METROMEDIA INTERNATIONAL GROUP INC, 10-Q, 1996-05-08

METROMEDIA INTERNATIONAL GROUP INC
10-Q, 1996-05-08
ALLIED TO MOTION PICTURE PRODUCTION

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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________

Commission File Number 1-5706

METROMEDIA INTERNATIONAL GROUP, INC.
(Exact name of registrant, as specified in its charter)

DELAWARE 58-0971455
(State or other (I.R.S.
jurisdiction of Employer
incorporation or Identification
organization) No.)

945 East Paces Ferry Road, Suite 2210, Atlanta, Georgia 30326
(Address and zip code of principal executive offices)

(404) 261-6190
(Registrant's telephone number, including area code)

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. Yes X No
----- -----

The number of shares of Common Stock outstanding as of April 22, 1996 was
42,658,240.

<PAGE>

Part I - Financial Information

Page
----

Item 1. Financial Statements (unaudited)

Consolidated Condensed Statements of Operations 2
Consolidated Condensed Balance Sheets 3
Consolidated Condensed Statements of Cash Flows 4
Consolidated Condensed Statement of Common Stock,
Paid-in Surplus and Accumulated Deficit 5
Notes to Consolidated Condensed Financial Statements 6

Item 2. Management's Discussion and Analysis of Financial 18
Condition and Results of Operations

Part II - Other Information

Item 1. Legal Proceedings 33

Item 6. Exhibits and Reports on Form 8-K 34

Signatures 36

<PAGE>

METROMEDIA INTERNATIONAL GROUP, INC.
Consolidated Condensed Statements of Operations
(in thousands, except per share amounts)
(unaudited)

Three Months Ended
------------------

March 31, March 31,
1996 1995
----------- -----------

Revenues $ 30,808 $ 37,678
Costs and expenses:

Cost of rentals and operating expenses 25,089 36,868

Selling, general and administrative 14,066 10,974

Depreciation and amortization 1,723 528
----------- -----------
Operating loss (10,070) (10,692)

Interest expense, including amortization
of
debt discount of $1,259 at March 31, 8,279 8,936
1996
and $4,334 at March 31, 1995

Interest income 1,245 817
----------- -----------

Interest expense, net 7,034 8,119
Chapter 11 reorganization items 54 767
------------ -----------

Loss before provision for income taxes (17,158) (19,578)
and
equity in losses of joint ventures

Provision for income taxes 200 200

Equity in losses of Joint Ventures 1,783 588
----------- ------------
Net loss $ (19,141) $ (20,366)
=========== ============

Loss per common share:
Primary:
Net loss $ (0.45) $ (0.97)
============ ============

See accompanying notes to the consolidated condensed financial statements

2
<PAGE>

METROMEDIA INTERNATIONAL GROUP, INC.
Consolidated Condensed Balance Sheets
(in thousands, except share amounts)

March 31, December 31,
1996 1995
----------- -----------
(unaudited)
ASSETS:
Current Assets:
Cash and cash equivalents $ 12,656 $ 26,889
Short-term investments 4,524 5,366
Accounts receivable, net of allowance
of $11,926 at March 31, 1996 and
$11,913 at December 31, 1995 26,991 29,452
Film inventories 56,892 59,430
Other assets 4,975 6,314
-------- ---------
Total current assets 106,038 127,451

Investments in and advances to joint ventures 37,095 36,934
Assets held for sale - Roadmaster Industries,
Inc. 47,455 47,455
Asset held for sale - Snapper, Inc. 73,800 79,200
Property, plant and equipment, net of
accumulated depreciation 9,181 6,021
Film inventories 126,396 137,233
Long-term film accounts receivable 30,023 31,308
Intangible assets, net of accumulated
amortization 118,818 119,485
Other assets 18,327 14,551
--------- --------
Total assets $ 567,133 $599,638
========= ========

LIABILITIES AND SHAREHOLDERS' EQUITY:
Current Liabilities:
Accounts payable
$ 3,957 $ 4,695
Accrued expenses 93,344 96,696
Participations and residuals 19,494 19,143
Current portion of long-term debt 55,327 40,597
Deferred revenues
11,937 15,097
----------- -------
Total current liabilities 184,059 176,228

Long-term debt 249,605 264,046
Participations and residuals 27,753 28,465
Deferred revenues 40,839 47,249
Other long-term liabilities 525 395
----------- -------
Total liabilities 502,781 516,383
----------- -------

Commitments and contingencies

Shareholders' equity:
Preferred Stock, authorized 70,000,000 shares,
none issued - -
Common Stock, $1.00 par value, authorized 110,000,000
Shares, issued and outstanding 42,635,488 shares at
March 31, 1996 and 42,613,738 shares at
December 31, 1995 42,635 42,614
Paid-in surplus 728,964 728,747
Accumulated deficit (707,247) (688,106)
---------- ---------
Total stockholders' equity 64,352 83,255
---------- ---------
Total liabilities and stockholders' equity $ 567,133 $ 599,638
========== =========

See accompanying notes to the consolidated condensed financial statements
3
<PAGE>

METROMEDIA INTERNATIONAL GROUP, INC.
Consolidated Condensed Statements of Cash Flows
(in thousands)
(unaudited)

March 31, March 31,
1996 1995
----------- --------------
Operating activities:
Net loss $ (19,141) $ (20,366)
Adjustments to reconcile net loss to
net cash provided by (used in) operating
activities:
Equity in losses of joint ventures and
investees 1,783 588
Amortization of film costs 14,953 25,211
Amortization of debt discounts and bank
guarantee 1,259 4,334
Depreciation and amortization 1,723 528

Decrease in accounts receivable 3,688 10,084
Decrease in accounts payable and accrued
expenses (889) (1,202)
Payments of deferred financing costs (3,200) -
Accrual of participations and residuals 4,316 5,342
Payments of participations and residuals (4,677) (6,185)
Decrease in deferred revenues (9,570) (6,476)
Other operating activities, net 192 (79)
----------- ------------

Cash provided by (used in) operations (9,563) 11,779
---------- ----------

Investing activities:
Investments in and advances to Joint
Ventures (2,542) (4,299)
Proceeds from repayment of advances to
Snapper 5,400 -
Investment in film inventories (1,578) (781)
Additions to property, plant and equipment (3,616) (383)
Other investing activities, net (3,068) 482
---------- ------------

Cash used in investing activities (5,404) (4,981)
---------- ----------

Financing Activities:
Proceeds from issuance of long-term debt 11,800 12,477
Proceeds from issuance of stock 238 -
Payments on notes and subordinated debt (12,288) (18,141)
Other financing activities, net 142 194
------------ ------------

Cash used in financing activities (108) (5,470)
----------- ----------

Net increase (decrease) in cash in cash
equivalents (15,075) 1,328
Effect of Change in Fiscal Year - (13,583)
Cash and cash equivalents at beginning of
period 32,255 27,422
---------- ----------
Cash and cash equivalents at end of period $ 17,180 $ 15,167
========== ==========

See accompanying notes to the consolidated condensed financial statements

4
<PAGE>

METROMEDIA INTERNATIONAL GROUP, INC.
Consolidated Condensed Statement of Common Stock,
Paid-in Surplus and Accumulated Deficit
(in thousands, except share amounts)
(unaudited)

<TABLE><CAPTION>
Three Months Ended March 31, 1996
---------------------------------------------
Common Stock
--------------------
Number of Paid-in Accumulated
Shares Amount Surplus Deficit Total
---------- ------- ------- ------------ --------
<S> <C> <C> <C> <C> <C>
Balances, December 31, 1995 42,613,738 $ 42,614 $ 728,747 $ (688,106) $ 83,255

Shares issued 21,750 21 217 238

Net Loss (19,141) (19,141)
---------- ------- ------- ------------ --------
Balances, March 31, 1996 42,635,488 $ 42,635 $ 728,964 $ (707,247) $ 64,352
========== ======= ======= ============ ========
</TABLE>

See accompanying notes to the consolidated condensed financial statements

5
<PAGE>

METROMEDIA INTERNATIONAL GROUP, INC.
Notes to Consolidated Condensed
Financial Statements

1. Basis of Presentation

The accompanying interim consolidated condensed financial statements include the
accounts of Metromedia International Group, Inc. ("MIG" or the "Company") and
its wholly-owned subsidiaries, Orion Pictures Corporation ("Orion") and
Metromedia International Telecommunications, Inc. ("MITI"). Snapper, Inc.
("Snapper"), also a wholly-owned subsidiary, is included in the accompanying
consolidated condensed financial statements as an asset held for sale. All
significant intercompany transactions and accounts have been eliminated.

Investments in other companies and Joint Ventures ("Joint Ventures") which are
not majority owned, or in which the Company does not have control but exercises
significant influence are accounted for using the equity method. The Company
reflects its net investments in Joint Ventures under the caption "Investments in
and advances to Joint Ventures." The Company accounts for its equity in
earnings (losses) of the Joint Ventures on a three month lag.

The accompanying interim consolidated condensed financial statements have been
prepared without audit pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures made are
adequate to make the information presented not misleading. These financial
statements should be read in conjunction with the consolidated financial
statements and related footnotes included in the Company's latest Annual Report
on Form 10-K (the "1995 Form 10-K"). In the opinion of management, all
adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the financial position of the Company as of March 31, 1996, the
results of its operations for the three-month periods ended March 31, 1996 and
1995, and its cash flows for the three-month periods ended March 31, 1996 and
1995 have been included. The results of operations for the interim period are
not necessarily indicative of the results which may be realized for the full
year.

2. Liquidity

The Company is a holding company and, accordingly, does not generate cash flows.
Orion, the Company's filmed entertainment subsidiary, is restricted under
covenants contained in the Orion Credit Agreement from making dividend payments
or advances to the Company. MITI, the Company's communications subsidiary, is
dependent on the Company for significant capital infusions to fund its
operations, as well as its commitments to make capital contributions and loans
to its Joint Ventures. The Company anticipates that MITI's funding
requirements for 1996 will be approximately $40.0 million based in part on the
anticipated funding needs of the Joint Ventures. Future capital requirements of
MITI will depend on the ability of MITI's Joint Ventures to generate positive
cash flows.

The Company is obligated to make principal and interest payments under its own
various debt agreements, in addition to funding its working capital needs, which
consist principally of corporate overhead and payments on self-insurance claims.

<PAGE>

In the short term, the Company intends to satisfy its current obligations and
commitments with available cash on hand and the proceeds from the sale of
certain assets. During December 1995, the Company adopted a formal plan to
dispose of Snapper. At March 31, 1996, the carrying value of Snapper of $73.8
million represents the Company's estimated proceeds from the sale of Snapper and
the repayment of intercompany loans, through the anticipated date of sale.
Management believes that Snapper will be disposed of by November 1996. In
addition, the Company anticipates disposing of its investment in Roadmaster
Industries, Inc. ("Roadmaster") during 1996. The carrying value of the
Company's investment in Roadmaster at March 31, 1996 was $47.5 million.

Management believes that its available cash on hand, proceeds from the
dispositions of Snapper and its investment in Roadmaster, borrowings under the
MITI Bridge Loan (as defined below) and collections of intercompany receivables
from Snapper will provide sufficient funds for the Company to meet its
obligations, including MITI's funding requirements, in the short term. However,
no assurances can be given that the Company will be able to dispose of such
assets in a timely fashion and on favorable terms. Any delay in the sale of
assets or reductions in the proceeds anticipated to be received upon this
disposition of assets may result in the Company's inability to satisfy its
obligations during the year ended December 31, 1996. Delays in funding the
Company's MITI capital requirements may have a materially adverse impact on the
results of operations of MITI's Joint Ventures.

In connection with the consummation of the Goldwyn Merger (as defined below),
the Company intends to refinance the MIG Credit Facility (as defined below), the
Orion Credit Agreement (as defined below), and the existing Goldwyn Debt (as
defined below). The Company intends to use the proceeds of an offering of the
Company's common stock and a new credit facility to be entered into by its
Entertainment Group (the "New Credit Facility") to repay substantially all of
such indebtedness and to provide itself and MITI with liquidity to finance its
existing commitments and current business strategies. In addition to the
refinancing, management intends to satisfy its long-term liquidity needs through
a combination of (i) the Company's successful implementation and execution of
its growth strategy to become a global entertainment, media and communications
company, including the integration of The Samuel Goldwyn Company ("Goldwyn") and
Motion Picture Corporation of America ("MPCA") (as discussed more fully below);
(ii) MITI's Joint Ventures achieving positive operating results and cash flows
through revenue and subscriber growth and control of operating expenses; and
(iii) Orion's ability to continue to generate positive cash flows sufficient to
meet its planned film production release schedule and service the New Credit
Facility. There can be no assurance that the Company will be successful in
consummating the equity offering and entering into the New Credit Facility or
that such refinancing can be accomplished on favorable terms. In the event the
Company is unable successfully complete such a refinancing or successfully
implement its business strategies, the Company, in addition to disposing of
Snapper and its investment in Roadmaster, may be required to (i) attempt to
obtain additional financing through another public or private sale of debt or
equity securities of the Company or one of its subsidiaries, (ii) otherwise
restructure its capitalization or (iii) seek a waiver or waivers under one or
more of its subsidiaries' credit facilities to permit the payment of dividends
to the Company.

The Company believes that it will report significant operating losses for the
fiscal year ended December 31, 1996. In addition, because its Communications
Group (as defined below) is in the early stages of development, the Company
expects this group to generate significant net losses as it continues to build
out and market its services. Accordingly, the Company expects to generate
consolidated net losses for the foreseeable future.

<PAGE>

3. Earnings Per Share of Common Stock

Primary earnings per share are computed by dividing net income (loss) by the
weighted average number of common and common equivalent shares outstanding
during the year. Common equivalent shares include shares issuable upon the
assumed exercise of stock options using the treasury stock method when dilutive.
Computations of common equivalent shares are based upon average prices during
each period.

Fully diluted earnings per share are computed using such average shares adjusted
for any additional shares which would result from using end-of-year prices in
the above computations, plus the additional shares that would result from the
conversion of the 6 1/2% Convertible Subordinated Debentures. Net income (loss)
is adjusted by interest (net of income taxes) on the 6 1/2% Convertible
Subordinated Debentures. The computation of fully diluted earnings per share is
used only when it results in an earnings per share number which is lower than
primary earnings per share.

