<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
----------------
For the Quarterly Period Ended September 30, 1999
Commission File No. 0-13481
METRO-GOLDWYN-MAYER INC.
(Exact name of registrant as specified in its charter)
----------------
<TABLE>
<S> <C>
Delaware 95-4605850
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2500 Broadway Street, Santa Monica, CA 90404
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (310) 449-3000
----------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. [X] Yes [_] No
The number of shares of the Registrant's common stock outstanding as of
October 20, 1999 was 151,593,460.
<PAGE>
METRO-GOLDWYN-MAYER INC. AND SUBSIDIARIES
FORM 10-Q
September 30, 1999
INDEX
<TABLE>
<CAPTION>
Page
No.
----
<C> <S> <C>
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of September 30, 1999
(unaudited) and December 31, 1998.............................. 1
Condensed Consolidated Statements of Operations and
Comprehensive Income (Loss) for the Quarters and Nine Months
ended September 30, 1999 and 1998 (unaudited).................. 2
Condensed Consolidated Statements of Stockholders' Equity for
the Nine Months ended September 30, 1999 (unaudited)........... 3
Condensed Consolidated Statements of Cash Flows for the Nine
Months ended September 30, 1999 and 1998 (unaudited)........... 4
Notes to Condensed Consolidated Financial Statements............ 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.......................................... 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk...... 22
Part II. Other Information
Item 1. Legal Proceedings............................................... 23
Item 4. Submission of Matters to a Vote of Security Holders............. 23
Item 5. Other Information............................................... 25
Item 6. Exhibits and Reports on Form 8-K................................ 25
Signatures................................................................ 26
</TABLE>
i
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
METRO-GOLDWYN-MAYER INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
(unaudited)
<S> <C> <C>
ASSETS
------
Cash and cash equivalents........................... $ 10,455 $ 54,839
Accounts and contracts receivable (net of allowance
for doubtful accounts of $22,255 and $23,220,
respectively)...................................... 446,033 365,067
Film and television costs, net...................... 2,190,391 2,076,663
Investments and advances to affiliates.............. 11,604 17,674
Property and equipment, net......................... 39,566 38,636
Excess of cost over net assets of acquired
businesses, net.................................... 549,857 561,026
Other assets........................................ 44,571 45,073
---------- ----------
$3,292,477 $3,158,978
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Liabilities:
Bank and other debt............................... $1,316,951 $ 715,574
Accounts payable and accrued liabilities.......... 189,294 100,377
Accrued participants' share....................... 233,872 232,515
Income taxes payable.............................. 31,563 34,869
Advances and deferred revenues.................... 114,587 130,664
Other liabilities................................. 23,233 25,322
---------- ----------
Total liabilities............................... 1,909,500 1,239,321
---------- ----------
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value, 500,000,000 shares
authorized, 151,452,286 and 150,856,424 shares
issued........................................... 1,515 1,509
Additional paid-in capital........................ 2,213,714 2,203,490
Deficit........................................... (831,680) (285,596)
Accumulated other comprehensive income............ 364 254
Less: treasury stock, at cost, 63,991 shares...... (936) --
---------- ----------
Stockholders' equity............................ 1,382,977 1,919,657
---------- ----------
$3,292,477 $3,158,978
========== ==========
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements
are an integral part of these statements.
1
<PAGE>
METRO-GOLDWYN-MAYER INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME (LOSS)
(in thousands, except share data)
(unaudited)
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
1999 1998 1999 1998
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Revenues.................... $ 299,310 $ 259,622 $ 770,227 $ 857,283
Expenses:
Film and television
production and
distribution.............. 242,449 241,096 869,219 812,876
General and administrative
expenses.................. 18,800 19,063 67,928 69,714
Severance and related
costs..................... -- 13,182 76,158 13,182
Contract termination fee... -- -- 225,000 --
Goodwill amortization...... 3,683 3,683 11,170 10,605
----------- ---------- ----------- ----------
Total expenses............ 264,932 277,024 1,249,475 906,377
----------- ---------- ----------- ----------
Operating income (loss)..... 34,378 (17,402) (479,248) (49,094)
Other income (expense):
Interest expense, net of
amounts capitalized....... (22,807) (22,022) (64,045) (60,450)
Interest and other income,
net....................... 827 249 3,345 1,994
----------- ---------- ----------- ----------
Total other expense....... (21,980) (21,773) (60,700) (58,456)
----------- ---------- ----------- ----------
Income (loss) from
operations before provision
for income taxes........... 12,398 (39,175) (539,948) (107,550)
Income tax provision........ (2,054) (1,096) (6,136) (6,358)
----------- ---------- ----------- ----------
Net income (loss)........... 10,344 (40,271) (546,084) (113,908)
Foreign currency translation
adjustment................. 106 (846) 110 (930)
----------- ---------- ----------- ----------
Comprehensive income
(loss)..................... $ 10,450 $ (41,117) $ (545,974) $ (114,838)
=========== ========== =========== ==========
Basic and diluted loss per
share...................... $ 0.07 $ (0.61) $ (3.61) $ (1.73)
=========== ========== =========== ==========
Weighted average number of
common shares outstanding..
Basic...................... 151,314,519 65,807,819 151,070,095 65,790,173
=========== ========== =========== ==========
Diluted.................... 154,730,092 65,807,819 151,070,095 65,790,173
=========== ========== =========== ==========
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements
are an integral part of these statements.
2
<PAGE>
METRO-GOLDWYN-MAYER INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, except share data)
(unaudited)
<TABLE>
<CAPTION>
Common Stock
------------------ Add'l Accum. Other Less: Total
No. of Par Paid-in Comprehensive Treasury Stockholders'
Shares Value Capital Deficit Income Stock Equity
----------- ------ ---------- --------- ------------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance December 31,
1998................... 150,856,424 $1,509 $2,203,490 $(285,596) $254 $ -- $1,919,657
Acquisition of treasury
stock, at cost......... -- -- -- -- -- (2,040) (2,040)
Issuance of common
stock.................. 595,862 6 8,859 -- -- 1,104 9,969
Amortization of deferred
stock compensation..... -- -- 1,365 -- -- -- 1,365
Foreign currency
translation
adjustment............. -- -- -- -- 110 -- 110
Net loss................ -- -- -- (546,084) -- -- (546,084)
----------- ------ ---------- --------- ---- ------- ----------
Balance September 30,
1999................... 151,452,286 $1,515 $2,213,714 $(831,680) $364 $ (936) $1,382,977
=========== ====== ========== ========= ==== ======= ==========
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements
are an integral part of these statements.
3
<PAGE>
METRO-GOLDWYN-MAYER INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------
1999 1998
--------- ---------
<S> <C> <C>
Net cash provided by operating activities............... $ 81,453 $ 317,922
--------- ---------
Investing activities:
Acquisition of PFE Libraries........................... (236,201) --
Additions to film costs, net........................... (477,502) (665,033)
Additions to property and equipment.................... (7,274) (9,542)
Other investing activities............................. (4,595) (15,183)
--------- ---------
Net cash used in investing activities.................. (725,572) (689,758)
--------- ---------
Financing activities:
Additions to borrowed funds............................ 864,172 424,580
Repayments of borrowed funds........................... (263,833) (49,076)
--------- ---------
Net cash provided by financing activities.............. 600,339 375,504
--------- ---------
Net change in cash and cash equivalents from operating,
investing and financing activities..................... (43,780) 3,668
Net decrease in cash due to foreign currency
fluctuations........................................... (604) (599)
--------- ---------
Net change in cash and cash equivalents................. (44,384) 3,069
Cash and cash equivalents at beginning of the period.... 54,839 3,978
--------- ---------
Cash and cash equivalents at end of the period.......... $ 10,455 $ 7,047
========= =========
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements
are an integral part of these statements.
4
<PAGE>
METRO-GOLDWYN-MAYER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
Note 1--Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
include the accounts of Metro-Goldwyn-Mayer Inc. ("MGM"), Metro-Goldwyn-Mayer
Studios Inc. and its majority owned subsidiaries ("MGM Studios") and Orion
Pictures Corporation and its majority owned subsidiaries ("Orion")
(collectively, the "Company"). MGM is a Delaware corporation formed on July
10, 1996 specifically to acquire MGM Studios, and is majority owned by an
investor group comprised of Tracinda Corporation and a corporation that is
principally owned by Tracinda (collectively, "Tracinda") and certain former
executive officers of the Company. The acquisition of MGM Studios by MGM was
completed on October 10, 1996, at which time MGM commenced principal
operations. The acquisition of Orion was completed on July 10, 1997. The
Company completed the acquisition of certain film libraries and film related
rights that were previously owned by PolyGram N.V. and its subsidiaries
("PolyGram") on January 7, 1999.
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial statements and the instructions to Form 10-Q related to
interim period financial statements. Accordingly, these condensed consolidated
financial statements do not include certain information and footnotes required
by generally accepted accounting principles for complete financial statements.
However, the accompanying unaudited condensed consolidated financial
statements contain all adjustments consisting only of normal recurring
accruals which, in the opinion of management, are necessary in order to make
the financial statements not misleading. The results of operations for interim
periods are not necessarily indicative of the results to be expected for the
full year. The Company's condensed consolidated financial statements should be
read in conjunction with the Company's audited financial statements and notes
thereto included in the Company's Form 10-K for the year ended December 31,
1998. As permitted by Statement of Financial Accounting Standards ("SFAS") No.
53, "Financial Reporting by Producers and Distributors of Motion Pictures,"
the Company has presented unclassified condensed consolidated balance sheets.
Note 2--Restructuring and Other Charges
In the quarter ended June 30, 1999, the Company incurred certain
restructuring and other charges, in association with a change in senior
management and a corresponding review of the Company's operations, aggregating
$225.2 million, including (i) a $140.0 million reserve for write-downs and
certain other charges regarding a re-evaluation of film properties in various
stages of development and production, which has been included as a charge in
film and television production and distribution expenses, and (ii) $85.2
million of severance and other related costs, of which $9.0 million has been
classified in general and administrative expenses, as well as the estimated
costs of withdrawing from the Company's arrangements with United International
Pictures B.V. ("UIP").
In the quarter ended September 30, 1999, due to the strong performance of
certain of the Company's film releases in the period, the Company recovered
$18.8 million of feature film write-downs previously charged in the quarter
ended June 30, 1999.
Note 3--WHV Contract Settlement
On March 12, 1999, the Company agreed to accelerate the expiration of the
right of Warner Home Video ("WHV") to distribute the Company's product in the
home video marketplace under the agreement executed in 1990 (the "WHV
Agreement"). In consideration for the early expiration of the WHV Agreement,
the Company paid WHV $225 million, of which $112.5 million was paid on March
12, 1999 and the remaining $112.5 million, plus interest, was paid on
September 1, 1999. The parties restructured the terms of the WHV Agreement,
which
5
<PAGE>
METRO-GOLDWYN-MAYER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
will function as an interim distribution agreement (the "Transitional Video
Agreement"), under which WHV will distribute certain of the Company's product
in the home video marketplace while the Company establishes its own domestic
home video distribution network. The Transitional Video Agreement expires on
January 31, 2000. Additionally, the Company reconveyed to Turner Entertainment
Co., Inc. ("Turner"), an affiliate of WHV, the right that the Company had to
distribute in the home video markets worldwide until June 2001, 2,950 Turner
titles that had been serviced under the WHV Agreement. The Company recorded a
pre-tax contract termination charge in the nine months ended September 30,
1999 for $225 million for costs in connection with the early expiration of
WHV's rights under the WHV Agreement.
Note 4--Film and Television Costs
Film and television costs, net of amortization, are summarized as follows
(in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
<S> <C> <C>
Theatrical productions:
Released......................................... $ 2,728,924 $2,116,007
Less: accumulated amortization................... (1,113,127) (750,008)
----------- ----------
Released, net.................................... 1,615,797 1,365,999
Completed not released, net...................... 9,041 98,654
In process and development, net.................. 252,366 283,242
----------- ----------
Subtotal: theatrical productions................ 1,877,204 1,747,895
----------- ----------
Television programming............................ 675,357 567,138
Less: accumulated amortization................... (362,170) (238,370)
----------- ----------
Subtotal: television programming................ 313,187 328,768
----------- ----------
$ 2,190,391 $2,076,663
=========== ==========
</TABLE>
On January 7, 1999, the Company acquired certain film libraries and film
related rights (the "PFE Libraries") containing over 1,300 feature films that
were previously owned by PolyGram for $235 million (the "PFE Library
Acquisition"), plus acquisition related costs of approximately $1.2 million.
The Company funded the PFE Library Acquisition through an advance on the
Revolving Facility (as defined in Note 5) and utilization of cash on hand.
Interest costs capitalized to theatrical productions were $5,699,000 and
$15,637,000 during the quarter and nine months ended September 30, 1999, and
$5,004,000 and $12,321,000 during the quarter and nine months ended September
30, 1998, respectively.
Note 5--Bank and Other Debt
Bank and other debt is summarized as follows (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
<S> <C> <C>
Bridge Loan Facility............................ $ 250,000 $ --
Revolving Facility.............................. 354,000 --
Term Loans...................................... 700,000 700,000
Capitalized lease obligations and other
borrowings..................................... 12,951 15,574
---------- --------
$1,316,951 $715,574
========== ========
</TABLE>
6
<PAGE>
METRO-GOLDWYN-MAYER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
On May 14, 1999, the Company entered into an agreement with one of its
principal lenders that provided the Company with a $250 million bridge loan
facility (the "Bridge Loan Facility"). Advances under the Bridge Loan Facility
bear interest at 1.75 percent over the Adjusted LIBOR rate (7.13 percent at
September 30, 1999). Interest is payable quarterly and amounts borrowed under
the Bridge Loan Facility are due on the earlier of maturity, July 15, 2006, or
any debt or equity issuance completed by the Company.
On October 15, 1997, the Company entered into an amended and restated credit
facility with a syndicate of banks aggregating $1.3 billion (the "Amended
Credit Facility") consisting of a six year $600 million revolving credit
facility (the "Revolving Facility"), a $400 million seven and one-half year
term loan ("Tranche A Loan") and a $300 million eight and one-half year term
loan ("Tranche B Loan") (collectively, the "Term Loans"). The Amended Credit
Facility contains provisions allowing, with the consent of the requisite
lenders and subject to syndication thereof, for an additional $200 million
tranche, raising the potential amount of Amended Credit Facility to $1.5
billion. The Revolving Facility and the Tranche A Loan bear interest at 2.50
percent over the Adjusted LIBOR rate, as defined (8.00 percent at September
30, 1999). The Tranche B Loan bears interest at 2.75 percent over the Adjusted
LIBOR rate, as defined (8.25 percent at September 30, 1999). Scheduled
amortization of the Term Loans under the Amended Credit Facility commences
with $33 million in 2001, $73 million in 2002, $103 million in 2003, $103
million in 2004 and $103 million in 2005, with the remaining balance due at
maturity. The Revolving Facility matures in October 2003, subject to extension
under certain conditions.
The Company has entered into three year fixed interest rate swap contracts
in relation to a portion of the Amended Credit Facility for a notional value
of $800 million at an average rate of approximately 7.50 percent, which expire
in various terms no later than December 2001.
The Company's borrowings under the Amended Credit Facility are secured by
substantially all the assets of the Company. The Amended Credit Facility
contains various covenants including limitations on dividends, capital
expenditures and indebtedness, and the maintenance of certain financial
ratios. In connection with the $225 million charge in the nine months ended
September 30, 1999 that resulted from the early termination of the WHV
Agreement, the Company and its lenders amended the Amended Credit Facility,
effective April 30, 1999. As of September 30, 1999, the Company was in
compliance with all such covenants.
Note 6--Stockholders' Equity
Dilutive securities of 994,615 shares are not included in the calculation of
diluted earnings per share in the nine months ended September 30, 1999, and
1,570,784 and 2,335,626 shares are not included in the quarter and nine months
ended September 30, 1998, respectively, because they are antidilutive.
On July 13, 1999, the following measures, among others, were approved at the
Company's annual meeting of stockholders: (i) an amendment to the Company's
Amended and Restated Certificate of Incorporation to increase the total number
of shares of the Company's common stock authorized from 250,000,000 to
500,000,000, (ii) the repricing of stock options of the Company granted
pursuant to the Amended and Restated 1996 Stock Incentive Plan, (iii) an
increase in the aggregate number of shares of the common stock of the Company
issuable under the Amended and Restated 1996 Stock Incentive Plan, (iv) an
amendment to the Bonus Interest Agreements entered into pursuant to the Senior
Management Bonus Plan, and (v) the issuance of options to purchase shares of
the common stock of the Company to Alex Yemenidjian, Chairman of the Board of
Directors and Chief Executive Officer of the Company, and to Christopher J.
McGurk, Vice Chairman and Chief Operating Officer of the Company.
7
<PAGE>
METRO-GOLDWYN-MAYER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 7--Segment Information
The Company's business units have been aggregated into three reportable
operating segments: feature films, television programming and other. The
factors for determining the reportable segments were based on the distinct
nature of their operations. They are managed as separate business units
because each requires and is responsible for executing a unique business
strategy. Earnings of industry segments and geographic areas exclude interest
income, interest expense, goodwill amortization, income taxes and other
unallocated corporate expenses. Identifiable assets are those assets used in
the operations of the segments. Corporate assets consist of cash, certain
corporate receivables and intangibles.
Summarized financial information concerning the Company's reportable
segments is shown in the following tables (in thousands):
<TABLE>
<CAPTION>
Feature Television
Quarter Ended September 30: Films Programs Other Total
--------------------------- --------- ---------- ------- --------
<S> <C> <C> <C> <C>
1999:
Revenues............................ $ 205,758 $ 86,183 $ 7,369 $299,310
Segment income...................... $ 33,766 $ 20,786 $ 2,309 $ 56,861
1998:
Revenues............................ $ 205,764 $ 44,850 $ 9,008 $259,622
Segment income (loss)............... $ 9,809 $ 9,805 $(1,088) $ 18,526
Nine Months Ended September 30:
-------------------------------
1999:
Revenues............................ $ 553,766 $179,201 $37,260 $770,227
Segment income (loss)............... $(143,507) $ 28,839 $15,676 $(98,992)
1998:
Revenues............................ $ 677,061 $150,689 $29,533 $857,283
Segment income (loss)................$..29,113 $ 18,021 $(2,727) $ 44,407
</TABLE>
The following is a reconciliation of the change in reportable segment
assets:
<TABLE>
<CAPTION>
December 31, Increase September 30,
1998 (Decrease) 1999
------------ --------- -------------
<S> <C> <C> <C>
Feature films......................... $2,096,092 $166,896 $2,262,988
Television programs................... 400,646 31,510 432,156
Other................................. 19,718 (6,088) 13,630
---------- -------- ----------
Total reportable segment assets..... $2,516,456 $192,318 $2,708,774
========== ======== ==========
</TABLE>
The following table presents the details of other operating segment income
(loss):
<TABLE>
<CAPTION>
Nine Months
Quarter Ended Ended
Sept. 30, Sept. 30,
---------------- ----------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Licensing and merchandising............. $ 1,434 $ 170 $ 3,476 $ (340)
Interactive media....................... 668 (511) (399) (9,068)
Music................................... 610 199 4,328 2,105
Losses on equity investments............ (1,479) (1,501) (6,417) (7,270)
Other................................... 1,076 555 14,688 11,846
------- ------- ------- -------
$ 2,309 $(1,088) $15,676 $(2,727)
======= ======= ======= =======
</TABLE>
8
<PAGE>
METRO-GOLDWYN-MAYER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following is a reconciliation of reportable segment income to income
(loss) before provision for income taxes:
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
Sept. 30, Sept. 30,
------------------ --------------------
1999 1998 1999 1998
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
Segment income (loss)............. $ 56,861 $ 18,526 $ (98,992) $ 44,407
General and administrative
expenses......................... (18,800) (19,063) (67,928) (69,714)
Severance and related costs....... -- (13,182) (76,158) (13,182)
Contract termination fee.......... -- -- (225,000) --
Goodwill amortization............. (3,683) (3,683) (11,170) (10,605)
-------- -------- --------- ---------
Operating income (loss)......... 34,378 (17,402) (479,248) (49,094)
Interest expense, net of amounts
capitalized...................... (22,807) (22,022) (64,045) (60,450)
Interest and other income, net.... 827 249 3,345 1,994
-------- -------- --------- ---------
Income (loss) before provision
for income taxes.............. $ 12,398 $(39,175) $(539,948) $(107,550)
======== ======== ========= =========
</TABLE>
The following is a reconciliation of reportable segment assets to
consolidated total assets:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
<S> <C> <C>
Total assets for reportable segments.............. $2,708,774 $2,516,456
Goodwill not allocated to segments................ 549,857 561,026
Other unallocated amounts......................... 33,846 81,496
---------- ----------
Consolidated total assets......................... $3,292,477 $3,158,978
========== ==========
</TABLE>
Note 8--Commitments and Contingencies
The Company, together with other major companies in the filmed entertainment
industry, has been subject to numerous antitrust suits brought by various
motion picture exhibitors, producers and others. In addition, various legal
proceedings involving alleged breaches of contract, antitrust violations,
copyright infringement and other claims are now pending, which the Company
considers routine to its business activities.
In the opinion of Company management, any liability under pending litigation
is not expected to be material in relation to the Company's financial
condition or results of operations.
