CAROLCO PICTURES INC, 10-K, 1994-04-15

CAROLCO PICTURES INC
10-K, 1994-04-15
MOTION PICTURE & VIDEO TAPE PRODUCTION

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C 20549

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FORM 10-K

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<S> <C>
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
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COMMISSION FILE NUMBER 1-9264

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CAROLCO PICTURES INC.
(Exact name of Registrant as specified in its charter)

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DELAWARE 95-40-46-437
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
8800 SUNSET BLVD., LOS ANGELES, CA 90069
(Address of principal executive offices) (Zip Code)
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Registrant's Telephone Number, Including Area Code: (310) 859-8800

Securities Registered Pursuant To Section 12(b) Of The Act:

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TITLE OF EACH CLASS NAME OF EXCHANGE ON WHICH REGISTERED
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Common Stock, par value $.01 New York Stock Exchange, Inc.
Pacific Stock Exchange, Inc.
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Securities Registered Pursuant To Section 12(g) Of The Act: None

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 ____

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /

The aggregate market value of voting stock held by non-affiliates of the
Registrant as of March 31, 1994, was $20,638,740.

As of March 31, 1994, there were 137,687,728 shares of the Registrant's
Common Stock outstanding, not including 2,327,381 shares of treasury stock.

DOCUMENTS INCORPORATED BY REFERENCE

NO DOCUMENTS ARE INCORPORATED BY REFERENCE INTO PARTS I, II OR III.

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PART I

ITEM 1. BUSINESS

GENERAL

Carolco Pictures Inc., a Delaware corporation ("Carolco" or the "Company"),
is an entertainment company formed in 1986 which finances, produces and leases
motion pictures for exhibition in domestic and foreign theatrical markets and
for later worldwide release in all media, including home video and pay and free
television. Management selects its motion pictures, which typically feature
major film stars and high quality production values, with a view toward their
broad appeal to the largest segment of the motion picture audience in both the
United States and abroad. As a result of constraints on the availability of
funds to the Company, the Company has refocused its business efforts to
producing a limited number of major "event" motion pictures for worldwide
theatrical release each year provided that the Company is able to obtain
sufficient funds to enable it to do so. The Company has two films in
pre-production and several projects in various stages of development, which it
intends to produce in the future as funds are available. The Company anticipates
that by 1995 it will be producing two to six major "event" pictures per year,
but there can be no assurance that sufficient funds will be available or that
such production goals will be met.

Unless otherwise indicated, all references to Carolco or the Company include
Carolco Pictures Inc., its subsidiaries and their predecessors.

Carolco's executive offices are located at 8800 Sunset Boulevard, Los
Angeles, California 90069; telephone number (310) 859-8800.

RECENT DEVELOPMENTS

BUSINESS COMBINATION WITH LIVE ENTERTAINMENT INC.

On March 24, 1994, the Company and LIVE Entertainment Inc. ("LIVE")
announced that they agreed in principle to a combination of the two companies
(the "Business Combination"). The Business Combination will be structured as a
tax free exchange whereby each Carolco stockholder will receive one share of
newly issued LIVE common stock for each 5.5 shares of Carolco common stock
currently held. The exchange ratio will be adjusted based on the market price of
Carolco common stock prior to the consummation of the Business Combination
subject to two limitations designed to limit the effect of market fluctuations
on both Carolco and LIVE stockholders. The number of Carolco shares to be
exchanged for each share of LIVE will be adjusted upward, if necessary, so that
the market value of Carolco shares to be exchanged for one share of LIVE is at
least $3.00, but in no event will more than 6.5 shares of Carolco be exchanged
for each share of LIVE. Likewise, the number will be adjusted downward, if
necessary, so that the market value of Carolco shares to be exchanged is no more
than $4.00, but in no event will fewer than 4.5 shares of Carolco be exchanged
for each share of LIVE. As a result, the current LIVE stockholders will own
between approximately 22% and 29% of the surviving corporation and the remainder
will be owned by the current Carolco stockholders. Therefore, the Business
Combination, if consummated, will be treated as a reverse merger/acquisition of
LIVE by Carolco for accounting and financial reporting purposes. The corporation
resulting from the Business Combination will be named Carolco Entertainment Inc.

The Business Combination is subject to a number of conditions, including the
redemption of LIVE's Series B Cumulative Convertible Preferred Stock, certain
amendments to various public and private securities of LIVE and the availability
of financing commitments prior to the combination. The Business Combination is
also subject to the execution of a definitive Business Combination agreement,
the approval of the combination by the non-affiliated common stockholders of
both companies and other customary conditions to closing. The definitive
agreement will be subject to approval by both companies' boards of directors and
the receipt of fairness opinions from independent investment firms for both
companies. On March 17, 1994, the Seidler Companies Incorporated advised the
Carolco Board of Directors that, based on then current conditions, it would be
prepared to deliver its opinion that the financial terms of the Business
Combination are fair to the unaffiliated stockholders of Carolco. Chemical
Securities Inc., an affiliate of Chemical Bank, has delivered its opinion to the
LIVE Board of Directors that, based on the conditions and assumptions

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contained therein, the financial terms of the Business Combination are fair to
the unaffiliated stockholders of LIVE. There can be no assurances that the
business combination will be consummated, or, if consummated, will be
consummated on the terms set forth above. A purported class action was brought
by an alleged shareholder of LIVE against LIVE, the Company, certain of the
Company's and LIVE's past and present executive officers and directors, Pioneer
and Cinepole immediately following the announcement of the Business Combination.
See "Item 3 Legal Proceedings -- Business Combination Litigation."

FINANCIAL RESTRUCTURING

On October 20, 1993, the Company completed its financial restructuring (the
"Restructuring"), which had been proposed in order to reduce or satisfy certain
of the Company's then current and future financial obligations and to provide
the Company with additional capital to permit the continuation of the Company as
a going concern. The following is a description of the consummation of the main
components of the Restructuring, certain actions taken in conjunction therewith
and certain of the agreements entered into in connection therewith.

CONSUMMATION OF EXCHANGE OFFERS. The holders of $22,496,000, or 66.6%, in
principal amount of the Company's outstanding 14% Senior Notes due June 1, 1993
(the "14% Notes") exchanged such notes which were past due and received $1,000
in principal amount of 11.5%/10% Reducing Rate Senior Notes due 2000 (the "New
Senior Notes") plus $102.08 in accrued interest for each $1,000 in principal
amount of 14% Notes exchanged. In addition, the holders of $12,700,000, or
78.7%, in principal amount of the Company's outstanding 13% Senior Subordinated
Notes due December 1, 1996 (the "13% Notes") exchanged such notes and received
$1,000 in principal amount of 13%/12% Reducing Rate Senior Subordinated Notes
due 1999 (the "New Senior Subordinated Notes") plus $115.40 in accrued interest
for each $1,000 in principal amount of 13% Notes exchanged, 50% of which was
paid in cash and 50% of which was paid in additional New Senior Subordinated
Notes. The exchange of 14% Notes for New Senior Notes and the exchange of 13%
Notes for New Senior Subordinated Notes described above are collectively
referred to herein as the "Exchange Offers." Thus, $22,496,000 in aggregate
principal of New Senior Notes and $13,431,700 in aggregate principal amount of
New Senior Subordinated Notes were issued and approximately $3,030,300 of cash
representing accrued interest was paid as part of the Exchange Offers.