The loss per share amount for the quarter ended March 31, 1995 has been
calculated using the combined Orion and MITI common shares converted at the
exchange rate used in the November 1 Mergers (See Note 4).

4. The November 1 Mergers

On November 1, 1995, Orion, MITI, the Company and MCEG Sterling Incorporated
("Sterling"), consummated the mergers contemplated by the Amended and Restated
Agreement and Plan of Merger (the "Merger Agreement") dated as of September 27,
1995 among Orion, the Company, MITI and Sterling. The Merger Agreement provided
for, among other things, the simultaneous mergers of each of Orion and MITI with
and into the Company's recently-formed subsidiaries, OPC Merger Corp., and MITI
Merger Corp., and the merger of Sterling with and into the Company
(collectively, the "November 1 Mergers"). In connection with the November 1
Mergers, the Company changed its name from "The Actava Group Inc." to
"Metromedia International Group, Inc."

Due to the existence of Metromedia Holders' (as defined below) common control of
Orion and MITI prior to consummation of the November 1 Mergers, their
combination pursuant to the November 1 Mergers was accounted for as a
combination of entities under common control. Orion was deemed to be the
acquiror in the November 1 Mergers. As a result, the combination of Orion and
MITI was effected utilizing historical costs for the ownership interests of the
Metromedia Holders in MITI. The remaining ownership interests of MITI were
accounted for in accordance with the purchase method of accounting based on the
fair value of such ownership interests, as determined by the value of the shares
received by the holders of such interests at the effective time of the November
1 Mergers.

For accounting purposes only, Orion and MITI were deemed to be the joint
acquirors of Actava and Sterling. The acquisitions of Actava and Sterling were
accounted for as a reverse acquisition. As a result of the reverse acquisition,
the historical financial statements of the Company for periods prior to the
November 1 Mergers are those of Orion and MITI, rather than Actava. The
operations of Actava and Sterling have been included in the accompanying
consolidated financial statements from November 1, 1995, the date of
acquisition. During December 1995, the Company adopted a formal plan to dispose
of Snapper, a wholly-owned subsidiary of the Company. In addition, the
Company's investment in Roadmaster was deemed to be a non-strategic asset and
the Company plans to dispose of its investment during 1996. (see Note 6 below).

<PAGE>

5. Mergers and Acquisitions

On January 31, 1996, the Company and Goldwyn entered into an Agreement and Plan
of Merger (the "Goldwyn Merger Agreement") pursuant to which Goldwyn will merge
with a newly-formed, wholly-owned subsidiary of the Company (the "Goldwyn
Merger") and, in connection therewith, will be re-named "Goldwyn Entertainment
Company."

In connection with the Goldwyn Merger, the Company, as described in Note 2
above, intends to refinance a portion of its indebtedness and that of Orion, as
well as substantially all of the indebtedness of Goldwyn. The Company has also
entered into a letter of intent to acquire MPCA.

On December 20, 1995, the Company and Alliance Entertainment Corp. ("Alliance")
entered into an Agreement and Plan of Merger (the "Alliance Merger Agreement")
pursuant to which a newly-formed, wholly-owned subsidiary of the Company was to
merge with and into Alliance. On April 29, 1996, the Company and Alliance
entered into a Termination and Release Agreement terminating the Alliance Merger
Agreement.

6. Assets Held for Sale

Roadmaster Industries, Inc.
- ---------------------------

As of March 31, 1996, the Company owned approximately 38% of the issued and
outstanding shares of Common Stock of Roadmaster (the "Roadmaster Common Stock")
based on the approximate 48,600,000 shares of Roadmaster Common Stock
outstanding.

The Company has deemed its investment in Roadmaster to be a non-strategic asset
and it plans to dispose of its investment in Roadmaster during 1996 and will
exclude its equity in earnings and losses of Roadmaster from the Company's
results of operations through the date of sale. The carrying value of the
Company's investment in Roadmaster at December 31, 1995 and March 31, 1996 was
approximately $47.5 million based on the anticipated proceeds from its sale.

Summarized financial information for Roadmaster is shown below (in thousands):

Year Ended
December 31,
1995
----
Net sales $ 730,875
Gross profit 86,607
Net loss -51,004
Current assets 406,586
Non-current assets 170,521
Current liabilities 232,502
Non-current liabilities 289,081
Redeemable common stock 2,000
Total shareholders' equity 55,524

9
<PAGE>

The Company has pledged all of its shares of Roadmaster to Chase Manhattan Bank,
("Chase") pursuant to a $35 million revolving credit agreement (the "MIG Credit
Facility"). The MIG Credit Facility provides that the aggregate amount of
outstanding loans under the MIG Credit Facility cannot exceed 65% of the market
value of Roadmaster stock. At March 31, 1996, the market value of the stock was
$38.3 million and outstanding loans under the MIG Credit Facility were $28.8
million. As a result of a market value decrease in the value of Roadmaster
stock, such loans exceeded the 65% threshold. Metromedia Company, a Delaware
general partnership ("Metromedia") and an affiliate of the Company, has
guaranteed payment to Chase of amounts which exceed the 65% threshold.

Snapper, Inc.
- -------------

During December 1995, the Company adopted a formal plan to dispose of Snapper.
At March 31, 1996 and December 31, 1995, the carrying value of Snapper was $73.8
million and $79.2 million, respectively. The carrying value of Snapper
represents the Company's estimated proceeds from the sale of Snapper and the
repayment of intercompany loans, through the anticipated date of sale.
Management believes that Snapper will be disposed of by November 1996.

The results of Snapper for the period January 1, 1996 through March 31, 1996,
which are excluded from the accompanying consolidated statement of operations,
are as follows (in thousands):

Net Sales $ 62,724
Operating expenses 60,100
-------
Operating profit 2,624
Interest expense (2,152)
Other income 9
----------
Profit before taxes 481
Income taxes --
---------
Net profit $ 481
=========

The Company received $5.4 million of cash from Snapper during the period from
January 1, 1996 to March 31, 1996. Accordingly, this amount has been removed
from the carrying value of Snapper as of March 31, 1996.

7. Stock Option Plans

On January 31, 1996, the Board of Directors of the Company approved and later
amended, subject to the approval of the Company's stockholders, the Metromedia
International Group, Inc. 1996 Incentive Stock Plan (the "1996 Incentive Stock
Plan"). The purpose of the 1996 Incentive Stock Plan is to give the Company a
significant advantage in retaining key employees, officers and directors, and to
provide an incentive to selected key employees, officers and directors of the
Company who have substantial responsibility in the direction of the Company, and
others whom the Compensation Committee of the Board of Directors determines
provide substantial and important services to the Company, to continue as
employees, officers and directors or in their other capacities, and to increase
their efforts on behalf of the Company through the provision of a proprietary
interest in the Company.

<PAGE>

The types of awards that may be granted pursuant to the 1996 Incentive Stock
Plan include (i) incentive stock options ("ISOs"), (ii) non-qualified stock
options ("NQSOs" and together with ISOs, "Stock Options"), and (iii) tandem
stock appreciation rights ("Tandem SARs"). ISOs are intended to be treated as
incentive stock options within the meaning of Section 422 of the Internal
Revenue Code of 1986. NQSOs are, in general, options which do not have the
special income tax advantages associated with ISOs. Tandem SARs are rights
granted in conjunction with Stock Options that, upon exercise, entitle the
holder to receive an amount equal to the excess of the fair market value of a
share of Common Stock on the date of exercise over the exercise price of the
related Stock Option, in cash or in stock, as determined by the Company.

Stock Option grants will consist of the maximum number of ISOs that may be
granted to a particular grantee under applicable law with the balance of the
Stock Options being NQSOs. Tandem SARs will be granted in connection with Stock
Options. Subject to certain exceptions set forth in the 1996 Incentive Stock
Plan, the aggregate number of shares of Common Stock that may be the subject of
Stock Options and Tandem SARs is 9,000,000.

8. Film Inventories

The following is an analysis of film inventories (in thousands):

March 31, December 31,
1996 1995
----------- -------------
Current:

Theatrical films released, less $ 47,652 $ 53,813
amortization

Television programs released, less 9,240 5,617
--------- ---------
amortization

56,892 59,430
--------- ---------
Non-Current:

Theatrical films released, less 122,642 132,870
amortization

Television programs released, less 3,754 4,363
--------- ---------
amortization

126,396 137,233
$ 183,288 $ 196,663
========= =========

The Company has made substantial write-offs to its released and unreleased
product. As a result, approximately two-thirds of the film inventories are
stated at estimated net realizable value and will not result in the recording of
gross profit upon the recognition of related revenues in future periods.

Since the date of the Company's quasi-reorganization (February 28, 1982), when
the Company's inventories were restated to reflect their then current market
value, the Company has amortized 94% of the gross cost of its film inventories,
including those produced or acquired subsequent to the quasi-reorganization.
Approximately 98% of such gross film inventory costs will have been amortized by
March 31, 1999. As of March 31, 1996, approximately 62% of the unamortized
balance of film inventories will be amortized within the next three-year period
based upon the Company's revenue estimates at that date.

<PAGE>

9. Investments in and Advances to Joint Ventures

MITI has recorded its investments in Joint Ventures at cost, net of adjustments
for its equity in earnings or losses. Advances to the Joint Ventures under the
line of credit agreements are reflected based on amounts recoverable under the
credit agreement, plus accrued interest.

Advances are made to Joint Ventures in the form of cash, for working capital
purposes and for payment of expenses or capital expenditures, or in the form of
equipment purchased on behalf of the Joint Ventures. Interest rates charged to
the Joint Ventures range from the prime rate to the prime rate plus 4%. The
credit agreements generally provide for the payment of principal and interest
from 90% of the Joint Ventures' available cash flow, as defined, prior to any
substantial distributions of dividends to the Joint Venture partners. MITI has
entered into credit agreements with its Joint Ventures to provide up to $47.1
million in funding of which $12.3 million remains available at March 31, 1996.
MITI funding commitments are contingent on its approval of the Joint Ventures'
business plans.

MITI investments in the Joint Ventures at cost net of adjustments for its equity
in earnings or losses were as follows (in thousands):

<TABLE><CAPTION>
Investments in
and Advances to
Joint Ventures
---------------- Year Date
March 31, December 31, Ownership Venture Operations
Name 1996 1995 % Formed Commenced
- ---- ----------- --------------- ---------- ------ ---------
<S> <C> <C> <C> <C> <C>
Kosmos TV, Moscow, Russia $ 2,958 $ 4,317 50 1991 May, 1992
Baltcom TV, Riga Latvia 7,244 6,983 50 1991 June, 1992
Ayety TV, Tbilisi, Georgia
4,096 3,630 49 1991 September, 1993

Sun TV, Kishinev, Moldova 1,665 1,613 50 1993 October, 1994
Raduga TV, Nizhny Novgorod 180 254 50 1994 Pre-Operational
Minsk Cable, Minsk, Belarus 967 918 50 1993 Pre-Operational

Kamalak, Tashkent, Uzbekistan
4,484 3,731 50 1992 September, 1993
Alma-TV, Almaty, Kazakhstan 1,651 1,318 50 1994 June, 1995
Baltcom Paging, Tallin,
Estonia 2,754 2,585 39 1992 December, 1993

Raduga Paging, Nizhny
Novgorod 387 364 45 1993 October, 1994
Baltcom Plus, Riga, Latvia 1,788 1,412 50 1994 April, 1995
Tbilisi Paging, Tbilisi,
Georgia 748 619 45 1993 November, 1994

St. Petersburg Paging, St.
Petersburg, Russia 744 527 40 1994 October, 1995
SAC-Radio 7, Moscow, Russia 494 1,174 51 1991 January, 1994
Telecom Georgia, Tbilisi,
Georgia 2,534 2,078 30 1994 September, 1994

Other 4,401 5,411
------ -----

$37,095 $36,934
======= =======
</TABLE>

The ability of MITI and its Joint Ventures to establish profitable operations is
subject to (among other things) special political, economic and social risks
inherent in doing business in Eastern Europe and the former Soviet Republics and
other emerging markets. These include matters arising out of government
policies, economic conditions, imposition of taxes or other similar charges by

<PAGE>

governmental bodies, foreign exchange fluctuations and controls, civil
disturbances, deprivation or unenforceability of contractual rights, and taking
of property without fair compensation.

MITI has obtained political risk insurance policies from the Overseas Private
Investment Corporation ("OPIC") for certain of its Joint Ventures. The policies
cover loss of investment and losses due to business interruption caused by
political violence or expropriation.

In 1995, the Russian Federation legislature proposed legislation that would
limit to 35%, the interest which a foreign person is permitted to own in
entities holding broadcast licenses. While such proposed legislation was not
enacted, it is possible that such legislation could be reintroduced and enacted
in Russia. Further, even if enacted, such law may be challenged on
constitutional grounds and may be inconsistent with Russian Federation treaty
obligations. In addition, it is unclear how Russian Federation regulators would
interpret and apply the law to existing license holders. However, if the
legislature passes a law restricting foreign ownership of broadcast license
holding entities and such a law is found to be constitutional and fails to
contain a grandfathering clause to protect existing companies, it could require
MITI to reduce its ownership interests in its Russian Joint Ventures. It is
unclear how such reductions would be effected.

The Republic of Latvia passed legislation in September, 1995 which purports to
limit to 20% the interest which a foreign person is permitted to own in entities
engaged in certain communications businesses such as radio, cable television and
other systems of broadcasting. This legislation will require MITI to reduce to
20% its existing ownership interest in joint ventures which operate a wireless
cable television system and an FM radio station in Riga, Latvia. Management
believes that the ultimate outcome of this matter will not have a material
adverse impact on the Company's financial position and results of operations.

