be in writing and will be deemed
given if delivered personally or five days after mailing by certified or
registered mail, postage prepaid, return receipt requested, to either MGM or
Studios at
B-12
<PAGE>
2500 Broadway Street, Santa Monica, CA 90404, Attention: Chief Executive and
Financial Officers, or to Participant at the address set forth beneath his or
her signature on the signature page hereto, or at such other addresses as MGM
and Studios, on the one hand, or Participant, on the other, may designate by
written notice, complying with this Section 10, to the other.
11. Nontransferability. No Bonus Interest or any interest therein may be
sold, assigned, conveyed, gifted, pledged, hypothecated or otherwise
transferred in any manner other than to a Permitted Transferee.
12. Bonus Plan. The Bonus Interests are granted pursuant to, and subject to
the terms and conditions of, the Bonus Plan, as it may be amended from time to
time in accordance with its terms, and the Modification and Cancellation
Agreement. Until all amounts payable in respect of Participant's Bonus
Interests are paid, the Company will, upon written request, send a copy of the
Bonus Plan, in its then-current form, to Participant or any other person or
entity then entitled to receive payments in respect of Participant's Bonus
Interests.
13. No Stockholder Rights. The Bonus Interests are not considered to be
equity securities of MGM or Studios and will not have any rights to vote or
receive dividends. The joint and several obligations of MGM and Studios to
make payments in respect of Bonus Interests is intended to be and constitute
general unsecured credit obligations of MGM and Studios.
14. No Employment Rights. Subject to the provisions of any written
employment agreement between Participant and MGM, Studios or a subsidiary of
either, neither any provision of the Bonus Plan or this Agreement nor the
holding of the Bonus Interests (a) confers upon Participant any right to
continue in the employ of the Company or any of its subsidiaries, (b) affects
the right of the Company and each of its subsidiaries to terminate the
employment of Participant, with or without Cause and for any reason or without
reason, or (c) confers on Participant any right to participate in any employee
welfare or benefit plan or other program of the Company or any of its
subsidiaries other than the Bonus Plan. PARTICIPANT ACKNOWLEDGES AND AGREES
THAT, SUBJECT TO ANY WRITTEN EMPLOYMENT AGREEMENT BETWEEN PARTICIPANT AND ANY
OF MGM, STUDIOS OR A SUBSIDIARY OF MGM OR STUDIOS, MGM, STUDIOS AND EACH OF
THEIR SUBSIDIARIES MAY TERMINATE THE EMPLOYMENT OF PARTICIPANT AT ANY TIME (X)
WITH OR WITHOUT CAUSE AND (Y) FOR ANY REASON OR FOR NO REASON.
15. Termination of Bonus Interests. Bonus Interests will terminate (a) as
provided in Section 4(a)(ii), (b) to the extent no payment or further payment
may thereafter be made in respect of the Bonus Interests and (c) if no payment
is otherwise then due on the Bonus Interests, upon the earlier to occur of (x)
the liquidation, dissolution and winding up of MGM, except as provided in
Section 8, or (y) May 15, 2007.
16. Arbitration of Disputes.
(a) The Fair Market Value of any Common Share (including the value of any
non-cash distributions and payments per Common Share) will be determined as
provided in Section 7.
(b) Except as provided in Sections 7 and 16(a) hereof, all disputes between
Participant 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 provision) will be settled only
by an arbitration (x) conducted in accordance with the then rules of the
American Arbitration Association or any similar successor body and (y) held in
Los Angeles, California.
(c) The arbitration will be held before a single arbitrator mutually agreed
to by the parties to the arbitration, except that, if the parties fail to
agree to an arbitrator within 20 days from the date on which the claimant's
request for arbitration is delivered to the other party to the arbitration,
the arbitration shall be held before an arbitrator appointed by the American
Arbitration Association.
(d) Discovery will be available 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 Section.
B-13
<PAGE>
(e) The award of the arbitrator will be made within 90 days from the date on
which the arbitrator is selected. The award of the arbitrator will be final
and, to the greatest extent allowed by law, the parties agree to waive their
right to any form of appeal. The arbitrator must award costs and fees,
including the fees of the arbitrator, to the prevailing party. Judgment on 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 one or more orders of enforcement.