$11,259,000 in principal amount of the 14% Notes (approximately 33%) was not
tendered pursuant to the Exchange Offers. Since the 14% Notes were due and
payable on June 1, 1993, approximately $12,701,000 was paid in the aggregate to
the holders thereof representing all principal and accrued and unpaid interest
due on such untendered 14% Notes.

$3,445,000 in principal amount of the 13% Notes (approximately 21%) was not
tendered pursuant to the Exchange Offers and approximately $235,000 was paid in
the aggregate to the holders thereof representing accrued and unpaid interest
due on such untendered 13% Notes.

CONSUMMATION OF CONSENT SOLICITATION. Concurrently with the Exchange
Offers, the Company solicited the consents (the "Consent Solicitation") of
holders of the 13% Notes to certain amendments to the indenture governing the
13% Notes (the "Amendments"). As of September 30, 1993, $11,605,000 in principal
amount of 13% Notes owned by persons other than the Company and its affiliates
(77%) consented to the Amendments and the Amendments were approved. An amendment
and restatement of the Indenture dated as of December 1, 1986 between the
Company and J. Henry Schroder Bank & Trust Company, as trustee, governing the
Company's 13% Notes, as amended by the First Supplemental Indenture dated as of
July 8, 1987 between the Company and IBJ Schroder Bank & Trust Company, as
trustee (the "Amended 13% Note Indenture"), was entered into as of September 30,
1993 and the Amendments became effective October 20, 1993. The Amendments are
binding upon all holders retaining 13% Notes, whether or not such holders
consented to adoption of the Amendments.

Holders of 13% Notes who consented to the Amendments also waived certain
events of default under the indenture governing the 13% Notes (the "13% Note
Indenture") and eliminated substantially all of the restrictive covenants and
certain default provisions in the 13% Note Indenture.

PURCHASES OF NEW PREFERRED AND 5% NOTES FOR CASH. Pursuant to the terms of
a Securities Purchase Agreement (the "Securities Purchase Agreement") dated as
of May 25, 1993, as amended, among the

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Company, Pioneer LDCA, Inc.("Pioneer"), Cinepole Productions B.V ("Cinepole"), a
wholly owned subsidiary of Le Studio Canal+ S.A. ("Canal+"), and MGM Holdings
Corporation ("MGM Holdings"), Pioneer, Cinepole and MGM Holdings purchased from
the Company 40,000, 12,500 and 30,000 shares of Series A Convertible Preferred
Stock, a newly designated series of the Company's series preferred stock ("New
Preferred"), respectively, in exchange for $40,000,000, $12,500,000 and
$30,000,000, respectively. Pursuant to the Securities Purchase Agreement, MGM
Holdings also purchased from the Company $30,000,000 in aggregate principal
amount of 5% Payment-In-Kind Convertible Subordinated Notes due 2002 (the "5%
Notes") in exchange for $30,000,000.

SATISFACTION OF STRATEGIC INVESTOR LOAN. Pursuant to the terms of a
Contribution and Exchange Agreement dated as of May 25, 1993, as amended (the
"Contribution and Exchange Agreement"), among the Company, Pioneer, Canal+,
Cinepole, RCS Video International Services, B.V. ("RCS"), RCS Video Services
Antilles N.V. and RCS Communications, in satisfaction of approximately
$17,686,000 of a $32,200,000 loan plus accrued interest (the "Strategic Investor
Loan") previously extended to Carolco by Pioneer, Canal+ and RCS (collectively,
the "Strategic Investors"), Carolco transferred to Pioneer, Cinepole and an
affiliate of RCS, 3,885,223, 1,180,030 and 1,180,030 shares of the common stock
of LIVE, respectively, representing all of the shares of LIVE common stock held
by Carolco. Pursuant to the Contribution and Exchange Agreement, the remaining
portion of the Strategic Investor Loan was satisfied by the issuance to Pioneer,
Cinepole and RCS Communications of 8,586,543, 3,051,660 and 3,253,337 shares of
Carolco's common stock, $.01 par value per share (the "Common Stock"),
respectively.

EXCHANGE OF EXISTING 10% DEBENTURES AND SERIES D PREFERRED. 8,000 shares of
the Company's Series D Convertible Exchangeable Preferred Stock, $1.00 par value
per share (the "Series D Preferred"), representing all of the Company's
outstanding Series D Preferred (other than 300,000 shares held by Cinepole),
were exchanged for 600,000 shares of the Company's Common Stock. The holder of
Series D Preferred (other than Cinepole) also received $20,000 in cash
representing a portion of accrued but unpaid dividends thereon. In addition,
$14,600,000 in face amount of the Company's 10% Convertible Subordinated
Debentures due 2006 ("Existing 10% Debentures"), representing all of the
Company's outstanding Existing 10% Debentures (other than $35,000,000 in
aggregate face amount held by Pioneer and an affiliate of RCS), was exchanged
for 21,900,000 shares of the Company's Common Stock.

EXCHANGE OF CERTAIN OF THE STRATEGIC INVESTOR'S SECURITIES FOR COMMON
STOCK. Pursuant to the Contribution and Exchange Agreement, each of the
Strategic Investors exchanged a portion of Carolco's outstanding preferred stock
and Existing 10% Debentures held by it for an aggregate of 72,000,000 shares of
the Company's Common Stock. Specifically, Pioneer received 37,824,031 shares of
Common Stock, Cinepole received 22,950,471 shares of Common Stock and RCS
Communications received 11,225,498 shares of Common Stock.

CONTRIBUTION OF CERTAIN OF THE STRATEGIC INVESTORS' SECURITIES TO THE
COMPANY. In addition, pursuant to the terms of the Contribution and Exchange
Agreement, each of the Strategic Investors transferred to the Company, as a
capital contribution, the Company's remaining outstanding preferred stock,
certain related options and warrants and any Existing 10% Debentures held by it
after the exchanges described above and all accrued but unpaid dividends and
interest thereon and on the securities exchanged and certain other obligations.
As a result of the various exchanges and contributions, all of the Company's
Existing 10% Debentures, Series B Convertible Preferred Stock, Series C
Convertible Exchangeable Preferred Stock, Series D Preferred, and Series E
Convertible Preferred Stock ceased to be outstanding.