Summarized combined financial information of Joint Ventures accounted for under
the equity method that have commenced operations as of the dates indicated are
as follows (in thousands):

Combined Balance Sheets

December 31, September 30,
Assets 1995 1995
---- ----
Current assets $ 10,704 $ 6,937
Investments in wireless 33,696 31,349
systems and equipment, net

Other assets 2,956 2,940
--------- ---------
Total Assets $ 47,356 $ 41,226
-------- --------

Liabilities and Joint
Ventures' Deficit
Current liabilities $ 21,889 $ 10,954

Amount payable under MITI 29,859 33,699
--------- ---------
credit facility
51,748 44,653

Joint Ventures' Deficit (4,392) (3,427)
---------- ----------
Total Liabilities and $ 47,356 $ 41,226
Joint Ventures' Deficit ========== ==========

<PAGE>

Combined Statement of Operations

Three Months Ended
------------------
December 31, December 31,
1995 1994
---- ----

Revenues $ 8,995 $ 2,961
------- -------

Expenses:
Cost of service 4,161 1,384
Selling, general and 4,409 986
administrative
Depreciation and 1,322 867
amortization
Other - 323
--------- --------
Total Expenses 9,892 3,560
--------- --------

Operating Loss (897) (599)
Interest Expense (732) (354)

Other Loss (10) (19)
Foreign Currency 846 (121)
-------- ---------
Translation

Net Loss $ (793) $ (1,093)
========= =========

Financial information for Joint Ventures which are not yet operational is not
included in the above summary. MITI's investment in and advances to those Joint
Ventures at March 31, 1996 amounted to approximately $6.3 million.

The following tables represent summary financial information for all operating
entities grouped as indicated as of and for the three months ended March 31,
1996 (in thousands):

Wireless Radio
Cable TV Paging Broadcasting Telephony Total
-------- ------ ------------ --------- -----
Consolidated
Subsidiaries and
Joint Ventures

Revenues $ - $ 576 $ 2,378 $ - $ 2,954
Depreciation and - 78 82 - 160
amortization
Operating income - (219) 731 - 512
(loss) before taxes
Assets - 2352 3234 - 5586
Capital expenditures - 69 351 - 420

Unconsolidated
Equity Joint
Ventures

Revenues $3,059 $ 1,147 $ 298 $ 4,491 $ 8,995
Depreciation and 1075 100 9 138 1322
amortization
Operating income (1465) (149) (224) 941 (897)
(loss) before taxes

Assets 25127 4629 259 17341 47356
Capital expenditures 1958 253 4 256 2471

Net investment in 21760 6014 494 2534 30802
Joint Ventures
MITI equity in (1843) (127) (269) 456 (1783)
losses of
unconsolidated
investees

Combined

Revenues $ 3,059 $ 1,723 $ 2,676 $ 4,491 $ 11,949
Depreciation and 1075 178 91 138 1482
amortization
Operating income (1465) (368) 507 941 (385)
(loss) before taxes

Assets 25127 6981 3493 17341 52942
Capital expenditures 1958 322 355 256 2891

14
<PAGE>

More than 90% of the Company's assets are located in, and substantially all of
the Company's operations are derived from, Republics in the Commonwealth of
Independent States and Eastern Europe.

On March 18, 1996, Metromedia Asia Limited ("MAL"), MITI's 90% owned
subsidiary, entered into a joint venture agreement with Golden Cellular
Communications, Ltd., ("GCC") a company located in the People's Republic of
China ("PRC"). The purpose of the joint venture is to provide wireless local
loop telephone equipment, network planning, technical support and training to
domestic telephone operators throughout the PRC. The total equity contribution
to be made to the venture is $8.0 million of which 60% will be contributed by
MAL and 40% by GCC.

10. Accounting Pronouncements

In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121").
SFAS 121 established accounting standards for the impairment of long-lived
assets, certain identifiable intangibles, and goodwill related to those assets
to be held and used, and for long-lived assets and certain identifiable
intangibles to be disposed of. Adoption of SFAS 121, effective January 1, 1996,
did not have a material impact on the Company's consolidated condensed financial
statements.

In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation". The Company has elected to retain the current approach set forth
in APB Opinion 25 "Accounting for Stock Issued to Employees," and to provide
expanded disclosures in the footnotes commencing with its 1996 Form 10-K.

11. Contingent Liabilities

Litigation

Fuqua Industries, Inc. Shareholder Litigation
- ---------------------------------------------

<PAGE>

of the Company's past and present stockholders. The complaint seeks (i) monetary
damages from the director defendants, including a joint and several judgment for
$15.7 million for alleged improper profits obtained by Mr. J.B. Fuqua in
connection with the sale of his shares in the Company to Intermark; (ii) injunc-
tive relief against the Company, Intermark and its former directors, including a
prohibition against approving or entering into any business combination with
Intermark without specified approval; and (iii) costs of suit and attorneys'
fees. On December 28, 1995, plaintiffs filed a consolidated second amended
derivative and class action complaint, purporting to assert additional facts in
support of their claim regarding an alleged plan, but deleting their prior
request for injunctive relief. On January 31, 1996, all defendants moved to
dismiss the second amended complaint and filed a brief in support of that
motion. The motion to dismiss is still pending.

In accordance with Section 145 of the General Corporation Law of the State of
Delaware, pursuant to the Company's Restated Certificate of Incorporation, the
Company has agreed to indemnify its officers and directors against, among other
things, any and all judgments, fines, penalties, amounts paid in settlements and
expenses paid or incurred by virtue of the fact that such officer or director
was acting in such capacity to the extent not prohibited by law.

The Company and its subsidiaries are contingently liable with respect to various
matters, including litigation in the ordinary course of business and otherwise.
Some of the pleadings in the various litigation matters contain prayers for
material awards. Based upon management's review of the underlying facts and
circumstances and consultation with counsel, management believes such matters
will not result in significant additional liabilities which would have a
material adverse effect upon the consolidated condensed financial position or
results of operations of the Company.

Environmental Protection

Snapper's manufacturing plant is subject to federal, state and local
environmental laws and regulations. Compliance with such laws and regulations
has not, and is not expected to, materially affect Snapper's competitive
position. Snapper's capital expenditures for environmental control facilities,
its incremental operating costs in connection therewith and Snapper's
environmental compliance costs were not material in 1995 and are not expected
to be material in future years.

The Company has agreed to indemnify the purchaser of a former subsidiary of the
Company for certain obligations, liabilities and costs incurred by such
subsidiary arising out of environmental conditions existing on or prior to the
date on which the subsidiary was sold by the Company. The Company sold the
subsidiary in 1987. Since that time, the Company has been involved in various
environmental matters involving property owned and operated by the subsidiary,
including clean-up efforts at landfill sites and the remediation of groundwater
contamination. The costs incurred by the Company with respect to these matters
have not been material during any year through and including the fiscal year
ended December 31, 1995. As of March 31, 1996, the Company had a remaining
reserve of approximately $1.3 million to cover its obligations to its former
subsidiary.

During 1995, the Company was notified by certain potentially responsible parties
at a superfund site in Michigan that the former subsidiary may be a potentially
responsible party at such site. The former subsidiary's liability, if any, has
not been determined but the Company believes that such liability will not be
material.

The Company, through a wholly-owned subsidiary, owns approximately 17 acres of
real property located in Opelika, Alabama (the "Opelika Property"). The Opelika
Property was formerly owned by Diversified Products Corporation, a former
subsidiary of the Company ("DP"), and was transferred to a wholly owned
subsidiary of the Company in connection with the Exchange Transaction. DP
previously used the Opelika Property as a storage area for stockpiling cement,
sand, and mill scale materials needed for or resulting from the manufacture of
exercise weights. In June 1994, DP

<PAGE>

discontinued the manufacture of exercise weights and no longer needed to use the
Opelika Property as a storage area. In connection with the Exchange Transaction,
Roadmaster and the Company agreed that the Company, through a wholly-owned
subsidiary, would acquire the Opelika Property, together with any related
permits, licenses, and other authorizations under federal, state and local laws
governing pollution or protection of the environment. In connection with the
closing of the Exchange Transaction, the Company and Roadmaster entered into an
Environmental Indemnity Agreement (the "Indemnity Agreement") under which the
Company agreed to indemnify Roadmaster for costs and liabilities resulting from
the presence on or migration of regulated materials from the Opelika Property.
The Company's obligations under the Indemnity Agreement with respect to the
Opelika Property are not limited. The Indemnity Agreement does not cover
environmental liabilities relating to any property now or previously owned by DP
except for the Opelika Property.

On January 22, 1996, the Alabama Department of Environmental Management ("ADEM")
wrote a letter to the Company stating that the Opelika Property contains an
"unauthorized dump" in violation of Alabama environmental regulations. The
letter from ADEM requires the Company to present for ADEM's approval a written
environmental remediation plan for the Opelika Property. The Company has
retained an environmental consulting firm to develop an environmental
remediation plan for the Opelika Property. The consulting firm has taken soil
samples and has performed other tests on the Opelika Property. Based upon the
preliminary results of these tests, the Company believes that the reserves of
approximately $1.8 million previously established by the Company for the Opelika
Property will be adequate to cover the cost of the remediation plan that is
currently being developed.

<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the Company's
consolidated condensed financial statements and related notes thereto.

General

In connection with the November 1 Mergers, the Company changed its name from
"The Actava Group Inc." ("Actava") to "Metromedia International Group, Inc."
For accounting purposes only, Orion and MITI were deemed to be the joint
acquirors of Actava and Sterling. The acquisitions of Actava and Sterling were
accounted for as reverse acquisitions. As a result of the reverse acquisitions,
the historical financial statements of the Company for periods prior to the
November 1 Mergers are the combined financial statements of Orion and MITI,
rather than Actava's.

The operations of Actava and Sterling have been included in the accompanying
consolidated financial statements from November 1, 1995, the date of
acquisition. During December 1995, the Company adopted a formal plan to dispose
of Snapper. In addition, the Company's investment in Roadmaster has been deemed
to be a non-strategic asset. The Company intends to dispose of Snapper and its
investment in Roadmaster during 1996. Snapper and Roadmaster are included in
the consolidated financial statements of the Company as assets held for sale.

The Company, in the ordinary course of its business, evaluates new opportunities
and strategies for enhancing stockholder value. As discussed above, the Company
entered into a definitive agreement to acquire Goldwyn and a letter of intent to
acquire MPCA. See Note 5 to the notes to the Company's Consolidated Condensed
Financial Statements. The acquisition of Goldwyn will provide the Company with
a valuable library of over 850 films and television titles, including numerous
Hollywood classics and critically acclaimed recent films. Goldwyn also owns the
leading specialized theatre circuit of 52 theatres and 140 screens. The
acquisition of MPCA will enhance the Company's ability to produce and acquire
new film product. Consummation of the Goldwyn Merger and the acquisition of
MPCA remains subject to certain conditions, including for the Goldwyn Merger,
approval of Goldwyn's stockholders, the refinancing of certain Goldwyn
indebtedness, the entering into of certain ancillary agreements and other
customary conditions. The acquisition of MPCA remains subject to execution of
definitive documentation, the expiration or early termination of the waiting
period under the Hart Scott Rodino Act and other customary conditions. The
acquisitions of Goldwyn and MPCA are important steps in MIG's plan to enhance
its role as a leading global entertainment, media and communications company.

The Company intends to pursue a strategy of making selective acquisitions of
attractive entertainment and communications assets that complement its existing
business groups. In particular, the Company is interested in expanding its
library of propriety motion picture rights and in expanding the network through
which it distributes various entertainment and communications products and
services.

The business activities of the Company consist of two business segments:
(i) the Entertainment Group, which includes the development, production,
acquisition, exploitation and worldwide distribution in all media of motion
pictures, television programming and other filmed entertainment product (the
"Entertainment Group"), and (ii) the Communications Group, which includes
wireless cable television, paging services, radio broadcasting, and various
types of telephony services (the "Communications Group").

<PAGE>

The Entertainment Group

The Entertainment Group consists of Orion and, following consummation of the
Goldwyn Merger and the acquisition of MPCA, Goldwyn and MPCA. Until November 1,
1995, Orion operated under the terms of its Modified Third Amended Joint
Consolidated Plan of Reorganization (the "Plan") which severely limited Orion's
ability to finance and produce additional theatrical motion pictures.
Therefore, Orion's primary activity prior to the November 1 Mergers was the
ongoing distribution of its library of theatrical motion pictures and television
programming. Orion believes the lack of a continuing flow of newly produced
theatrical product while operating under the Plan adversely affected its results
of operations. As a result of the removal of the restrictions on the
Entertainment Group to finance, produce, and acquire entertainment product in
connection with the November 1 Mergers, the Entertainment Group intends to
acquire and produce new theatrical product. See "Business--Entertainment
Group."

Theatrical motion pictures are produced initially for exhibition in theatres.
Initial theatrical release generally occurs in the United States and Canada.
Foreign theatrical exhibition generally begins within the first year after
initial release. Home video distribution in all territories usually begins six
to twelve months after theatrical release in that territory, with pay television
exploitation beginning generally six months after initial home video release.
Exhibition of the Company's product on network and on other free television
outlets begins generally three to five years from the initial theatrical release
date in each territory.

The Communications Group

The Communications Group, through MITI and its subsidiaries, is the owner of
various interests in Joint Ventures that are currently in operation or planning
to commence operations in certain republics of the former Soviet Union and in
certain other Eastern European countries. During 1995, the Company began to
pursue opportunities to extend its communications businesses into emerging
markets in the Pacific Rim.

The Joint Ventures currently offer wireless cable television, radio paging
systems, radio broadcasting, trunked mobile radio services and various types of
telephony services. Joint Ventures are principally entered into with
governmental agencies or ministries under the existing laws of the respective
countries.

The consolidated financial statements include the accounts and results of
operations of MITI, its majority owned and controlled Joint Ventures, CNM Paging
and Radio Juventas, and their subsidiaries. Investments in other companies and
Joint Ventures which are not majority owned, or in which the Company does not
have control, but exercises significant influence, have been accounted for using
the equity method.

The following tables sets forth the operating results and financial condition of
the Company's Entertainment Group and Communications Group for the quarters
ended March 31, 1996 and 1995. Financial information summarizing the results of
operations of Snapper, which is classified as an asset held for sale, is
presented in Note 6 to the Notes to the Consolidated Condensed Financial
Statements.