Note 9--Supplementary Cash Flow Information
The Company paid interest, net of capitalized interest, of $51,364,000 and
$46,857,000 during the nine months ended September 30, 1999 and 1998,
respectively. The Company paid income taxes of $9,304,000 and $5,912,000
during the nine months ended September 30, 1999 and 1998, respectively.
Net cash provided by operating activities for the nine months ended
September 30, 1999 reflects a $225 million payment to WHV representing the
consideration paid by the Company for the early expiration of the WHV
Agreement (see Note 3).
During the nine months ended September 30, 1999 and 1998, the Company
contributed 76,362 and 50,642 shares of common stock valued at $1,119,000 and
$1,047,000, respectively, to the Company's 401(k) Savings Plan. In the nine
months ended September 30, 1999, the Company also contributed 3,394 shares of
common stock valued at $57,000 to non-employee directors of the Company.
9
<PAGE>
METRO-GOLDWYN-MAYER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 10--Subsequent Event
On October 15, 1999 (the "Record Date"), the Company issued to its
stockholders of record of the common stock, at no charge to such holders,
transferable subscription rights (the "Rights") to subscribe for an aggregate
of 49,721,268 shares (the "Shares") of the common stock for $14.50 per share
(the "Subscription Price") (the "Rights Offering"). The total gross proceeds
expected to be received by the Company from the Rights Offering are
approximately $721.0 million. The Rights expire on November 8, 1999 (the
"Expiration Date"), unless extended by the Company. Holders of the common
stock received 0.328 Rights for each share of the common stock held as of the
Record Date. Rights holders may purchase one share of the common stock at the
Subscription Price for each whole Right held (the "Basic Subscription
Privilege"). Rights holders who exercise their Rights in full will also have
the opportunity to purchase additional Shares at the Subscription Price
pursuant to an oversubscription privilege, as defined in the Company's
Prospectus Supplement dated October 15, 1999.
Tracinda has committed to exercise the Basic Subscription Privilege with
respect to all of the Rights held by it immediately prior to the expiration of
the Rights Offering (subject to certain conditions). Additionally, Tracinda
will also purchase, at the Subscription Price, all Shares that are not
otherwise subscribed for by the Expiration Date.
10
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
This report includes forward-looking statements. Generally, the words
"believes," "anticipates," "may," "will," "should," "expect," "intend,"
"estimate," "continue," and similar expressions or the negative thereof or
comparable terminology are intended to identify forward-looking statements.
Such statements are subject to certain risks and uncertainties, including the
matters set forth in this report or other reports or documents the Company
files with the Securities and Exchange Commission from time to time, which
could cause actual results or outcomes to differ materially from those
projected. Undue reliance should not be placed on these forward-looking
statements which speak only as of the date hereof. The Company undertakes no
obligation to update these forward-looking statements.
The following discussion and analysis should be read in conjunction with the
Company's Condensed Consolidated Financial Statements and the related Notes
thereto and other financial information contained elsewhere in this Form 10-Q.
General
The Company is engaged primarily in the development, production and
worldwide distribution of theatrical motion pictures and television
programming.
The commercial potential of individual motion pictures and television
programming varies dramatically, and is not directly correlated with
production or acquisition costs. Therefore, it is difficult to predict or
project a trend of the Company's income or loss. However, the likelihood of
the Company reporting losses, particularly in the year of a motion picture's
release, is increased by the industry's method of accounting which requires
the immediate recognition of the entire loss (through increased amortization)
in instances where it is estimated the ultimate revenues of a motion picture
or television program will not recover the Company's costs. On the other hand,
the profit of a profitable motion picture or television program must be
deferred and recognized over the entire revenue stream generated by that
motion picture or television program. This method of accounting may also
result in significant fluctuations in reported income or loss, particularly on
a quarterly basis, depending on the Company's release schedule and the
relative performance of individual motion pictures or television programs. For
films released by the Company since January 1994 which resulted in feature
film write-downs in the period of initial release, subsequent performance as
it relates to this group of films has not resulted in additional material
write-downs.
In October 1998, the Financial Accounting Standards Board issued an Exposure
Draft on a proposed Statement of Position (the "Proposed SOP") for "Accounting
By Producers and Distributors of Films." If adopted, the Proposed SOP would
establish new accounting and reporting standards for all producers and
distributors that own or hold the rights to distribute or exploit films. The
Proposed SOP provides that the cumulative effect of changes in accounting
principles caused by adoption of the provisions of the Proposed SOP should be
included in the determination of net income in conformity with Accounting
Principles Board Opinion No. 20, "Accounting Changes." The Company is not able
to quantify the effect, or the materiality, to the Company of adoption of the
Proposed SOP at this time. If adopted, the Proposed SOP, as currently drafted,
would be effective for financial statements for fiscal years beginning after
December 15, 1999, with earlier adoption encouraged.
11
<PAGE>
Results of Operations
Quarters and Nine Months Ended September 30, 1999 and 1998
The following table sets forth the Company's operating results for the
quarters and nine months ended September 30, 1999 and 1998. As stated in the
financial statements and related notes thereto, in the quarter ended June 30,
1999 the Company incurred certain restructuring and other charges aggregating
$225.2 million related to changes in senior management, a corresponding review
of the Company's operations and film projects in various stages of development
and production, and other related costs. In the quarter ended September 30,
1999, due to the strong performance of certain of the films in release in the
period (see below), the Company recovered $18.8 million of feature film write-
downs previously charged in the quarter ended June 30, 1999. Additionally, in
March 1999 the Company accelerated the expiration of the WHV Agreement, which
resulted in a $225 million charge included in operating results for the nine
months ended September 30, 1999. The net operating results in the nine months
ended September 30, 1999, therefore, are not comparable to the operating
results in the corresponding period of 1998.
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
Sept. 30, Sept. 30,
------------------ --------------------
1999 1998 1999 1998
-------- -------- --------- ---------
In thousands (unaudited)
<S> <C> <C> <C> <C>
Revenues:
Feature films...................... $205,758 $205,764 $ 553,766 $ 677,061
Television programs................ 86,183 44,850 179,201 150,689
Other.............................. 7,369 9,008 37,260 29,533
-------- -------- --------- ---------
Total revenues.................... $299,310 $259,622 $ 770,227 $ 857,283
======== ======== ========= =========
Operating income (loss):
Feature films...................... $ 33,766 $ 9,809 $(143,507) $ 29,113
Television programs................ 20,786 9,805 28,839 18,021
Other.............................. 2,309 (1,088) 15,676 (2,727)
General and administration
expenses.......................... (18,800) (19,063) (67,928) (69,714)
Severance and related costs........ -- (13,182) (76,158) (13,182)
Contract termination fee........... -- -- (225,000) --
Goodwill amortization.............. (3,683) (3,683) (11,170) (10,605)
-------- -------- --------- ---------
Operating income (loss)............. 34,378 (17,402) (479,248) (49,094)
Interest expense, net of amounts
capitalized........................ (22,807) (22,022) (64,045) (60,450)
Interest and other income........... 827 249 3,345 1,994
-------- -------- --------- ---------
Income (loss) before provision for
income taxes....................... 12,398 (39,175) (539,948) (107,550)
Income tax provision................ (2,054) (1,096) (6,136) (6,358)
-------- -------- --------- ---------
Net income (loss)................... $ 10,344 $(40,271) $(546,084) $(113,908)
======== ======== ========= =========
</TABLE>
Quarters Ended September 30, 1999 and 1998
Feature Films. Feature film revenues were $205.8 million in each of the
quarters ended September 30, 1999 (the "1999 Quarter") and September 30, 1998
(the "1998 Quarter").
Worldwide theatrical revenues increased by $35.7 million, or 115 percent, to
$66.7 million in the 1999 Quarter as compared to the 1998 Quarter. In the 1999
Quarter, the Company realized higher revenues from the successful releases of
The Thomas Crown Affair in worldwide theatrical markets and Stigmata and Tea
With Mussolini in the domestic marketplace, than the releases of Ronin and
Disturbing Behavior in the domestic marketplace and Species 2 in international
markets in the 1998 Quarter. The Company also released The Rage: Carrie 2 and
The Mod Squad in international theatrical markets in the 1999 Quarter.
Overall, in the 1999 Quarter the Company released three new films domestically
and internationally, as compared to the release of two new films domestically
and one internationally in the 1998 Quarter.
12
<PAGE>
Worldwide home video revenues decreased by $34.2 million, or 36 percent, to
$60.0 million in the 1999 Quarter as compared to the 1998 Quarter. The 1999
Quarter included the release in the domestic rental market of The Mod Squad,
as compared to the release of The Man In The Iron Mask in the 1998 Quarter
which generated higher home video sales. International market releases in the
1999 Quarter included Ronin and Species 2, as compared to the release of the
more successful film Tomorrow Never Dies in the 1998 Quarter. Additionally,
due to the early expiration of the WHV Agreement, effective January 1, 1999,
the Company no longer receives revenue from the distribution of film product
owned by Turner. In the 1998 Quarter, the Company generated $11.4 million in
gross revenues from its distribution of the Turner product. Partially
offsetting the aforementioned home video revenues decreases were increased
library digital video disc sales, which aggregated $11.4 million in the 1999
Quarter as compared to $6.7 million in the 1998 Quarter.
Worldwide pay television revenues from feature films increased by $20.9
million, or 99 percent, to $42.1 million in the 1999 Quarter as compared to
the 1998 Quarter. In the 1999 Quarter, the Company benefited from the release
in the domestic pay television marketplace of Ronin and Disturbing Behavior,
which carried higher license fees than the release of Hoodlum and Ulee's Gold
in the 1998 Quarter. Additionally, in the 1999 Quarter the Company realized
significant pay television revenues from international markets for Tomorrow
Never Dies. There were no comparable performing films in the 1998 Quarter.
Network television revenues from feature films decreased by $21.2 million, or
88 percent, to $3.0 million in the 1999 Quarter, principally due to a lower
license fee earned from the delivery to network television of Larger Than Life
in the 1999 Quarter than the license fees for GoldenEye, Get Shorty and
Leaving Las Vegas, which were delivered in the 1998 Quarter. Worldwide
syndicated television revenues from feature films decreased by $4.6 million,
or 14 percent, to $29.1 million in the 1999 Quarter, principally due to the
release of fewer films in international markets than in the 1998 Quarter,
which included Species and GoldenEye, among others.
Other feature film revenues increased $3.2 million in the 1999 Quarter due
to increased third party royalties and other miscellaneous income collected
than in the 1998 Quarter.
Operating income from feature films increased by $24.0 million, or 244
percent, to $33.8 million in the 1999 Quarter as compared to the 1998 Quarter.
Operating results in the 1999 Quarter reflected profits from the favorable
theatrical performances of The Thomas Crown Affair, Stigmata and Tea With
Mussolini, as well as a recovery of feature film write-downs of $18.8 million
previously charged in the quarter ended June 30, 1999, as compared to
additional reserves for write-downs of $15.4 million in the 1998 Quarter.
Television Programming. Television programming revenues increased by $41.3
million, or 92 percent, to $86.2 million in the 1999 Quarter as compared to
the 1998 Quarter. Worldwide syndicated television programming revenues
increased by $32.8 million, or 88 percent, to $70.0 million in the 1999
Quarter, primarily due to domestic basic cable sales for the series Outer
Limits, Poltergeist and In The Heat Of The Night and the syndication of the
new series National Enquirer. Additionally, pay television revenues increased
by $8.4 million, or 146 percent, to $14.1 million in the 1999 Quarter due to
consideration received by the Company for the termination of certain
contractual commitments. The Company may generate lower pay television
revenues in future periods due to a reduction in the number of production
commitments for television series.
Operating income from television programming increased by $11.0 million, or
112 percent, to $20.8 million in the 1999 Quarter as compared to the 1998
Quarter. The increase in television programming operating results reflected
the favorable basic cable and pay television revenues discussed above.
Other. Other revenues include distribution of consumer products, interactive
media and branded programming services, all of which constitute emerging
businesses for MGM Studios with relatively limited current operations, as well
as music soundtrack and royalty income and audit recoveries by the Company
from third parties. Operating income from other businesses increased to $2.3
million in the 1999 Quarter from a loss of $1.1 million in the 1998 Quarter.
Operating results in the 1999 Quarter include consumer products revenue of
$3.3 million and music soundtrack and royalty revenue of $1.2 million, as
compared to consumer products revenue of $2.1 million and music soundtrack and
royalty revenue of $0.7 million in the 1998 Quarter. Interactive
13
<PAGE>
media revenues were $1.9 million in the 1999 Quarter as compared to $5.4
million in the 1998 Quarter, which included the release of the interactive
game WarGames. The Company had no comparable interactive games released in the
1999 Quarter.
Expenses for other businesses in the 1999 Quarter include interactive
product and development costs of $1.1 million as compared to interactive costs
of $5.8 million in the 1998 Quarter, principally related to the release of
WarGames. Consumer products cost of sales were $1.3 million in the 1999
Quarter as compared to $1.6 million in the 1998 Quarter. In addition, in the
1999 Quarter and the 1998 Quarter operating expenses for other businesses
included aggregate losses of $1.5 million in each period on the Company's
equity investments, including its interest in the Company's newly launched
cable programming joint venture, MGM Networks Latin America.
General and Administration Expenses. General and administration expenses
decreased by $0.3 million, or 1 percent, to $18.8 million in the 1999 Quarter
as compared to the 1998 Quarter, primarily due to certain cost savings
associated with corporate restructuring programs initiated in the second
quarter of 1999 and the third quarter of 1998, partially offset by increased
litigation costs.
Interest Expense, Net of Amounts Capitalized. Net interest expense increased
by $0.8 million, or 4 percent, to $22.8 million in the 1999 Quarter as
compared to the 1998 Quarter. Interest expense increased due to additional
borrowings for operating and production activities, as well as the financing
of the PFE Library Acquisition in January 1999 and the WHV Agreement
termination settlement payments, partially offset by debt repayment associated
with proceeds received from the Company's rights offering completed in
November 1998.
Income Tax Provision. The income tax provision of $2.1 million in the 1999
Quarter and $1.1 million in the 1998 Quarter primarily reflect foreign
remittance taxes attributable to international distribution revenues.
Nine Months Ended September 30, 1999 and 1998
Feature Films. Feature film revenues decreased by $123.3 million, or 18
percent, to $553.8 million in the nine months ended September 30, 1999 (the
"1999 Period") compared to the nine months ended September 30, 1998 (the "1998
Period").
Worldwide theatrical revenues decreased by $98.6 million, or 46 percent, to
$116.6 million in the 1999 Period as compared to the 1998 Period. In the 1999
Period, the Company's releases included The Thomas Crown Affair, Stigmata, At
First Sight, The Rage: Carrie 2, The Mod Squad and Tea With Mussolini, as
compared to The Man In The Iron Mask, Ronin, Species 2, Disturbing Behavior
and Dirty Work, among others, in the 1998 Period. In the 1999 Period, the
Company benefited from the favorable theatrical performances of The Thomas
Crown Affair, Stigmata and Tea With Mussolini. However, the other films
released in the 1999 Period performed below expectations. Additionally, the
1998 Period benefited from the strong worldwide theatrical performances of The
Man In The Iron Mask and Tomorrow Never Dies. Overall, in the 1999 Period the
Company released eight new feature films domestically and four new films
internationally, and in the 1998 Period released eleven new films domestically
and three new films internationally.
Worldwide home video revenues decreased by $43.9 million, or 16 percent, to
$227.4 million in the 1999 Period, which included the release in the domestic
rental market of Ronin, At First Sight, Disturbing Behavior, The Mod Squad and
Just The Ticket, as compared to higher home video sales realized in the 1998
Period from the more successful releases of Tomorrow Never Dies and The Man In
The Iron Mask, as well as Red Corner, Hoodlum and Ulee's Gold, in the domestic
rental market. Additionally, due to the early expiration of the WHV Agreement,
effective January 1, 1999 the Company no longer receives revenues from the
distribution of film product owned by Turner. In the 1998 Period, the Company
generated $37.7 million in gross revenues from its distribution of the Turner
product. In the 1999 Period, international home video revenues included the
releases of The Man In The Iron Mask, Species 2 and Ronin, as compared to
Tomorrow Never Dies, Fled and Hoodlum in the 1998 Period. Partially offsetting
the decreases in home video revenues discussed above were increased digital
video disc sales, which grew to $37.0 million in the 1999 Period from $18.0
million in the 1998 Period.
14
<PAGE>
Worldwide pay television revenues from feature films increased by $27.6
million, or 42 percent, to $93.1 million in the 1999 Period as compared to the
1998 Period. In the 1999 Period, the Company benefited from the release in the
domestic pay television marketplace of The Man In The Iron Mask, Ronin,
Species 2, Disturbing Behavior and Dirty Work, as compared to lower license
fees received for Hoodlum, Ulee's Gold, Warriors of Virtue and Eight Heads In
A Duffel Bag in the 1998 Period. Network television revenues from feature
films decreased by $23.1 million, or 69 percent, to $10.2 million in the 1999
Period. In the 1999 Period, the Company delivered four new films to network
television as compared to eight films delivered in the 1998 Period, which
included substantial license fees for GoldenEye and Get Shorty. Worldwide
syndicated television revenues from feature films increased by $15.0 million,
or 18 percent, to $99.2 million in the 1999 Period, principally due to the
release in international markets of Tomorrow Never Dies, The Birdcage,
GoldenEye and Get Shorty. There were no comparably performing releases in
international syndication markets in the 1998 Period.
The Company recognized an operating loss from feature films of $143.5
million in the 1999 Period as compared to a profit of $29.1 million in the
1998 Period. Operating results in the 1999 Period reflected the decreased
revenues discussed above, as well as feature film write-downs and an
additional reserve for charges regarding a re-evaluation of several film
projects in various stages of development and production, which resulted in
aggregate film-related charges of $170.7 million, as compared to lower write-
downs in the 1998 Period of $49.0 million. The 1998 Period also benefited from
profits realized from the successful worldwide performances of Tomorrow Never
Dies and The Man In The Iron Mask. In comparison, profitable films in the 1999
Period included The Thomas Crown Affair, Stigmata and Tea With Mussolini.
Television Programming. Television programming revenues increased by $28.5
million, or 19 percent, to $179.2 million in the 1999 Period as compared to
the 1998 Period. Network television revenues decreased by $16.1 million, or 65
percent, to $8.7 million, principally due to the timing of delivery of
episodes of The Magnificent Seven and the release of only one television movie
in the 1999 Period, as compared to higher license fees earned on the delivery
of the television mini-series Creature and additional episodes of
The Magnificent Seven in the 1998 Period. Worldwide pay television revenues
increased by $3.7 million, or 16 percent, to $26.9 million in the 1999 Period
due to consideration received by the Company for the termination of certain
contractual commitments, partially offset by one fewer series in broadcast on
domestic pay television than in the 1998 Period. The Company may generate
lower pay television revenues in future periods due to a reduction in the
number of production commitments for television series.
Domestic syndicated television programming revenues increased by $58.0
million, or 144 percent, to $98.4 million in the 1999 Period, primarily due to
the syndication of Stargate SG-1, National Enquirer and Flipper, as well as
additional years of the The Outer Limits and Poltergeist, and the licensing in
the domestic basic cable market of the Outer Limits, Poltergeist, Dead Man's
Gun and the In The Heat Of The Night series. International syndicated
television programming revenues, however, decreased by $8.3 million, or 19
percent, to $35.1 million in the 1999 Period due to a lack of new television
movies or mini-series licensed in international syndication markets, as
compared to the licensing of the international rights to Creature in the 1998
Period. Worldwide home video revenues with respect to television programming
decreased by $0.9 million, or 9 percent, to $9.4 million in the 1999 Period,
primarily due to the release of fewer television movies in 1999. The 1998
Period also benefited from a third party payment of $7.0 million for the
rights to create new episodes of Hollywood Squares. There were no such
receipts in the 1999 Period.
Operating income from television programming increased by $10.8 million, or
60 percent, to $28.8 million in the 1999 Period as compared to the 1998
Period. The increase in operating results reflected the favorable domestic
syndication, pay television and basic cable sales discussed above.
Other. Other revenues include distribution of consumer products, interactive
media and branded programming services, all of which constitute emerging
businesses for MGM Studios with relatively limited current operations, as well
as music soundtrack and royalty income and audit recoveries by the Company
from third parties. The Company recognized an operating profit from other
businesses of $15.7 million in the 1999 Period as compared to a loss of $2.7
million in the 1998 Period. Operating results in the 1999 Period include
15
<PAGE>
consumer products revenue of $7.9 million and music soundtrack and royalty
revenue of $6.2 million, as compared to consumer products revenue of $7.7
million and music soundtrack and royalty revenue of $3.5 million in the 1998
Period. Interactive media revenues were $6.4 million in the 1999 Period, which
included license fees collected for the rights to develop the next James Bond
interactive game as well as other games, as compared to $5.8 million in the
1998 Period, which included the release of WarGames. Additionally, operating
results in the 1999 Period include the receipt of $13.2 million in third party
audit recoveries. There were no significant audit recoveries in the 1998
Period. However, other revenues in the 1998 Period did include a $10.0 million
payment received in association with the Company's sale of a portion of its
investment in a Japanese pay television channel.
Expenses for other businesses in the 1999 Period include interactive product
and development costs of $6.4 million, as compared to higher costs of $14.0
million in the 1998 Period. Consumer products cost of sales were $2.4 million
in the 1999 Period as compared to $5.7 million in the 1998 Period, when the
Company incurred certain start-up expenses associated with a newly launched
catalogue business. In addition, operating expenses for other businesses in
the 1999 Period included aggregate losses of $6.4 million on the Company's
equity investments, including its interest in the Company's newly launched
cable programming joint venture, MGM Networks Latin America, as compared to
$7.3 million for such start-up losses in the 1998 Period.