STANDBY PURCHASE AND INVESTMENT AGREEMENT. The Company, Pioneer, Canal+,
Cinepole, RCS and Tele-Communications, Inc. ("TCI") entered into a standby
purchase and investment agreement (the "Standby Agreement") pursuant to which
Pioneer, Cinepole and RCS have committed to purchase up to $27,500,000 principal
amount of new 7% Convertible Subordinated Notes due 2006 of the Company (the "7%
Notes") on the later of December 30, 1994 or the date upon which certain
conditions are met, and Canal+ and TCI have committed to invest up to
$27,500,000 in co-productions of the Company's motion pictures, commencing upon
the satisfaction of certain conditions, but in no event earlier than December
30,

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1994 (the "Co-Production Investments"). The total amount invested pursuant to
the Standby Agreement will not exceed $47,500,000. See "Certain Relationships
and Related Transactions -- Transactions with Strategic Investors -- The
Restructuring."

The Standby Agreement provides that Cinepole, Pioneer and RCS have committed
to purchase $7,500,000, $10,000,000 and $2,500,000 in principal amount of 7%
Notes, respectively, which amounts are subject to adjustment. Also, under the
Standby Agreement, Canal+ and TCI have committed to make $17,500,000 and
$10,000,000, respectively, of Co-Production Investments, which amounts will be
subject to adjustment. Canal+ is entitled to reduce its obligation to make
Co-Production Investments by up to $7,500,000 if its subsidiary commits to
purchase additional 7% Notes in the amount of such reduction.

The amount of each investor's commitment to make the Co-Production
Investments will be in the nature of a revolving commitment in that the
commitment will be reduced by the amount of funds actually contributed by such
investor and will be increased by the amount of previous contributions recovered
by such investor from the distribution of film receipts. Subject to certain
limited exceptions, the commitment to make Co-Production Investments will
terminate on December 30, 1997.

NEW DISTRIBUTION AGREEMENT. Carolco has entered into a new distribution
agreement (the "MGM Distribution Agreement") with Metro-Goldwyn-Mayer Inc.
("MGM"), an affiliate of MGM Holdings, which took effect upon the December 31,
1993 expiration of the Company's former agreement with Tri-Star Pictures Inc.
See "Business of Carolco -- Motion Picture Strategy -- Distribution of Motion
Pictures and Other Product."

OTHER AGREEMENTS. The Company also entered into certain agreements
contemplating potential pre-theatrical pay-per-view broadcasts by TCI of up to
four of the future Carolco motion pictures (the "Pay-Per-View Agreement") and
with respect to potential equity investments in the Company by TCI. The Company,
the Strategic Investors and MGM Holdings also entered into a Registration Rights
Agreement dated as of October 20, 1993 pursuant to which the Company granted
certain registration rights covering the New Preferred, the 5% Notes and the
Common Stock issuable to the Strategic Investors and MGM Holdings in connection
with the Restructuring and Common Stock issuable upon conversion of the New
Preferred, 5% Notes and 7% Notes and certain other Common Stock held by RCS and
by the other Strategic Investors.

ACQUISITION OF VISTA. In conjunction with the Restructuring, Carolco
acquired all of the outstanding shares of common stock (the "Vista Common
Stock") of The Vista Organization, Ltd., a Delaware corporation ("Vista"), other
than shares owned by Carolco, together with all of the Carolco Series A Common
Stock Put Rights associated therewith and represented thereby (the "Series A
Puts") in a two-step transaction consisting of a tender offer and a subsequent
merger. As a result thereof, $19,181,800 in principal amount of New Senior Notes
was issued and cash of $1,961,000 in interest was paid in exchange for
17,765,093 shares of Vista Common Stock and associated Series A Puts. In
addition, approximately $3,465,000 in cash was paid to the holders of Vista
Common Stock and associated Series A Puts, (other than Carolco or its
affiliates), in exchange for 4,618,016 shares of Vista Common Stock and
associated Series A Puts. As a result of these transactions, Vista became a
wholly-owned subsidiary of Carolco.

Additional information regarding the Restructuring and the actions taken in
conjunction therewith, including certain management agreements, is contained in
the Company's Current Report on Form 8-K dated October 20, 1993 (the "Form
8-K").

THE BUSINESS OF CAROLCO

MOTION PICTURE STRATEGY

Since the Company's initial public offering of its securities in 1986, the
Company's principal strategic objective has been to produce several major
"event" motion pictures for worldwide release each year with well-known creative
elements and broad-based commercial appeal. The Company initially produced from
four to six such major "event" motion pictures per year, but was forced to
reduce such number in recent years due to increasing financial constraints. Such
motion pictures typically involve direct negative costs (excluding capitalized
interest and overhead) in excess of $35,000,000 per motion picture. Management

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selects these motion pictures, which typically feature major film stars and high
quality production values, with a view toward their broad appeal to the largest
segment of the motion picture audience in both the United States and abroad.

The Company leases certain rights in its motion pictures in exchange for a
share of the receipts derived from the exploitation of such rights. In most
cases the Company receives advances and guarantees against its share of such
receipts. In certain territories, these rights are leased to the Strategic
Investors. The Company's strategy of obtaining commitments for advances and
guarantees early in the production process and, in most cases, before the start
of actual production, enables the Company to reduce the risks normally
associated with motion picture production. The Company attempts to obtain such
advances and guarantees in an amount greater than 50% of the budgeted direct
negative cost of each film. In the past, the advances and guarantees obtained by
the Company in advance of the production of its films allowed the Company to use
commercial bank financing for a significant portion of the cost of motion
picture production which bank financing was secured with and repaid by such
advances. See "-- Motion Picture Production -- Advances and Guarantees."

In December 1993, an affiliate of the Company commenced principal
photography on WAGONS EAST, starring John Candy and Richard Lewis. Mr. Candy's
untimely death prior to the completion of the picture is not expected to have a
material adverse effect on the Company's operations. The Company currently has
two other motion pictures, CUTTHROAT ISLAND and CRUSADE, in pre-production. The
Company also has several projects in various stages of development, which it
currently intends to produce. The Company anticipates that by 1995 it will be
producing two to six major "event" motion pictures per year and will look for
funding for such future films through borrowings under a new revolving bank
credit facility, the terms of which are currently being negotiated, through
proposed Co-Production Investments, through proceeds of the 7% Notes and
possibly through additional capital-raising efforts. The Company may also rely
on the equity investments by TCI, if any, and, with respect to any films subject
to the Pay-Per-View Agreement, pay-per-view rights payments to be made by TCI
under such agreement. There can be no assurance, however, that all of such
proposed production financing will be available when needed or that such
production goals will be met.

The Company's arrangements with theatrical distributors -- currently MGM in
the United States, Canada and select international territories, and other
distributors in each significant theatrical territory around the world -- also
require such distributors to spend significant amounts on costs associated with
the theatrical release of the pictures. These arrangements reduce the risk to
the Company associated with the failure of any particular picture to perform at
the box office since the Company does not pay for most of the releasing costs
and provide collateral for production financing discussed above. These
arrangements may however, limit the benefit the Company can derive from its most
successful films.