<PAGE>

METROMEDIA INTERNATIONAL GROUP, INC.
Segment Information
Management's Discussion & Analysis Table
March 31, 1996
(in thousands)

Quarter Ended Quarter Ended
March 31,1996 March 31,1995
------------- -------------

Revenues
Entertainment $ 27,641 $ 36,567
Communications 3,164 1,111
Other 3 -
---------- ---------
Total 30,808 37,678

Cost of Rentals and Operating
Expenses (25,102) (36,868)
Entertainment 13 -
Communications - -
---------- ---------
Other (25,089) (36,868)
Total

Selling, General & Administrative
Entertainment (4,912) (5,372)
Communications (7,400) (5,458)
Other (1,379) -
---------- ---------
Total (13,691) (10,830)

Management Fees
Entertainment - -
Communications (125) (144)
Other (250) -
---------- ---------
Total (375) (144)

Depreciation & Amortization
Entertainment (267) (142)
Communications (1,449) (386)
Other (7) -
---------- ---------
Total (1,723) (528)

Operating Loss
Entertainment (2,640) (5,815)
Communications (5,797) (4,877)
Other (1,633) -
---------- ---------
Total (10,070) (10,692)
Interest Expense
Entertainment (3,455) (8,005)
Communications - (931)
Other (4,824) -
---------- ---------
Total (8,279) (8,936)

Interest Income
Entertainment 31 325
Communications 1,090 492
Other 124 -
---------- ---------
Total 1,245 817

Chapter 11 Losses (54) (767)
Provision for Income Taxes (200) (200)
Equity in losses of Joint Ventures (1,783) (588)
---------- ---------

Net Loss $ (19,141) $ (20,366)
========== ===========

<PAGE>

MIG Consolidated -- Results of Operations

Three Months Ended March 31, 1996 Compared to Three Months Ended March 31, 1995.

Net loss decreased to $19.1 million in the three month period ended March 31,
1996 from $20.4 million for the three months ended March 31, 1995.

The decrease in the Company's consolidated loss of $1.3 million for the three
month period ended March 31, 1996 versus March 31, 1995 is primarily
attributable to decreases in operating losses at the Company's Entertainment
Group, offset by increases in operating losses at the Communications Group,
corporate overhead and equity in net losses of Joint Ventures.

The improvement in filmed entertainment's operations was a result of writedowns
of film inventory totaling approximately $5.4 million in the first quarter of
1995 compared to nominal writedowns for 1996.

The Communications Group experienced increases in selling general and
administrative expenses as it continues to expand its business. Corporate
overhead increased to $1.4 million in 1996 from zero in 1995 as a result of the
addition of Actava's corporate headquarters after the November 1 1995 Mergers.

The Entertainment Group - Results of Operations

Three Months Ended March 31, 1996 Compared To Three Months Ended March 31, 1995

Revenues

Total revenues for the three months ended March 31, 1996 were $27.6 million, a
decrease of $8.9 million or 24% from the three months ended March 31, 1995.

Theatrical revenues for the current quarter were $222,000, a decrease of
$289,000 or 57% from the previous year's first quarter. While operating under
the Plan, Orion's ability to produce or acquire additional theatrical product
was limited. This lack of product has negatively impacted theatrical revenues
and will continue to do so until Orion produces or acquires significant new
product for theatrical distribution.

Domestic home video revenues for the current quarter were $5.6 million, a
decrease of $3.6 million or 39% from the previous year's first quarter. The
decrease in domestic home video revenue was due primarily to Orion's reduced
theatrical release schedule in 1995 and 1994. Orion's reduced theatrical
release schedule in 1995 has had and will continue to have an adverse effect on
home video annual revenues until new product is available for distribution.

Home video subdistribution revenues for the current quarter were $2.3 million,
an increase of $2.2 million from the previous year's first quarter. These
revenues are primarily generated in the foreign marketplace through a
subdistribution agreement with Sony Pictures Entertainment, Inc. The increase
was primarily due to the release of the last titles under this agreement in some
major territories. All 23 pictures covered by this agreement have been released
theatrically. Orion's reduced theatrical schedule in 1995 has negatively
impacted home video subdistribution revenues and will continue to do so in the
future until Orion produces or acquires significant new product for
distribution.

Pay television revenues were $7.2 million in the current quarter, a decrease of
$2.6 million or 27% from the previous year's first quarter. The decrease in pay
television revenues was primarily due to

<PAGE>

the availability of no titles during 1996 in the domestic pay cable market
compared to two titles during 1995, which was partially offset by an increase in
the number of titles that became available under the British Sky Broadcasting,
Ltd. pay cable agreement in the U.K. Orion's reduced theatrical release
schedule in 1995 will continue to have an adverse effect on future pay
television revenues.

Free television revenues for the current quarter were $12.3 million, a decrease
of $4.6 million or 27% from the previous year's first quarter. In both the
domestic and international marketplaces, Orion derives significant revenue from
the licensing of free television rights. Orion's reduced theatrical release
schedule while operating under the Plan has had and will continue to have an
adverse effect on free television revenues.

Selling, General & Administrative Expenses

Selling, general and administrative expenses decreased $500,000 to $4.9 million
during the first quarter of 1996 from $5.4 million during the first quarter of
1995. The decrease resulted from reductions in insurance costs and outside
computer consulting costs.

Operating Loss

Operating loss decreased by $3.2 million in the current quarter to ($2.6)
million from an operating loss of ($5.8) million in the previous year's first
quarter. The 1995 results were adversely affected by writedowns to estimated
net realizable value of the carrying amounts on certain film product totaling
approximately $5.4 million for 1995 compared to nominal writedowns for 1996. In
addition, approximately two-thirds of Orion's film inventories are stated at
estimated realizable value and do not generate gross profit upon recognition of
revenues.

Interest Expense

Interest expense for the three months ended March 31, 1996 decreased by $4.6
million or 57% to $3.5 million, primarily due to the refinancing of Orion's debt
in connection with the November 1 Mergers including the repayment and
termination of the debt associated with the Plan. The average debt outstanding
and related average interest rates were $137.2 million at 8.3% and $210.8
million at 12.2% for the three month periods ended March 31 1996 and 1995,
respectively.

The Communications Group -- Results of Operations

Three Months Ended March 31, 1996 Compared to Three Months Ended March 31, 1995.

Revenues

Revenues increased to $3.2 million in the three months ended March 31, 1996 from
$1.1 million for the three months ended March 31, 1995. This growth in revenue
has resulted primarily from an increase in radio operations in Hungary and
paging service operations in Romania. Revenue from radio operations for the
first three months of 1996 was $2.4 million as compared to $807,000 in the
first three months of 1995. Radio paging services generated revenues of
$576,000 for the first three months of 1996 as compared to $179,000 in the
first three months of 1995.

General and Administrative Expense

General and administrative expense increased by $1.9 million or 36% for the
three months ended March 31, 1996 as compared to the three months ended March
31, 1995. The increase from 1995 to 1996 relates principally to the hiring of
additional staff and additional expenses associated with the

<PAGE>

increase in the number of Joint Ventures and the need for MITI to support and
assist the operations of the Joint Ventures as well as additional staffing at
the radio station and radio paging operations.

Interest Income

In 1994 MITI began to charge interest to the joint ventures for credit
facilities granted to the ventures by MITI. The interest was charged at rates
ranging from the prime rate to the prime rate plus two percent. As a result of
increasing advances to the Joint Ventures for their operating and investing cash
requirements, interest income earned under credit lines increased to $1.1
million for the three months ended March 31, 1996 as compared to $492,000 for
the three months ended March 31, 1995.

Interest Expense

MITI incurred no interest expense for the three months ended March 31, 1996 as
compared to $931,000 for the three months ended March 31, 1995. There was no
interest expense for the three months ended March 31, 1996 because all of MITI's
borrowings were from its parent, MIG. The average debt outstanding and related
average interest rate were $30.9 million and 11.5%, respectively, for the three
month period ended March 31, 1995.

Equity in Losses of Affiliated Joint Ventures

MITI accounts for the majority of its joint venture investees under the equity
method of accounting since it generally does not exercise control of these
ventures. Under the equity method of accounting, MITI reflects the cost of its
investments, adjusted for its share of income or losses of the joint ventures,
on its balance sheet and reflects only its proportionate share of income or
losses of the joint ventures as a separate caption in its statement of
operations.

MITI recognized equity in losses of joint venture investees of approximately
$1.8 million for the three months ended March 31, 1996 as compared to $588,000
for the three months ended March 31, 1995. The losses recorded for the three
months ended March 31, 1996 and 1995 represent MITI's equity in losses of the
venture operations for the three months ended December 31, 1995 and 1994,
respectively.

Equity in the losses of the joint ventures are generally reflected according to
the level of ownership of the joint venture by MITI until each joint venture's
contributed capital has been fully depleted. Subsequently, MITI recognizes the
full amount of losses generated by the Joint Venture since MITI is generally the
sole funding source for the Joint Ventures. MITI recognized equity in losses of
Joint Venture Investees of approximately $8.0 million in 1995, and $2.3 million
in 1994.

The increase in losses of the Joint Venture Investees of $5.7 million from 1994
to 1995 is primarily attributable to increased losses incurred of $4.0 million
as part of the expansion of cable TV operations, and a radio station in Moscow
with an increased loss of $1.3 million. As of September 30, 1995 there were
six cable TV ventures in operation as compared to four the prior year. Within
the cable TV operations, two ventures, in Moscow and Riga, incurred $2.1
million and $1.3 million, respectively of this increased loss. This was due to
one-time write downs of older equipment and additional expenses incurred for
programming and marketing related to expanding the services provided and
ultimately increasing the number of subscribers. All other cable TV
operations, including two new ventures and the expansion of two others that were
in their second year of operations contributed an increase of $669,000 in
losses. The increased loss experienced by the radio station was attributable
to a substantial revision in its programming format and the creation of sales
and related support staff needed to effectively compete in the Moscow market.
All other operations, including five paging entities, of which three were
started up in 1995, and one telephony operation, incurred increased losses of
$388,000.

<PAGE>

As a result of the start up nature of many of the joint ventures, additional
losses are expected.

The losses recorded for 1995 represent MITI's equity in the losses of the
ventures for the twelve months ended September 30, 1995. On January 1, 1994,
MITI changed its policy of accounting for the joint ventures by recording its
equity in their losses based upon a three-month lag. Accordingly, results of
operations for the year ended December 31, 1995 reflect equity in losses of the
joint ventures for the period from October 1, 1994 to September 30, 1995.
Results of operations for the year ended December 31, 1994 reflect equity in
losses of the joint ventures for the period from January 1, 1994 to September
30, 1994. Had MITI applied this method from October 1, 1993, the effect on
reported operating results for the year ended December 31, 1994 would not have
been material.

Foreign Currency

MITI presently has limited foreign currency exposure as virtually all revenues
are billed and collected in United States dollars or an equivalent local
currency amount adjusted on a monthly basis for currency fluctuation. MITI's
joint ventures are generally permitted to maintain US dollar accounts to service
their dollar denominated credit lines, thereby significantly reducing foreign
currency exposure. As MITI and its joint venture investees grow and become more
dependent on local currency based transactions, MITI expects its foreign
currency risk and exposure to increase. MITI does not hedge against foreign
currency exchange rate risks.

Liquidity and Capital Resources

The Company

The Company is a holding company and accordingly, does not generate cash flows.
Orion is restricted under covenants contained in the Orion Credit Agreement (as
defined below) from making dividend payments or advances to the Company. As
discussed above, MITI is dependant on the Company for significant capital
infusions to fund its operations, as well as its commitments to make capital
contributions and loans to its Joint Ventures. The Company anticipates that
MITI's funding requirements for 1996 will be approximately $40 million based in
part on the anticipated funding needs of the Joint Ventures. Future capital
requirements of MITI will depend on the ability of MITI's Joint Ventures to
generate positive cash flows.

The Company is obligated to make principal and interest payments under its own
various debt agreements (see Note 8 to "Notes to the Consolidated Financial
Statements" included in the 1995 Form 10-K) in addition to funding its working
capital needs, which consist principally of corporate overhead and payments on
self insurance claims (see Note 1 to the "Notes to the Consolidated Financial
Statements." included in the 1995 Form 10-K).

The Company is currently a party to the MIG Credit Facility under which it is
required to repay all amounts outstanding on October 30, 1996. At March 31,
1996, approximately $28.8 million was outstanding under the MIG Credit Facility.
Under the terms of the MIG Credit Facility, the Company may borrow up to $35
million as long as all outstanding loans do not exceed 65% of the market value
of its holdings of Roadmaster Common Stock. Metromedia has guaranteed payment
of amounts which exceed this 65% threshold. Based upon the current market price
of Roadmaster, the Company may not borrow any additional amounts under the MIG
Credit Facility. The MIG Credit Facility is secured by all of the stock of
Roadmaster owned by the Company and a subordinated lien on the assets of
Snapper. The loan is guaranteed by MITI.

<PAGE>

The Company's 9 7/8% Senior Subordinated Debentures due March 15, 1997 require
it to make annual sinking fund payments in March of each year of $3,000,000
(which the Company may increase to $6,000,000.) At March 31, 1996, $15 million
remained outstanding under the 9 7/8% Senior Subordinated Debentures.

The Company's 9 1/2% Subordinated Debentures are due August 1, 1998 and
approximately $59.5 million remained outstanding at March 31, 1996. These
debentures do not require annual principal payments.

The Company's $75 million face value 6 1/2% Convertible Subordinated Debentures
are due in 2002. The debentures are convertible into common stock at a
conversion price of $41 5/8 per share at the holder's option and do not require
annual principal payments.

Interest on the Company's outstanding indebtedness approximates $14 million for
1996. The average debt outstanding and related average interest rate were
$187.2 million and 8.6%, respectively, for the three month period ended
March 31, 1996.

In the short term, the Company intends to satisfy its current obligations and
commitments with available cash on hand and the proceeds from the sale of
certain assets. At March 31, 1996, the Company had approximately $11.7 million
of available cash on hand. During December 1995, the Company adopted a formal
plan to dispose of Snapper. At March 31, 1996, the carrying value of Snapper
was $73.8 million. The Snapper carrying value represents the Company's
estimated proceeds from the sale of Snapper and repayment of intercompany loans,
through the anticipated date of sale. Management believes that Snapper will be
disposed of by November 1996. In addition, the Company anticipates disposing of
its investment in Roadmaster during 1996. The carrying value of the Company's
investment in Roadmaster at March 31, 1996 was $47.5 million.