General and Administration Expenses. General and administration expenses
decreased by $1.8 million, or 3 percent, to $67.9 million in the 1999 Period
as compared to the 1998 Period, primarily due to certain cost savings in 1999
associated with a corporate restructuring program initiated in the second
quarter of 1999 and the third quarter of 1998, partially offset by increased
senior management and employee incentive compensation and litigation costs.
See also "Severance and Related Costs" below.
Severance and Related Costs. As discussed in Note 2 to the Condensed
Consolidated Financial Statements, in the 1999 Period the Company incurred
executive severance and other related charges of $76.2 million attributable to
changes in senior management and the estimated costs of withdrawing from the
Company's arrangements with UIP. Correspondingly, in the 1998 Period a
restructuring program implemented by the Company resulted in severance charges
of $13.2 million.
Contract Termination Fee. On March 12, 1999, the Company agreed to
accelerate the expiration of the right of WHV to distribute the Company's
product in the home video marketplace under the WHV Agreement. In
consideration for the early expiration of the WHV Agreement, the Company
agreed to pay WHV $225 million, which was fully paid as of September 1, 1999.
The parties restructured the terms of the WHV Agreement, which will function
as the Transitional Video Agreement, under which WHV will distribute certain
of the Company's product in the home video marketplace while the Company
establishes its own domestic home video distribution network. The Transitional
Video Agreement expires on January 31, 2000. Additionally, the Company
reconveyed as of January 1, 1999 to Turner the right that the Company had to
distribute in the home video markets worldwide until June 2001, 2,950 titles
that had been serviced under the WHV Agreement. Operating results in the 1999
Period include a pre-tax contract termination charge for the $225 million
payment referred to above in connection with the early expiration of WHV's
rights under the WHV Agreement.
Interest Expense, Net of Amounts Capitalized. Net interest expense increased
by $3.6 million, or 6 percent, to $64.0 million in the 1999 Period as compared
to the 1998 Period. Interest expense increased due to additional borrowings
for operating and production activities, as well as the financing of the PFE
Library Acquisition in January 1999 and the WHV Agreement termination
settlement (see above) in March 1999, partially offset by debt repayment
associated with proceeds received from the Company's rights offering completed
in November 1998.
Income Tax Provision. The income tax provision of $6.1 million in the 1999
Period and $6.4 million in the 1998 Period primarily reflect foreign
remittance taxes attributable to international distribution revenues.
16
<PAGE>
EBITDA
While management considers earnings before interest, taxes, depreciation and
non-film amortization ("EBITDA") to be an important measure of comparative
operating performance, it should be considered in addition to, but not as a
substitute for or superior to, operating income, net earnings, cash flow and
other measures of financial performance prepared in accordance with generally
accepted accounting principles. EBITDA does not reflect cash available to fund
cash requirements, and the items excluded from EBITDA, such as depreciation
and non-film amortization, are significant components in assessing the
Company's financial performance. Other significant uses of cash flows are
required before cash will be available to the Company, including debt service,
taxes and cash expenditures for various long-term assets. The Company's
calculation of EBITDA may be different from the calculation used by other
companies and, therefore, comparability may be limited.
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
June 30, Sept. 30,
------------------ --------------------
1999 1998 1999 1998
-------- -------- --------- ---------
In thousands (unaudited)
<S> <C> <C> <C> <C>
Revenues:
Feature films...................... $205,758 $205,764 $ 553,766 $ 677,061
Television programs................ 86,183 44,850 179,201 150,689
Other.............................. 7,369 9,008 37,260 29,533
-------- -------- --------- ---------
Total revenues.................... $299,310 $259,622 $ 770,227 $ 857,283
======== ======== ========= =========
EBITDA:
Feature films...................... $ 33,766 $ 9,809 $(143,507) $ 29,113
Television programs................ 20,786 9,805 28,839 18,021
Other.............................. 2,309 (1,088) 15,676 (2,727)
General and administration
expenses.......................... (16,673) (16,867) (61,496) (63,596)
Severance and related costs........ -- (13,182) (76,158) (13,182)
Contract termination fee........... -- -- (225,000) --
-------- -------- --------- ---------
EBITDA............................ 40,188 (11,523) (461,646) (32,371)
Depreciation and non-film
amortization....................... (5,810) (5,879) (17,602) (16,723)
-------- -------- --------- ---------
Operating income (loss)............. 34,378 (17,402) (479,248) (49,094)
Interest expense, net of amounts
capitalized........................ (22,807) (22,022) (64,045) (60,450)
Interest and other income........... 827 249 3,345 1,994
-------- -------- --------- ---------
Income (loss) before provision for
income taxes....................... 12,398 (39,175) (539,948) (107,550)
Income tax provision................ (2,054) (1,096) (6,136) (6,358)
-------- -------- --------- ---------
Net income (loss)................... $ 10,344 $(40,271) $(546,084) $(113,908)
======== ======== ========= =========
</TABLE>
Liquidity and Capital Resources
General. The Company's operations are capital intensive. In recent years the
Company has funded its operations primarily from (i) the sale of equity
securities, (ii) bank borrowings and (iii) internally generated funds. During
the 1999 Period, the net cash provided by operating activities was $81.5
million; net cash used in investing activities (primarily the purchase of the
PFE Libraries and additions to film and television costs) was $725.6 million;
and net cash provided by financing activities (primarily bank borrowings) was
$600.3 million.
Sales of Equity Securities. Sales of equity securities include proceeds from
the Company's initial public offering and Tracinda's concurrent purchase of
the Company's common stock, which were completed in November 1997, and the
1998 rights offering, which was completed in November 1998.
17
<PAGE>
The Company's cash flow in 1998 was adversely affected by, and the Company
determined to undertake the 1998 rights offering as a result of, (a) lower
than expected performance of our theatrical releases in 1998, other than the
releases Tomorrow Never Dies and The Man In The Iron Mask, (b) more
substantial investments in new television programming than previously
anticipated, (c) cash from certain revenue sources being realized over a
longer period than originally anticipated, and (d) other factors, including
accelerated motion picture production and increased marketing and distribution
expenses. The Company consummated the 1998 rights offering in November 1998 by
issuing a total of 84,848,485 shares of common stock for $8.25 per share, and
thereby raising net proceeds of $696.5 million. The proceeds were used to
reduce bank borrowings.
1999 Rights Offering. On October 15, 1999, the Company issued to its
stockholders of record of the common stock, at no charge to such holders,
transferable subscription rights to subscribe for an aggregate of 49,721,268
shares of the common stock for $14.50 per share. The total gross proceeds
expected to be received by the Company from the 1999 rights offering are
approximately $721.0 million. The Rights expire on November 8, 1999, unless
extended by the Company. Holders of the common stock received 0.328 Rights for
each share of the common stock held as of the Record Date. Rights holders may
purchase one share of the common stock at the Subscription Price for each
whole Right held. Rights holders who exercise their Rights in full will also
have the opportunity to purchase additional Shares at the Subscription Price
pursuant to an oversubscription privilege, as defined in the Company's
Prospectus Supplement dated October 15, 1999.
Tracinda has committed to exercise the Basic Subscription Privilege with
respect to all of the Rights held by it immediately prior to the expiration of
the 1999 rights offering (subject to certain conditions). Additionally,
Tracinda will also purchase, at the Subscription Price, all Shares that are
not otherwise subscribed for by the Expiration Date.
Bank Borrowings.
Bridge Loan Facility. On May 14, 1999, the Company entered into an agreement
with one of our principal lenders that provides us with a $250.0 million
bridge loan facility. As of September 30, 1999, the Company had borrowed the
entire $250.0 million under this facility in part to fund the payment of the
second installment due to WHV of $112.5 million, plus interest. The Company
used the remaining balance to fund operations. Loans under this facility bear
interest at 1.75 percent over the Adjusted LIBOR rate (approximately 7.13
percent at September 30, 1999). Interest is payable quarterly in arrears and
the principal is due on the earlier of any debt or equity issuance by the
Company or maturity, July 15, 2006. The Company will use a portion of the net
proceeds of the 1999 rights offering to repay all amounts outstanding under,
and terminate, the bridge loan facility.
Credit Facility. The Company has a $1.3 billion syndicated facility (the
"Amended Credit Facility") consisting of (a) a six year $600.0 million
revolving credit facility (the "Revolving Facility"), (b) a $400.0 million
seven and one-half year term loan ("Tranche A Loan") and (iii) a $300.0
million eight and one-half year term loan ("Tranche B Loan" and, collectively
with the Tranche A Loan, the "Term Loans"). As of October 22, 1999, $238.0
million was available under the Amended Credit Facility, which also contains
provisions allowing, under certain circumstances, for an additional $200
million tranche ("Tranche C Loan").
Currently, the Revolving Facility and Tranche A Loan bear interest at 2.50
percent over the Adjusted LIBOR rate, as defined therein (8.00 percent at
September 30, 1999), and the Tranche B Loan bears interest at 2.75 percent
over the Adjusted LIBOR rate (8.25 percent at September 30, 1999). The Company
has entered into three year fixed interest rate swap contracts in relation to
a portion of the Amended Credit Facility for a notional value of $800 million
at an average rate of approximately 7.50 percent, which expire at various
times no later than December 2001. Scheduled amortization of the Term Loans
under the Amended Credit Facility commences with $33 million in 2001, $73
million in 2002, $103 million in 2003, $103 million in 2004, and $103 million
in 2005, with the remaining balance due at maturity. The Revolving Facility
was entered into in October 1997 and matures in October 2003, subject to
extension under certain conditions.
18
<PAGE>
The Amended Credit Facility contains various covenants, including
limitations on indebtedness, dividends and capital expenditures, and
maintenance of certain financial ratios. In connection with the $225 million
charge resulting from the early termination of the WHV Agreement, the Amended
Credit Facility was amended, effective April 30, 1999. As of September 30,
1999, the Company was in compliance with all applicable covenants. There can
be no assurances that the Company will remain in compliance with such
covenants or other conditions under the Amended Credit Facility in the future.
The Company expects to use a portion of the proceeds of the 1999 rights
offering to repay all amounts outstanding under the Revolving Facility. The
Company anticipates substantial continued borrowing under the Amended Credit
Facility.
Cash Provided by Operating Activities. In the 1999 Period, cash provided by
operating activities was $81.5 million compared to $317.9 million in the 1998
Period.
In March 1999, in consideration for the early expiration of the WHV
Agreement, the Company agreed to pay WHV $225 million, $112.5 million of which
was paid on March 12, 1999 and the remainder of which, plus interest, was paid
on September 1, 1999. The Company recorded a pre-tax contract termination
charge in the 1999 Period for the $225 million payment referred to above in
connection with terminating the WHV Agreement.
In addition, the slate of films released by the Company in the first six
months of 1999 performed below expectations.
Cash Used in Investing Activities. For the 1999 Period, cash used in
investing activities was $725.6 million. In the 1999 Period, the Company
incurred $477.5 million in film and television costs. In January 1999, the
Company acquired the PFE Libraries, containing over 1,300 feature films, for
$235.0 million, plus acquisition related costs of approximately $1.2 million.
The purchase was funded by borrowings under the Revolving Facility and
available cash.
Anticipated Needs. The Company's current strategy and business plan call for
substantial on-going investments, at levels comparable to 1998, in the
production of new feature films and television programs. Furthermore, the
Company may wish to continue to make investments in new distribution channels
to further exploit the Company's motion picture and television library. The
Company plans to continue to evaluate the level of such investments in the
context of the capital available to the Company and changing market
conditions.
The Company expects to incur approximately $11.0 million of additional costs
in 1999 in connection with the integration of the PFE Libraries and the
Company's transition to home video self-distribution in the U.S. and Canadian
markets. The Company does not expect its obligations for property and
equipment expenditures, including the purchase of computer systems and
equipment and other improvements, to exceed $15 million per year.
In connection with the Company's termination of the WHV Agreement, the
Company anticipates that the worldwide home video distribution rights
reconveyed to Turner will decrease the Company's cash flow by approximately
$10.0 million per year through June 2001.
The Company is obligated to fund 50 percent of the expenses of MGM Networks
Latin America up to a maximum of approximately $24.0 million. The Company has
funded approximately $17.0 million under such obligation as of September 30,
1999 and expects to fund an additional $1.5 million in the remainder of 1999.
19
<PAGE>
In June 1999, in association with a change in the Company's senior
management and a corresponding review of operations, the Company incurred
certain restructuring and other charges aggregating $225.2 million, of which
$140.0 million was film-performance related. The Company recovered $18.8
million of these charges in the quarter ended September 30, 1999. As a result
of the change in senior management, the Company did not commence production as
anticipated under its business plan. Therefore, the Company expects to release
a reduced number of major films in the first six months of 2000, which may
adversely impact cash flows and results of operations at least through 2001.
However, as opportunities arise, the Company will pursue the purchase of
feature films from third parties that could be released during this period.
As a result of these recent and planned capital expenditures and cash we
will require to meet the Company's current business plan, the Company
determined that cash flow from operations and the amounts available under the
existing tranches of the Amended Credit Facility may not be adequate to meet
the Company's obligations and commitments. The Company believes that the
proceeds from the 1999 rights offering, together with amounts available under
the Revolving Facility and cash flow from operations, will be adequate for the
Company to conduct its operations in accordance with its business plan for at
least the next twelve months. This belief is based in part on the assumption
that the Company's future releases will perform as planned. In addition to the
foregoing sources of liquidity, the Company is currently considering various
film financing alternatives.
If necessary in order to manage its cash needs, the Company may also delay
or alter production or release schedules or seek to reduce its aggregate
investment in new film and television production costs. There can be no
assurance that any such steps by the Company would be adequate or timely, or
that acceptable arrangements could be reached with third parties if necessary.
In addition, although these steps would improve the Company's short-term cash
flow and, in the case of partnering, reduce the Company's exposure should a
motion picture perfom below expectations, such steps could adversely affect
long term cash flow and results of operations in subsequent periods.
The Company intends to continue to pursue its goal of becoming an integrated
global entertainment content company. In connection with its pursuit of this
goal, the Company may consider various strategic alternatives, such as
business combinations with companies with strengths complementary to those of
the Company, other acquisitions and joint ventures, as opportunities arise.
The nature, size and structure of any such transaction could require the
Company to seek additional financing.
Impact of the Year 2000 Issue
Introduction. The term "Year 2000 issue" is a general term used to describe
the various problems that may result from the improper processing of dates and
date-sensitive calculations by computers and other machinery as the Year 2000
is approached and reached. These problems generally arise from the fact that
most of the world's computer hardware and software have historically used only
two digits to identify the year in a date, often meaning that the computer
will fail to distinguish dates in the "2000's" from dates in the "1900's."
These problems may also arise from other sources as well, such as the use of
special codes and conventions in software that make use of the date field.
State of Readiness. To date, the Company has completed the Year 2000
conversion with respect to all of its computer systems and applications
(together with those systems containing embedded microprocessors or other
technology, "Systems"). The Company has completed remediation and testing of
its Systems with the exception of certain systems, which were fully replaced
by September 30, 1999. While the Company has completed all required system
remediation and testing for the Year 2000, it will continue its testing
efforts and make appropriate remediations as necessary through January 1,
2000.
Because of the substantial progress made by the Company towards its Year
2000 conversion, the Company does not anticipate that any additional
significant changes will be required or that the Year 2000 issue will pose
significant operational problems for the Company. However, if any necessary
changes are not made or completed in a timely fashion or unanticipated
problems arise, the Year 2000 issue may take longer for the Company to address
and may have a material impact on the Company's financial condition and
results of operations.
20
<PAGE>
In addition, the Company has had communications with certain of its
significant suppliers, distributors, financial institutions, lessors and
others with which it does business to evaluate their Year 2000 compliance
plans and state of readiness and to determine the extent to which the
Company's Systems may be affected by the failure of others to remediate their
own Year 2000 issues. The Company has also distributed a Year 2000 assessment
form to all critical vendors and certain other parties, in order to provide
the Company with further information as to their Year 2000 conversion
progress. To date, the Company has received feedback from certain but not all
such parties, and has not independently confirmed any information received
with respect to the Year 2000 issues. As such, there can be no assurance that
such other parties will complete their Year 2000 conversion in a timely
fashion or will not suffer a Year 2000 business disruption that may adversely
affect the Company's financial condition and results of operations.
Costs to Address the Year 2000 Issue. To date, the Company estimates that it
has spent approximately $1.0 million to address the Year 2000 issue, with the
majority of the work being performed by the Company's employees. The aggregate
cost to complete the Year 2000 conversion is estimated to be approximately
$1.1 million. The Company intends to fund such costs from its operations and
funds borrowed under the Amended Credit Facility. The Company believes such
costs will not have a material adverse effect on its liquidity or financial
condition. However, as the Company progresses with its Year 2000 conversion
and implements any necessary changes to its Systems, certain additional costs
may be identified. There can be no assurance that such additional costs will
not have a material adverse effect on the Company's financial condition and
results of operations.
Risks of Year 2000 Issues. To date, the Company has not identified any
System which presents a material risk of not being Year 2000 ready in a timely
fashion or for which a suitable alternative cannot be implemented. However, as
the Company progresses with its Year 2000 testing, the Company may identify
Systems which do present a material risk of Year 2000 disruption. Such
disruption may include, among other things, the inability to process
transactions or information, record and access data relating to the
availability of titles in the Company's library for licensing and
distribution, send invoices or engage in similar normal business activities.
The failure of the Company to identify Systems which require Year 2000
conversion that are critical to the Company's operations or the failure of the
Company or others with which the Company does business to become Year 2000
ready in a timely manner could have a material adverse effect on the Company's
financial condition and results of operations.
Contingency Plans. While the Company's Year 2000 conversion is expected to
be completed prior to any potential disruption to the Company's business, the
Company acknowledges the uncertainties involved in preparing its systems for
the Year 2000. As such, the Company has developed a comprehensive Year 2000
specific contingency plan that, when used in combination with the Company's
general disaster recovery plan, should provide for continued business
operations to the greatest extent possible in the unlikely event of the
Year 2000 failure of any of its Systems. As part of its Year 2000 contingency
effort, information received from external sources is examined for date
integrity before being brought into the Company's internal systems. If the
Company determines that its business or a segment thereof is at material risk
of disruption due to the Year 2000 issue, the Company will prepare to
implement all or part of its contingency plan.
The discussion above contains certain forward-looking statements. The costs
of the Year 2000 conversion, the date which the Company has set to complete
such conversion and possible risks associated with the Year 2000 issue are
based on the Company's current estimates and are subject to various
uncertainties that could cause the actual results to differ materially from
the Company's expectations. Such uncertainties include, among others, the
success of the Company in identifying Systems that are not Year 2000
compliant, the nature and amount of programming required to upgrade or replace
each of the affected Systems, the availability of qualified personnel,
consultants and other resources, and the success of the Year 2000 conversion
efforts of others.
21
<PAGE>
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company has only limited involvement in derivative financial instruments
and does not use them for trading purposes. Certain amounts borrowed under the
Amended Credit Facility are at variable interest rates and the Company is thus
subject to market risk resulting from interest rate fluctuations. The Company
enters into interest rate swaps in part to alter interest rate exposures.
Interest rate swaps allow the Company to raise long-term borrowings at
floating rates and effectively swap them into fixed rates that are lower than
those available to the Company if fixed-rate borrowings were made directly.
Under interest rate swaps, the Company agrees with other parties to exchange,
at specified intervals, the difference between fixed-rate and floating-rate
amounts calculated by reference to an agreed notional principal amount.
The following table provides information about the Company's interest rate
swaps at September 30, 1999:
<TABLE>
<CAPTION>
Amounts scheduled for
maturity for the year Estimated
ending December 31, fair value at
---------------------------- September 30,
1999 2000 2001 1999
-------- -------- -------- -------------
<S> <C> <C> <C> <C>
Interest Rate Swaps
Variable to fixed:
Notional value (in
thousands).................. $150,000 $225,000 $575,000 $8,999
Average pay rate............. 6.164% 6.127% 5.237%
Average receive rate......... 5.468% 5.471% 5.392%
</TABLE>
Because approximately 25 percent of the Company's revenues are denominated,
and the Company incurs certain operating and production costs, in foreign
currencies, the Company is subject to market risks resulting from fluctuations
in foreign currency exchange rates. In certain instances, the Company enters
into foreign currency exchange contracts in order to reduce exposure to
changes in foreign currency exchange rates that affect the value of its firm
commitments and certain anticipated foreign currency cash flows.
The following table provides information about the Company's sensitivity to
foreign currency exchange contracts into which the Company enters. The
contracts generally mature within one year. The Company currently intends to
continue to enter into such contracts to hedge against future material foreign
currency exchange rate risks.
<TABLE>
<CAPTION>
Amounts
scheduled for
maturity for Estimated
the year ending fair value at
December 31, September 30,
1999 1999
--------------- -------------
(in thousands)
<S> <C> <C>
$US Functional Currency
Forward exchange agreements (receive $US/pay
CAD)........................................
Contract amount............................ $3,969 $(18)
Average contractual exchange rate.......... 0.6843
</TABLE>
22
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to the Company's 1998 Form 10-K and Forms 10-Q for the
quarters ended March 31, 1999 and June 30, 1999 for a description of pending
legal proceedings involving the Company.