17. Governing Law. Except to the extent provided in Section 16(d) hereof,
this Agreement and the Bonus Interests issued under this Agreement are
governed by and are to be construed and enforced in accordance with the
internal laws, and not the laws pertaining to choice or conflict of laws, of
the State of Delaware.
18. Severability; Successors. If any provision or portion of this Agreement
is illegal or unenforceable, the other portions of this Agreement will not be
affected by the illegality or unenforceability. This Agreement will be binding
on MGM, Studios and Participant and their respective successors and assigns,
however such succession or assignment is effected.
METRO-GOLDWYN-MAYER INC. PARTICIPANT
By: _________________________________ _____________________________________
Name: _______________________________ [Name of Participant], by ,
Title: ______________________________ "attorney-in-fact"(1)
METRO-GOLDWYN-MAYER STUDIOS INC.
_____________________________________
Street Address
By: _________________________________
Name: _______________________________ _____________________________________
City, State and Zip Code
Title: ______________________________
_____________________________________
Social Security Number
Number of Bonus Interests: _______(2)
Section 3(a) is applicable to
Participant. [Yes/No](3)
Section 3(b) is applicable to
Participant: [Yes/No](4)
and Participant's Date of Grant of
bonus interests under the Original
Plan was , 1997.(5)
- --------
(1) To be signed pursuant to the power of attorney provided for in Section 6
of Participant's Modification and Cancellation Agreement.
(2) This will be the number set forth in Section 11 of Participant's
Modification and Cancellation Agreement, before the Antidilution
Adjustment provided for in the Modification and Cancellation Agreement.
(3) Section 3(a) will be applicable to Participant if Participant was employed
by the Company on October 10, 1996 and the Date of Grant of bonus
interests to Participant under the Original Plan was before October 1,
1997.
(4) Section 3(b) will be applicable to Participant if Participant was not
employed by the Company on October 10, 1996 or if the Date of Grant of
bonus interests to Participant under the Original Plan was on or after
October 1, 1997.
(5) The Date of Grant that Participant was granted bonus interests under the
Original Plan will be filled in here.
B-14
<PAGE>
SCHEDULE 1 TO THE BONUS INTEREST AGREEMENT
CERTAIN DEFINITIONS
AFFILIATE
"Affiliate" means any person that, directly or indirectly, through one or
more intermediaries, controls, is controlled by, or is under a common control
with, MGM.
CAUSE
"Cause" means (i) the failure of Participant to substantially perform his or
her duties with MGM or any subsidiary of MGM (other than any such failure
resulting from illness, temporary absence, authorized vacation, legal
incapacity or disability), which failure continues 30 days after a demand for
substantial performance is delivered in writing to Participant by the Board of
Directors of the employing entity or MGM (the "Board"), which specifically
identifies the manner in which Participant has not substantially performed his
or her duties; (ii) Participant's failure to follow reasonable and lawful
directives (consistent with the terms of Participant's written employment
agreement with MGM (or, if applicable, employing subsidiary of MGM), if any,
and, if applicable, the Amended and Restated Investors Shareholder Agreement
dated as of August 4, 1997 among Seven, Tracinda, MGM, Studios and Frank G.