Management believes that its available cash on hand, proceeds from the
dispositions of Snapper and its investment in Roadmaster, borrowings under the
MITI Bridge Loan (as defined) and collections of intercompany receivables from
Snapper will provide sufficient funds for the Company to meet its obligations,
including MITI's funding requirements, in the short term. However, no
assurances can be given that the Company will be able to dispose of such assets
in a timely fashion and on favorable terms. Any delay in the sale of assets or
reductions in the proceeds anticipated to be received upon this disposition of
assets may result in the Company's inability to satisfy its obligations during
the year ended December 31, 1996. Delays in funding the Company's MITI capital
requirements may have a materially adverse impact on the results of operations
of MITI's Joint Ventures.

In connection with the consummation of the Goldwyn Merger, the Company intends
to refinance the MIG Credit Facility, the Orion Term Loan, the Orion Revolver
and certain existing Goldwyn Debt. The Company intends to use the proceeds of
an equity offering and the New Credit Facility to repay substantially all of
such indebtedness and to provide itself and MITI with liquidity to finance its
existing commitments and current business strategies. In addition to the
refinancing, management intends to satisfy its long term liquidity needs through
a combination of (I) the Company's successful implementation and execution of
its growth strategy to become a global entertainment, media and communications
company, including the integration of Goldwyn and MPCA, (ii) MITI's Joint
Ventures achieving positive operating results and cash flows through revenue and
subscriber growth and control of operating expenses, and (iii) the Entertainment
Group's ability to continue to generate positive cash flows sufficient to meet
its planned film production release schedule and service the New Group Credit
Facility. There can be no assurance that the Company will be successful in
consummating the equity offering and entering into the New Credit Facility or
that such refinancing can be accomplished on favorable terms. In the event the
Company is unable to successfully complete such a refinancing, or unable to
implement its business strategies, the Company, in addition to disposing of
Snapper and its investment in Roadmaster, may be required to (i) attempt to
obtain

<PAGE>

additional financing through public or private sale of debt or equity securities
of the Company or one of its subsidiaries, (ii) otherwise restructure its
capitalization or (iii) seeks a waiver or waivers under one or more of its
subsidiaries' credit facilities to permit the payment of dividends to the
Company.

The Company believes that it will report significant operating losses for the
fiscal year ended December 31, 1996. In addition, because its Communications
Group is in the early stages of development, the Company expects this group to
generate significant net losses as it continues to build out and market its
services. Accordingly, the Company expects to generate consolidated net losses
for the foreseeable future.

MIG Consolidated

Cash Flows from Operating Activities

Cash provided by operating activities decreased from $11.8 million for the three
month period ended March 31, 1995 to cash used in operations of $9.6 million for
the three month period ended March 31, 1996.

Losses from operations include significant non-cash items of depreciation,
amortization and equity in loss of Joint Ventures. Non-cash items decreased
$11.0 million or 36% from $30.7 million in the first quarter of 1995 to $19.7
million in the first quarter of 1996. The decrease in non-cash items
principally relates to amortization of film costs. Net changes in assets and
liabilities decreased cash flows from operations in first quarter of 1996 by
$10.1 million and increased cash provided by operations by $1.5 million in the
first quarter of 1995. After adjusting net losses for non-cash items and net
changes in assets and liabilities, the Company's cash flow from (used in)
operating activities was ($9.6) million and $11.8 million in the first quarter
of 1996 and 1995, respectively.

As discussed below, the decrease in cash flows in the first quarter of 1996
generally resulted from the reduction in revenues caused by Orion's reduced
release schedule and increases in selling general and administrative expenses at
MITI, Orion and corporate headquarters. Net interest expense has remained
relatively constant for the first quarter 1996 and 1995. However, Orion's
interest expense has decreased due to the refinancing of its debt in November,
1995 offset by interest expense relating to debt acquired in the November 1
Mergers. The Orion reduced release schedule, which is the result of the
restrictions imposed upon Orion while operating under the Plan, has negatively
impacted and will continue to negatively impact cash provided from operations.
As a result of the removal of the restrictions on the Entertainment Group to
finance, produce and acquire entertainment product as a result of the November 1
Mergers, the Entertainment Group intends to acquire and produce new theatrical
product. During the first quarter of 1996, Orion made a $5.0 million payment to
a subdistributor under an agreement entered into in connection with the Plan.
In addition, Orion made payments of $3.2 million for deferred financing costs
during the first quarter of 1996.

Cash Flows from Investing Activities

Cash used in investing activities was $5.4 million and $5.0 million for the
first quarters 1996 and 1995, respectively.

During the first quarter 1995, the principal use of cash in investing activities
was $4.3 million invested or advanced to joint ventures. During the first
quarter 1996, the Company collected $5.4 million from Snapper as repayment of
outstanding advances and paid $2.5 million, $1.6 million and $3.6 million for
investments in joint ventures, film inventories and property, plant and
equipment, respectively.

<PAGE>

Cash Flows from Financing Activities

Cash used in financing activities was $100,000 and $5.5 million for the first
quarters of 1996 and 1995, respectively.

Proceeds from issuance of long-term debt decreased from $12.5 million to $11.8
million form the first quarter of 1995 to 1996.

Payments on notes and subordinated debt decreased from $18.1 million to $12.3
million from the first quarter of 1995 to 1996.

The Entertainment Group

The financing, production and distribution of motion pictures requires the
expenditure of significant amounts of capital. Prior to the consummation of the
November 1 Mergers, Orion's ability to produce or acquire new theatrical product
was severely limited by the agreements entered into in connection with the Plan.
At the filing date, all new production was halted, leaving Orion with only 12
largely completed but unreleased motion pictures. Accordingly, Orion released
six, three and three theatrical motion pictures in the domestic marketplace in
1994, 1993 and 1992, respectively. In 1995, there were no theatrical releases
that were fully or substantially financed by Orion. This reduced release
schedule has had and will continue to have an adverse impact on results of
operations for the immediately foreseeable future. Furthermore, approximately
two-thirds of Orion's film inventories at March 31, 1996 are stated at amounts
approximating their estimated net realizable value and will not result in the
recording of gross profit upon the recognition of related revenues in future
periods. Accordingly, selling, general and administrative costs and interest
expense in future periods are likely to exceed gross profit recognized in each
period, which will result in the reporting of net losses by Orion for financial
reporting purposes for the foreseeable future.

In connection with the consummation of the November 1 Mergers, the restrictions
imposed by the agreements entered into in connection with the Plan on Orion's
ability to produce and acquire new motion picture product were eliminated. As a
result, Orion has begun the process of producing, acquiring and financing
theatrical films consistent with the covenants set forth in the Orion Credit
Agreement (as defined below). The principal sources of funds required for
Orion's motion picture production, acquisition and distribution activities will
be cash generated from operations, proceeds from the presale of subdistribution
and exhibition rights, primarily in foreign markets, and borrowings under the
Orion Revolver. Orion's operating plan involves the production or acquisition
and release of lower budget films, the distribution of films for third parties
and the continued distribution of its film library. Orion generally plans to
release approximately 8 to 10 films per year, including two or three films to be
produced by Orion or in conjunction with others.

The cost of producing theatrical films varies depending on the type of film
produced, casting of stars or established actors, and many other factors. The
industry-wide trend over recent years has been an increase in the average cost
of producing and releasing films. The revenues derived from the production and
distribution of a motion picture depend primarily upon its acceptance by the
public, which cannot be predicted and does not necessarily bear a direct
correlation to the production or distribution costs incurred. The Company will
attempt to reduce the risks inherent in its motion picture production activities
by closely monitoring the production and distribution costs of individual films
and limiting Orion's investment in any single film.

On November 1, 1995, in connection with the consummation of the November 1
Mergers, Orion received contributions of approximately $19.4 million of net
assets from the Company. Orion also entered into a non interest bearing
promissory note for approximately $72.9 million with the

<PAGE>

Company. The proceeds from the promissory note as well as the Orion Term Loan
(as defined below) described below were used directly or indirectly to repay and
terminate Plan Debt.

On November 1, 1995, Orion entered into a credit agreement with a syndicate of
lenders led by Chase, as agent (the "Orion Credit Agreement"). The Orion Credit
Agreement consists of a $135 million term loan (the "Orion Term Loan") with
quarterly repayments of $6.75 million commencing March 1996 with the final
payment due December 31, 2000; and a $50 million revolver (the "Orion Revolver")
with a final maturity of December 31, 2000. The amount outstanding under the
Orion Term Loan as of March 31,1996 was $106.8 million. The amount available
under the Orion Revolver as of March 31, 1996 was $31.1 million (of which $4
million is reserved for an outstanding letter of credit). Interest is charged
for the Orion Term Loan at the agent bank's prime rate plus 2% or at 3% above
the LIBOR rate, at Orion's option; and for the Orion Revolver at the agent
bank's prime rate plus 1/2% or at 11/2% above the LIBOR rate, also at Orion's
option. At March 31, 1996, the effective rates on the Orion Term Loan and the
Orion Revolver were 8.3% and 6.9%, respectively. Indebtedness under the Orion
Credit Agreement is secured by all of Orion's assets, including the common stock
of Orion and its subsidiaries. In addition to the quarterly amortization
schedule, the Orion Credit Agreement provides that in the event that the ratio
of the value of eligible accounts receivable in Orion's borrowing base to the
amount outstanding under the Orion Term Loan ("the Borrowing Base Ratio") does
not exceed a designated threshold, all cash received by Orion must be used to
prepay principal and interest on the Orion Term Loan until such Borrowing Base
Ratio exceeds such designated threshold. All prepayments may be applied against
scheduled quarterly repayments.

As a result of prepayments, Orion has satisfied its scheduled amortization
payments through December 31, 1996. To the extent the Borrowing Base Ratio
exceeds the threshold set forth in the Orion Credit Agreement, and is not needed
to amortize the Orion Term Loan, Orion may use any excess cash to pay its
operating expenses, including the costs of acquiring new film product or new
production. The Borrowing Base Ratio currently exceeds the designated
threshold. In addition, Orion has established a system of lockbox accounts and
collection accounts to maintain Chase's security interest in the cash proceeds
of Orion's accounts receivable. Amounts outstanding under the Orion Revolver
are guaranteed jointly and severally by Metromedia and John W. Kluge.

The Orion Credit Agreement contains customary covenants, including limitations
on the incurrence of additional indebtedness and guarantees, the creation of new
liens and on the number of films Orion may produce, restrictions on the
development costs and budgets for such films, limitations on the aggregate
amount of unrecouped print and advertising costs Orion may incur, limitations on
the amount of Orion's leases, capital and overhead expenses, prohibitions on the
declaration of dividends or distributions by Orion to the Company, limitations
on the merger or consolidation of Orion or the sale by Orion of any substantial
portion of its assets or stock and restrictions on Orion's line of business,
other than activities relating to the production and distribution of
entertainment product. The Orion Credit Agreement also contains several
financial covenants, including the requirement that Orion maintain the ratio of
Orion's Free Cash Flow (as defined in the Orion Credit Agreement) to its
cumulative investment in film product above certain specified levels at the end
of each fiscal quarter, and that Orion's cumulative investment in film product
not exceed Free Cash Flow by more than $50,000,000. In addition, the Orion
Credit Agreement contains a covenant which would be triggered if the amount of
Orion's net losses exceeds certain levels for each fiscal year beginning with
the fiscal year ended December 31,1996.

The Orion Revolver contains the following events of default: nonpayment of
principal or interest on the facility, the occurrence of a "change of control"
(as defined below) or an assertion by the guarantors of such facility that the
guarantee of such facility is unenforceable. The Orion Term Loan also contains
a number of customary events of default, including the non-payment of principal
or interest, the occurrence of a "change of control" of the Company (defined to
include a reduction in

<PAGE>

the stock ownership of the Metromedia and its affiliates (the "Metromedia
Holders") below 25% of the outstanding Common Stock or if a third party controls
more Common Stock than the Metromedia Holders or if a third party is entitled to
designate a majority of the members of the Company's Board of Directors), the
termination of employment of Orion's chief executive officer, head of production
or other specified officers and the objection to such person's replacement by
the required lenders within a designated period, the violation of covenants,
falsity of representations and warranties in any material respect, certain
cross-default and cross-acceleration provisions, and bankruptcy or insolvency of
Orion or the Company.

Management believes that the Orion Revolver together with cash generated from
operations will provide Orion with sufficient resources to finance anticipated
levels of production and distribution activities and to meet debt obligations as
they become due during calendar 1996.

The Communications Group

MITI has invested significantly (in cash through capital contributions, loans
and management assistance and training ) in its Joint Ventures. MITI has also
incurred significant expenses in identifying, negotiating and pursuing new
wireless telecommunications opportunities in emerging markets. MITI and
primarily all of its Joint Venture investees are experiencing continuing losses
and negative operating cash flow since the businesses are in the development and
start up phase of operations.

The wireless cable television, paging, fixed wireless loop telephony, and
international toll calling businesses are capital intensive. MITI generally
provides the primary source of funding for its Joint Ventures both for working
capital and capital expenditures. MITI's Joint Venture agreements generally
provide for the initial contribution of assets or cash by the joint venture
partners, and for the provision of a line of credit from MITI to the Joint
Venture. Under a typical arrangement, MITI's joint venture partner contributes
the necessary licenses or permits under which the joint venture will conduct its
business, studio or office space, transmitting tower rights and other equipment.
MITI's contribution is generally cash and equipment, but may consist of other
specific assets as required by the joint venture agreement.