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Stockholders held on July 13, 1999, eight proposals
were submitted to the Company's stockholders. The Company nominees for
directors were elected and each of the other proposals was approved. A brief
description of those proposals and the results of the voting are as follows:
Proposal One--Election of nine directors to serve for a year term
<TABLE>
<CAPTION>
Votes
Nominee Votes For Withheld
------- ----------- --------
<S> <C> <C>
James D. Aljian........................................ 148,395,953 50,088
Francis Ford Coppola................................... 148,391,525 54.516
Willie D. Davis........................................ 148,391,375 54,666
Alexander M. Haig, Jr.................................. 148,390,964 55,077
Kirk Kerkorian......................................... 148,394,606 51,435
Frank Mancuso.......................................... 148,395,239 50,802
Christopher J. McGurk.................................. 148,394,667 51,374
Alex Yemenidjian....................................... 148,394,438 51,603
Jerome B. York......................................... 148,396,312 49,729
</TABLE>
Proposal Two--Approval and ratification of the repricing of stock options
granted pursuant to the Amended and Restated 1996 Stock Incentive Plan
<TABLE>
<CAPTION>
Voting Results
--------------
<S> <C>
For.............................................................. 143,590,102
Against.......................................................... 4,839,904
Abstain.......................................................... 16,035
Broker Non-Votes................................................. 0
</TABLE>
Proposal Three--Approval and ratification of amendment to Amended and Restated
1996 Stock Incentive Plan
<TABLE>
<CAPTION>
Voting Results
--------------
<S> <C>
For.............................................................. 139,531,264
Against.......................................................... 4,848,951
Abstain.......................................................... 16,434
Broker Non-Votes................................................. 4,049,392
</TABLE>
23
<PAGE>
Proposal Four--Approval and ratification of amendment to Bonus Interest
Agreements under the Senior Management Bonus Plan
<TABLE>
<CAPTION>
Voting Results
--------------
<S> <C>
For.............................................................. 139,562,306
Against.......................................................... 4,817,550
Abstain.......................................................... 16,793
Broker Non-Votes................................................. 4,049,392
</TABLE>
Proposal Five--Approval of amendment of Amended and Restated Certificate of
Incorporation
<TABLE>
<CAPTION>
Voting Results
--------------
<S> <C>
For.............................................................. 148,257,687
Against.......................................................... 174,126
Abstain.......................................................... 14,228
Broker Non-Votes................................................. 0
</TABLE>
Proposal Six--Approval and ratification of stock option grant to Alex
Yemenidjian
<TABLE>
<CAPTION>
Voting Results
--------------
<S> <C>
For.............................................................. 139,713,505
Against.......................................................... 4,669,094
Abstain.......................................................... 14,050
Broker Non-Votes................................................. 4,049,392
</TABLE>
Proposal Seven--Approval and ratification of stock option grant to Christopher
J. McGurk
<TABLE>
<CAPTION>
Voting Results
--------------
<S> <C>
For.............................................................. 139,594,093
Against.......................................................... 4,786,371
Abstain.......................................................... 16,185
Broker Non-Votes................................................. 4,049,392
</TABLE>
Proposal Eight--Ratification of appointment of Arthur Andersen LLP as
independent auditors of the Company for the fiscal year ending December 31,
1998
<TABLE>
<CAPTION>
Voting Results
--------------
<S> <C>
For.............................................................. 148,378,612
Against.......................................................... 59,549
Abstain.......................................................... 7,880
Broker Non-Votes................................................. 0
</TABLE>
24
<PAGE>
Item 5. Other Information
Reference is made to Note 10 to the Condensed Consolidated Financial
Statements contained elsewhere herein for information regarding the 1999
rights offering.
Under Rule 14a-8 of Regulation 14A of the Exchange Act, any stockholder
intending to submit to the Company a proposal that qualifies for inclusion in
the Company's proxy statement and proxy relating to the annual meeting of
stockholders to be held in 2000 must submit such proposal so that it is
received by the Company no later than February 18, 2000 and must satisfy the
other requirements of Rule 14a-8. All such stockholder proposals should be
submitted to the Secretary of the Company. Under Rule 14a-4 of Regulation 14A,
the Company may exercise discretionary voting authority under proxies it
solicits to vote on a proposal made by a stockholder that the stockholder does
not seek to include in the Company's proxy statement and proxy for such
meeting pursuant to Rule 14a-8, unless the Company is notified about the
proposal a reasonable time before the date the Company mails its proxy
materials for such meeting and the stockholder satisfies the other
requirements of Rule 14a-4(c).
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number
-------
<C> <S>
1.1 Form of Dealer Manager Agreement
4.1 Form of Rights Certificate
10.1 Form of Standby Agreement between the Company and Tracinda
10.2 Consulting Agreement of Frank G. Mancuso as of August 12, 1999
10.3 Amendment No. 1 to Amended and Restated 1996 Stock Incentive Plan
(incorporated by reference to the Exhibit 99.2 to the Company's
Registration Statement on Form S-8 (File No. 333-83823), filed with
the Commission July 27, 1999)
27.1 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
A Current Report on Form 8-K was filed during the quarter ended September
30, 1999:
<TABLE>
<CAPTION>
Date: Relating to:
----- ------------
<C> <S>
September 14, l999 Press release re: Obtaining broadcast rights to
previously licensed film library titles from Turner
Broadcasting Systems, Inc.
</TABLE>
25
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
METRO-GOLDWYN-MAYER INC.
October 28, 1999
By: /s/ Alex Yemenidjian
__________________________________
Alex Yemenidjian
Chairman of the Board of Directors
and Chief Executive Officer
By: /s/ Daniel J. Taylor
__________________________________
Daniel J. Taylor
Senior Executive Vice President
and Chief Financial Officer
26
<PAGE>
EXHIBIT 1.1
DEALER MANAGER AGREEMENT
October 15, 1999
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
BANC OF AMERICA SECURITIES LLC
c/o Donaldson, Lufkin & Jenrette
Securities Corporation
277 Park Avenue
New York, NY 10172
Ladies and Gentlemen:
This agreement (the "Agreement") will confirm the understanding
between Metro-Goldwyn-Mayer Inc., a Delaware corporation, (the "Company"), and
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ") and Banc of America
Securities LLC ("BofA") pursuant to which the Company has retained DLJ and BofA
to act as its exclusive dealer managers, on the terms and subject to the
conditions set forth herein, in connection with the Company's proposed Rights
Offering (as defined below).
The Company proposes to distribute (the "Rights Offering") to holders
of record of its common stock, $.01 par value per share (the "Common Stock"), as
of the close of business on October 15, 1999 (the "Record Date"), at no charge
to such holders, transferable rights (the "Rights") to subscribe for and
purchase, at the election of the holders of the Rights (the "Rights Holders"),
up to an aggregate of 49,721,268 shares of Common Stock (the "Underlying
Shares") at a subscription price of $14.50 per share (the "Subscription Price").
Holders of the Common Stock will receive 0.328 Rights for each share of Common
Stock held as of the Record Date. Each Right consists of a basic subscription
privilege under which the Rights Holders may purchase one share of Common Stock
for each whole Right held. In addition, Rights Holders who exercise their basic
subscription privilege in full will be eligible to subscribe for additional
shares of Common Stock as described in the Prospectus (as defined below). It is
anticipated that the Rights will be exercisable for a period of approximately 20
days (the "Subscription Period"), subject to extension by the Company, and that
through the next to last day in such period, the Rights will be eligible for
trading on the New York Stock Exchange (the "NYSE"). The Rights and the
Underlying Shares are referred to herein as the "Securities."
The Company has prepared and filed with the Securities and Exchange
Commission (the "Commission") in accordance with the provisions of the
Securities Act of 1933, as amended, and the rules and regulations of the
Commission thereunder (collectively, the "Act"), a registration statement on
Form S-3, including a prospectus, relating to the Securities. The registration
statement, as amended at the
<PAGE>
time it became effective, including the information (if any) deemed to be part
of the registration statement at the time of effectiveness pursuant to Rule 430A
under the Act, is hereinafter referred to as the "Registration Statement"; and
the prospectus (including the base prospectus and the prospectus supplement
dated October 15, 1999) in the form first used to confirm sales of Common Stock
underlying Rights is hereinafter referred to as the "Prospectus" (including, in
the case of all references to the Registration Statement or the Prospectus,
documents incorporated therein by reference). If the Company has filed or is
required pursuant to the terms hereof to file a registration statement pursuant
to Rule 462(b) under the Act registering additional Securities (a "Rule 462(b)
Registration Statement"), then, unless otherwise specified, any reference herein
to the term "Registration Statement" shall be deemed to include such Rule 462(b)
Registration Statement. The terms "supplement" and "amendment" or "amend" as
used in this Agreement with respect to the Registration Statement or the
Prospectus shall include all documents subsequently filed by the Company with
the Commission pursuant to the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the Commission thereunder (collectively, the
"Exchange Act") that are deemed to be incorporated by reference in the
Prospectus. Capitalized terms used but not otherwise defined herein have the
meanings set forth in the Prospectus.
1. Retention. The Company hereby retains DLJ and BofA as its
---------
exclusive dealer managers and, subject to the terms and conditions hereof, you
agree to act as the Company's exclusive dealer managers in connection with the
Rights Offering until the close of business on the earlier of December 8, 1999
or the date the Rights Offering has been consummated. The Company hereby
authorizes you to act on its behalf in accordance with this Agreement. You agree
to use your reasonable best efforts, in accordance with your customary
practices, to solicit the exercise of Rights pursuant to the Rights Offering;
notwithstanding the foregoing, we agree that nothing set forth in this Agreement
shall require you to continue to render services hereunder (a) for the period
during which any injunction, restraining order or other adverse judicial or
regulatory ruling, declaration or other order shall remain in effect with
respect to the Rights Offering if in your judgment you believe it inadvisable to
render services pursuant hereto, or (b) if your continuing so to act would, in
your judgment, violate any statute, regulation or other law of the United States
of America or any state thereof or other jurisdiction applicable to the Rights
Offering. In such capacity you shall act severally as an independent contractor,
and shall not be deemed to act as agent of the Company, and the Company shall
not be deemed to act as your agent. Any liability or duty to the Company
pursuant to this Agreement shall be owed severally and not jointly. The Company
shall retain its own legal, tax and accounting advice from appropriate third
party advisors.
2. The Rights Offering.
-------------------
(a) The Company agrees to furnish you, at its expense, with
as many copies as you may reasonably request of (i) each of the documents
that is filed with the Commission or any other Federal, state, local or
foreign governmental or regulatory authorities or any court (each an "Other
Agency" and collectively, the "Other Agencies") in connection with the
Rights Offering, including each Registration Statement and final prospectus
filed with the Commission and all documents incorporated therein by
reference, (ii) each offering circular, solicitation statement, disclosure
document, or other explanatory statement, or other report, filing,
document, release or communication mailed, delivered, published, or filed
by or on behalf of the Company in connection with the Rights Offering,
including a copy of the form of the rights certificate, the instructions
for use of rights certificates and the notice of guaranteed delivery for
rights certificates, (iii) each document required to be filed with the
Commission pursuant to the
2
<PAGE>
provisions of the Act and the Exchange Act, pertaining to either the Rights
Offering or the Company during the term of this Agreement and (iv) each
appendix, attachment, modification, amendment or supplement to any of the
foregoing and all related documents (each of (i), (ii), (iii) and (iv),
together with each document incorporated by reference into any of the
foregoing, the "Rights Offering Material").
(b) The Rights Offering Material has been or will be
prepared and approved by, and is the sole responsibility of, the Company.
At the commencement of the Rights Offering, the Company shall cause to be
delivered in a timely manner to each registered holder of any Common Stock
legally or contractually entitled thereto, to the extent required by the
rules of the NYSE, the Rights Offering Material. Thereafter, to the extent
practicable, the Company shall use its reasonable best efforts to cause
copies of such material to be mailed to each person who makes a request
therefore.
(c) The Company acknowledges and agrees that you may use the
Rights Offering Material as specified herein without assuming any
responsibility for independent investigation or verification on your part,
and the Company represents and warrants to you that you may rely on the
accuracy and adequacy of any information delivered to you by or on behalf
of the Company without assuming any responsibility for independent
verification of such information or without performing or receiving any
appraisal or evaluation of the Company's assets or liabilities, except with
respect to any statements contained in, or any matter omitted from, the
Rights Offering Material in reliance upon and in conformity with
information furnished or confirmed in writing by you to the Company
expressly for use therein, and that such information will be true and
accurate in all material respects and will not omit or misstate material
information regarding the Company, including its business, assets,
liabilities, financial condition, plans and prospects.
(d) The Company agrees that no Rights Offering Material will
be used in connection with the Rights Offering or filed with the Commission
or any Other Agency with respect to the Rights Offering without first
obtaining your prior approval, which approval shall not be unreasonably
withheld or delayed.
(e) In connection with the Rights Offering, if the Company
(i) uses or permits the use of, or files with the Commission or any other
governmental or regulatory authority or body, any Rights Offering Material
that (A) has not been submitted to you on a timely basis for your comments
or (B) has been so submitted and with respect to which you reasonably
object or (ii) shall have breached any of its representations, warranties,
agreements or covenants herein, then you shall each be entitled to withdraw
as a dealer manager in connection with the Rights Offering, without any
liability or penalty to you or any other Indemnified Party (as defined in
Schedule A hereto) for such withdrawal and without loss of any right to
indemnification or contribution provided in this Agreement (including such
Schedule A) or to the payment of all fees and expenses payable hereunder
that have accrued to the date of the withdrawal. If you should withdraw,
the fees accrued and reimbursement for your expenses through the date of
such withdrawal shall be paid to you in cash promptly after such date.
(f) The Company agrees to furnish, or cause to be furnished,
to you cards or lists or copies thereof showing the names and addresses of,
and the number of Rights held by, the
3
<PAGE>
Rights Holders as of the Record Date, and shall advise you, or cause you to
be advised, on each business day during the continuance of the Rights
Offering as to any transfers known to the Company or of record of the
Rights; you agree to use such information only in connection with the
Rights Offering and not to furnish such information to any other persons
except in connection with the Rights Offering.
(g) The Company shall inform you during each business day
during the Rights Offering (to be followed on a daily basis by written
confirmation) as to the respective amounts of Rights which have been
exercised and as to which the holders thereof have delivered rights
certificates during the interval since its previous daily report to you
pursuant to this provision, and the names and addresses of any holders who
have exercised Rights.
(h) The Company agrees to advise you promptly of the
occurrence of any event which could cause the Company to withdraw, rescind,
or modify the Rights Offering and shall also advise you promptly of any
proposal or requirement to amend or supplement any filing required by the
Exchange Act, or "blue sky" or other state securities laws; the Company
will prepare and, if necessary, file with the Commission, as required by
applicable law or regulation, any and all necessary amendments and
supplements to the Rights Offering Material; prior to and during the
continuance of the Rights Offering, the Company will inform you promptly
after it receives notice or becomes aware of the happening of any event, or
the discovery of any fact, that would require the making of any change in
any Rights Offering Material then being used or would affect the truth or
completeness of any representation or warranty contained in this Agreement
if such representation or warranty were being made immediately after the
happening of such event or the discovery of such fact.
(i) The Company shall arrange for each information agent and
subscription agent named in the Rights Offering Material to cooperate with
you in all respects reasonably requested by you.
You are authorized to communicate directly with the Subscription Agent
(and any other subscription agent or information agent designated or retained by
the Company) with respect to matters relating to the Rights Offering.
Subject to applicable law, the dealer managers may continue at any
time to own or trade securities of the Company for its own or others' account.
3. Compensation and Expense Reimbursement. In consideration of the
--------------------------------------
services to be rendered by you pursuant hereto, the character and sufficiency of
which the Company hereby acknowledges, the Company agrees to pay you, in cash,
the following non-refundable amounts:
(a) A fee, payable on the third business day after
completion of the Rights Offering by wire transfer of immediately available
funds to an account designated by DLJ, equal to 3% of the aggregate
Subscription Price for all Underlying Shares issued in connection with the
Rights Offering, excluding Underlying Shares purchased by the Tracinda
Group and Underlying Shares purchased by Record Date Holders upon exercise
of such Holders' basic subscription privilege and oversubscription
privilege as described in the Prospectus; and
4
<PAGE>
(b) Whether or not the Rights Offering is effected and
whether or not this Agreement has expired or has been terminated, the
Company shall pay (i) all expenses of preparation, printing, filing,
mailing and dissemination of the Rights Offering Material and any other
documents related to the Rights Offering; (ii) all fees and expenses paid
by brokers, dealers (including you), commercial banks, trust companies and
nominees for their customary mailing and handling expenses incurred in
forwarding Rights Offering Material and any other documents related to the
Rights Offering to their customers; (iii) all fees and expenses of the
Subscription Agent and any information agent or other persons rendering
services in connection with the Rights Offering; (iv) all advertising
charges; (v) all filing fees applicable to any transaction addressed herein
required to be paid to any governmental or regulatory agency (including any
required of you by the National Association of Securities Dealers, Inc.);
(vi) all fees and expenses payable in connection with the registration or
qualification of the Securities under state securities or "blue sky" laws;
(vii) all listing fees and any other fees and expenses incurred in
connection with the listing on the NYSE of the Securities; and (viii) all
other expenses incurred in connection with the Rights Offering.
4. Termination. Subject to Section 11 hereof, you may resign and the
-----------
Company may terminate your engagement hereunder at any time. Your engagement
hereunder may be extended by written agreement of the parties hereto. If this
Agreement were to expire or terminate for any reason, however, DLJ and BofA
shall be entitled to receive all of the fees earned in accordance with Section
3(a) hereof and amounts payable in respect of expenses incurred in accordance
with Section 3(b) hereof up to and including the effective date of such
expiration or termination; provided that if this Agreement were to expire or
--------
terminate for any reason and the Rights Offering is not completed, and on or
prior to May 8, 2000, the Company or any affiliate of the Company proceeds with
any rights offering, DLJ and BofA also shall be entitled to receive all of the
amounts due and payable pursuant to Sections 3(a) and (b) hereof as if this
Agreement were to remain in effect with respect to such rights offering.
5. Indemnity. The Company agrees to indemnify the Indemnified
---------
Parties (as defined in Schedule A) as set forth in Schedule A, which Schedule A
is incorporated herein and made a part hereof.
6. Representations and Warranties of the Company and Certain of its
----------------------------------------------------------------
Subsidiaries. The Company and each subsidiary of the Company named on the
- ------------
signature pages (the "Signatory Subsidiaries"), jointly and severally,
represents and warrants to each dealer manager that:
(a) The Registration Statement has become effective (other
than any Rule 462(b) Registration Statement to be filed by the Company
after the effectiveness of this Agreement); any Rule 462(b) Registration
Statement filed after the effectiveness of this Agreement will become
effective no later than 10:00 P.M., New York City time, on the date of this
Agreement; and no stop order suspending the effectiveness of the
Registration Statement is in effect, and no proceedings for such purpose
are pending before or threatened by the Commission.
(b) (i) Each document, if any, filed or to be filed pursuant
to the Exchange Act and incorporated by reference in the Prospectus
complied or will comply when so filed in all material respects with the
Exchange Act; (ii) the Registration Statement (other than any Rule 462(b)
Registration Statement to be filed by the Company after the effectiveness
of this Agreement), when it became effective, did not contain and, as
amended, if applicable, will not at
5
<PAGE>
time of effectiveness of such amendment contain, any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading, (iii) the Registration Statement (other than any Rule 462(b)
Registration Statement to be filed by the Company after the effectiveness
of this Agreement) and the Prospectus comply and, as amended or
supplemented, if applicable, will comply in all material respects with the
Act, (iv) if the Company is required to file a Rule 462(b) Registration
Statement after the effectiveness of this Agreement, such Rule 462(b)
Registration Statement and any amendments thereto, when they become
effective (A) will not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading and (B) will comply in all
material respects with the Act and (v) the Prospectus does not contain and,
as amended or supplemented, if applicable, will not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements therein, in the light of the circumstances under which
they were made, not misleading, except that the representations and
warranties set forth in this paragraph do not apply to statements or
omissions in the Registration Statement or the Prospectus based upon
information relating to you furnished to the Company in writing by you
expressly for use therein.
(c) Each of the Company and its "significant subsidiaries"
(as such term is defined in Rule 1-02 of Regulation S-X) and each Signatory
Subsidiary (each "significant subsidiary" and Signatory Subsidiary, a
"Subsidiary" and collectively, "Subsidiaries"), has been duly incorporated,
is validly existing as a corporation in good standing under the laws of its
jurisdiction of incorporation and has the corporate power and authority to
carry on its business as described in the Prospectus and to own, lease and
operate its properties, and each is duly qualified and is in good standing
as a foreign corporation authorized to do business in each jurisdiction in
which the nature of its business or its ownership or leasing of property
requires such qualification, except where the failure to be so qualified
would not have a material adverse effect on the business, prospects,
financial condition or results of operations of the Company and its
subsidiaries, taken as a whole.
(d) There are no outstanding subscriptions, rights,
warrants, options, calls, convertible securities, commitments of sale or
liens granted or issued by the Company or any of its Subsidiaries relating
to or entitling any person to purchase or otherwise to acquire any shares
of the capital stock of the Company or any of its Subsidiaries, except as
otherwise disclosed in the Registration Statement or the Prospectus.