The Company's domestic theatrical distribution agreement with Tri-Star (the
"Tri-Star Agreement") terminated for films which began principal photography
after December 31, 1993. WAGONS EAST will be the last motion picture to be
distributed pursuant to the Tri-Star Agreement. Distribution agreements in
foreign territories expire at various times.

DISTRIBUTION STRATEGY

Since March 1992, when an interim financial restructuring was consummated,
the Company has focused its business strategy on motion picture production. The
Company has no present intention to further expand its distribution capabilities
into ancillary media or markets. In the past, the Company has distributed its
motion pictures in free television through its wholly-owned subsidiary, Carolco
Television Inc. ("CTI") and on home video through LIVE pursuant to an exclusive
output agreement which covers motion pictures produced or controlled by the
Company prior to August 1995. It is not anticipated that either the disposition
of the Company's interest in LIVE as part of the Restructuring (see "-- Recent
Developments -- Financial Restructuring") or the proposed Business Combination
(see "-- Recent Developments -- Business Combination with LIVE Entertainment
Inc.") will have an adverse effect on delivery of motion pictures under the
current output agreement.

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The Company's strategic approach to certain "ancillary" markets can be
summarized as follows:

HOME VIDEOCASSETTE DISTRIBUTION. The Company presently conducts most of
its home videocassette distribution activities through LIVE Home Video
Inc., a wholly-owned subsidiary of LIVE
("LHV"), and intends to continue this practice after consummation of the
proposed Business Combination. (See "-- Recent Developments -- Business
Combination with LIVE Entertainment Inc.) In the past, LIVE has used the
Company's titles as the base for its distribution activities, combined with
a product range of other feature films and children's videocassette
productions to which it has acquired the distribution rights.

FOREIGN MOTION PICTURE LEASING. Over the years, Carolco International
Inc., a Delaware corporation, which was initially formed as Carolco
International N.V., a Netherlands Antilles corporation ("CINV"), and which
is a wholly-owned subsidiary of the Company, has built a network of
relationships with theatrical, videocassette and television distributors in
territories outside of the United States. CINV has been able to obtain
advances and guarantees for motion pictures of the Company that are
sufficient to cover a substantial portion of the cost of producing these
motion pictures. The Company has also entered into alliances with certain
companies, including the Strategic Investors, that provide in part for the
grant to such companies of rights to distribution of the Company's films in
certain territories. See "-- Distribution of Motion Pictures and Other
Products -- Foreign Leasing Operations."

In October 1993, CINV became a Delaware corporation and changed its name
to Carolco International Inc. ("CII"). The domestication of CINV did not
affect its ownership status.

TELEVISION DISTRIBUTION. Through 1991, the Company licensed its network
and syndication television rights through CTI. In 1992, CTI sold its
feature film library of United States television rights to Worldvision
Enterprises, Inc. ("Worldvision"). It also sold certain receivables to Sun
Life Insurance Company of America ("Sun Life"). In 1993, pursuant to the
Restructuring, the domestic and substantially all of the foreign television
syndication rights to the Company's future motion pictures were granted to
MGM under the MGM Distribution Agreement.

MOTION PICTURE PRODUCTION

1992 RELEASES

In March 1992, the Company released BASIC INSTINCT, a suspense-thriller film
starring Michael Douglas and Sharon Stone, which, as of March 31, 1994, has
grossed over $350,000,000 in worldwide box office receipts. The Company released
UNIVERSAL SOLDIER, an action-adventure film starring Jean-Claude Van Damme and
Dolph Lundgren, in July 1992. UNIVERSAL SOLDIER grossed approximately
$100,000,000 in worldwide box office receipts. In December 1992, the Company
released CHAPLIN, a film about the life of Charlie Chaplin, directed by Sir
Richard Attenborough and starring Robert Downey Jr. and Kevin Kline. As of
December 31, 1993, CHAPLIN had grossed approximately $21,000,000 in worldwide
box office receipts.

1993 RELEASES

The Company co-produced one major "event" motion picture in 1993.
CLIFFHANGER, starring Sylvester Stallone, Janine Turner and John Lithgow and
directed by Renny Harlin was theatrically released in the United States on May
28, 1993. As of March 31, 1994, CLIFFHANGER had grossed approximately
$260,000,000 in worldwide box office receipts.

The Company financed the production of CHAPLIN and CLIFFHANGER largely
through co-production arrangements with the Strategic Investors. See "Certain
Relationships and Related Transactions -- Transactions with Strategic Investors"
for a detailed description of these co-production agreements.

PRODUCTION, DEVELOPMENT AND DIRECTOR ARRANGEMENTS

The Company is currently in pre-production on two films. CRUSADE, starring
Arnold Schwarzenegger and directed by Paul Verhoeven, is expected to begin
principal photography in August 1994. CUTTHROAT ISLAND, starring Michael Douglas
and Geena Davis and directed by Renny Harlin, is expected to begin principal
photography in September 1994. The combined estimated negative cost of these two
films is in excess of $150,000,000.

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The Company does not maintain a substantial staff of creative or technical
personnel. Management believes that, together with properties that the Company
currently controls, sufficient motion picture properties and creative and
technical personnel (such as screenwriters, directors and performers) are
available in the market at acceptable prices to enable the Company to produce as
many motion pictures as it currently plans, at the level of commercial quality
the Company requires.

The Company previously entered into agreements with certain corporations
controlled by Sylvester Stallone, formerly a director of the Company, which
provide, among other things, that Mr. Stallone will star in four motion pictures
produced by the Company. The first film, CLIFFHANGER, has been theatrically
released in the United States. The other films are to be mutually approved by
the parties. There can be no assurance, however, that any Stallone picture after
CLIFFHANGER will be produced or delivered to the Company. There currently exists
certain disputes between the Company and Mr. Stallone regarding these
agreements, which the Company believes will be resolved to the mutual
satisfaction of the parties. However, there can be no assurances that such
resolution will be reached.

ADVANCES AND GUARANTEES

The Company attempts to obtain lease agreements for the exploitation of its
motion pictures in various media and markets worldwide ("pre-sales") prior to
the initial theatrical release and, in most cases, commencement of production,
of its motion pictures. Under these agreements the Company attempts to obtain
such advances and guarantees in an amount greater than 50% of the budgeted
direct negative costs of the pictures. See " -- Distribution of Motion Pictures
and Other Products -- Foreign Leasing Operations." Pre-sales allow the Company
to reduce the risk associated with production costs while retaining a right to
share in distribution revenues. These advances and guarantees are generally
payable in part on delivery of the motion picture and in part when the motion
picture is available for distribution in the applicable media or territory. In
certain territories, these pre-sales are pursuant to agreements with the
Strategic Investors.