The credit agreement with the Joint Venture is intended to provide it with
sufficient funds for operations and equipment purchases. The credit agreements
generally provide for interest to be accrued at MITI's current cost of borrowing
in the United States and for payment of principal and interest from 90% of the
Joint Venture's available cash flow, as defined, prior to any distributions of
dividends to MITI or its partners. The credit agreements also often provide MITI
the right to appoint the general director of the Joint Venture and the right to
approve the annual business plan of the Joint Venture. Advances under the credit
agreements are made to the Joint Ventures in the form of cash, for working
capital purposes, as direct payment of expenses or expenditures, or in the form
of equipment, at the cost of the equipment plus cost of shipping. As of March
31, 1996 and December 31, 1995, MITI was committed to provide funding under the
various credit lines in an aggregate amount of approximately $47.1 million and
$46.8 million, respectively, of which $12.3 million and $16.9 million,
respectively, remains unfunded. MITI's funding commitments under a credit
agreement are contingent upon its approval of the Joint Venture's business plan
and the attainment of such business plans. MITI reviews the actual results
compared to the approved business plan on a periodic basis. If the review
indicates a material variance from the approved business plan, MITI may
terminate or revise its commitment to fund the credit agreements.

MITI's consolidated and unconsolidated Joint Ventures' ability to generate
positive operating results is dependent upon the sale of commercial advertising
time, the ability to attract subscribers to its systems and its ability to
control operating expenses. Management's current plans with respect to the
Joint Ventures are to increase subscriber and advertiser bases and thereby their
operating revenues

<PAGE>

by developing a broader band of programming packages for wireless cable and
radio broadcasting and offering additional services and options for paging and
telephony services. By offering the large local populations of the countries in
which the Joint Ventures operate desired services at attractive prices,
management believes that the Joint Ventures can increase their subscriber and
advertiser bases and generate positive operating cash flow, reducing their
dependence on MITI for funding of working capital. Additionally, advances in
wireless subscriber equipment technology are expected to reduce capital
requirements per subscriber. Further initiatives to develop and establish
profitable operations include reducing operating costs as a percentage of
revenue and assisting Joint Ventures to develop management information systems
and automated customer care and service systems.

MITI's investments in the Joint Ventures are not expected to become profitable
or generate significant cash flows in the near future. Additionally, if the
joint venture investees do become profitable and generate sufficient cash flows
in the future, there can be no assurance that the Joint Ventures will pay
dividends or return capital at any time.

The ability of MITI and its consolidated and unconsolidated Joint Ventures to
establish profitable operations is also subject to special political, economic
and social risks inherent in doing business in emerging markets such as Eastern
Europe, the former Soviet Republics and the Pacific Rim. These include matters
arising out of government policies, economic conditions, imposition of or
changes to taxes or other similar charges by governmental bodies, foreign
exchange fluctuations and controls, civil disturbances, deprivation or
unenforceability of contractual rights, and taking of property without fair
compensation.

Prior to the November 1 Mergers, MITI had relied on certain shareholders for
capital, in the form of both debt and equity, to fund its operating and capital
requirements. During 1995 and 1994, MITI's primary sources of funds were from
the issuance of notes payable and from equity contributions. Notes payable were
due within one year of the note and carried interest rates ranging from the
prime rate to the prime rate plus 2%. During the first quarter of 1996, MITI's
primary sources of funds were from the Company as intercompany loans.

During 1994, MITI received equity contributions of approximately $24.2 million.
Approximately $22.8 million of this amount was a result of common stock issued
to certain related parties, affiliates and others in a private offering. As
part of this issuance, $6.5 million of notes payable were converted to common
stock. The remaining $1.4 million of equity contributions was the result of
issuance of common stock to an affiliate. During 1994, MITI received financing
of $20.1 million through the issuance of notes payable.

During 1995, MITI received equity contributions of approximately $62.0 million
from the Company, representing cash and notes payable to a Metromedia affiliate,
that were converted into equity of the Company at the time of the November 1
Mergers.

Proceeds of MITI's borrowings and equity issuance were used, in part, to
purchase and provide equipment to its joint venture investees under credit
lines, to fund initial equity contributions to joint ventures and for MITI's
operating activities, primarily selling, general and administrative expenses.

Cash used for investing activities in 1994 includes $7.0 million paid to
complete MITI's acquisition of East News Channel Trading and Service, Kft, in
addition to the approximately $1.1 million paid in 1993. The remaining amount
of funds invested in Joint Ventures for 1995 and 1994 were to fund MITI's
capital contributions as required by the respective joint venture agreements and
to provide equipment and working capital under lines of credit. These capital
requirements amounted to approximately $2.5 million for the first quarter of
1996 and $21.2 million and, $16.4 million for 1995 and 1994, respectively. MITI
continues to seek out and enter into arrangements whereby it can offer
communications services through joint venture arrangements. Additional Joint
Ventures are presently

<PAGE>

being planned in countries in which MITI currently has investments and in new
target markets in the Far East. Capital expenditures for the first quarter of
1996 as well as capital expenditures in 1995 and 1994 were primarily the result
of expanding MITI's operations and establishing offices in Moscow, Russia,
Vienna, Austria, Budapest, Hungary and Hong Kong.

MITI's capital commitments for fiscal year 1995 were comprised of four primary
categories: (i) subscriber equipment, (ii) working capital advances, (iii)
expansion of existing facilities and (iv) new construction. Most of MITI's
Joint Ventures, once operational, require subscriber equipment and working
capital infusions for a significant period of time until funds generated by
operations are sufficient to cover operating expenses and capital expenditure
requirements. In some cases, the Joint Venture and MITI agree to expand the
existing facilities to increase or enhance existing services. In those cases,
when the joint venture cannot provide these funds from operations, MITI provides
the funding. During the construction phase of the Joint Venture, MITI normally
provides the funds required to build out the project.

During 1995, MITI expended $13.5 million for capital expenditures on behalf of
its ventures; the majority of which, $9.5 million was for cable TV, $2.1
million for paging, $38,000 for radio and $1.9 million for all others. MITI
also funded $2.4 million of charter fund contributions to its Joint Ventures,
consisting of $53,000 for cable TV, $630,000 for paging operations, $432,000
for radio, $893,000 for telephony and $438,000 for all other. In addition, MITI
supported certain ventures with working capital funds against the venture credit
lines totaling $2.5 million; of which $798,000 was for cable TV operations,
$303,000 for paging, $1.4 million for radio operations and $7,000 for all
others.

During 1996, MITI will continue to fund its Joint Ventures in a similar manner.
MITI anticipates funding $20.8 million in capital requirements for its ventures,
consisting of $14.7 million for cable TV; $4.8 million for paging ventures;
$883,000 for telephony operations and $325,000 for radio operations. In
addition, MITI anticipates approximately $2.3 million in working capital funding
requirements, consisting of $836,000 for cable TV, $598,000 for paging, $323,000
for telephony operations and $536,000 for radio operations.

For the three months ended March 31, 1996 MITI expended $2.5 million on behalf
of its ventures, consisting of $1.7 million for capital equipment requirements
and approximately $800,000 for working capital funding requirements. The
capital requirements consists of approximately $1.0 million for cable TV and
approximately $700,000 for paging ventures. In addition, the working capital
funding requirements consisted of approximately $130,000 for cable TV,
approximately $80,000 for paging, approximately $320,000 for telephony
operations and approximately $270,000 for radio operations.

For the three months ended March 31, 1996, MITI's primary source of funds were
from the Company in the form of non-interest bearing intercompany loans. MITI
anticipates that it will continue to rely on the Company for its funds for the
remainder of 1996.

In December 1995, MITI and Protocall Ventures Ltd. ("Protocall") executed a
letter of intent together with a loan agreement. The letter of intent calls for
MITI to loan up to $1.5 million to Protocall and negotiate for the purchase by
MITI from Protocall of 51% of Protocall for $2.6 million. Upon closing of the
purchase agreement, the principal and accrued interest under the loan will be
offset against the purchase price otherwise payable to Protocall. As of March
31, 1996 $1.4 million had been loaned to Protocall against the $1.5 million
loan. The letter of intent provided the parties until March 31, 1996 to
negotiate, execute and close a purchase agreement and shareholders agreement.
Failing to do so, the terms of the loan call for an annual interest rate of the
Chemical prime rate plus 2% with the full amount of the loan due on December 12,
1996. As of this date, the parties have not reached an agreement but, continue
to negotiate terms of a possible purchase and shareholders agreement.

<PAGE>

MITI requires significant capital to fund its operations and to make capital
contributions and loans to its Joint Ventures. MITI relies on the Company to
provide the financing for these activities. In addition, Metromedia has made
available to MITI up to $15 million of revolving credit (the "MITI Bridge Loan")
in order to satisfy its commitments and working capital requirements. MITI may
use the proceeds of loans under such agreement for general corporate and working
capital purposes. As of March 31, 1996 MITI had no borrowings under the MITI
Bridge Loan. Interest is payable on all loans made pursuant to the MITI Bridge
Loan at a rate equal to Chase's prime rate plus 2%. All loans thereunder are
due and payable on the earlier to occur of (i) the consummation of the
refinancing of the Company's indebtedness in connection with the Goldwyn Merger
and (ii) January 15, 1997. The Company believes that as more of MITI's Joint
Ventures commence operations and reduce their dependence on MITI for funding,
MITI will be able to finance its own operations and commitments from its
operating cash flow and MITI will be able to attract is own financing from third
parties. There can, however, be no assurance that additional capital in the
form of debt or equity will be available to MITI at all or on terms and
conditions that are acceptable to the Company.

<PAGE>

Part II. Other Information

Item 1. Legal Proceedings

Fuqua Industries, Inc. Shareholder Litigation
- ---------------------------------------------

Between February 25, 1991 and March 4, 1991, three lawsuits were filed
against the Company (formerly named Fuqua Industries, Inc.) in the Delaware
Chancery Court. On May 1, 1991, these three lawsuits were consolidated by the
Delaware Chancery Court in In re Fuqua Industries, Inc. Shareholders Litigation,
----------------------------------------------------
Civil Action No. 11974. The named defendants are certain current and former
members of the Company's Board of Directors and certain former members of the
Board of Directors of Intermark, Inc. ("Intermark"). Intermark is a predecessor
to Triton Group Ltd., which owned approximately 25% of the outstanding shares of
the Company's Common Stock. The Company was named as a nominal defendant in this
lawsuit. The action was brought derivatively in the right of and on behalf of
the Company and purportedly was filed as a class action lawsuit on behalf of all
holders of the Company's Common Stock other than the defendants. The complaint
alleges, among other things, a long-standing pattern and practice by the
defendants of misusing and abusing their power as directors and insiders of the
Company by manipulating the affairs of the Company to the detriment of the
Company's past and present stockholders. The complaint seeks (i) monetary
damages from the director defendants, including a joint and several judgment for
$15.7 million for alleged improper profits obtained by Mr. J.B. Fuqua in
connection with the sale of his shares in the Company to Intermark; (ii) injunc-
tive relief against the Company, Intermark and its former directors, including a
prohibition against approving or entering into any business combination with
Intermark without specified approval; and (iii) costs of suit and attorneys'
fees. On December 28, 1995, plaintiffs filed a consolidated second amended
derivative and class action complaint, purporting to assert additional facts in
support of their claim regarding an alleged plan, but deleting their prior
request for injunctive relief. On January 31, 1996, all defendants moved to
dismiss the second amended complaint and filed a brief in support of that
motion. The motion to dismiss is still pending.

Litigation Relating to the November 1 Mergers
- ---------------------------------------------

Three stockholder suits relating to the November 1 Mergers were filed in the
Delaware Chancery Court prior to the consummation of such mergers. Set forth
below is a brief description of the status of such litigations.

Jerry Krim v. John W. Kluge, Silvia Kessel, Joel R. Packer, Michael I.
Sovern, Raymond L. Steele, Stuart Subotnick, Arnold L. Wadler, Stephen
Wertheimer, Leonard White and Orion Pictures Corporation (Delaware Chancery
Court, C.A. No. 13721); complaint filed September 2, 1994. Orion and each of its
directors were named as defendants in this purported class action lawsuit, which
alleged that Orion's Board of Directors failed to use the required care and
diligence in considering the November 1 Mergers and sought to enjoin the
consummation of such mergers. The lawsuit further alleged that as a result of
the actions of Orion's directors, Orion's stockholders would not receive the
fair value of Orion's assets and business in exchange for their Orion Common
Stock in the November 1 Mergers.

Harry Lewis v. John W. Kluge, Leonard White, Stuart Subotnick, Silvia Kessel,
Joel R. Packer, Michael I. Sovern, Raymond L. Steele, Arnold L. Wadler, Stephen
Wertheimer, The Actava Group, Inc. and Orion Pictures Corp. (Delaware Chancery
Court, C.A. No. 14234); complaint filed April 17, 1995. Orion, each of its
directors and Actava were named in this purported class action lawsuit which was
filed after the execution of the initial merger agreement relating to the
November 1 Mergers. The complaint contained similar allegations and sought
similar relief to the Krim case described above.

<PAGE>

On January 22, 1996, the parties to these two lawsuits executed a Memorandum
of Understanding embodying a tentative settlement agreement. In the tentative
settlement agreement, the plaintiffs accept the amendments to the transaction
set forth in the September 27, 1995 amended and restated merger agreement
relating to the November 1 Mergers as full settlement of all claims that were
asserted or could have been asserted in such litigations. Counsel for the
plaintiffs are now conducting confirmatory discovery. The Company believes that
a stipulation will be entered into with the plaintiffs during 1996.

James F. Sweeney, Trustee of Frank Sweeney Defined Benefit Plan Trust v. John
D. Phillips, Frederick B. Beilstein, III, John E. Aderhold, Michael B. Cahr,
J.M. Darden, III, John P. Imlay, Jr., Clark A. Johnson, Anthony F. Kopp, Richard
Nevins, Carl E. Sanders, Orion Picture Corporation, International Telcell, Inc.,
Metromedia International, Inc. and MCEG Sterling Inc. (Delaware Chancery Court,
C.A. No. 13765); complaint filed September 23, 1994. This class action lawsuit
was filed by stockholders of the Company (then known as The Actava Group Inc.)
against the Company and its directors, and against each of Orion, MITI and
Sterling, the other parties to the November 1 Mergers. The complaint alleges
that the terms of the November 1 Mergers constitute an overpayment by the
Company for the assets of Orion and, accordingly, would result in a waste of the
Company's assets. The complaint further alleges that Orion, MITI and Sterling
each knowingly aided, abetted and materially assisted the Company's directors in
breach of their fiduciary duties to the Company's stockholders. On November 23,
1994, the Company and its directors filed a motion to dismiss the complaint.
The plaintiff never responded to the motion to dismiss. On February 22, 1996,
however, the plaintiff filed a status report with the Court of Chancery in
Delaware indicating that the case is moot but that the plaintiff intends to
pursue an application for fees and expenses. An application for fees and
expenses was filed in April 1996. The Company believes such application to be
without merit.