(e) All the outstanding shares of capital stock of the
Company have been duly authorized and validly issued and are fully paid,
non-assessable and not subject to any preemptive or similar rights; the
Rights have been duly authorized for issuance by the Company pursuant to
the Rights Offering, and, the Underlying Shares, when issued and delivered
by the Company pursuant to this Agreement, against payment of the purchase
price therefor, will be duly authorized, validly issued and fully paid and
non-assessable; the Securities and the Common Stock conform in all material
respects to all statements relating thereto contained in the Prospectus and
such description conforms to any description thereof set forth in the
certificates evidencing the Common Stock and the Rights and the Company's
Amended and Restated Certificate of Incorporation and bylaws; no holder of
the Securities will be subject to personal
6
<PAGE>
liability by reason of being such a holder; and the issuance of the
Securities in the Rights Offering is not subject to the preemptive or other
similar rights of any securityholder of the Company.
(f) All of the outstanding shares of capital stock of each
of the Subsidiaries have been duly authorized and validly issued and are
fully paid and non-assessable, and are owned by the Company, directly or
indirectly through one or more subsidiaries, free and clear of any security
interest, claim, lien, encumbrance or adverse interest of any nature,
except as disclosed in the Prospectus.
(g) The authorized capital stock of the Company conforms as
to legal matters to the description thereof contained in the Prospectus.
(h) Neither the Company nor any of the Subsidiaries is in
violation of its respective charter or by-laws or in default in the
performance of any obligation, agreement, covenant or condition contained
in any indenture, loan agreement, mortgage, lease or other agreement or
instrument to which the Company or any of its subsidiaries is a party or by
which the Company or any of the Subsidiaries or their respective property
is bound, except for defaults that would not have a material adverse effect
on the business, prospects, financial condition or results of operations of
the Company and its subsidiaries, taken as a whole.
(i) The execution, delivery and performance of this
Agreement by the Company and the Signatory Subsidiaries, the compliance by
the Company with all the provisions hereof and the consummation of the
transactions contemplated hereby and the use of proceeds from the Rights
Offering as described in the prospectus under the caption "Use of Proceeds"
will not (i) require any consent, approval, authorization or other order
of, or qualification with, any court or governmental body or agency (except
such as may be required under the federal securities laws or the securities
or Blue Sky laws of the various states), (ii) conflict with or constitute a
breach of any of the terms or provisions of, or a default under or result
in the creation or imposition of any lien, charge or encumbrance upon any
property or assets of the Company or any subsidiary pursuant to, the
charter or by-laws of the Company or any of its subsidiaries or any
indenture, loan agreement, mortgage, lease or other agreement or instrument
that is material to the Company and its subsidiaries, taken as a whole, to
which the Company or any of its subsidiaries is a party or by which the
Company or any of its subsidiaries or their respective property is bound,
other than the Company's bridge loan that will be repaid with the proceeds
of the Rights Offering, (iii) constitute a Repayment Event (as defined
below) other than the Company's bridge loan that will be repaid with the
proceeds of the Rights Offering, (iv) violate or conflict with any
applicable law or any rule, regulation, judgment, order or decree of any
court or any governmental body or agency having jurisdiction over the
Company, any of its subsidiaries or their respective property or (v) result
in the suspension, termination or revocation of any Authorization (as
defined below) of the Company or any of its subsidiaries or any other
impairment of the rights of the holder of any such Authorization. As used
in this Agreement, a "Repayment Event" means any event or condition which
gives the holder of any note, debenture or other evidence of indebtedness
(or any person acting on such holder's behalf) the right to require the
repurchase, redemption or repayment of all or a portion of such
indebtedness by the Company or any subsidiary.
7
<PAGE>
(j) There are no legal or governmental proceedings pending
or threatened to which the Company or any of its subsidiaries is or could
be a party or to which any of their respective property is or could be
subject that are required to be described in the Registration Statement or
the Prospectus and are not so described; nor are there any statutes,
regulations, contracts or other documents that are required to be described
in the Registration Statement or the Prospectus or to be filed as exhibits
to the Registration Statement that are not so described or filed as
required.
(k) Neither the Company nor any of its subsidiaries has
violated any foreign, federal, state or local law or regulation relating to
the protection of human health and safety, the environment or hazardous or
toxic substances or wastes, pollutants or contaminants ("Environmental
Laws"), any provisions of the Employee Retirement Income Security Act of
1974, as amended, or any provisions of the Foreign Corrupt Practices Act,
or the rules and regulations promulgated thereunder, except for such
violations which, singly or in the aggregate, would not have a material
adverse effect on the business, prospects, financial condition or results
of operation of the Company and its subsidiaries, taken as a whole.
(l) Each of the Company and its subsidiaries has such
permits, licenses, consents, exemptions, franchises, authorizations and
other approvals (each, an "Authorization") of, and has made all filings
with and notices to, all governmental or regulatory authorities and self-
regulatory organizations and all courts and other tribunals, including,
without limitation, under any applicable Environmental Laws, as are
necessary to own, lease, license and operate its respective properties and
to conduct its business as it is now operated, except where the failure to
have any such Authorization or to make any such filing or notice would not,
singly or in the aggregate, have a material adverse effect on the business,
prospects, financial condition or results of operations of the Company and
its subsidiaries, taken as a whole. Each such Authorization is valid and in
full force and effect and each of the Company and its subsidiaries is in
compliance with all the terms and conditions thereof and with the rules and
regulations of the authorities and governing bodies having jurisdiction
with respect thereto; and no event has occurred (including, without
limitation, the receipt of any notice from any authority or governing body)
which allows or, after notice or lapse of time or both, would allow,
revocation, suspension or termination of any such Authorization or results
or, after notice or lapse of time or both, would result in any other
impairment of the rights of the holder of any such Authorization; and such
Authorizations contain no restrictions that are burdensome to the Company
or any of its subsidiaries; except where such failure to be valid and in
full force and effect or to be in compliance, the occurrence of any such
event or the presence of any such restriction would not, singly or in the
aggregate, have a material adverse effect on the business, prospects,
financial condition or results of operations of the Company and its
subsidiaries, taken as a whole.
(m) There are no costs or liabilities associated with
Environmental Laws (including, without limitation, any capital or operating
expenditures required for clean-up, closure of properties or compliance
with Environmental Laws or any Authorization, any related constraints on
operating activities and any potential liabilities to third parties) which
would, singly or in the aggregate, have a material adverse effect on the
business, prospects, financial condition or results of operations of the
Company and its subsidiaries, taken as a whole.
8
<PAGE>
(n) This Agreement has been duly authorized, executed and
delivered by the Company and the Signatory Subsidiaries. The Standby
Agreement has been duly authorized, executed and delivered by the Company.
The Subscription Agent Agreement has been duly authorized by the Company.
(o) Arthur Andersen LLP are independent public accountants
with respect to the Company and its subsidiaries as required by the Act.
(p) The consolidated financial statements included in the
Registration Statement and the Prospectus (and any amendment or supplement
thereto), together with related schedules and notes, present fairly the
consolidated financial position, results of operations and changes in
financial position of the Company, its predecessors and their respective
subsidiaries on the basis stated therein at the respective dates or for the
respective periods to which they apply; such statements and related
schedules and notes have been prepared in accordance with generally
accepted accounting principles consistently applied throughout the periods
involved, except as disclosed therein; the supporting schedules, if any,
included in the Registration Statement and the Prospectus present fairly in
accordance with generally accepted accounting principles the information
required to be stated therein; and the other financial and statistical
information and data set forth in the Registration Statement and the
Prospectus (and any amendment or supplement thereto) are, in all material
respects, accurately presented and prepared on a basis consistent with such
financial statements and the books and records of the Company.
(q) The Company is not and, after giving effect to the
offering and sale of the Shares and the application of the proceeds thereof
as described in the Prospectus, will not be, an "investment company" as
such term is defined in the Investment Company Act of 1940, as amended.
(r) Other than as described in the Registration Statement
and the Prospectus, there are no contracts, agreements or understandings
between the Company and any person granting such person the right to
require the Company to file a registration statement under the Act with
respect to any securities of the Company or to require the Company to
include such securities with the Shares registered pursuant to the
Registration Statement.
(s) Since the respective dates as of which information is
given in the Prospectus other than as set forth in the Prospectus
(exclusive of any amendments or supplements thereto subsequent to the date
of this Agreement), (i) there has not occurred any material adverse change
or any development involving a prospective material adverse change in the
condition, financial or otherwise, or the earnings, assets, business,
management or operations of the Company and its subsidiaries, taken as a
whole, (ii) there has not been any material adverse change or any
development involving a prospective material adverse change in the capital
stock or in the long-term debt of the Company or any of its subsidiaries
and (iii) neither the Company nor any of its subsidiaries has incurred any
material liability or obligation, direct or contingent.
(t) There is no (i) significant unfair labor practice
complaint, grievance or arbitration proceeding pending or threatened
against the Company or any of the Subsidiaries before the National Labor
Relations Board or any state or local labor relations board or (ii) strike,
9
<PAGE>
labor dispute, slowdown or stoppage pending or threatened against the
Company or any of the Subsidiaries, except for such actions specified in
clause (i) or (ii) above, which, singly or in the aggregate, would not have
a material adverse effect on the business, prospects, financial condition
or results of operations of the Company and the Subsidiaries, taken as a
whole.
(u) There are no contracts or documents which are required
to be described in the Registration or the Prospectus or to be filed as
exhibits thereto which have not been so described or filed as required.
(v) The Company and its subsidiaries own or possess, or can
acquire on reasonable terms, all patents, patent rights, licenses,
inventions, copyrights, know-how (including trade secrets and other
unpatented and/or unpatentable proprietary or confidential information,
systems or procedures), trademarks, service marks and trade names or other
intellectual property ("intellectual property") currently employed by them
in connection with the business now operated by them except where the
failure to own or possess or otherwise be able to acquire such intellectual
property would not, singly or in the aggregate, have a material adverse
effect on the business, prospects, financial condition or results of
operation of the Company and its subsidiaries, taken as a whole; and, other
than as disclosed in the Prospectus, neither the Company nor any of its
subsidiaries has received any notice or is otherwise aware of infringement
of or conflict with asserted rights of others with respect to any of such
intellectual property which, singly or in the aggregate, if the subject of
an unfavorable decision, ruling or finding, would have a material adverse
effect on the business, prospects, financial condition or results of
operations of the Company and its subsidiaries, taken as a whole.
(w) Neither the Company nor any of its subsidiaries own any
real property. The Company and its subsidiaries have good title to all
personal property owned by them which is material to the business of the
Company and its subsidiaries, in each case free and clear of all liens,
encumbrances and defects except such as are described in the Prospectus or
such as do not materially affect the value of such property and do not
interfere with the use made and proposed to be made of such property by the
Company and its subsidiaries; and any real property and buildings held
under lease by the Company and its subsidiaries are held by them under
valid, subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and proposed to be made of
such property and buildings by the Company and its subsidiaries, in each
case except as described in the Prospectus.
(x) The Company and each of its subsidiaries are insured by
insurers of recognized financial responsibility against such losses and
risks, or have adequate self-insurance reserves, in such amounts as are
prudent and customary in the businesses in which they are engaged; and
neither the Company nor any of its subsidiaries (i) has received notice
from any insurer or agent of such insurer that substantial capital
improvements or other material expenditures will have to be made in order
to continue such insurance or (ii) has any reason to believe that it will
not be able to renew its existing insurance coverage as and when such
coverage expires or to obtain similar coverage from similar insurers at a
cost that would not have a material adverse effect on the business,
prospects, financial conditions or results of operations of the Company and
its subsidiaries, taken as a whole.
10
<PAGE>
(y) The Rights have been approved for trading on the NYSE,
subject to official notice of issuance;
7. Covenants of Company. The Company covenants and agrees with you
--------------------
as follows:
(a) The Company shall at all times during the Rights
Offering have performed all of its obligations hereunder theretofore to be
performed.
(b) The Company agrees to furnish to you, at your reasonable
request, a certificate from the Company, dated such date (and reaffirmed
upon completion of the Rights Offering) and signed by the chief executive
officer of the Company, to the effect that the representations and
warranties of the Company contained in this Agreement are true and correct
as of such date (and reaffirmed upon completion of the Rights Offering) and
that the Company has complied with all of the agreements and satisfied all
of the conditions on its part to be performed or satisfied on or before
such date (and reaffirmed upon completion of the Rights Offering).
(c) The Company will advise you promptly of (i) the
occurrence of any event that could cause the Company to withdraw, rescind,
terminate or modify the Rights Offering, (ii) the occurrence of any event,
or the discovery of any fact, the occurrence or existence of which it
believes would require the making of any change in any of the Rights
Offering Material then being used in connection with the Rights Offering or
would cause any representation or warranty contained in this Agreement to
be untrue or inaccurate, (iii) the issuance by the Commission or any Other
Agency of any comment or order or the taking of any other action concerning
the Rights Offering (and, if in writing, the Company will furnish you with
a copy thereof), (iv) the suspension of qualification of the Securities in
any jurisdiction, (v) any material developments in connection with the
Rights Offering, including, but not limited to, the commencement of any
lawsuit concerning the Rights Offering, (vi) the occurrence of a Repayment
Event, and (vii) any other information relating to the Rights Offering, the
Rights Offering Material or this Agreement which you may from time to time
reasonably request.
(d) The Company shall use its best efforts to comply with
the applicable provisions of the Act and the Exchange Act, and other
applicable securities law.
(e) The Company shall use the net proceeds received by it
from the sale of the Underlying Shares in the manner specified in the
Prospectus under the caption "Use of Proceeds".
(f) The Company shall make generally available to its
security holders and to you as soon as practicable an earnings statement
which will satisfy the provisions of Section 11(a) of the Securities Act
and Rule 158 of the Commission promulgated thereunder covering a period of
at least twelve months beginning with the first fiscal quarter of the
Company occurring after the "effective date" (as defined in Rule 158) of
the Registration Statement.
11
<PAGE>
(g) The Company shall furnish copies of the Prospectus to
you in New York City prior to 10:00 a.m., New York City time, on the
business day next succeeding the date of this Agreement in such quantities
as you may reasonably request and, during the period of time after the
commencement of the Rights Offering if in the opinion of counsel for the
dealer managers a prospectus relating to the Securities is required by law
to be delivered in connection with the Rights Offering, if any event shall
occur as a result of which it is necessary to amend or supplement the
Prospectus in order to make the statements therein, in the light of the
circumstances when the Prospectus is delivered to a Rights Holder, not
misleading, or if it is necessary to amend or supplement the Prospectus to
comply with law, forthwith to prepare and furnish, at the expense of the
Company, to you and the Rights Holders, such amendments or supplements to
the Prospectus as may be necessary so that the statements in the Prospectus
as so amended or supplemented will not, in the light of the circumstances
when the Prospectus is delivered to the Rights Holders, be misleading or so
that the Prospectus will comply with law.
(h) The Company shall deliver, at the expense of the
Company, to you, two signed copies of the Registration Statement (as
originally filed) and each amendment thereto, in each case including
exhibits and documents incorporated by reference therein.
(i) The Company shall endeavor to qualify the Rights and the
Underlying Shares for offer under the securities or Blue Sky laws of such
jurisdictions as you shall reasonably request and to continue such
qualification in effect so long as reasonably required for distribution of
the Securities; provided that the Company shall not be required to file a
general consent to service of process in any jurisdiction.
8. Conditions to Your Obligations. Your obligations under this
------------------------------
Agreement are subject to the performance by the Company of its obligations
hereunder and to the following additional conditions:
(a) Christensen, Miller, Fink, Jacobs, Glaser, Weil &
Shapiro, LLP, counsel for the Company, shall have furnished to you its
written opinion, dated the date hereof, addressing the matters set forth in
Schedule B attached hereto.
(b) O'Melveny & Myers LLP, counsel for you, shall have
furnished to you its written opinion, dated the date hereof, addressing the
matters set forth in Schedule C attached hereto.
(c) All representations, warranties and other statements of
the Company contained in this Agreement are now and at the commencement of,
at all times during the continuance of, and upon consummation of, the
Rights Offering shall be true and correct.
(d) The Company at all times shall have performed all of its
obligations hereunder.
(e) Throughout the Subscription Period, no stop order,
restraining order or injunction shall have been issued by the Commission or
any court and no litigation shall have been commenced or threatened before
the Commission or any court with respect to (i) the making or consummation
of the Rights Offering, or (ii) the execution, delivery or performance by
the
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<PAGE>
Company of this Agreement, which you or your legal counsel believe
makes it inadvisable for you to continue to render services pursuant
hereto.
(f) It shall not have been unlawful under any law, rule or
regulation, Federal, state or local, for you to render services pursuant to
this Agreement, or to continue so to act, as the case may be.
(g) Since the respective dates as of which information is
given in the Prospectus other than as set forth in the Prospectus
(exclusive of any amendments or supplements thereto subsequent to the date
of this Agreement), and at all times during the Subscription Period, (i)
there shall not have occurred any change or any development involving a
prospective change in the condition, financial or otherwise, or the
earnings, assets, business, management or operations of the Company and its
subsidiaries, taken as a whole, (ii) there shall not have been any change
or any development involving a prospective change in the capital stock or
in the long-term debt of the Company or any of its subsidiaries and (iii)
neither the Company nor any of its subsidiaries shall have incurred any
liability or obligation, direct or contingent, the effect of which, in any
such case described in clause 8(g)(i), 8(g)(ii) or 8(g)(iii), in your
judgment, is material and adverse and, in your judgment, makes it
impracticable to proceed with the Rights Offering on the terms and in the
manner contemplated in the Prospectus.
(h) On the date of this Agreement, Arthur Andersen LLP shall
have furnished to you a letter, dated the date hereof, in form and
substance satisfactory to you, containing statements and information of the
type customarily included in accountants' "comfort letters" with respect to
the financial statements and certain financial information contained or
incorporated by reference in the Registration Statement and the Prospectus.
9. Reference to You. The Company agrees that any reference to you or
----------------
any of your affiliates in the Rights Offering Material, or any other release,
publication or communication to any party outside the Company, is subject to
your prior approval. If you resign or are terminated prior to the dissemination
of any the Rights Offering Material or any other release or communication, no
reference shall be made therein to you without your prior written permission.
10. Access to Information. In connection with your activities
---------------------
hereunder, the Company agrees to furnish you and your counsel with all
information concerning the Company that you reasonably deem appropriate and
agrees to provide you with reasonable access to the Company's officers,
directors, accountants, counsel, consultants and other appropriate agents and
representatives.
11. Survival of Certain Provisions. The indemnity and contribution
------------------------------
agreements contained in Section 5 of this Agreement (including Schedule A
hereto), the covenants, representations and warranties of the Company made
pursuant to Sections 6 and 7 of this Agreement, the provisions contained in
Sections 3 and 4 of this Agreement and this Section 1 shall remain operative and
in full force and effect regardless of (a) any failure to commence, or the
withdrawal, termination or consummation of, the Rights Offering or the
termination or assignment of this Agreement, (b) any investigation made by or on
behalf of any indemnified person, and (c) the completion of your services
hereunder, and shall be binding upon, and shall inure to the benefit of, any
successors, assigns, heirs and personal representatives of the Company, you, the
indemnified persons and any such person.
13
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12. Notices. Notice given pursuant to any of the provisions of this
-------
Agreement shall be in writing and shall be mailed or delivered (a) to the
Company at Metro-Goldwyn-Mayer Inc., 2500 Broadway Street, Santa Monica,
California 90404, Attention: Robert Brada, with a copy to Christensen, Miller,
Fink, Jacobs, Glaser, Weil & Shapiro, LLP, 2121 Avenue of the Stars, Los
Angeles, California 90067, Attention: Gary Jacobs, and (ii) if to any dealer
manager or to you, to you c/o Donaldson, Lufkin & Jenrette Securities
Corporation, 277 Park Avenue, New York, New York 10172, Attention: Syndicate
Department, with a copy to O'Melveny & Myers LLP, 1999 Avenue of the Stars,
Suite 700, Los Angeles, California, Attention: Ken Bishop, or in any case to
such other address as the person to be notified may have requested in writing.
13. Construction. This Agreement, including Schedule A hereto,
------------
incorporate the entire understanding of the parties and (except as otherwise
provided herein) supersedes all previous agreements, and shall be governed by,
and construed in accordance with, the laws of the State of New York as applied
to contracts made and performed in such State, without regard to principles of
conflicts of law. The Company hereby irrevocably and unconditionally submits to
the exclusive jurisdiction of the Federal and New York State courts located in
the City of New York in connection with any suit, action or proceeding related
to this Agreement or any of the matters contemplated hereby, irrevocably waives
any defense of lack of personal jurisdiction and irrevocably agrees that all
claims in respect of any suit, action or proceeding may be heard and determined
in any such court. The Company irrevocably waives, to the fullest extent it may
effectively do so under applicable law, any objection which it may now or
hereafter have to the laying of venue of any such suit, action or proceeding
brought in any such court and any claim that any such suit, action or proceeding
brought in any such court has been brought in an inconvenient forum.
14. Severability. Any determination that any provision of this
------------
Agreement (including any provision of Schedule A hereto) may be or is,
unenforceable shall not affect the enforceability of the remainder of this
Agreement (including any provision of Schedule A hereto).
15. Headings. The section headings in this Agreement have been
--------
inserted as a matter of convenience of reference and are not to be deemed to be
part of this Agreement.
16. Counterparts. This Agreement may be executed simultaneously in
------------
two or more counterparts, each of which shall be deemed an original, but all of
which shall constitute but one and the same instrument.