In most cases, the Company obtains letters of credit, bank letters or other
collateral acceptable to the production lenders to secure advances and
guarantees from its lessees. These letters of credit, bank letters or other
collateral acceptable to the production lenders serve two purposes: first, as a
means of ensuring that the advance will be paid when due, and second, as a form
of collateral which can be used by the Company to obtain more favorable
financing than would otherwise be available.

The Company has received approximately $1,716,000 in deposits on certain
films which the Company may not produce. The Company will attempt to credit such
advances to other films to be produced by the Company, but may have to return
these advances.

The Company reflects advances and guarantees as revenue for financial
reporting purposes when a picture is available for distribution in the
applicable media or territory. Revenues from theatrical exhibition in excess of
minimum guaranteed amounts are recognized ratably during the period of
exhibition. As a matter of custom and practice and contractual and legal
requirements, the Company will delay, for a period of time, actual use of
television rights and home video rights after initial theatrical distribution in
the applicable territory. This will result in a delay of recognition of advances
and guarantees from those media as revenue for financial reporting purposes.

Pursuant to the financing arrangements with respect to the Company's motion
pictures, the Company is generally required to obtain "over-budget" guarantees
(also known as completion bonds) for its films. If the Company is unable to
obtain such completion bonds or other similar insurance, the Company may be
required to find alternative financing arrangements or it may be unable to
commence production of one or more motion pictures.

DISTRIBUTION OF MOTION PICTURES AND OTHER PRODUCTS

DOMESTIC THEATRICAL DISTRIBUTION

GENERAL. The theatrical distribution of motion pictures involves the
manufacture of release prints indirectly from the original negative, the
promotion of the motion pictures through advertising and publicity campaigns and
the licensing and booking of motion pictures to theatrical exhibitors.
Expenditures on the manufacture of release prints for U.S. theatrical release
can often range from $1,000,000 to over $4,000,000. In March 1991, the Company
and Technicolor, Inc. ("Technicolor"), a leading supplier of film processing and

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videocassette production services, entered into an agreement pursuant to which
the Company and its affiliates agreed to use Technicolor's film processing
services for a term of at least seven years. Expenditures for advertising and
publicity for U.S. theatrical release are substantial and can range from
$12,000,000 to in excess of $20,000,000 (depending on the picture's prospects
and initial results). The magnitude of the promotional advertising campaign may
have a material effect on the revenues realized from the theatrical release of a
motion picture. There is, however, not always a direct correlation between
amounts spent on advertising for any particular film and the revenues realized
from that film. In addition, the ability to distribute a picture during peak
exhibition seasons, including holiday periods and at the beginning of summer,
may affect the theatrical success of the picture. Moreover, because exhibitors,
rather than the distributors, typically control exhibition prices for motion
pictures, revenues realized from a particular film depend on the level of
acceptance for a motion picture and the size of the audience it generates. As a
result of the foregoing, a producer cannot pass on the cost of higher budget
motion pictures to the consumer. When the cost of release prints and
expenditures for advertising and publicity are advanced by third parties, such
costs and expenditures are often recouped by such third party from the first
receipts of the picture. As a result of (i) such recoupment, (ii) the share of
box office receipts retained by the theaters and (iii) distribution fees, the
Company's share of the gross box office receipts of any picture are only a
portion of box office receipts.

MGM. The Company does not directly engage, or intend to directly engage in
theatrical distribution of its motion pictures. However, it is LIVE's intention
to acquire theatrical distribution rights as part of its overall acquisition of
motion picture product. In addition, LIVE intends to acquire television
distribution rights where available. If the proposed Business Combination is
consummated (see "-- Recent Developments -- Business Combination with LIVE
Entertainment Inc.,") the Company will be affiliated with these activities of
LIVE. In connection with the Restructuring, the Company entered into a
distribution agreement with MGM with respect to certain domestic theatrical and
non-theatrical rights, specified U.S. television rights and certain specified
foreign rights which agreement took effect in the case of domestic theatrical
and certain other rights, upon the December 31, 1993 expiration of the Company's
prior distribution agreement with Tri-Star and, in the case of certain other
rights subject to the agreement, when the current agreements relating to such
rights expire. Under the MGM Distribution Agreement, MGM will distribute
theatrically in domestic territories the Company's motion pictures (which are
required to meet certain criteria) until the later of delivery of all qualifying
pictures which commence principal photography prior to 60 months from the
effective date of the agreement, or the delivery of 20 qualifying pictures. MGM
is obligated to advance significant amounts for costs for the initial domestic
theatrical release of each picture covered by the agreement, including the cost
of manufacturing release prints for United States theatrical release and
marketing and advertising costs for such release, unless the Company elects to
fund such costs, in which case, MGM has no obligation to do so for any picture
thereafter.

MGM will be entitled to recoup these print and advertising expenditures from
100% of the theatrical and non-theatrical gross receipts for a covered picture
after it has received its distribution fee. To the extent these receipts are not
sufficient for MGM to recoup these expenditures, MGM will be entitled to recoup
any shortfall from receipts generated by other specified media and, under
certain circumstances, directly from the Company. Assuming the Company's motion
pictures reach certain levels of performance, the Company believes that its
effective theatrical distribution fees will be lower under the MGM Distribution
Agreement as compared to the Company's agreement with Tri-Star. In addition to
domestic theatrical and non-theatrical rights, MGM has also been granted certain
domestic television rights, including certain non-exclusive pay-per-view rights
and certain exclusive free television rights. In addition, the Company has
agreed to enter into a definitive agreement with MGM with respect to
distribution rights for all media in certain international territories for
motion pictures meeting certain criteria as well as certain rights in certain
other territories. The Company has reserved for itself certain significant
territories and rights where it has existing output agreements and other
long-term relationships.

TRI-STAR. Since 1984 the Company and its predecessors contracted with
Tri-Star for domestic theatrical release of major "event" motion pictures. Under
that agreement with Tri-Star, Tri-Star agreed to distribute all of the Company's
major "event" motion pictures which commenced principal photography prior to
December 31, 1993. Tri-Star agreed to pay the Company advances for, and to spend
significant amounts on

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costs for, the initial theatrical release of each picture covered by the
agreement. In addition, the Company is entitled to a share of Tri-Star's gross
receipts in excess of certain predetermined levels calculated on a
picture-by-picture basis. Under the Tri-Star Agreement, the Company was
obligated to pay for the cost of manufacturing release prints for U.S.
theatrical release, although Tri-Star advanced to the Company the cost for
release prints of BASIC INSTINCT, UNIVERSAL SOLDIER and CHAPLIN, which advances
are recoupable from amounts due to the Company under the Tri-Star Agreement.
WAGONS EAST, which commenced principal photography in December 1993, will be the
last of the Company's motion pictures to be theatrically distributed under the
Tri-Star Agreement.