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

Exhibit
Number
- ------

10.41 Metromedia International Telecommunications, Inc. 1994 Stock Plan.

(b) Reports on Form 8-K

The Company's Current Report on Form 8-K dated January 31, 1996,
reporting that the Company had entered into the Goldwyn Merger
Agreement with Goldwyn.

The Company's Current Report on Form 8-K dated April 29, 1996,
reporting that the Company had entered into the Termination and Release
Agreement with Alliance terminating its acquisition of Alliance.

<PAGE>

METROMEDIA INTERNATIONAL GROUP, INC.
Computation of Earnings Per Share
(in thousands, except per share amounts)

Three Months Ended
-----------------------
March 31, March 31,
1996 1995
--------- ---------

Loss Per Share -Primary
Net loss available for Common

Stock and Common Stock
equivalents $ (19,141) $(20,366)
--------- --------
Common Stock and Common Stock
Equivalents (A)

Weighted average common shares
outstanding
during the period 42,615 20,935
--------- --------
Loss Per Share - Primary $ (0.45) $ (0.97)
========= ========
Loss Per Share - Assuming Full
Dilution (B)

(A) Common stock equivalents are not included in primary loss per share in the
Three Months Ended March 31, 1996 and 1995 because they would be
anti-dilutive.

(B) Fully diluted loss per share is not used in the Three Months Ended March
31, 1996 and 1995 because it is less than primary loss per share.

35
<PAGE>

SIGNATURE

Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

METROMEDIA INTERNATIONAL GROUP, INC.

By: /s/ Silvia Kessel
--------------------------------------------------

Name: Silvia Kessel
Title: Senior Vice President, Chief Financial
Officer and Treasurer

Dated: May 8, 1996

<PAGE>

EXHIBIT INDEX

Exhibit
Number Description
------ -----------

10.41 Metromedia International
Telecommunications, Inc.
1994 Stock Plan.

METROMEDIA INTERNATIONAL
TELECOMMUNICATIONS, INC.

1994 STOCK OPTION PLAN

<PAGE>

Table of Contents
-----------------

Page
----

1. Purpose of the Plan. . . . . . . . . . . . . . . . . . . . . . . . . . . 2

2. Stock Subject to the Plan. . . . . . . . . . . . . . . . . . . . . . . . 2

3. Administration of the Plan. . . . . . . . . . . . . . . . . . . . . . . 2

4. Type of Option. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

5. Eligibility. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

6. Restrictions on Options. . . . . . . . . . . . . . . . . . . . . . . . . 4

7. Option Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

8. Option Price. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

9. Manner of Payment; Manner of Exercise. . . . . . . . . . . . . . . . . . 6

10. Exercise Options. . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

11. Term of Options; Exercisability. . . . . . . . . . . . . . . . . . . . . 6

12. Options Not Transferable. . . . . . . . . . . . . . . . . . . . . . . . 8

13. Recapitalization, Reorganizations and the Like. . . . . . . . . . . . . 8

14. No Special Employment Rights. . . . . . . . . . . . . . . . . . . . . . 10

15. Withholding. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

16. Restrictions on Exercise of Options and Issuance of Shares. . . . . . . 10

17. Purchase for Investment; Rights of Holder on Subsequent Registration. . 11

18. Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

19. Modification of Outstanding Options. . . . . . . . . . . . . . . . . . . 12

20. Approval of Stockholders. . . . . . . . . . . . . . . . . . . . . . . . 12

21. Termination and Amendment of Plan. . . . . . . . . . . . . . . . . . . . 12

22. Limitation of Rights in the Option Shares. . . . . . . . . . . . . . . . 13

23. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

<PAGE>

METROMEDIA INTERNATIONAL TELECOMMUNICATIONS, INC.
1994 STOCK OPTION PLAN

1. Purpose of the Plan.

The purpose of the Metromedia International Telecommunications, Inc.
1994 Stock Option Plan (the "Plan") is to advance the interests of Metromedia
International Telecommunications, Inc., a Delaware corporation (the "Company"),
by providing an opportunity for ownership of the stock of the Company by
employees, agents and directors of, and consultants to, the Company or of any
subsidiary corporation (herein called "subsidiary" or "subsidiaries"), as
defined in Section 424(f) of the Code and the Treasury regulations promulgated
thereunder (the "Regulations"). By providing an opportunity for such stock
ownership, the Company seeks to attract and retain qualified personnel, and
otherwise to provide additional incentive for optionees to promote the success
of its business.

2. Stock Subject to the Plan.

(a) The total number of shares of the authorized but unissued or
treasury shares of the common stock, $.001 par value per share, of the Company
(the "Common Stock") for which options may be granted under the Plan (the
"Options") shall be 107,000, subject to adjustment as provided in Section 13
hereof.

(b) If an Option granted or assumed hereunder shall expire or
terminate for any reason without having been exercised in full, the unpurchased
shares subject thereto shall again be available for subsequent Option grants
under the Plan.

(c) Common Stock issuable upon exercise of an Option may be
subject to such restrictions on transfer, repurchase rights or other conditions
or restrictions as shall be determined by the Board of Directors of the Company
(the "Board").

3. Administration of the Plan.

(a) The Plan shall be administered by the Board. No member of
the Board shall act upon any matter affecting any Option granted or to be
granted to himself or herself under the Plan; provided, however, that nothing
contained herein shall be deemed to prohibit a member of the Board from acting
upon any matter generally affecting the Plan or any Options granted thereunder.
A majority of the members of the Board shall constitute a quorum, and any action
may be taken by a majority of those present and voting at any meeting. The
decision of the Board as to all questions of interpretation and application of
the Plan shall be final, binding and conclusive on all persons. The Board, in
its sole direction, may grant Options to purchase shares of the Common Stock
only as provided in the Plan, and shares shall be issued upon exercise of such
Options as provided in the Plan. The Board shall have authority, subject to the
express provisions of the Plan, to amend the Plan, to determine the terms and
provisions of the respective option agreements, which may but need not be
identical to construe the respective option agreements and the Plan, and to make
all other determinations in the judgment of the Board necessary or desirable for
the administration of the Plan. The Board may correct any defect or supply any
omission or reconcile any inconsistency in the Plan or in any option agreement
in the manner and to the extent it shall deem expedient to implement the Plan
and shall be the sole and final judge of such expediency. The Board, in its
discretion, may delegate its power, duties and responsibilities to a committee,
consisting of two or more members of the Board, all of whom are "disinterested
persons" (as hereinafter defined). If a committee is so appointed, all
references to the Board herein shall mean and relate to such committee. For the
purpose of the Plan, a director or member of such committee shall be deemed to
be "disinterested" only if such person qualified as a "disinterested person"
within the meaning of paragraph (c)(2) of Rule 16b-3 promulgated under the

<PAGE>
Securities Exchange Act of 1934, as amended (the "Exchange Act"), as such term
is interpreted from time to time.

4. Type of Option.

Options granted pursuant to the Plan shall be authorized by action of
the Board and may be designated as either incentive stock options meeting the
requirements of Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code"), or non-qualified stock options which are not intended to meet the
requirements of such Section 422 of the Code, the designation to be in the sole
discretion of the Board. Options designated as incentive stock options that
fail to continue to meet the requirements of Section 422 of the Code shall be
redesignated as non-qualified stock options automatically without further action
by the Board on the date of such failure to continue to meet the requirements of
Section 422 of the Code.

5. Eligibility.

Options designated as incentive stock options may be granted only to
officers and employees of the Company or of any subsidiary. Directors who are
not otherwise employees of the Company or a subsidiary shall not be eligible to
be granted incentive stock options pursuant to the Plan. Options designated as
non-qualified stock options may be granted to (i) officers and employees of the
Company or of any of its subsidiaries, or (ii) agents and directors of, and
consultants to, the Company, whether or not otherwise employees of the Company.

The Board shall take into account such factors as it may deem relevant
in determining the number of shares of Common Stock to be included in an Option
to be granted to any officer, employee, agent or director of, or consultant to,
the Company.

6. Restrictions on Options.

Incentive stock options (but not non-qualified stock options) granted
under this Plan shall be subject to the following restrictions:

(a) Limitation on Numbers of Shares. The aggregate fair market
-------------------------------
value of the shares of Common Stock with respect to which incentive stock
options are granted (determined as of the date the incentive stock options are
granted), exercisable for the first time by an individual during any calendar
year shall not exceed $100,000. If an incentive stock option is granted
pursuant to which the aggregate fair market value of shares with respect to
which it first becomes exercisable in any calendar year by an individual exceeds
such $100,000 limitation, the portion of such option which is in excess of the
$100,000 limitation shall be treated as a non-qualified stock option pursuant to
Section 422(d)(1) of the Code. In determining the fair market value under this
clause (a), the provisions of Section 8 hereof shall apply. In the event that
an individual is eligible to participate in any other stock option plan of the
Company or any subsidiary of the Company which is also intended to comply with
the provisions of Section 422 of the Code, such $100,000 limitation shall apply
to the aggregate number of shares for which incentive stock options may be
granted under this Plan and all such other plans.

(b) Ten Percent Shareholder. If any employee to whom an
-----------------------
incentive stock option is granted pursuant to the provisions of the Plan is on
the date of grant the owner of stock (as determined under Section 424(d) of the
Code) possessing more than 10% of the total combined voting power of all classes
of stock of the Company or any subsidiary of the Company, then the following
special provisions shall be applicable to the incentive stock options granted to
such individual:

<PAGE>
3

(i) The Option price per share subject to such Options
shall be not less than 110% of the fair market value of the shares of Common
Stock with respect to which Options are granted (determined as of the date such
Option was granted). In determining the fair market value under this clause
(i), the provisions of Section 8 hereof shall apply.

(ii) The Option by its terms shall not be exercisable after
the expiration of five years from the date such Option is granted.

7. Option Agreement.

Each Option shall be evidenced by an option agreement, substantially
in the form attached hereto (an "Agreement"), duly executed on behalf of the
Company and by the optionee to whom such Option is granted, which Agreement
shall comply with and be subject to the terms and conditions of the Plan. The
Agreement may contain such other terms, provisions and conditions which are not
inconsistent with the Plan as may be determined by the Board; provided that
Options designated as incentive stock options shall meet all of the conditions
for incentive stock options as defined in Section 422 of the Code. No Option
shall be granted within the meaning of the Plan and no purported grant of any
Option shall be effective until the Agreement shall have been duly executed on
behalf of the Company and the optionee.

8. Option Price.

(a) The Option price or prices of shares of the Common Stock for
Options designated as non-qualified stock options shall be as determined by the
Board.

(b) Subject to the conditions set forth in Section 6(b) hereof,
the Option price of prices of shares of the Company's Common Stock designated as
incentive stock options shall be at least the fair market value of such Common
Stock on the date the Option is granted as determined by the Board in accordance
with the Regulations promulgated under Section 422 of the Code.

(c) If such shares are then listed on any national securities
exchange, the fair market value shall be the mean between the high and low sales
prices, if any, on the largest such exchange on the date of the grant of the
Option or, if there are no such sales on such date, shall be determined by
taking a weighted average of the means between the highest and lowest sales
prices on the nearest date before and the nearest date after the date of grant
in accordance with Section 25.2512-2 of the Regulations. If the shares are not
then listed on any such exchange, the fair market value of such shares shall be
the mean between the closing "Bid" and the closing "Ask" prices, if any, as
reported in the National Association of Securities Dealers Automated Quotation
System ("NASDAQ") for the date of the grant of the Option, or, if there are no
such prices on such date, shall be determined by taking a weighted average of
the means between the highest and lowest sales prices on the nearest date before
and the nearest date after the date of grant in accordance with Section 25.2512-
2 of the Regulations. If the shares are not then either listed on any such
exchange or quoted in NASDAQ, the fair market value shall be the mean between
the average of the "Bid" and "Ask" prices, if any, as reported in the National
Association of Securities Dealers National Daily Quotation Service for the date
of the grant of the Option, or, if there are no such prices on such date, shall
be determined by taking a weighted average of the means between the highest and
lowest sales prices on the nearest date before and the nearest date after the
date of grant in accordance with Section 25.2512-2 of the Regulations. If the

<PAGE>
4

fair market value cannot be determined under the preceding three sentences, it
shall be determined in good faith by the Board in accordance with Section 422 of
the Code.

9. Manner of Payment; Manner of Exercise.

(a) Options granted under the Plan may provide for the payment
of the exercise price by delivery of (i) cash or a check payable to the order of
the Company in an amount equal to the exercise price of such Options, (ii)
shares of Common Stock owned by the optionee having a fair market value (at the
date of exercise) equal in amount to the exercise price of the Options being
exercised, or (iii) any combination of (i) and (ii). The fair market value of
any shares of Common Stock which may be delivered upon exercise of an Option
shall be determined by the Board in accordance with Section 8 hereof.

(b) To the extent that an Option is exercisable, Options may be
exercised in full at one time or in part from time to time, by giving written
notice, signed by the person or persons exercising the Option, to the Company,
stating the number of shares with respect to which the Option is being
exercised, accompanied by payment in full for such shares as provided in Section
9(a) hereof. No exercise of an Option may be made for fewer than 100 full
shares of Common Stock unless such exercise is made for the entire number of
shares remaining to be purchased pursuant to such Option. Upon such exercise,
delivery of a certificate for paid-up non-assessable shares shall be made by the
Company to the person or persons exercising the Option within 20 business days
after receipt of such notice by the Company.

10. Exercise of Options.

Each Option granted under the Plan shall, subject to Section 11(b), 13
and 16 hereof, be exercisable at such time or times and during such period as
shall be set forth in the Agreement; provided, however, that except as otherwise
provided pursuant to the provisions of Section 6(b) hereof, no Option granted
under the Plan shall have a term in excess of ten years from the date of grant.