Mancuso) of the Board (or, if applicable, the Chief Executive Officer of the
employing entity (the "CEO")), which failure continues 30 days after a demand
for Participant to follow those directives is delivered in writing to
Participant by the Board (or, if applicable, the CEO) that specifically
identifies the manner in which Participant has not followed the directives;
(iii) the engaging by Participant in willful, reckless or grossly negligent
misconduct, in connection with his or her employment, unless Participant
ceases the misconduct within ten days, and remedies the adverse effect of the
misconduct within 30 days, in each case after a demand to cease engaging in
the misconduct is delivered in writing to Participant by the Board (or, if
applicable, the CEO) that specifically identifies the misconduct; (iv)
Participant's conviction of an offense involving moral turpitude or a felony
(provided that the first conviction of Participant, after his or her Date of
Grant, for driving under the influence of alcohol will not constitute
"Cause"); or (v) material breach by Participant of Participant's written
employment agreement, if any, with MGM (or, if applicable, employing
subsidiary of MGM) and failure to cure the breach within 30 days of delivery
of a written notice to Participant by the Board (or, if applicable, the CEO)
that specifically identifies the breach. If Participant's failure under clause
(i) or (ii) of the immediately preceding sentence or Participant's failure to
cease misconduct under clause (iii) of the immediately preceding sentence
would, if continued unabated for the period specified in that sentence, be
reasonably expected to cause MGM or Studios severe and irreparable harm, and
if the notice to Participant so specifies, the Board (or, if applicable, the
CEO) may shorten the period within which the failure must cease to a
reasonable period specified in the notice, but not less than ten days in the
case of clauses (i) and (ii) or five days in the case of clause (iii). If the
remedy, cure or cessation of an act or omission which is the subject of a
notice under this definition of "Cause" would reasonably require more than 30
days to complete and Participant commences the remedy, cure or cessation
within 30 days after receipt of the notice and diligently pursues the same to
completion, the act or omission will not constitute "Cause", unless the
remedy, cure or cessation is not completed within 60 days from the date of
notice from the Board (or, if applicable, the CEO). If any event, action or
failure to act specified in clauses (i) through (v) in the first sentence of
this definition occurs, the right of MGM to terminate Participant for Cause as
the result of the occurrence will continue for a period of 90 days after the
date of the occurrence (or, if notice thereof is required and is given within
such 90-day period, 60 days after the expiration of the cure period specified
therefor).
COMMON SHARES
"Common Shares" means the shares of common equity securities of MGM entitled
to vote generally in the election of directors or--if MGM is merged with and
into another entity, MGM consolidates with another entity, substantially all
of the assets of MGM are acquired by another entity or as a result of another
acquisition transaction MGM or substantially all of its assets become owned by
another entity--the common equity
B-15
<PAGE>
securities of the surviving entity entitled to vote generally in the election
of directors (or similar position persons) of the surviving entity.
CONTROL
"Control" means the possession, directly or indirectly, of the power to
direct or cause the direction of management or policies of MGM, whether
through ownership of voting securities or other equity interests, by contract
or otherwise, and the terms "controlled" and "common control" have correlative
meanings. Without limiting the generality of the foregoing, each of Tracinda
and Seven will be Affiliates of MGM so long as Tracinda or Seven, as the case
may be, beneficially owns 20% or more of the combined voting power of the then
outstanding voting securities of MGM entitled to vote generally in the
election of directors.
DESIGNATED CHANGE IN CONTROL
"Designated Change in Control" means occurrence or consummation of: (i) any
merger or consolidation of MGM with or into any other person, as the result of
which, immediately upon the completion of the transaction, Tracinda and Seven
beneficially own, in the aggregate, less than 50.1% of the combined voting
power of the then outstanding voting securities of the surviving person
entitled to vote, and any other person beneficially owns 30% or more of the
combined voting power of the then outstanding voting securities of the
surviving person entitled to vote, generally in the election of directors (or
similar position persons) of the surviving person; (ii) any sale, transfer or
other conveyance, whether direct or indirect, of all or substantially all of
the property and assets of MGM, on a consolidated basis, in one transaction or
a series of related transactions, provided that this clause (ii) will not
apply to any sale, transfer or other conveyance (x) to MGM or Studios by any
wholly-owned direct or indirect subsidiary of MGM or Studios, (y) by any
wholly-owned direct or indirect subsidiary of MGM or Studios to any other such
wholly-owned direct or indirect subsidiary of MGM or Studios or (z) by MGM or
Studios to one or more wholly-owned direct or indirect subsidiaries of MGM or
Studios; or (iii) any transaction or event that results in Tracinda and Seven
ceasing, in the aggregate, to beneficially own 50.1% or more of the combined
voting power of the then outstanding voting securities of MGM entitled to vote
generally in the election of directors and any other person beneficially
owning 30% or more of the combined voting power of the then outstanding voting
securities of MGM entitled to vote generally in the election of directors. As
used in this definition of "Designated Change in Control", (a) the term
"person" has the meaning given to that term under Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), whether
or not the Exchange Act is applicable to MGM, and (b) the terms "beneficial
owner" and "beneficially own" have the meanings given to them in Rule 13d-3
under the Exchange Act, whether or not the Exchange Act is applicable to MGM.
Notwithstanding the foregoing provisions of this definition, a Designated
Change in Control will not occur under clauses (i) or (iii) of the first
sentence of this definition if the acquirer, purchaser or 50.1% owner is an
employee benefit plan (or related trust) sponsored or maintained by MGM or any
person controlled by MGM.