HOME VIDEO MARKETING AND DISTRIBUTION OPERATIONS

The Company has granted to LHV domestic home video rights to motion pictures
produced or controlled by the Company prior to August 1995, except CLIFFHANGER
and IRON EAGLE III. Canadian home video rights have not been granted to LHV in
the case of several films produced by the Company. In consideration for the
rights granted by the Company, LHV has agreed to pay the Company certain
advances for each picture. These advances are recoupable from LHV's net receipts
from video distribution of the pictures. LHV is entitled to cross-collateralize
both net receipts from groups of pictures and advances on subsequent groups of
pictures in order to ensure that it earns a certain minimum overall distribution
fee on each group of films. There is a corresponding upper limit on the total
gross distribution fee that LHV can earn on each group of films. "Net receipts"
generally are LHV's wholesale receipts less certain expenses such as marketing
and costs of manufacturing. These agreements have been (or will be in the case
of any future amendments or pictures) approved by the independent committees of
each of the Company's and LIVE's Board of Directors (including members elected
by holders of the LIVE Series B Preferred Stock). In 1993, LHV released the
Carolco titles CHAPLIN and DARK WIND.

DOMESTIC TELEVISION DISTRIBUTION

GENERAL. Television distribution includes distribution to pay television,
network television and non-network free television (basic cable and television
syndication).

PAY TELEVISION. Pay television services (e.g., Showtime and Home Box
Office, Inc. ("HBO")) usually license pictures for initial exhibition commencing
12 to 18 months after initial domestic theatrical release, as well as for
subsequent showings.

The Company has entered into a domestic pay television agreement with Encore
Media Corporation ("Encore"), an affiliate of TCI, pursuant to which the Company
has granted to Encore certain exclusive domestic pay television rights to the
Company's motion pictures which have their initial domestic theatrical release
from January 1, 1994 through December 31, 1997. Encore has the right to extend
this term until the later of December 31, 1998 or the delivery to Encore of 20
films which meet criteria set forth in the agreement; if Encore exercises this
option, there will be an increase in certain license fees payable to the
Company. Under the agreement, Encore will pay the Company for each film
delivered to Encore a license fee based on U.S. theatrical film rentals derived
during the 12 month period following such film's initial domestic theatrical
release. Encore has been granted, for a designated license fee, certain
exclusive domestic television rights in up to four of the Company's motion
pictures which have been licensed to TCI for pre-theatrical pay-per-view
broadcast. The agreement with Encore replaces a previous agreement between the
Company and Showtime Networks, Inc.

PAY-PER-VIEW TELEVISION. In the past, pay-per-view rights have been granted
solely for pay-per-view "windows" after the domestic theatrical release of a
motion picture. The Company has entered into the Pay-Per-View Agreement with TCI
for the pre-theatrical pay-per-view rights for up to four of the Company's
future motion pictures, with such pictures subject to mutual approval by TCI and
the Company. The Pay-Per-View Agreement provides for such films to be shown on a
pay-per-view basis on the weekend prior to domestic theatrical release. See
"Recent Developments -- Financial Restructuring."

NETWORK TELEVISION. The television networks, such as CBS, NBC and ABC,
license some films for a limited number of televised showings during a period
usually commencing 30 to 36 months after the initial theatrical release of the
film. In recent years, motion picture producers and distributors have not been
able to realize substantial value from the license of network television rights
to motion pictures; however, the

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Company believes that the broad commercial appeal of certain of its major
"event" motion pictures will enable the Company to obtain the licenses of
network television rights to these pictures. With the exception of CLIFFHANGER,
the network television rights to films released theatrically prior to January 1,
1994 were distributed by CTI. Films that are theatrically distributed by MGM
under the MGM Distribution Agreement will also be distributed by MGM in the
domestic free television marketplace.

NON-NETWORK FREE TELEVISION. Producers may license the right to broadcast a
picture directly on local commercial television stations or basic cable systems
throughout the United States, usually for a period commencing 30 to 36 months
after initial theatrical release of the picture in the event that there is no
network television release. If the picture is released on network television,
such license period usually commences 6 to 8 years after initial release of the
picture. With the exception of CLIFFHANGER, films released theatrically prior to
[January 1, 1994] were distributed to the domestic non-network free television
marketplace by CTI. In 1992, CTI sold its feature film library of United States
television rights to Worldvision. It also sold certain receivables to Sun Life.
The assets sold by CTI to Worldvision and Sun Life represent substantially all
of the United States television distribution operating assets and receivables of
CTI. Films that are theatrically distributed by MGM under the MGM Distribution
Agreement will also be distributed by MGM in the domestic free television
marketplace.

FOREIGN LEASING OPERATIONS

The Company leases, or arranges for distribution of, its own motion pictures
and pictures produced by third parties in foreign countries. In the past,
foreign distribution has been conducted by the Company through its subsidiary,
CINV, with offices and employees in Curacao, Netherlands Antilles and in Zurich,
Switzerland. As a result of the domestication of CINV, CINV no longer has
offices or employees outside of the United States. Commencing with WAGONS EAST,
the Company will license its films directly to distributors in foreign
territories. CII will continue to market rights to the Company's previous films
in foreign territories.

The Company's theatrical licensing agreements in a number of foreign
territories sometimes provide for the granting (cross-collateralizing) of video
and television distribution rights in such territories in the event that
advances and guarantees and distribution costs paid pursuant to such agreements
are not recouped from revenues derived from theatrical distribution.

Tri-Star was granted certain distribution rights in certain foreign
territories with respect to any of the Company's major "event" motion pictures
which began principal photography prior to December 31, 1993. The territories
typically included Latin America and Africa and have sometimes included
Scandinavia, France, Spain and Australia/New Zealand. Tri-Star paid an advance
against the Company's share of receipts in these particular territories separate
from and not cross-collateralized with advances on domestic theatrical receipts.
The rights granted were typically theatrical and video, but some recent grants
included television rights.

The Company has also entered into strategic alliances with certain companies
that provide in part for the grant to such companies of rights to distribution
of the Company's films in certain territories. CINV has entered into
arrangements with Canal+ and Pioneer which grant them first negotiation rights
to certain distribution rights in France and certain other French-speaking
territories and Japan, respectively. The Company has also entered into an
agreement with an affiliate of RCS for distribution rights in Italy for pictures
whose principal photography commences after March 31, 1993. See "Certain
Relationships and Related Transactions -- Transactions with Strategic
Investors."

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In addition, Neue Constantin Film GmbH & Co. Verleih KG ("Neue Constantin"),
a leading theatrical distribution company in Germany, and its affiliates,
entered into agreements in September 1991 with the Company and CINV regarding
the purchase of shares of the Company's Common Stock and licensing of certain
rights. An affiliate of Neue Constantin and CINV entered into an Output
Agreement commencing in September 1991 under which Neue Constantin is to acquire
theatrical and non-theatrical distribution rights in Germany and Austria to 20
motion pictures produced or acquired by the Company, excluding films previously
licensed in that territory. In October 1991, Neue Constantin purchased 222,223
shares of the Company's Common Stock at a purchase price of $13.50 per share for
a total purchase price of approximately $3,000,000.