11. Term of Options; Exercisability.

(a) Term.
----

(i) Each Option shall expire on a date determined by the
Board which is not more than ten years from the date of the granting thereof,
except (a) as otherwise provided pursuant to the provisions of Section 6(b)
hereof, and (b) for earlier termination as herein provided.

(ii) Except as otherwise provided in this Section 11, an
Option granted to any optionee whose employment by the Company and its
subsidiaries is terminated for any reason other than for cause or because the
optionee is in breach of any employment agreement or his or her terms of
employment, shall terminate on the earlier of (i) three months after the date
such optionee's employment by the Company and its subsidiaries is terminated, or
(ii) the date on which the Option expires by its terms.

(iii) If the employment of an optionee is terminated by
the Company and its subsidiaries for cause or because the optionee is in breach
of any employment agreement or his or her terms of employment, such Option will

<PAGE>
5

terminate on the date the optionee's employment is terminated by the Company and
its subsidiaries.

(iv) If the employment of an optionee is terminated by the
Company and its subsidiaries because the optionee has become disabled (within
the meaning of Section 22(e)(3) of the Code), such Option shall terminate on the
earlier of (i) one year after the date such optionee's employment by the Company
and its subsidiaries is terminated, or (ii) the date on which the Option expires
by its terms.

(v) In the event of the death of an optionee, such Option
shall terminate on the earlier of (i) one year after the date of death, or (ii)
the date on which the Option expires by its terms.

(b) Exercisability.
--------------

(i) Except as otherwise provided in this Section 11(b), an
Option granted to an optionee whose employment by the Company and its
subsidiaries is terminated shall be exercisable only to the extent that the
right to purchase shares under such Option is exercisable on the date such
optionee's employment by the Company and its subsidiaries is terminated.

(ii) An Option granted to an optionee whose employment is
terminated by the Company and its subsidiaries because he or she had become
disabled, as determined by the Board or, if applicable, as determined pursuant
to the terms of any employment agreement between the Company or any of its
subsidiaries and the optionee, shall be immediately exercisable as to the full
number of shares covered by such Option, whether or not under the provisions of
the Plan or Agreement such Option was otherwise exercisable as of the date of
disability.

(iii) In the event of the death of an optionee, the
Option granted to such optionee may be exercised as to the full number of shares
covered thereby, whether or not under the provisions of the Plan or Agreement
the optionee was entitled to do so at the date of his or her death, by the
executor, administrator or personal representative of such optionee, or by any
person or persons who acquired the right to exercise such Option by bequest or
inheritance or by reason of the death of such optionee.

(iv) In addition to the acceleration of the exercisability
of Options pursuant to this Section 11(b) and Section 13(b)(ii) hereof, the
Board shall have the right, in the exercise of its discretion and for any
reason, and with the consent of the optionee, to accelerate the date on which
Options shall be exercisable.

12. Options Not Transferable.

The right of any optionee to exercise any Option granted to him or her
shall not be assignable or transferable by such optionee other than by will or
the laws of descent and distribution, and any such Option shall be exercisable
during the lifetime of such optionee only by him or her. Any Option granted
under the Plan shall be null and void and without effect upon the bankruptcy of
the optionee to whom the Option is granted, or upon any attempted assignment or
transfer, except as herein provided, including, without limitation, any
purported assignment, whether voluntary or by operation of law, pledge,
hypothecation or other disposition, or levy of execution, attachment, trustee
process or similar process, whether legal or equitable, upon such Option.

<PAGE>
6

13. Recapitalization, Reorganizations and the Like.

(a) In the event that the outstanding shares of the Common Stock
are changed into or exchanged for a different number or kind of shares or other
securities of the Company by reason of any reorganization, recapitalization,
reclassification, stock split, combination of shares, or dividends payable in
capital stock, appropriate and equitable adjustment shall be made by the Board,
in its sole discretion, in the number and kind of shares as to which Options may
be granted under the Plan and as to which outstanding Options or portions
thereof then exercised shall be exercisable. Such adjustment in outstanding
Options shall be made without change in the total price applicable to the
unexercised portion of such Options and with a corresponding adjustment in the
Option price per share.

(b) (i) In addition, unless otherwise determined by the Board
in its sole discretion, in the case of any (I) merger or consolidation pursuant
to which the Company's stockholders shall receive cash or securities of another
Corporation and less than 50% of the outstanding capital stock of the surviving
corporation pursuant to such merger or consolidation shall be owned by the
stockholders of the Company, (II) sale or conveyance to another entity of all or
substantially all of the property and assets of the Company or (III) Change in
Control of the Company, the Company shall, or shall cause such surviving
corporation or the purchaser(s) of the Company's assets to, deliver to the
optionee the same kind of consideration that is delivered to the shareholders of
the Company as a result of such merger, consolidation, sale, conveyance or
Change in Control, or the Board may cancel all outstanding Options in exchange
for consideration in cash or marketable securities, which consideration in both
cases shall be equal in value to the value of those shares of stock or other
securities the optionee would have received had the Option been exercised (but
only to the extent then exercisable) and had no disposition of the shares
acquired upon such exercise been made prior to such merger, consolidation, sale,
conveyance or Change in Control, less the Option price therefor or, lieu
thereof, the Board shall give the optionee at least twenty days prior written
notice of any such transaction in order to enable the optionee to exercise the
exercisable portion, if any, of the Option. Upon receipt of such consideration
or effective on the date specified in such notice, all Options (whether or not
then exercisable) shall immediately terminate and be of no further force or
effect. The value of the stock or other securities the optionee would have
received if the Option had been exercised shall be determined in good faith by
the Board, and in the case of shares of Common Stock, in accordance with the
provisions of Section 8 hereof.

(ii) The Board shall also have the power and right to
accelerate the exercisability of any Options, notwithstanding any limitations in
this Plan or in the Agreement upon such merger, consolidation, sale, conveyance
or Change in Control.

(c) A "Change in Control" shall be deemed to have occurred if
any person, or any two or more persons acting as a group, and all affiliates of
such person or persons, who prior to such time Beneficially Owned (as defined in
Rule
13d-3 under the Exchange Act) less than 40% of the then outstanding Common
Stock, shall acquire such additional shares of Common Stock in one or more
transactions, or series of transactions, such that following such transaction or
transactions, such person or group and affiliates Beneficially Own 50% or more
of the Common Stock outstanding.

<PAGE>
7

(d) If by reason of a corporate merger, consolidation,
acquisition of property or stock, separation, reorganization, or liquidation,
the Board shall authorize the issuance or assumption of a stock option or stock
options in a transaction to which Section 424(a) of the Code applies, then,
notwithstanding any other provision of the Plan, the Board may grant an option
or options upon such terms and conditions as it may deem appropriate for the
purpose of assumption of the old Option, or substitution of a new option for the
old Option, in conformity with the provisions of such Section 424(a) of the Code
and the Regulations thereunder, and any such option shall not reduce the number
of shares otherwise available for issuance under the Plan. In the event of such
assurance or assumption, the provisions of Section 13(b) hereof shall not be
applicable.

(e) No fraction of a share shall be purchasable or deliverable
upon the exercise of any Option, but in the event any adjustment hereunder in
the number of shares covered by the Option shall cause such number to include a
fraction of a share, such fraction shall be adjusted to the nearest smaller
whole number of shares.

14. No Special Employment Rights.

Nothing contained in the Plan or in any Option granted under the Plan
shall confer upon any optionee any right with respect to the continuation of his
or her employment by the Company or any subsidiary or interfere in any way with
the right of the Company or any subsidiary, subject to the terms of any separate
employment agreement to the contrary, at any time to terminate such employment
or to increase or decrease the compensation of the Option holder from the rate
in existence at the time of the grant of an Option. Whether an authorized leave
of absence, or absence in military or government service, shall constitute
termination of employment for purposes of any Option shall be determined by the
Board at the time of such occurrence.

15. Withholding.

The Company's obligation to deliver shares upon the exercise of any
Option granted under the Plan shall be subject to the Option holder's
satisfaction of any applicable Federal, state and local income and employment
tax withholding requirements. The Company and optionee may agree to withhold
shares of Common Stock purchased upon exercise of an Option to satisfy the
above-mentioned withholding requirements; provided, however, no such agreement
may be made by an optionee who is an "officer" or "director" within the meaning
of Section 16 of the Exchange Act, except pursuant to a standing election to so
withhold shares of Common Stock purchased upon exercise of an Option, such
election to be made not less than six months prior to such exercise and with
election may be revoked only upon six months prior written notice to the
Company.

16. Restrictions on Exercise of Options and Issuance of Shares.

(a) Notwithstanding the provisions of Sections 9 and 11 hereof,
an Option cannot be exercised, and the Company may delay the issuance of shares
covered by the exercise of an Option and the delivery of a certificate for such
shares, until one of the following conditions shall be satisfied:

(i) The shares with respect to which such Option has been
exercised are at the time of the issuance of such shares effectively registered

<PAGE>
8

or qualified under applicable Federal and state securities acts now in force or
as hereafter amended; or

(ii) Counsel for the Company shall have given an opinion,
which opinion shall not be unreasonable conditioned or withheld, that the
issuance of such shares is exempt from registration and qualification under
applicable Federal and state securities acts now in force or as hereafter
amended.

(b) The Company shall be under no obligation to qualify shares
or to cause a registration statement or a post-effective amendment to any
registration statement to be prepared for the purpose of covering the issuance
of shares in respect of which any Option may be exercised or to cause the
issuance of such shares to be exempt from registration and qualification under
applicable Federal and state securities acts now in force or as hereinafter
amended, except as otherwise agreed to by the Company in writing in its sole
discretion.

17. Purchase for Investment; Rights of Holder on Subsequent
Registration.

Unless and until the shares to be issued upon exercise of an Option
granted under the Plan have been effectively registered under the Securities Act
of 1933, as amended (the "1933 Act"), as now in force or hereafter amended, the
Company shall be under no obligation to issue any shares covered by an Option
unless the person who exercises such Option, in whole or in part, shall give a
written representation and undertaking to the Company which is satisfactory in
form and scope to counsel for the Company and upon which, in the option of such
counsel, the Company may reasonably rely, that he or she is acquiring the shares
issued pursuant to such exercise of the Option for his or her own account as an
investment and not with a view to, or for sale in connection with, the
distribution of any such shares, and that he or she will make no transfer of the
same except in compliance with any rules and regulations in force at the time of
such transfer under the 1933 Act, or any other applicable law, and that if
shares are issued without such registration, a legend to this effect may be
endorsed upon the securities so issued.

In the event that the Company shall, nevertheless, deem it necessary
or desirable to register under the 1933 Act or other applicable statutes any
shares with respect to which an Option shall have been exercised, or to qualify
any such shares for exemption from the 1933 Act or other applicable statutes,
then the Company may take such action and may require from each optionee such
information in writing for use in any registration statement, supplementary
registration statement, prospectus, preliminary prospectus, offering circular or
any other document that is reasonably necessary for such purpose and may require
reasonable indemnity to the Company and its officers and directors from such
holder against all losses, claims, damages and liabilities arising from such use
of the information so furnished and caused by any untrue statement of any
material fact therein or caused by the omission to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances under which they were made.

18. Loans.

At the discretion of the Board, the Company may loan to the optionee,
or pay to the optionee as a bonus, some or all of the purchase price of the

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shares acquired upon exercise of an Option, the terms of such loans or bonus to
be at the discretion of the Board.

19. Modification of Outstanding Options.

Subject to any applicable limitations contained herein, the Board may
authorize the amendment of any outstanding Option with the consent of the
optionee when and subject to such conditions as are deemed to be in the best
interests of the Company and in accordance with the purposes of the Plan.
Without limiting the foregoing, the Board shall have the authority to effect, at
any time and from time to time, with the consent of the affected optionee, the
cancellation of any or all outstanding Options under the Plan and to grant in
substitution therefor new Options under the Plan covering the same or different
numbers of Shares and having, at the discretion of the Board and subject to
Sections 6 and 8 hereof, an Option Price, in the case of Options designated as
non-qualified stock options, as shall be determined by the Board and, in the
case of Options designated as incentive stock options, of not less than one
hundred percent (100%) of the fair market value of the Common Stock on the new
grant date.

20. Approval of Stockholders.

The Plan shall become effective upon adoption by the Board; provided,
however, that the Plan shall be submitted for approval by the stockholders of
the Company no earlier than 12 months prior to, and no later than 12 months
after, the date of adoption of the Plan by the Board. Should the stockholders
of the Company fail to approve the Plan as set forth in the preceding sentence,
all incentive stock options granted thereunder shall be and become non-qualified
stock options.

21. Termination and Amendment of Plan.

Unless sooner terminated as herein provided, the Plan shall terminate
ten years from the earlier of (x) the date on which the Plan was duly adopted by
the Board, and (y) the date on which the Plan was duly approved by the
stockholders of the Company. The Board may at any time terminate the Plan or
make such modification or amendment thereof as it deems advisable; provided,
however, (i) the Board may not, without the approval of the stockholders of the
Company obtained in the manner stated in Section 20 hereof, increase the maximum
number of shares for which Options may be granted or change the designation of
the class of persons eligible to receive Options under the Plan, and (ii) any
such modification or amendment of the Plan shall be approved by a majority of
the stockholders of the Company to the extent that such stockholder approval is
necessary to comply with applicable provisions of the Code, rules promulgated
pursuant to Section 16 of the Exchange Act, applicable state law, or applicable
NASD or exchange listing requirements. Termination or any modification or
amendment of the Plan shall not, without the consent of an optionee, affect
his or her rights under an Option theretofore granted to him or her.

22. Limitation of Rights in the Option Shares.

An optionee shall not be deemed for any purpose to be a stockholder of
the Company with respect to any of the Options until (x) the Option shall have
been exercised with respect thereto (including payment to the Company of the
exercise price) and (y) the earlier to occur of (i) the delivery by the Company
to the optionee of a certificate therefor, or (ii) the date on which the Company
is required to deliver a certificate pursuant to Section 9(b) hereof.

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10

23. Notices.

Any communication or notice required or permitted to be given under
the Plan shall be in writing, and mailed by registered or certified mail or
delivered by hand, if to the Company, to the attention of the President at the
Company's principal place of business; and, if to an optionee, to his or her
address as it appears on the records of the Company.