17. Third Party Beneficiaries. This Agreement has been and is made
-------------------------
solely for the benefit of the Company, you and the other Indemnified Parties
referred to in Section 5 and Schedule A hereto and their respective successors,
heirs, personal representatives and assigns, and no other person shall acquire
or have any right under or by virtue of this Agreement.
18. Advertisements. The Company agrees that you shall have the right
--------------
to place advertisements in financial and other newspapers and journals at your
own expense describing your services to the Company hereunder; provided,
--------
however, that: (a) you shall have submitted to the Company a copy of any such
- -------
advertisement for its prior approval, which approval shall not be unreasonably
withheld or delayed, and (b) the publication of such advertisements shall comply
with applicable law.
14
<PAGE>
19. Modification. This Agreement may not be modified or amended
------------
except in writing, duly executed by the parties hereto.
20. Confidentiality. To the extent consistent with legal
---------------
requirements, all information given to DLJ and BofA by the Company, unless
publicly available or otherwise available to DLJ and BofA without restriction or
breach of any confidentiality agreement, will be held by DLJ and BofA in
confidence and will not be disclosed to anyone other than DLJ's and BofA's
agents and advisors without the Company's prior approval or used for any purpose
other than those referred to in this Agreement.
21. Tracinda. The dealer managers agree that in the event (a) there
--------
is any breach or default or alleged breach or default by the Company under this
Agreement, or (b) the dealer managers have or may have any claim arising from or
relating to the terms hereof, the dealer managers shall not commence any lawsuit
or otherwise seek to impose any liability whatsoever against Kirk Kerkorian, 250
Rodeo, Inc. or Tracinda Corporation (collectively, "Tracinda"). The dealer
managers hereby further agree that (a) Tracinda shall not have any liability
whatsoever with respect to this Agreement or any matters relating to or arising
from this Agreement, including any alleged breach of or default under this
Agreement by the Company; and (b) the dealer managers shall not assert or permit
any party claiming through it to assert a claim or impose any liability against
Tracinda as to any matter or thing arising out of or relating to this Agreement
or any alleged breach of or default under this Agreement by the Company. In
addition, you agree that Tracinda is not a party to this Agreement.
15
<PAGE>
If the foregoing terms correctly set forth our agreement, please confirm
this by signing and returning a duplicate copy of this letter. Thereupon, this
letter, as signed in counterpart, shall constitute our agreement on the subject
matter herein.
Very truly yours,
METRO-GOLDWYN-MAYER INC.
By:
-----------------------------
Title:
METRO-GOLDWYN-MAYER
STUDIOS INC.
By:
-----------------------------
Title:
ORION PICTURES CORPORATION
By:
-----------------------------
Title:
Confirmed and agreed to as
of the date first above written:
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
BANC OF AMERICA SECURITIES LLC
By: DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By:
-------------------------------
Title:
16
<PAGE>
EXHIBIT 4.1
METRO-GOLDWYN-MAYER INC.
RIGHTS CERTIFICATE FOR RIGHTS OFFERING FOR
HOLDERS OF RECORD ON OCTOBER 15, 1999
591610 12 6
--------------------------- ----------------------
RIGHTS CERTIFICATE NUMBER CUSIP NUMBER
------------------------------ --------------- ----------------------
SHARES ELIGIBLE TO SUBSCRIBE RIGHTS RECORD DATE SHARES
Metro-Goldwyn-Mayer Inc. (the "Company") is conducting a rights offering (the
"Rights Offering") which entitles the holders of shares of the Company's common
stock, $.01 par value per share (the "Common Stock"), as of the close of
business on October 15, 1999 (the "Record Date") to receive 0.328 transferable
rights (each, a "Right") for each share of the Common Stock held of record on
the Record Date. Each whole Right entitles the holder thereof to subscribe for
and purchase one share of Common Stock (the "Basic Subscription Privilege") at a
Subscription Price of $14.50 per share. If any shares of the Common Stock are
not purchased by holders of Rights pursuant to the Basic Subscription Privilege
(the "Excess Shares"), any holder purchasing all of the shares of the Common
Stock available to it pursuant to the Basic Subscription Privilege may purchase
an additional number of the Excess Shares (the "Oversubscription Privilege") if
so specified hereon, subject to proration. No fractional shares or cash in lieu
thereof will be issued or paid. Set forth above is the number of shares of the
Common Stock held by such holder, and the number of shares to which each holder
is entitled to subscribe pursuant to the Basic Subscription Privilege.
FOR A MORE COMPLETE DESCRIPTION OF THE TERMS AND CONDITIONS OF THE RIGHTS
OFFERING, PLEASE REFER TO THE PROSPECTUS SUPPLEMENT DATED OCTOBER 15, 1999 AND
ACCOMPANYING PROSPECTUS DATED SEPTEMBER 9, 1999 (COLLECTIVELY, THE
"PROSPECTUS"), WHICH IS INCORPORATED HEREIN BY REFERENCE. COPIES OF THE
PROSPECTUS ARE AVAILABLE UPON REQUEST FROM CHASEMELLON SHAREHOLDER SERVICES,
L.L.C. (TOLL FREE (888) 867-5964). CAPITALIZED TERMS USED BUT NOT DEFINED HEREIN
SHALL HAVE THE RESPECTIVE MEANINGS ASCRIBED TO SUCH TERMS IN THE PROSPECTUS.
THIS RIGHTS CERTIFICATE (OR A NOTICE OF GUARANTEED DELIVERY) MUST BE RECEIVED
BY CHASEMELLON SHAREHOLDER SERVICES, L.L.C. WITH PAYMENT IN FULL BY 5:00 P.M.,
NEW YORK CITY TIME, ON NOVEMBER 8, 1999 (UNLESS EXTENDED IN THE SOLE DISCRETION
OF THE COMPANY) (AS IT MAY BE EXTENDED, THE "EXPIRATION DATE"). ANY RIGHTS NOT
EXERCISED PRIOR TO THE EXPIRATION DATE WILL BE NULL AND VOID. ANY SUBSCRIPTION
FOR SHARES OF COMMON STOCK IN THE RIGHTS OFFERING MADE HEREBY IS IRREVOCABLE.
The Rights represented by this Rights Certificate may be exercised by duly
completing Form 1; and may be transferred, assigned, exercised or sold through a
bank or broker by duly completing Form 2, and may be sold through the
Subscription Agent by duly completing Form 3. Rights holders are advised to
review the Prospectus and instructions, copies of which are available from
ChaseMellon Shareholder Services, L.L.C. before exercising or selling their
Rights.
SUBSCRIPTION PRICE: $14.50 PER SHARE
The registered owner whose name is inscribed hereon, or assigns, is entitled
to subscribe for shares of the Common Stock upon the terms and subject to the
conditions set forth in the Prospectus and instructions relating to the use
hereof.
THIS RIGHTS CERTIFICATE IS TRANSFERABLE, AND MAY BE COMBINED OR DIVIDED (BUT
ONLY INTO RIGHTS CERTIFICATES EVIDENCING FULL RIGHTS) AT THE OFFICE OF
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
RIGHTS HOLDERS SHOULD BE AWARE THAT IF THEY CHOOSE TO EXERCISE OR TRANSFER
ONLY PART OF THEIR RIGHTS, THEY MAY NOT RECEIVE A NEW RIGHTS CERTIFICATE IN
SUFFICIENT TIME TO EXERCISE THE REMAINING RIGHTS EVIDENCED THEREBY.
<PAGE>
- --------------------------------------------------------------------------------
FORM 1
EXERCISE AND SUBSCRIPTION: The undersigned hereby irrevocably exercises one or
more Rights to subscribe for shares of the Common Stock as indicated below, on
the terms and subject to the conditions specified in the Prospectus, receipt of
which is hereby acknowledged.
(a) Number of shares subscribed for pursuant to the Basic Subscription
Privilege _____ x $14.50 = $_____ payment. (One whole Right needed to
subscribe for one share.)
(b) Number of shares subscribed for pursuant to the Oversubscription
Privilege _____ x $14.50 = $_____ payment.
(c) Total Subscription (total number of shares on lines (a) and (b)
multiplied by the subscription price) = $_____ payment.
METHOD OF PAYMENT (CHECK AND COMPLETE APPROPRIATE BOX(ES)):
[_] Check, bank draft, or money order payable to "ChaseMellon
Shareholder Services, LLC., as Subscription Agent"; or
[_] Wire transfer directed to The Chase Manhattan Bank, New York, NY,
ABA No. 021000021-Attention: ChaseMellon Shareholder Services
Reorg. Account: 323-859569 (Metro-Goldwyn-Mayer Inc.)
(d) If the Rights being executed pursuant to the Basic Subscription
Privilege do not account for all of the Rights represented by the
Rights Certificates (check only one):
[_] Deliver to the undersigned a new Rights Certificate evidencing
the remaining Rights to which the undersigned is entitled.
[_] Deliver a new Rights Certificate in accordance with the
undersigned's Form 2 instructions (which include any required
signature guarantees).
[_] Sell the remaining unexercised Rights in accordance with the
undersigned's Form 3 instructions.
[_] Do not deliver any new Rights Certificate to me.
[_] Check here if Rights are being exercised pursuant to the Notice
of Guaranteed Delivery delivered to the Subscription Agent prior
to the date hereof and complete the following:
Name(s) of Registered Holder(s)
---------------------------------
Window Ticket Number (if any)
-----------------------------------
Date of Execution of Notice of Guaranteed Delivery
--------------
Name of Institution Which Guaranteed Delivery
-------------------
* If the aggregate Subscription Price enclosed or transmitted is insufficient
to purchase the total number of shares included in lines (a) and (b), or if
the number of shares being subscribed for is not specified, the Rights Holder
exercising this Rights Certificate shall be deemed to have subscribed for the
maximum amount of whole shares that could be subscribed for upon payment of
such amount. If the number of shares to be subscribed for pursuant to the
Oversubscription Privilege is not specified and the amount enclosed or
transmitted exceeds the aggregate Subscription Price for all shares
represented by this Rights Certificate (the "Subscription Excess"), the
Rights holder exercising this Rights Certificate shall be deemed to have
exercised the Oversubscription Privilege to purchase, to the extent
available, that number of whole shares of the Common Stock equal to the
quotient obtained by dividing the Subscription Excess by the Subscription
Price, subject to proration, as described in the Prospectus. To the extent
any portion of the aggregate Subscription Price enclosed or transmitted
remains after the foregoing procedures, such funds shall be mailed to the
subscriber without interest or deduction as soon as practicable.
Subscriber's Signature Telephone No. ( )
------------------- -------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FORM 2
TO TRANSFER THIS RIGHTS CERTIFICATE OR SOME OR ALL OF YOUR RIGHTS, OR TO
EXERCISE OR SELL RIGHTS THROUGH YOUR BANK OR BROKER: For value received, ______
Rights represented by this Rights Certificate are hereby assigned to (please
print name and address and Taxpayer Identification Number or Social Security
Number or transferee in full):
Name:
--------------------------------------------------------------------------
Address:
-----------------------------------------------------------------------
- --------------------------------------------------------------------------------
Signature(s) of Transferor(s)
Signatures Guaranteed by:
------------------------------------------------------
Proceeds from the sale of Rights may be subject to withholding of U.S. taxes
unless the Seller's certified U.S. taxpayer identification number (or
certificate regarding foreign status) is on file with the Subscription Agent and
the seller is not otherwise subject to U.S. backup withholding.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FORM 3
TO SELL SOME OR ALL OF YOUR UNEXERCISED RIGHTS THROUGH THE SUBSCRIPTION AGENT:
The undersigned hereby authorizes the Subscription Agent to sell _____ Rights
represented by this Rights Certificate but not exercised hereby and to deliver
to the undersigned a check for the proceeds, if any, from the sale thereof, less
any applicable brokerage commissions, taxes or other direct expenses of sale.
The Subscription Agent's obligation to execute orders is subject to its ability
to find buyers for the Rights.
- --------------------------------------------------------------------------------
Seller's Signature
In Order to sell Rights through the Subscription Agent, you must complete and
sign the substitute Form W-9 as provided in Section 8 of the instructions.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FORM 4
DELIVERY INSTRUCTIONS: Address for mailing of stock certificates or new Rights
Certificate or any cash payment in accordance with the Prospectus if other than
shown on the reverse hereof:
Name
---------------------------------------------------------------------------
Address
------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT 10.1
METRO-GOLDWYN-MAYER INC.
STOCK PURCHASE AGREEMENT
------------------------
TRACINDA CORPORATION
150 S. Rodeo Drive
Beverly Hills, CA 90212
250 RODEO, INC.
150 S- Rodeo Drive
Beverly Hills, CA 90212
Dear Sirs:
Metro-Goldwyn-Mayer Inc., a Delaware corporation (the "Company"), proposes
to distribute, on or about October 15, 1999, to the holders of its Common Stock,
par value $.01 per share (the "Common Stock"), of record as of the close of
business on October 15, 1999,(the "Record Date") transferable rights (the
"Rights") to purchase an aggregate of 49,721,268 shares of Common Stock, subject
to adjustment for the exercise of options prior to the close of business on the
Record Date (the "Subscription Shares"), at a price of $14.50 per share (the
"Subscription Price") by issuing to such holders of record rights certificates
(the "Rights Certificates") evidencing 0.328 Rights for each share of Common
Stock held as of the Record Date rounded up to the nearest whole right. The
Company proposes to offer to sell the Subscription Shares on the basis of one
Subscription Share for each whole Right held (the "Rights Offering"). The time
of the first mailing of the Rights Certificates is hereinafter referred to as
the "Time of Mailing." The Rights will expire at 5:00 P.M. on November 8, 1999
(the "Expiration Date"). Subject to the terms and conditions herein, the
Company desires to sell, and 250 Rodeo, Inc., a Delaware corporation ("250
Rodeo"), desires to purchase, all of the Subscription Shares not subscribed for
by the record holders or others in the Rights Offering (the "Unsubscribed
Shares"), which will result in the receipt by the Company of aggregate proceeds
from the sale of Subscription Shares and Unsubscribed Shares of approximately
$721 million (before expenses payable by the Company). Such Unsubscribed Shares
or any portion thereof are herein referred to as the "Securities."
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-3 (No. 333-82775) and a related
preliminary prospectus for the registration of the Rights and the Subscription
Shares (the "Offering") under the Securities Act of 1933, as amended (the "1933
Act"). Such registration statement, as amended, (including all documents, if
any, incorporated by reference therein), as from time to time amended or
supplemented pursuant to the 1933 Act, is hereinafter referred to as the
"Registration Statement." The Registration Statement was declared effective by
the Commission on September 9, 1999. The final prospectus relating to the
Offering constituting a part of the Registration Statement, together with the
Company's prospectus supplement dated October 15,
1
<PAGE>
1999 (including in each case all documents, if any, incorporated by reference
therein), is hereinafter referred to as the "Prospectus."
Section 1. Purchase, Sale and Delivery of Securities.
-----------------------------------------
(a) Subject to the terms herein, the Company agrees to sell to 250
Rodeo and 250 Rodeo agrees to purchase from the Company at a price per share
equal to the Subscription Price, all the Unsubscribed Shares simultaneously with
the closing of the Rights Offering. Each of 250 Rodeo and Tracinda Corporation,
a Nevada corporation ("Tracinda," and collectively with 250 Rodeo, the "Tracinda
Group") agrees to exercise the basic subscription privilege (as defined in the
Prospectus) with respect to any Rights held by it immediately prior to the
expiration of the Rights Offering. The Tracinda Group will not exercise the
oversubscription privilege (as defined in the Prospectus).
(b) Payment of the purchase price for, and delivery of certificates
for, the Securities shall be made at the office of Christensen, Miller, Fink,
Jacobs, Glaser, Weil & Shapiro, LLP, 2121 Avenue of the Stars, 18/th/ Floor, Los
Angeles, California, or at such other place as shall be agreed upon by 250 Rodeo
and the Company, at 11:30 A.M., Los Angeles time, on the [third] business day
after expiration of the Rights Offering, or such other time and date as shall be
agreed upon by 250 Rodeo and the Company (such time and date of payment and
delivery being herein called "Closing Time"). Each of the parties hereto
acknowledges and agrees that each of Tracinda and 250 Rodeo is an affiliate of
the Company and accordingly that its ability to resell the Securities or the
Subscription Shares may be limited in accordance with Rule 144 under the 1933
Act and any other limitations imposed by the Securities and Exchange Commission.
Each of the parties hereto further acknowledges that the Securities, as well as
the Subscription Shares acquired by Tracinda and 250 Rodeo upon exercise of
Rights will be subject to the terms of the Shareholders Agreement (as such term
is defined in the Prospectus). Certificates for the Securities shall be in such
denominations and registered in such names as 250 Rodeo may request in writing
at least two business days before Closing Time.
Payment for any Unsubscribed Shares shall be made to the Company in
immediately available funds to be delivered by wire transfer to the account of
the Company, against delivery to 250 Rodeo of certificates for the Securities,
with such legends affixed to the reverse thereof as are required by Section 3.1
of the Shareholders Agreement.
(c) Payment for Subscription Shares being acquired upon exercise of
Rights by Tracinda and 250 Rodeo (and delivery of the certificates therefor)
shall be made as provided in the Prospectus.
Section 2. Representations and Warranties.
------------------------------
(a) The Company hereby represents and warrants to Tracinda and 250
Rodeo as follows: (i) the Company has all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions set
forth in Section 1 hereof, (ii) the execution and delivery by the Company of
this Agreement, and the consummation by the Company of the
2
<PAGE>
transactions set forth in Section 1 hereof, have been duly authorized by all
necessary corporate action on the part of the Company; (iii) this Agreement has
been duly executed and delivered by the Company and constitutes a valid and
binding obligation of the Company enforceable against the Company in accordance
with its terms, except as the enforceability hereof may be limited by
bankruptcy, insolvency or other similar laws affecting creditors' rights
generally or general principles of equity; (iv) no consent, approval, order or
authorization of, or registration, declaration or filing with, any court,
administrative agency or commission or other, governmental authority or
instrumentality, domestic or foreign, is required by, or with respect to, the
Company in connection with the execution and delivery of this Agreement by the
Company or the consummation by the Company of the transactions set forth in
Section 1 hereof (other than the filing and effectiveness of the Registration
Statement and the filing of the Prospectus under the 1933 Act); (v) the
execution and delivery of this Agreement by the Company and the consummation of
the transactions set forth in Section 1 hereof by the Company does not conflict
with, or result in a breach of, any law or regulation of any Governmental
authority applicable to the Company or any material agreement to which the
Company is a party, and (vi) when issued and paid for in accordance with the
provisions of Section 1 hereof, the shares of Common Stock sold to Tracinda and
250 Rodeo pursuant to Section 1 hereof shall be duly authorized, validly issued,
fully paid, nonassessable, and free of any claims or encumbrances, other than
(a) any claims or encumbrances resulting from actions taken by Tracinda or 250
Rodeo with respect to the shares to be received by it hereunder, or (b) pursuant
to the Shareholders Agreement.
(b) Each of Tracinda and 250 Rodeo hereby represents and warrants
to the Company as follows: (i) it has all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions set
forth in Section 1 hereof; (ii) the execution and delivery by it of this
Agreement, and the consummation by it of the transactions set forth in Section 1
hereof, have been duly authorized by all necessary corporate action on its part;
(iii) this Agreement has been duly executed and delivered by it and constitutes
a valid and binding obligation of it enforceable against it in accordance with
its terms, except as the enforceability hereof may be limited by bankruptcy,
insolvency or other similar laws affecting creditors' rights generally or
general principles of equity; (iv) no consent, approval, order or authorization
of, or registration, declaration or filing with, any court, administrative
agency or commission or other governmental authority or instrumentality,
domestic or foreign, is required by, or with respect to, it in connection with
the execution and delivery of this Agreement by it or the consummation by it of
the transactions set forth in Section I hereof (other than any filings pursuant
to Section 16(a) of, or Regulation 13D under, the Securities Exchange Act of
1934, as amended); (v) the execution and delivery of this Agreement by it and
the consummation by it of the transactions set forth in Section 1 hereof does
not conflict with, or result in a breach of, any law or regulation of any
governmental authority applicable to it or, at the Closing, any material
agreement to which it is a party; (vi) it will acquire the Securities for its
own account and not with a view to distribution or resale in any manner which
would be in violation of the 1933 Act, (vi) it will have at the Closing readily
available funds in an amount sufficient to satisfy its obligations hereunder;
and (vii) its outstanding securities are beneficially owned by less than 100
persons and it is not making, and it does not presently propose to make, a
public offering of its securities.
3
<PAGE>
Section 3. Covenants.
---------
(a) Subject to the terms and conditions of this Agreement, each
party hereto will use its best efforts to take, or cause to be taken, all
actions and to do, or cause to be done, all things reasonably necessary or
reasonably desirable to consummate the transactions contemplated by this
Agreement.
(b) Fees and Expenses. The Company hereby agrees to pay or
-----------------
reimburse all out-of-pocket expenses and fees reasonably incurred by Tracinda
and 250 Rodeo and their affiliates in connection with their performance under
this Agreement and the Rights Offering (including reasonable fees and expenses
of legal counsel).
Section 4. Conditions to the Closing.
-------------------------
(a) The obligations of each of Tracinda and 250 Rodeo, on the one
hand, and the Company, on the other hand, to consummate their respective
obligations pursuant to Section 1 hereof are subject to the satisfaction on or
prior to the Expiration Date of each of the following conditions:
(i) The Registration Statement is effective; and at the
Expiration Date no stop order suspending the effectiveness of the
Registration Statement shall have been issued under the 1933 Act or
proceedings therefor initiated or threatened by the Commission.