GOOD REASON
"Good Reason" means: (i) a substantial and adverse change in Participant's
status or position with MGM and its subsidiaries as it existed on the Date of
Grant which is not cured within 30 days after written notice thereof to MGM
from Participant; (ii) a reduction (other than for Cause) by MGM of
Participant's compensation that was in effect on the Date of Grant or that was
in effect thereafter, if such compensation has been increased, unless the
reduction is eliminated retroactively not later than 30 days after written
notice thereof to MGM from Participant; (iii) if Participant does not have a
written employment agreement with MGM or any of its subsidiaries, a material
reduction by MGM and its subsidiaries in the overall benefits provided to
Participant, that were provided on the Date of Grant or were provided
thereafter if the benefits have been increased (as used in this definition,
"benefits" includes all profit-sharing, retirement, pension, health, medical,
dental, disability insurance, automobile and similar benefits), unless the
reduction is eliminated retroactively not later than 30 days after written
notice thereof to MGM from Participant; (iv) a relocation of the Participant's
principal place of employment to any place outside the greater Los Angeles
area, except for reasonable amounts of required travel
B-16
<PAGE>
by Participant on business on behalf of MGM or any of its subsidiaries; (v)
any material breach by MGM of any provision of the Amended and Restated Plan,
the agreement with Participant under the Amended and Restated Plan, the Bonus
Plan, this Agreement or Participant's employment agreement, if any, with MGM
or a subsidiary of MGM which adversely affects Participant and which is not
cured within 30 days after written notice thereof to MGM from Participant; or
(vi) the occurrence of a Designated Change in Control. If any event, action or
failure to act specified in clauses (i) through (vi) of the immediately
preceding sentence occurs, the right of Participant to terminate his or her
employment for "Good Reason" as the result of the occurrence will continue for
a period of 90 days after the date of the occurrence (or, if notice thereof is
required and is given within such 90-day period, 60 days after the expiration
of the cure period specified therefor).
PERMANENT DISABILITY
"Permanent Disability" has the meaning given to that term in Participant's
employment agreement with MGM or any of its subsidiaries or, if not so defined
or if Participant does not have an employment agreement with MGM or a
subsidiary of MGM, "Permanent Disability" means the inability of Participant
to perform, after reasonable accommodations by MGM or such subsidiary, the
essential functions of his or her duties and obligations as an employee of MGM
or such subsidiary by reason of any medically determinable physical or mental
impairment that can reasonably be expected to result in death within 12 months
or which has lasted or can be expected to last for a continuous period of not
less than 12 months.
Participant will be deemed to have a Permanent Disability at such time as a
licensed physician (the "Participant Physician"), who has examined
Participant, certifies to MGM that Participant has a Permanent Disability (as
defined above), unless within 20 days of receipt of the Participant
Physician's certification, MGM objects to the determination, in which case
Participant will be deemed to not have a Permanent Disability unless he or she
is subsequently determined to have a Permanent Disability pursuant to the
procedures set forth below. If MGM objects to the determination of the
Participant Physician then (x) concurrently with stating its objection, MGM
will select a second licensed physician (the "Company Physician") to
independently examine Participant, (y) to have a Permanent Disability under
this Agreement, Participant must submit to that examination, within 20 days of
the date on which MGM notifies Participant of its objection, and (z) MGM will
instruct the Company Physician to report to MGM and Participant, not later
than ten days after the examination, his or her conclusion regarding whether
Participant has a Permanent Disability. If the Company Physician determines
that Participant has a Permanent Disability, then Participant will be deemed
to have a Permanent Disability as of the time of the Participant Physician's
original certification to MGM. If the Participant Physician and the Company
Physician disagree in their conclusions, MGM and Participant will mutually
select, within 20 days of receipt of the report of the Company Physician, a
third licensed physician (the "Third Physician") to independently examine
Participant, and, to have a Permanent Disability under this Agreement,
Participant must submit to that examination, within 20 days of the date on
which MGM and Participant select the Third Physician. The conclusion of the
Third Physician shall be rendered within ten days of his or her examination
and will be binding upon MGM and Participant. MGM will bear the cost of the
Third Physician. If the Third Physician determines that Participant has a
Permanent Disability, then Participant will be deemed to have a Permanent
Disability as of the time of the Participant Physician's original
certification to MGM.