ACQUISITION OF FILM PRODUCT

In addition to the exploitation of its own motion pictures, the Company has
on occasion acquired distribution rights in certain films produced by other
independent producers. In certain instances, the Company acquired limited
selling rights and, in other instances, unrestricted worldwide (including
copyright) rights to such films. There can be no assurance that any such rights
will be acquired in the future.

OPERATION OF MOTION PICTURE STUDIO

Carolco Studios Inc. (Delaware) ("CSI"), owns all of the capital stock of
Carolco Studios Inc., a North Carolina corporation, which owns and operates a
32-acre, eight sound stage studio facility located in North Carolina ("Carolco
Studios"). Prior to December 30, 1993, the Company owned approximately 35% of
the common stock and 70% of the total equity of CSI. The Company acquired its
interest in CSI in 1990 under an acquisition agreement that was part of the Plan
of Reorganization of DeLaurentiis Entertainment Group Inc. ("DEG"), which was
confirmed by the U.S. Bankruptcy Court in 1990. On December 1, 1993, pursuant to
the requirements of the acquisition agreement under which the Company acquired
its interest in CSI, the Company commenced a call of all of the shares of CSI
common stock not owned by the Company. Under the DEG Plan of Reorganization,
each share of CSI not owned by the Company was accompanied by a put ("the DEG
Puts") which entitled the holder, upon commencement of the call, to either (i)
tender such holder's puts to the Company for $0.01 per DEG Put and retain the
related CSI share or (ii) tender such holder's DEG Puts and related CSI shares
to the Company for $0.7652 per CSI share and related DEG Put. The Company
simultaneously commenced an offer to purchase all of the issued and outstanding
warrants of CSI, each of which entitles the holder to acquire one share of CSI
common stock for $1.80 per share at any time prior to May 15, 1995. The Company
acquired 9,504,153 shares of CSI common stock, 515,847 DEG Puts, and 9,026,725
warrants under the call and warrant offer for a total of approximately
$7,368,000. Of this amount, approximately $6,996,400 was paid with Company funds
held by the liquidation estate created by the order confirming the DEG Plan of
Reorganization (the "DEG Liquidation Estate") as security for the Company's call
obligation; approximately $281,300 was paid by the DEG Liquidation Estate
pursuant to a settlement agreement between the Company and the DEG Liquidation
Estate under which the Company released certain claims it had against the DEG
Liquidation Estate in return for such payment; and approximately $90,300 was
paid by the Company. As a result of the call, at March 31, 1994 the Company
owned 96.7% of the outstanding common stock of CSI and 90% of the warrants. Upon
expiration of the call all untendered DEG Puts expired.

Approximately 15 feature-length motion pictures, three television
mini-series, five television series and 14 motion pictures made for television
have been filmed at Carolco Studios since the Company acquired its interest in
CSI. The television series MATLOCK filmed several of its seasons at Carolco
Studios. The other operations of CSI consist of (i) the collection of DEG
receivables retained pursuant to the acquisition agreement with the DEG
Liquidation Estate, (ii) the exploitation of DEG film development projects and
(iii) the exploitation of the foreign rights to the motion picture COLLISION
COURSE, which was produced by DEG prior to the filing of its bankruptcy
petition. Approximately $7.2 million in DEG receivables existed on the date the
Company acquired its interest in CSI, all of which has been collected. Except
for the foreign rights to COLLISION COURSE, which have not generated sizable
receivables, all of the film rights of DEG were sold to a third party
immediately prior to the acquisition by the Company of its interest in CSI. The
entire proceeds of this sale were retained by the DEG Liquidation Estate. It is,
therefore, extremely unlikely that any material amount of additional receivables
will be generated from film rights.

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Although a small amount of income has been generated from the sale of DEG
film development projects, no motion picture has actually been completed from
any of these development projects either by the Company or a third party which
purchased the rights from CSI. Although CSI will have a net profit participation
in any motion picture completed from these development projects, the amount and
timing of any payments received as a result of such participations is uncertain.

MAJOR CUSTOMERS

In 1993, there were two customers which accounted for more than 10% of the
Company's consolidated revenue: Pioneer (14% or $14,858,000) and LHV (10% or
$10,331,000.) In 1992, there were no customers which accounted for more than 10%
of the Company's consolidated revenues. In 1991, Tri-Star accounted for 13% or
$77,143,000 of the Company's consolidated revenues. See Note Q of the Company's
Notes to the Consolidated Financial Statements.

EMPLOYEES

At February 15, 1994, the Company employed a total of 103 full-time
employees (including 23 employees at Carolco Studios).

Certain subsidiaries of the Company are subject to the terms in effect from
time to time of collective bargaining agreements with the Guilds and the
International Alliance of Theatrical Stage Employees (concerning certain
technical crafts such as director of photography, sound recording and editing).
A strike, job action or labor disturbance by the members of any of these
organizations may have a material adverse effect on the production of a motion
picture within the United States. The Company believes that its current
relationship with its employees is satisfactory.

REGULATION

Distribution rights to motion pictures are granted legal protection under
the copyright laws of the United States and most foreign countries, which
provide substantial civil and criminal sanctions for unauthorized duplication
and exhibition of motion pictures. Motion pictures, musical works, sound
recordings, art work, still photography and motion picture properties are each
separate works subject to copyright under most copyright laws, including the
United States Copyright Act of 1976. The Company plans to take appropriate and
reasonable measures to secure, protect and maintain or obtain agreements to
secure, protect and maintain copyright protection for all Company pictures under
the laws of applicable jurisdictions. In addition, the Company and its
predecessors have registered or applied to register the trademark "Rambo" and
"Terminator 2" in most nations and certain related trademarks in the United
States and around the world and intend to secure, protect and maintain these
trademarks under the laws of certain jurisdictions. Management is aware of
reports of extensive unauthorized misappropriation of cassette rights to motion
pictures, which may include Company pictures. Motion picture piracy is an
industry-wide problem. The Motion Picture Association of America operates a
piracy hotline and investigates all reports of such piracy. Depending upon the
results of such investigations, appropriate legal action is brought by the owner
of the rights. Depending upon the extent of the piracy, the Federal Bureau of
Investigation may assist in these investigations and related criminal
prosecutions. Additionally, LIVE, the licensee of the Company's video rights, is
a member of the MPAA Coalition Against Video Theft. Any reports of such theft
are investigated by coalition investigators. Again, depending upon the results
of these investigations, appropriate legal action is taken, including both
seizure of the pirated videocassettes and the filing of criminal charges.

The Code and Ratings Administration of the Motion Picture Association of
America, an industry trade association, assigns ratings for age-group
suitability for theatrical distribution of motion pictures. The Company has
followed and currently intends to follow the practice of submitting its pictures
for such ratings.