(ii) Each of the representations and warranties of the other
parties hereto contained in this Agreement shall be true and correct
in all material respects, at and as of the Expiration Date, with the
same force and effect as of the Expiration Date.
(iii) The Rights Offering shall have been completed in
conformity with all of the requirements related thereto provided in
the Registration Statement and the Prospectus.
(b) The obligations of each of Tracinda and 250 Rodeo to consummate
its obligations pursuant to Section 1 hereof shall also be subject to the
satisfaction on or prior to the Expiration Date of each of the following
conditions:
(i) Material Adverse Change. Since the respective dates as
-----------------------
to which information is given in the Registration Statement and the
Prospectus (each as on file with the Commission on the date hereof),
there shall not have been any material adverse change in or
affecting the business, prospects, financial position, stockholders'
equity or results of operations of the Company and its subsidiaries
taken as a whole except to the extent any such changes result from
changes in general economic conditions or the decline in prices of
stocks generally.
4
<PAGE>
(ii) Legal Opinion. Each of Tracinda and 250 Rodeo shall
-------------
have received the opinion, dated as of the date hereof, of
Christensen, Miller, Fink, Jacobs, Glaser, Weil & Shapiro, LLP,
counsel for the Company, in form and substance satisfactory to their
counsel, of the type typically rendered to underwriters in public
offerings in the United States relating to incorporation and good
standing, authorization of the Rights Offering and the issuance of
shares of Common Stock in connection therewith, capitalization of
the Company, effectiveness and compliance with regulatory
requirements of the Registration Statement, and other consents and
approvals required in connection with the Rights Offering.
(iii) Accountant's Comfort Letter. Banc of America Securities
---------------------------
LLC and Donaldson, Lufkin & Jenrette Securities Corporation (the
"Dealer Managers") shall be in receipt of a comfort letter of the
type typically rendered to underwriters in public offerings in the
United States from Arthur Andersen & Co., dated as of the date
hereof, and each of Tracinda and 250 Rodeo shall have been provided
with a copy of such comfort letter. In the event that the Dealer
Managers have not received such a comfort letter or if either
Tracinda or 250 Rodeo has not been provided with a copy of such
letter, each of Tracinda and 250 Rodeo shall have received from
Arthur Andersen & Co. a comfort letter dated as of the date hereof,
in form and substance satisfactory to it and its counsel, of the
type typically rendered to underwriters in public offerings in the
United States.
Section 5. Notices. Any notice required to be given hereunder shall be
-------
sufficient if in writing, and sent by facsimile transmission, by courier service
(with proof of service), hand delivery or certified or registered mail (return
receipt requested and first-class postage prepaid), addressed as follows:
If to the Company, to:
Metro-Goldwyn-Mayer Inc.
2500 Broadway, 5th Floor
Santa Monica, CA 90404-3061
Attention: Robert Brada
Telephone: (310) 449-3669
Telecopy: (310) 586-8193
with a copy to:
Christensen, Miller, Fink, Jacobs, Glaser, Weil & Shapiro, LLP
2121 Avenue of the Stars, 18/th/ Floor
Los Angeles, CA 90067
Attention: Gary N. Jacobs
Telephone: (310) 282-6268-7979
Telecopy: (310) 556-2920
5
<PAGE>
If to Tracinda or to 250 Rodeo, to:
Tracinda Corporation
150 South Rodeo Drive, Suite 250
Beverly Hills, CA 90212
Attention: Secretary/Treasurer
Telecopy: (310) 271-3416
with a copy to:
Skadden, Arps, Slate, Meagher & Flom
300 S. Grand Avenue
Suite 3400
Los Angeles, CA 90071
Attention: Jerome L. Coben
Telephone: (213) 687-5000
Telecopy: (213) 687-5600
or to such other address as any party shall specify by written notice so given,
and such notice shall be deemed to have been delivered as of the date so
telecommunicated, personally delivered or mailed.
Section 6. Parties. This Agreement shall inure to the benefit of and be
-------
binding upon Tracinda, 250 Rodeo, the Company and their respective successors
and any affiliate of Tracinda (a) to whom rights hereunder are assigned by
Tracinda or 250 Rodeo and (b) who assumes in writing the obligations of the
assignor hereunder (a "Permitted Assignee"). Nothing expressed or mentioned in
this Agreement is intended or shall be construed to give any person, firm or
corporation, other than Tracinda, 250 Rodeo, the Company and their respective
successors and Permitted Assignees and the controlling persons and officers and
directors and their heirs and legal representatives, any legal or equitable
right, remedy or claim under or in respect of this Agreement or any provision
herein contained. This Agreement and all conditions and provisions hereof are
intended to be for the sole and exclusive benefit of Tracinda, 250 Rodeo, the
Company and their respective successors and Permitted Assignees and said
controlling persons and officers and directors and their heirs and legal
representatives, and for the benefit of no other person, firm or corporation. No
purchaser of Securities or Subscription Shares from Tracinda or 250 Rodeo shall
be deemed to be a successor by reason merely of such purchase.
Section 7. Governing Law and Time. This Agreement shall be governed by
----------------------
and construed in accordance with the laws of the State of California applicable
to agreements made and to be performed in said State. Unless otherwise set forth
herein, specified times of day refer to New York City time.
******************
6
<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to the Company a counterpart hereof, whereupon this
instrument, along with all counterparts, will become a binding agreement between
Tracinda, 250 Rodeo and the Company in accordance with its terms. Executed as of
this 15th day of October 1999.
Very truly yours,
METRO-GOLDWYN-MAYER INC.
By:
---------------------------------------
William A.Jones
Senior Executive Vice President & Secretary
Accepted as of the date
first above written
TRACINDA CORPORATION
By:
----------------------------
Anthony L. Mandekic
Secretary/Treasurer
250 RODEO, INC.
By:
----------------------------
Anthony L. Mandekic
Secretary/Treasurer
7
<PAGE>
EXHIBIT 10.2
CONSULTING AGREEMENT
This Consulting Agreement (this "Agreement") is entered into as of August
12, 1999 among Metro-Goldwyn-Mayer Studios Inc., a Delaware corporation ("MGM
Studios"), Metro-Goldwyn-Mayer Inc., a Delaware corporation and the corporate
parent of MGM Studios (the "Company"), and Frank G. Mancuso ("Consultant").
WITNESSETH:
WHEREAS, MGM Studios, the Company and Consultant are parties to that
certain Amended and Restated Employment Agreement, dated August 4, 1997 (the
"Employment Agreement");
WHEREAS, pursuant to the Employment Agreement, Consultant was employed by
MGM Studios and the Company as Chairman and Chief Executive Officer;
WHEREAS, on April 26, 1999, Consultant voluntarily resigned his employment
with MGM Studios, the Company and each of their affiliates for "Good Reason" (as
defined in Section 7(c) of the Employment Agreement) (with Consultant's
termination of employment under the Employment Agreement having become effective
as of April 30, 1999), and agreed to serve as a consultant to MGM Studios and
the Company, on the terms specified herein;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein as well as the parties' rights pursuant to those documents
referred to in Section 7, the parties, intending to be legally bound, agree as
follows:
<PAGE>
1. Consulting Engagement.
---------------------
(a) General. MGM Studios, the Company and Consultant agree that,
-------
effective as of May 1, 1999, Consultant has been retained as a consultant to
MGM Studios and the Company in accordance with the terms and conditions set
forth in this Agreement. During the Term, Consultant will make himself available
in person at the Company's offices in Santa Monica, California or by telephone.
Consultant will not be required to travel in rendering the consulting services
hereunder. MGM Studios and the Company agree that the assistance required of
Consultant under this Section 1(a) will be reasonable under the circumstances
both in nature and in the amount of time to be devoted by Consultant.
(b) Outside Engagement. MGM Studios and the Company acknowledge and
------------------
agree that, except as otherwise provided herein, Consultant will be free, during
the Term, to obtain employment with or consult with any third party. Throughout
the Term, Consultant will be free to engage in civic and charitable activities,
serve on the board of directors of for-profit or non-profit organizations and
manage his personal investments.
2. Term. Unless sooner terminated as provided below, the term of
----
Consultant's engagement hereunder (the "Term") shall be for a period commencing
on May 1, l999 and ending on October 10, 2001.
3. Compensation.
------------
(a) Consulting Fees. In full consideration for the consulting services
---------------
to be rendered by Consultant and in full discharge of the obligations of the
Company, MGM Studios and their affiliates to Consultant hereunder, MGM Studios
shall pay to Consultant and Consultant shall accept:
(i) Annual base consulting fees at the rate of $2 million per
annum during each year of the Term, payable bi-weekly (reduced by the amount of
federal, state and local income tax withholding and other appropriate
deductions) in arrears commencing on August 16, 1999 for the bi-weekly payment
period ended August 6, 1999. Amounts payable for less than a full bi-weekly
payment period will be prorated based on the number of days for which
compensation is payable as a percentage of the total number of days in such bi-
weekly payment period. Consultant acknowledges receipt of consulting fees for
the period from May 1, 1999 through July 23, 1999 at the same prorated rate
provided in this Section 3(a)(i). Consultant
2
<PAGE>
further acknowledges receipt of payment in respect of all earned but unused
vacation days through April 30, 1999.
(ii) Additional payments of $3 million on November 18, 1999, and
$2,688,525 on November 18, 2000, (each reduced by the amount of federal, state
and local income tax withholding and other appropriate deductions).
(iii) In the event of an Acceleration Event (as defined below),
Consultant's death, Disability (as defined below), a Designated Change in
Control (as defined in the Bonus Interest Agreement pursuant to the Senior
Management Bonus Plan, dated November 6, 1997, among MGM Studios, the Company
and Consultant (the "Bonus Interest Agreement")), or the adoption by the Board
of Directors or stockholders of the Company of a resolution authorizing the
dissolution or liquidation of the Company, no further payments shall be made
pursuant to Sections 3(a)(i) or 3(a)(ii) of this Agreement. In lieu of any
further such payments, Consultant or Consultant's estate shall be paid, within
ten days following such Acceleration Event, death, Disability, Designated Change
in Control, or adoption of, resolution authorizing the dissolution or
liquidation of the Company, a lump sum amount equal to the present value of the
sum of (i) Consultant's consulting fees specified in Section 3(a)(i) hereof that
would be otherwise payable after the date of such event and (ii) the additional
payment amounts specified in Section 3(a)(ii) hereof that would otherwise be
payable after such date, discounted at a rate per annum equal to 7.75%. In the
event that, in accordance with this Section 3(a)(iii), Consultant's consulting
fees are accelerated upon the occurrence of an Acceleration Event, Consultant's
Disability, a Designated Change in Control, or the adoption by the Board of
Directors or stockholders of the Company of a resolution authorizing the
dissolution or liquidation of he Company, the present value amount calculated in
accordance with this Section 3(a)(iii) shall be reduced by an amount equal to
the product of (x) $100 and (y) the number of payment periods remaining in the
Term at the time of such Acceleration Event, Disability, Designated Change in
Control, or resolution authorizing the dissolution or liquidation of the
Company, which latter amount shall be payable as a base consulting fee in bi-
weekly installments (reduced by the amount of federal, state and local income
tax withholding and other appropriate deductions) during the remainder of the
Term following the occurrence of such event. An "Acceleration Event" shall be
deemed to occur when the closing price of the Company's common stock (the
"Common Stock") on The New York Stock Exchange, Inc. is at least $24 for 20
trading days in any 30-trading day period (subject to appropriate adjustments in
the event of a stock split, stock dividend, combination, or other similar
transaction involving the Common Stock). "Disability" shall mean Consultant's
3
<PAGE>
inability, due to a physical, mental or emotional illness or injury, to
substantially perform his duties hereunder for 90 consecutive days or for 120
days in any 12-month period, whether or not consecutive.
(b) Bonus Interest Agreement.
------------------------
(i) Survival of Agreement. The Bonus Interest Agreement shall
---------------------
remain in full force and effect and Consultant shall continue to be entitled to
the benefits contained therein (notwithstanding that Consultant is no longer an
employee of the Company), except as such may be modified by the provisions of
this Agreement. Pursuant to Section 4(a)(iii) of the Bonus Interest Agreement,
the parties agree that all of the bonus interests granted to Consultant pursuant
to the Bonus Interest Agreement ("Bonus Interests") became fully vested as of
April 30, 1999. Sections 3, 4(a)(i), 4(a)(ii), 4(b), 4(c), 5(e)(v) and 6(e) of
the Bonus Interest Agreement shall have no applicability to Consultant's rights
to payments under the Bonus Interest Agreement and payments in respect of Bonus
Interests shall be made pursuant to the applicable provisions of the Bonus
Interest Agreement, as if Sections 3, 4(a)(i), 4(a)(ii), 4(b), 4(c), 5(e)(v) and
6(e) of the Bonus Interest Agreement were not a part thereof. The parties
acknowledge that Consultant has been granted the number of Bonus Interests set
forth on Schedule I hereto.
(ii) Repricing. (x) MGM Studios, the Company and Consultant
---------
hereby agree that, subject to Section 3(b)(ii)(y). hereof, effective as of the
date of the effectiveness of this Agreement (pursuant to Section 13(k)(ii)
hereof), all of Consultant's Bonus Interests are hereby repriced on the same
terms as agreed to by MGM Studios and the Company and certain of their
executives and employees pursuant to those certain Amendments to Bonus Interest
Agreements, each dated as of November 30, 1998, such that the floor or trigger
amount and the ceiling or cap, amount of the Bonus Interests set forth in
Sections 4, 5, 7 and 8 (or any other sections of the Bonus Interest Agreement)
shall be adjusted from $24 and $48, respectively, to $14.90 and $29.80,
respectively.
(y) Notwithstanding any provision of the Bonus Interest
Agreement or this Agreement to the contrary, no payments shall be made with
respect to Bonus Interests until the earlier to occur of:
(A) December 31, 2001;
4
<PAGE>
(B) Consultant's death or Permanent Disability
(as defined in the Bonus Interest Agreement), in which case payments in respect
of Bonus Interests shall be paid in accordance with Sections 5(b) and 6(b) of
the Bonus Interest Agreement;
(C) the occurrence of a Designated Change in
Control, in which case payments in respect of Bonus Interests shall be paid in
accordance with Sections 5(c) and 6(c) of the Bonus Interest Agreement; or
(D) the adoption by the Board of Directors or
stockholders of the Company of a resolution authorizing the dissolution or
liquidation of the Company, in which case payments in respect of Bonus Interests
shall be paid in accordance with Sections 5(d) and 6(d) of the Bonus Interest
Agreement.
(c) Stock Option Agreement.
----------------------
(i) Cancellation and Grant of Options. MGM Studios, the Company
---------------------------------
and Consultant acknowledge that, under the Stock Option Agreement pursuant to
the Amended and Restated 1996 Stock Incentive Plan, dated as of November 6, 1997
(the "Stock Option Agreement"), between the Company and Consultant, Consultant
has been granted that number of Series A Options and Series B Options (each as
defined in the Stock Option Agreement) as set forth in Schedule I hereto
(together, the "Old Options"). The parties agree that, effective as of the date
of the effectiveness of this Agreement, Consultant's Old Options are hereby
canceled in exchange for that number of new options set forth on Schedule I
hereto (the "New Options"), which the Company, effective as of such date, hereby
grants to Consultant pursuant to the Amended and Restated 1996 Stock Incentive
Plan (the "Stock Incentive Plan"). Effective as of the date of the effectiveness
of this Agreement, Consultant's Old Options shall be of no further force or
effect, without the requirement of any further action by the Company or
Consultant, and the Stock Option Agreement shall be terminated and void with
respect to the Old Options. The New Options shall be subject to the terms and
conditions specified herein and (except as described in Section 3(c)(ii) hereof)
set forth in the Stock Option Agreement.
Consultant acknowledges that, by reason of the foregoing
cancellation of the Old Options, Consultant releases all rights and interests
Consultant may have held, whether pursuant to the Stock Option Plan, the Stock
Option Agreement, the Amended and Restated Shareholders Agreement, dated as of
August 4, 1997, between the parties hereto and certain other parties, as amended
from time to time (the
5
<PAGE>
"Shareholders Agreement"), or otherwise, to acquire the shares of the Common
Stock with respect to the Old Options. Consultant hereby represents to the
Company that (A) he is the sole owner of the Old Options and that he has not
sold, transferred, assigned, conveyed, gifted, pledged, hypothecated or
otherwise transferred in any manner any of the Old Options or any right to or
interest in the Old Options to any person; (B) the number of Old Options set
forth on Schedule I to this Agreement represents all of the Old Options
heretofore granted to him under the Stock Incentive Plan and the Stock Option
Agreement; (C) he, or his representative, has had an opportunity to ask
questions and receive answers and to undertake whatever additional inquiry
regarding the subject matter of this Agreement as Consultant has deemed
necessary or appropriate under the circumstances in order to reach an informed
decision regarding the merits of the subject matter of this Agreement; and (D)
he has carefully reviewed and understood the Stock Incentive Plan, the Stock
Option Agreement and this Agreement and has had an opportunity to review such
documents with counsel of his choosing. Consultant agrees and acknowledges that
the Company is relying on Consultant's representations in entering into and
effecting the transactions contemplated by this Agreement.
(ii) Terms of the New Options. Except as set forth in this Section
------------------------
3(c)(ii), the terms and conditions of the New Options shall be identical to the
terms and conditions of the Old Options and will be governed by the Stock
Incentive Plan and the Stock Option Agreement (which, except as set forth in
this Section 3(c)(ii), shall remain in full force and effect with respect to the
New Options) in all respects, including, but not limited to, the date of grant
and expiration date, provided, however, that, notwithstanding anything to the
-----------------
contrary in the Stock Incentive Plan, the Stock Option Agreement or in this
Agreement:
(A) the exercise price of the New Options shall be as set
forth in Schedule I hereto;
(B) the new Options are, effective as of the date of the
effectiveness of this Agreement, fully vested and immediately exercisable and
Sections 3,4 and 5 of the Stock Option Agreement shall have no applicability to
the New Options; and
(C) all references in the Stock Option Agreement to the Old
Options shall be deemed to refer to the New Options.
6
<PAGE>
(d) Business Expenses. During the Term, the Company and/or MGM Studios
-----------------
shall pay or reimburse Consultant promptly for all reasonable and documented
business expenses incurred by Consultant in the performance of his duties under
this Agreement, provided, however, that Consultant shall have obtained prior
approval for such expenses from MGM Studios or the Company.
(e) Fringe Benefits. (i) From the date of the effectiveness of this
---------------
Agreement through October 31, 1999, MGM Studios shall provide Consultant with
an office, the secretarial services of Trini Ornelas, and parking for such times
that Consultant is at the premises of MGM Studios performing his obligations
hereunder.
(ii) During the Term, Consultant shall continue to be entitled to
and accorded all rights and benefits under any disability insurance, health or
major medical insurance policy or policies, which the Company and/or MGM Studios
provides for its senior officers. Nothing in this paragraph shall require the
Company and/or MGM Studios to retain any particular policy or plan, but some
reasonable policy or plan shall be maintained. Consultant shall continue to be
entitled to benefits under this Section 3(e)(ii) throughout the Term, except in
the event of Consultant's death, in which case such benefits shall immediately
terminate (other than those plan benefits and payments required to be made by
carriers pursuant to plans prior to such termination of benefits). The parties
agree that Consultant shall not be entitled to any life insurance hereunder and
that the reducing-term life insurance policy previously provided for Consultant
shall be canceled effective five business days after the date of this Agreement
unless, prior to such date, Consultant gives written notice to MGM Studios and
the Company of Consultant's election that MGM Studios and/or the Company, as
applicable, assign such policy to Consultant. The parties agree that, in the
event Consultant makes such election, MGM Studios and the Company shall have no
obligation to make any premium payments on or after the date of this Agreement
with respect to such policy and that Consultant shall have the sole obligation
to make premium payments in respect of such policy.
(iii) Consultant shall be entitled to all rights and amounts as
are vested in Consultant as of April 30, 1999 under and subject to the terms of
any retirement plans in which Consultant is a participant, including, without
limitation the MGM Retirement Plan and the MGM Savings Plan (the "Plans").
Subject to the requirements of the Plans, MGM shall fully cooperate with
Consultant in distributing all amounts in which Consultant is vested pursuant to
the Plans in the manner Consultant directs.
7
<PAGE>
(iv) Except as provided above, Consultant will not be entitled to
any other fringe benefits during the Term.
4. Termination. Consultant's service as a consultant hereunder shall
-----------
terminate without further action by any party hereto (a) upon the expiration of
the Term, or (b) earlier upon the occurrence of Consultant's death or
Disability, a Designated Change in Control, or the adoption of a resolution by
the Board of Directors or stockholders of the Company authorizing the
dissolution or liquidation of the Company.
5. Consultant Not Entitled to Delegate Duties or Assign Rights.
-----------------------------------------------------------
(a) It is agreed by the parties that Consultant will provide the
consulting services described herein himself and, accordingly, Consultant may
not delegate the performance of any of his duties or obligations as Consultant
hereunder, or assign any rights hereunder, other than by will or testamentary
trust, without the prior written consent of MGM Studios or the Company. Any such
purported delegation or assignment in the absence of such written consent shall
be null and void and with no force or effect. However, the assignability of
Bonus Interests and New Options shall be governed by the Bonus Interest
Agreement and the Stock Option Agreement, respectively.