SEVEN
"Seven" means Seven Network Limited, a corporation organized under the laws
of the Commonwealth of Australia.
TRACINDA
"Tracinda" means Tracinda Corporation, a Nevada corporation.
B-17
<PAGE>
METRO-GOLDWYN-MAYER INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
MAY 12, 1998
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints MICHAEL G. CORRIGAN, DAVID G. JOHNSON and
WILLIAM A. JONES, and each of them, Proxies, with full power of substitution,
to represent and vote all shares of the common stock, $.01 par value per
share, which the undersigned would be entitled to vote if personally present
at the Annual Meeting of Stockholders of Metro-Goldwyn-Mayer Inc. to be held
at The Beverly Hilton, 9876 Wilshire Boulevard, Beverly Hills, California on
May 12, 1998, at 10:00 a.m., and at any adjournments thereof, upon any and all
matters which may properly be brought before said meeting or any adjournments
thereof. The undersigned hereby revokes any and all proxies heretofore given
with respect to such meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1, 2, 3, AND 4.
(Continued and to be SIGNED on the other side)
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
METRO-GOLDWYN-MAYER INC.
ANNUAL MEETING OF STOCKHOLDERS
TUESDAY, MAY 12, 1998
10:00 A.M.
THE BEVERLY HILTON
9876 WILSHIRE BOULEVARD
BEVERLY HILLS, CALIFORNIA
ADMISSION TICKET
This ticket must be presented at the door for entrance to the meeting.
<PAGE>
- --------------------------------------------------------------------------------
Please mark your votes as
indicated in this example [X]
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED STOCKHOLDER. UNLESS OTHERWISE DIRECTED, OR IF NO DIRECTION
IS GIVEN, THIS PROXY WILL BE VOTED FOR ALL OF THE NOMINEES IN PROPOSAL 1, FOR
EACH OF THE OTHER PROPOSALS AND IN ACCORDANCE WITH THE BEST JUDGMENT OF THE
PROXY HOLDERS OR ANY OF THEM ON ANY OTHER MATTERS WHICH MAY PROPERLY COME
BEFORE THE MEETING OR ANY ADJOURNMENT OR POSTPONEMENT THEREOF.
1. Election of Directors
FOR all nominees named
(except as marked to
the contrary) [_]
Withhold Authority for
all nominees named [_]
Names of Nominees: James D. Aljian, Francis Ford Coppola, Michael R. Gleason,
Kirk Kerkorian, Frank G. Mancuso, A. Robert Pisano, Kerry M. Stokes, Alex
Yemenidjian, Jerome B. York.
(INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name on the following line.)
_______________________________________________________________________________
2. Approval of 1998 Non-Employee Director Stock Plan
FOR [_] AGAINST [_] ABSTAIN [_]
3. Approval of Senior Management Bonus Plan
FOR [_] AGAINST [_] ABSTAIN [_]
4. Ratification of the selection of independent auditors
FOR [_] AGAINST [_] ABSTAIN [_]
I PLAN TO ATTEND THE MEETING [_]
Dated:___________________________________ , 1998
________________________________________________
Signature
________________________________________________
Signature if held jointly
Please sign your name exactly as it appears hereon. In the case of joint
owners, each should sign. If signing as executor, trustee, guardian or in any
other representative capacity or as an officer of a corporation, please
indicate your full title as such.
- --------------------------------------------------------------------------------
<PAGE>
ADMISSION TICKET
ANNUAL MEETING
OF
METRO-GOLDWYN-MAYER INC.
TUESDAY, MAY 12, 1998
10:00 A.M.
THE BEVERLY HILTON
9876 WILSHIRE BOULEVARD
BEVERLY HILLS, CALIFORNIA
================================================================================
AGENDA
1. To elect a Board of Directors.
2. To consider and act upon the proposed 1998 Non-Employee Director
Stock Plan.
3. To consider and act upon the approval and ratification of the Senior
Management Bonus Plan.
4. To consider and act upon the ratification of the selection of Arthur
Andersen LLP as independent auditors of Metro-Goldwyn-Mayer Inc. for
the fiscal year ending December 31, 1998.
5. To transact such other business as may properly come before the
meeting or any adjournments thereof.
================================================================================