(b) In the event of a valid assignment pursuant to this Section 5,
this Agreement shall be binding on and inure to the benefit of the permitted
assigns of Consultant hereunder and the respective heirs, representatives,
successors and permitted assigns of such persons and any receiver, trustee in
bankruptcy or representative of the creditors, of each such person.
6. Warranty. Consultant hereby represents and warrants that he has not
--------
taken any action, and covenants that during the Term of this Agreement he shall
take no such action, that constitutes or will constitute a breach of any
agreement concerning confidential information and trade secrets,
confidentiality, solicitation or non-competition to which he is bound as a party
where such action would have a material adverse effect on the Company, MGM
Studios or any affiliate of either of them. Consultant hereby agrees to
indemnify and hold harmless MGM Studios and the Company and their affiliates
from and against any claim, loss, cost or expense (including reasonable
attorneys' fees) incurred by any of them as a result of actions by Consultant in
violation of the immediately preceding sentence.
8
<PAGE>
7. Entire Agreement Amendment. This Agreement supercedes the Employment
--------------------------
Agreement and all other agreements between Consultant and the Company and/or MGM
Studios (but not including those agreements specifically referred to in the
following sentence), which Employment Agreement and other agreements are,
effective as of the date of the effectiveness of this Agreement, null and void
and of no further force or effect. This Agreement, the Shareholders Agreement,
the Joint and Several Indemnity Agreement, dated as of October 10, 1996, among
the Company, Consultant and the other parties thereto (the "Indemnity
Agreement"), the Stock Option Agreement and the Bonus Interest Agreement contain
the entire understanding and agreement between the parties relating to the
subject matter hereof. Nothing contained herein shall limit the terms and
provisions of the Indemnity Agreement. Consultant agrees that this Agreement
shall not modify the Shareholders Agreement in any respect. Neither this
Agreement nor any provisions hereof may be waived, modified, amended, changed,
discharged or terminated, except by an agreement in writing signed by the party
against whom enforcement of any waiver, modification, change, amendment,
discharge or termination is sought; provided, however, any such writing shall
--------- -------
not be enforceable against MGM Studios unless also signed by the Company. It is
hereby acknowledged that each of(i) the Amended and Restated Investors
Shareholder Agreement, dated as of August 4, 1997, among the parties hereto,
Seven Network Limited and Tracinda Corporation, as amended from time to time;
and (ii) the Non-Competition Agreement, dated October 10, 1996, among the
Company and Consultant and the other parties thereto, are, effective as of the
date of the effectiveness of this Agreement, hereby terminated and are of no
further force or effect.
8. No Mitigation. Except as otherwise provided herein, any income and any
-------------
other benefits received by Consultant from any and all sources other than MGM
Studios or the Company before or after the expiration or termination of this
Agreement for any reason whatsoever shall in no way reduce or otherwise affect
MGM Studios' or the Company's obligation to make payments and afford benefits
hereunder.
9. Directors' and Officers' Insurance. To the extent available at reason-
----------------------------------
able cost, the Company and/or MGM Studios shall continue to maintain a policy of
directors' and officers' insurance in a mutually acceptable amount with
Consultant as a named insured thereunder. Such policy shall cover Consultant for
so long as he serves as a director of the Company and for so long thereafter as
he shall have liability for his actions or omissions in his capacity as an
officer or director of the Company, MGM Studios, and their affiliates, but not
after April 30, 2005. Further,
9
<PAGE>
the Company and/or MGM Studios shall cause Consultant to be added as a named
insured under any and all their other liability policies, to the extent such
addition is customary in respect of such policies.
10. No Disparagments. MGM Studios and the Company shall make no oral or
----------------
written, public or private, statements that are disparaging of Consultant.
Consultant shall make no oral or written, public or private, statements that are
disparaging of MGM Studios, the Company, their affiliates, or any of their
respective present or former officers, directors, agents, employees and
successors or assigns, nor shall Consultant make any oral or written, public or
private statements that disparage or otherwise constitute trade libel of MGM
Studios', the Company's or their affiliates' products.
11. Return of Documents and Property. Consultant shall return all
--------------------------------
records, documents, proposals, notes, lists (including all lists of customers,
distributors, vendors and/or suppliers), files and any and all other materials
including, without limitation, computerized and/or electronic information, that
refers, relates or otherwise pertains to MGM Studios and/or the Company, their
affiliates, and/or each of their respective officers, directors, shareholders,
agents, employees, and successors or assigns, and any and all business dealings
of said persons and entities (the "Company Documents"), to the Company within
ten days of the date of the effectiveness of this Agreement, by personally
delivering the Company Documents to the Company's offices in Santa Monica,
California; provided, however, that Consultant shall be entitled to retain those
--------- -------
Company Documents that have been made available to other members of the Board of
Directors of the Company. In addition, Consultant shall return to the Company
all property and equipment that he has been issued during the course of his
employment pursuant to the Employment Agreement or which he otherwise currently
possesses, including, but not limited to, any passes, keys or identification,
laptop computers, cellular phones, pagers, leased cars or other corporate
vehicle(s), and credit, charge or calling cards (the "Company Property") within
ten days of the date of the effectiveness of this Agreement, by personally
delivering the Company Property to the Company's offices in Santa Monica.
Consultant shall not retain any copies or duplicates of any returned Company
Documents, nor shall he retain any of the Company Property. Moreover, if, during
the Term of this Agreement, Consultant is issued any Company Documents or
Company Property, at the end of the Term or upon termination of this Agreement,
Consultant shall return all of the Company Documents and the Company Property
issued or provided to him during the Term by personally delivering the Company
Property and the Company Documents to the Company's offices in Santa Monica on
the last day of the Term or immediately
10
<PAGE>
upon the termination of this Agreement, whichever date occurs earlier, except
for such Company Documents as have been made available to other members of the
Board of Directors of the Company during Consultant's service as a director. At
the end of the Term, Consultant shall not retain any copies or duplicates of any
of the Company Documents, nor shall he retain any of the Company Property,
subject to the provisions of the prior sentence pertaining to Company Documents
that are made available to other members of the Board. MGM Studios and the
Company acknowledge that Consultant's personal files, including address book,
and office furnishings are Consultant's personal property and make no claim with
respect thereto.
12. Mutual Releases.
---------------
(a) Mr. Mancuso's Release. In consideration of MGM Studios' and the
---------------------
Company's promises contained herein, effective as of the date of the
effectiveness of this Agreement, Consultant, on behalf of himself and his heirs,
representatives and assigns, hereby releases and discharges MGM Studios, the
Company, their parents, subsidiaries and divisions, and all of their respective
current and former officers, directors, shareholders, agents, employees,
representatives, attorneys, predecessors, successors and assigns (collectively
"Releasees"), from any and all complaints, claims, liabilities, obligations,
promises, agreements, controversies, damages, actions, causes of action, suits,
rights, demands, costs, losses, debts and expenses (including attorneys' fees
and costs actually incurred) of any nature whatsoever, from the beginning of
time to April 30, 1999 which Consultant now hai, owns or holds or claims to
have, own or hold, or which Consultant at any time heretofore had, owned, or
held, or claimed to have had, owned or held, or which Consultant may in the
future assert, against each or any of the Releasees, including, but not limited
to, rights under the Civil Rights Act of 1964; the Civil Rights Act of 1991;
the Age Discrimination in Employment Act; the California Fair Employment and
Housing Act; the Employee Retirement Income Security Act of 1974; the Americans
with Disabilities Act; that relate or are in any manner incidental to
Consultant's employment with or separation from MGM Studios and the Company.
Consultant hereby acknowledges that he has been paid for all amounts payable to
him pursuant to Section 6 of the Employment Agreement (other than vacation pay
provided for in Section 3(a)(i) hereof) during the term of the Employment
Agreement up to and including April 30, 1999.
(b) MGM Studios' and the Company's Release. In consideration of
--------------------------------------
Consultant's promises contained herein, effective as of the date of the
effectiveness of this Agreement, MGM Studios and the Company, on behalf of
themselves and their parents, subsidiaries and divisions and, to the fullest
extent permitted by law, all of
11
<PAGE>
their respective current and former officers, directors, shareholders, agents,
employees representatives, attorneys, predecessors, successors and assigns,
hereby release and discharge Consultant and his heirs, representatives and
assigns from any and all complaints, claims, liabilities, obligations, promises,
agreements, controversies, damages, actions, causes of action, suits, rights,
demands, costs, losses, debts and expenses (including attorneys' fees and costs
actually incurred) which they now have, own or hold, or which they at any time
heretofore had, owned, or held, or claimed to have had owned or held, or which
they may in the future assert, against Consultant or his heirs, representatives
or assigns, that arise from facts known prior to April 30, 1999 by members of
the Board of Directors of either the Company or MGM Studios, or by members of
such boards' respective Executive Committees or Finance Committees, or by the
Chairman of the Board, Chief Financial Officer, Secretary, or General Counsel of
the Company or MGM Studios (not including Consultant or Robert Pisano).
(c) Unknown Claims. The parties hereby acknowledge that they are
--------------
familiar with the provisions of California Civil Code (S)1542, which provides as
follows:
"A general release does not extend to claims which the creditor
does not know or suspect to exist in his favor at the time of
executing the release, which if known by him must have materially
affected his settlement with the debtor."
The parties expressly do not waive or relinquish, but intend to keep and
maintain, any and all rights or benefits that they may have under, or which may
be conferred upon them by, the provisions of (S)1542 of the California Civil
Code.
(d) Covenant Not to Sue. Pursuant to and as a part of the mutual
-------------------
releases herein, each of the parties hereto: (i) agrees not to sue, file a
charge, claim or complaint in any forum or (except as set forth in Section 13
below) assist or otherwise participate willingly or voluntarily in any claim,
arbitration, suit, action, investigation or other proceeding (hereafter
collectively referred to as "proceedings") of any kind which that party has
released pursuant to Section 12(a) or 12(b), as the case may be; and (ii)
represents that no such proceedings have heretofore been filed or initiated
against the other party.
12
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(e) Excluded Claims. The Release set forth in this Section 12 shall
---------------
not operate to release any of the obligations set forth in this Agreement, or in
any agreement referred to in the second sentence of Section 7 hereof, or any
right of Consultant to indemnification or contribution pursuant to this
Agreement, the Indemnity Agreement, or otherwise by law.
13. Miscellaneous.
-------------
(a) Independence. Nothing in this Agreement shall be construed to
------------
constitute the parties hereto as partners, joint venturers or employer and
employee. Consultant's relationship to MGM Studios and the Company shall be
solely that of an independent contractor, and Consultant shall perform all
services pursuant to this Agreement as such.
(b) Arbitration. Any controversy or claim arising out of or relating
-----------
to this Agreement or any breach of this Agreement shall be settled by
arbitration. Any such arbitration shall be held in Los Angeles, California and
shall be conducted in accordance with the Commercial Arbitration rules of the
American Arbitration Association. The Special New Procedures for Large, Complex
Issues shall apply. The arbitration panel shall consist of three (3) arbitrators
to be selected pursuant to such Commercial Arbitration Rules. Notwithstanding
the above, (x) any controversy or claim arising out of or relating to the Bonus
Interests, the Bonus Interest Agreement, or Section 3(b) of this Agreement shall
be settled by arbitration pursuant to Section 16 of the Bonus Interest
Agreement; and (y) any controversy or claim arising out of or relating to the
New Options, the Old Options, the Stock Option Agreement or Section 3(c) of this
Agreement shall be settled by arbitration pursuant to Section 16 of the Stock
Option Agreement.
(c) Applicable Law and Venue. Except as otherwise provided herein,
------------------------
this Agreement and any disputes or claims arising hereunder shall be construed
in accordance with, governed by and enforced under the laws of the State of
California without regard to any rules of choice or conflicts of law. Except
with respect to matters governed by Delaware law, the state and federal courts
(or arbitrators appointed as described herein) located in Los Angeles,
California shall be the sole and exclusive forum for any action for relief
arising out of or pursuant to, or to enforce or interpret, this Agreement;
provided, however, that actions in such state or federal courts shall be limited
to actions or petitions to confirm or set aside an arbitration award. Each party
to this Agreement consents to the personal jurisdiction and arbitration in any
such forum and each party hereto covenants not to, and waives
13
<PAGE>
any right to, seek a transfer of venue from such jurisdiction on any grounds.
Notwithstanding the above, (x) except to the extent provided in Section 16(d)
of the Bonus Interest Agreement, the Bonus Interests, the Bonus Interest
Agreement and Section 3(b) of this Agreement are governed by and are to be
construed and enforced in accordance with the internal laws, and not the laws
pertaining to the choice or conflict of laws, of the State of Delaware; and (y)
except to the extent provided in Section 16(d) of the Stock Option Agreement,
the New Options, the Old Options, the Stock Option Agreement and Section 3(c) of
this Agreement are governed by and are to be construed and enforced in
accordance with the internal laws, and not the laws pertaining to the choice or
conflict of laws, of the State of Delaware.
(d) Interpretation. The provisions of this Agreement were negotiated
--------------
by each of the parties hereto and this Agreement shall not be deemed to have
been drafted by either party.
(e) Indemnification. The Company and/or MGM Studios shall indemnify
---------------
Consultant through their respective Certificate of Incorporation, By-laws, the
Indemnity Agreement or otherwise to the fullest extent permitted by the Delaware
General Corporation Law (including the reimbursement of defense costs as
incurred), as such law exists and may hereafter be amended. Such indemnification
shall apply, but not be limited to, any actions taken or omissions by
Consultant, including, without limitation, furnishing information, during the
period from and after January 1, 1996 until the Original Effective Date (as
defined in the Employment Agreement) in connection with the potential sale of
MGM Studios and Consultant's efforts to assemble a bid group to purchase MGM
Studios. Such indemnification shall not apply to any matters arising under (x)
the Amended Agreement as of July 25, 1993 between Consultant and Credit
Lyonnaise, S.A., (y) the Senior Executive Incentive Plan of MGM Holdings
Corporation adopted as of 16 December 1994 and (z) the Senior Executive Pool
Plan of MGM Holdings Corporation adopted as of 15 December 1995.
(f) Representations of MGM Studios and the Company. Each of the
----------------------------------------------
Company and MGM Studios represents and warrants that (i) this Agreement has been
approved by the Board of Directors of each of the Company and MGM Studios, as
applicable, and is binding on MGM Studios and the Company, as applicable and
(ii) this Agreement will not violate the corporate charter or bylaws of MGM
Studios and/or the Company, as applicable. Consultant represents and warrants
that this Agreement is binding on Consultant.
14
<PAGE>
(g) No Waivers. The failure of either party to enforce any provision
----------
of this Agreement shall not be construed as a waiver of any such provision, nor
prevent such party thereafter from enforcing such provision or any other
provision of this Agreement. Rights granted the parties hereto herein are
cumulative and the election of one shall not constitute a waiver of such party's
right to assert all other legal remedies available under the circumstances.
(h) Executive Assistant's Continued Employment and Severance. Trini
--------------------------------------------------------
Ornelas will be retained by MGM Studios and/or the Company as a full-time
employee until October 31, 1999 and will be available to Consultant on a full-
time basis prior to such date. In recognition of her service to MGM Studios and
the Company, Trini Omelas will be provided with a severance payment equal to six
months salary at the time of her termination of employment with MGM Studios
and/or the Company, as applicable.
(i) Notices. Any notice to be given under the terms of this Agreement
-------
shall be in writing and may be delivered personally, by telecopy, telex or other
form of written electronic transmission, by overnight courier or by registered
or certified mail, postage prepaid, and shall be addressed as follows:
TO THE COMPANY OR MGM STUDIOS:
Mr. Alex Yemenidjian
Metro-Goldwyn-Mayer Inc.
2500 Broadway Street
Santa Monica, California 90404-3061
Telecopier: (310)449-3020
WITH COPIES TO:
William A. Jones, Esq.
Metro-Goldwyn-Mayer Inc.
2500 Broadway Street
Santa Monica, California 90404-3061
Telecopier: (310) 449-3088
and
15
<PAGE>
Richard E. Sobelle, Esq.
Tracinda Corporation
150 South Rodeo Drive, Suite 250
Beverly Hills, California 90212
Telecopier: (310) 271-3416
and
Frank Rothman, Esq.
Jerome L. Coben, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP
300 South Grand Avenue, Suite 3400
Los Angeles, California 90071
Telecopier: (213) 687-5600
TO THE CONSULTANT:
Mr. Frank O. Mancuso
1201 Bel Air Road
Los Angeles, California. 90077
Telecopier: (310) 471-0175
WITH A COPY TO:
Bertram Fields, Esq.
Greenberg Glusker Fields Claman & Machtinger LLP
l900 Avenue of the Stars
Suite 2000
Los Angeles, California 90067
Telecopier: (310) 553-0687
Either party may hereafter notify the other in writing of any change in address.
Any notice hereunder shall be deemed duly given when received by the person to
whom it was sent.
(j) Severability. The provisions of this Agreement are severable and
------------
if any provision of this Agreement shall be held to be invalid or otherwise
unenforceable, in whole or in part, the remainder of the provisions, or
enforceable parts thereof, shall not be affected thereby unless, as a result of
such severing, the remaining provisions or enforceable parts do not
substantially reflect the intention of the parties in entering into this
Agreement.
16
<PAGE>
(k) Legal Acknowledgments.
---------------------
(i) Consultant acknowledges that he has been advised that
he has a period of twenty-one (21) days within which to consider this Agreement,
and Consultant hereby waives such period. Consultant further acknowledges that
Consultant has reviewed this Agreement with counsel of Consultant's own
choosing, that Consultant has read this Agreement carefully and that he has had
it read by his counsel, and that Consultant is fully aware of and understands
this Agreement's contents and legal effects.
(ii) Consultant further understands and agrees that this
Agreement is revocable by Consultant for seven (7) days following Consultant's
signing of this Agreement, and that this Agreement shall not become effective or
enforceable until that revocation period has expired. This Agreement shall
automatically become enforceable and effective on the eighth (8th) day after the
date this Agreement is signed by Consultant.
(l) Confidentiality and Publicity. This Agreement shall remain
-----------------------------
confidential and the terms shall not be divulged to any person except (i) to the
extent required by law or legal process or (ii) to Consultant's attorneys,
accountants, lenders, other professional advisors and members of Consultant's
immediate family, provided, however, that any such person to whom disclosure is
-----------------
made shall be advised of and agree to honor this confidentiality requirement.
Any press release or announcement of or relating to this Agreement and the
timing of any such announcement shall only be made with the agreement of
Consultant and the Company.
(m) Attorneys' Fees and Costs. If any arbitration proceeding or any
-------------------------
action at law or in equity is commenced to enforce this Agreement, the
prevailing party shall receive its attorneys' fees, costs and disbursements in
addition to any other relief granted.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
17
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
METRO-GOLDWYN-MAYER INC.
By: /s/ Alex Yemenidjian
-----------------------------
Name: Alex Yemenidjian
Title: Chairman of the Board and
Chief Executive Officer
By: /s/ William Jones
-----------------------------
Name: William Jones
Title: Senior Executive Vice President
and Secretary
METRO-GOLDWYN-MAYER STUDIOS INC.
By: /s/ Alex Yemenidjian
-----------------------------
Name: Alex Yemenidjian
Title: Chairman of the Board and
Chief Executive Officer
By: /s/ William Jones
-----------------------------
Name: William Jones
Title: Senior Executive Vice President
and Secretary
CONSULTANT
/s/ FRANK G. MANCUSO
--------------------------------
FRANK G. MANCUSO
<PAGE>
SCHEDULE I
Capitalized terms used in this Schedule I shall have the meanings given to such
terms in the Consulting Agreement to which this Schedule is attached (the
"Consulting Agreement").
Number of Bonus Interests
granted pursuant to
the Bonus Interest Agreement: 811,756
The following sets forth Old Options which are being canceled under the
Consulting Agreement and the New Options that Consultant is being granted under
the Consulting Agreement, the Stock Option Agreement and the Stock Incentive
Plan, effective as of the date of the effectiveness of the Consulting Agreement.
<TABLE>
<CAPTION>
Series A Options Series B Options
---------------- ----------------
Number of Shares Number of Shares
of Common Stock of Common Stock
Subject to Options Exercise Price Subject to Options Exercise Price
------------------ -------------- ------------------ --------------
<S> <C> <C> <C> <C>
Old Options
(to be canceled) 872,840 $24.00 872,840 $24.00
New Options 872,840 $14.90 872,840 $14.90
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 10,455
<SECURITIES> 0
<RECEIVABLES> 468,288
<ALLOWANCES> (22,255)
<INVENTORY> 2,190,391
<CURRENT-ASSETS> 0
<PP&E> 62,251
<DEPRECIATION> (22,685)
<TOTAL-ASSETS> 3,292,477
<CURRENT-LIABILITIES> 0
<BONDS> 1,316,951
0
0
<COMMON> 2,215,229
<OTHER-SE> (832,252)
<TOTAL-LIABILITY-AND-EQUITY> 3,292,477
<SALES> 770,227
<TOTAL-REVENUES> 770,227
<CGS> 869,029
<TOTAL-COSTS> 869,029
<OTHER-EXPENSES> 380,256
<LOSS-PROVISION> 190
<INTEREST-EXPENSE> 60,700
<INCOME-PRETAX> (539,948)
<INCOME-TAX> 6,136
<INCOME-CONTINUING> (546,084)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (546,084)
<EPS-BASIC> (3.61)
<EPS-DILUTED> (3.61)
</TABLE>