In addition, United States television stations and networks, as well as
foreign governments, impose additional restrictions on the content of motion
pictures which may restrict in whole or in part theatrical or television
exhibition in particular territories. Management's current policy is to produce
motion pictures for which there will be no material restrictions on exhibition
in any major territories or media. This policy often requires production of
"cover" shots or different photography and recording of certain scenes for
insertion in versions of a motion picture exhibited on television or
theatrically in certain territories.

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There can be no assurance, however, that current and future restrictions on
the content of the Company's pictures may not limit or affect the Company's
ability to exhibit certain of its pictures.

COMPETITION

Motion picture and television production and distribution are highly
competitive businesses. The competition comes from both companies within the
same business and companies in other entertainment media. The Company competes
with several "major" film studios, as well as numerous independent motion
picture and television production companies, television networks and pay
television systems for the acquisition of literary properties, the services of
performing artists, directors, producers and other creative and technical
personnel and production financing. The Company's costs of producing a motion
picture (its average negative cost) have typically exceeded the industry average
which average has grown from $23,000,000 in 1989 to $29,900,000 in 1993, an
increase of 30%. Many of the Company's competitors have significantly greater
financial and other resources than does the Company. The "major studios,"
Paramount Communications, MCA/Universal, Sony Pictures Entertainment (including
Columbia Pictures and Tri-Star Pictures) Twentieth Century Fox, Time Warner,
MGM/UA Inc. and The Walt Disney Company, are dominant in the motion picture
industry.

The entertainment industry in general, and the motion picture industry in
particular, are undergoing significant changes, primarily due to technological
developments. These developments have resulted in the availability of alternate
forms of leisure time entertainment, including pay/cable television services and
home entertainment equipment such as videocassettes, video discs, video games
and computers. The theatrical success of a motion picture remains, however, a
crucial factor in generating revenues in other media (videocassettes and
television). Given the rapidity of technological development, shifting consumer
tastes, and the popularity and availability of other forms of entertainment, it
is impossible to predict what effect these factors will have on the potential
overall revenue for feature-length motion pictures. Because the Company's films
compete with motion pictures produced by other companies, the success of any of
the Company's films is dependent not only on the quality and acceptance of that
particular film, but also on the quality and acceptance of other films released
into the marketplace at or near the same time.

ITEM 2. PROPERTIES
PROPERTIES

The Company owns the building housing its corporate headquarters in Los
Angeles, California. In March 1988, the Company entered into a $12,000,000
mortgage loan on its headquarters building. The mortgage loan has an interest
rate of 10% and is payable in monthly installments beginning March 1990 based
upon an assumed 30 year amortization of principal. The mortgage provides for a
balloon payment of the outstanding principal amount (approximately $11,500,000)
in March 1997. The Company also owns a smaller building located near its
corporate offices. In addition, CSI owns and operates a 32-acre filming facility
located in North Carolina.

Pursuant to a service agreement with a local trust company, certain
subsidiaries of CII have the use of offices in Curacao, Netherlands Antilles.

ITEM 3. LEGAL PROCEEDINGS

BUSINESS COMBINATION LITIGATION

On March 24, 1994, the same day the Business Combination was announced, a
purported class action lawsuit was filed in the Court of Chancery of the State
of Delaware in and for New Castle County, by an alleged stockholder of LIVE
against LIVE, the Company, certain of the Company's and LIVE's past and present
executive officers and directors, Pioneer and Cinepole. The complaint alleges,
among other things, that the defendants have violated their fuduciary duties
owed to LIVE stockholders in connection with the Business Combination. Plaintiff
seeks a preliminary and permanent injunction enjoining the Business Combination
under its current financial terms; an open market auction of LIVE; to the extent
the Business Combination is consummated prior to the entry of a final judgement
in the action, rescission of the Business

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Combination; repayment of profits and benefits obtained as a result of
defendant's alleged conduct; and attorney's fees and expenses. The Company
believes that this lawsuit is without merit and intends to defend it vigorously.

SETTLEMENT OF PURPORTED DERIVATIVE ACTION

On November 22, 1991, the United States District Court for the Southern
District of California ("U.S.D.C.") approved a settlement agreement executed by
the parties to the purported derivative actions against certain directors and
former directors of the Company originally filed on September 25, 1990 by
Arthur-Magna, Inc., an alleged stockholder of the Company ("Magna"), in
connection with the October 1990 purchase by a wholly-owned subsidiary of the
Company of 3,461,538 shares of the Company's Common Stock for $13.00 per share
from New Carolco Investments B.V. ("New CIBV"), a company affiliated with Mario
F. Kassar, Chairman of the Board of Directors of the Company (the "Stock
Purchase Transaction").

The settlement consists of three principal elements: (1) a guarantee by
Mario Kassar and New CIBV (the "Guarantee") of an undertaking by the Company
that, between March 25, 1991 and March 25, 1993, the Company will have sold
Common Stock or comparable securities in an aggregate of $41,090,000 plus
interest at prices no less than the prices involved in the Stock Purchase
Transaction; (2) the agreement of New CIBV to eliminate a warrant received in
the Stock Purchase Transaction and to relinquish certain subscription rights;
and (3) a series of corporate governance changes, including the replacement of
the then current independent committee of the Board of Directors of the Company
and the establishment of certain restrictions on transactions between Mario
Kassar or New CIBV and the Company for at least five years.

In August 1993, the U.S. Court of Appeals for the Ninth Circuit affirmed the
judgment of the lower court approving the settlement. The time within which to
petition the U.S. Supreme Court for review of the judgment expired on November
24, 1993. As of March 25, 1993, the Company had sold shares of Carolco Common
Stock or comparable securities (as permitted by the settlement stipulation) in
an aggregate of $37,000,016 at prices at least equal to $13.00 per share. Mr.
Kassar and New CIBV have satisfied the Guarantee by tendering 1,490,943 shares
of Carolco Common Stock to the Company, which includes the 300,769 shares held
in trust by the Company on behalf of New CIBV as security for the Guarantee.
Gordon Luce, Hector P. Dowd and Joseph A. Scudero, all of whom were appointed to
the Board of Directors on February 14, 1994, are the three new independent
directors required under the terms of the settlement.

OTHER LITIGATION

On January 9, 1992, a purported class action lawsuit was filed in the U.S.
District Court, Central District of California, by alleged stockholders of LIVE
against the Company, LIVE and certain of the Company's and LIVE's past and
present executive officers and directors. The complaint alleges, among other
things, that the defendants violated Section 10(b) of the Exchange Act and Rule
10b-5 promulgated thereunder (i) by concealing the true value of certain of
Carolco's and LIVE's assets, and overstating goodwill, stockholders' equity,
operating profits and net income in Carolco's and LIVE's Forms 10-K for the year
ended December 31, 1990, in their 1990 Annual Reports, and in their Forms 10-Q
for the quarters ended March 31, 1991 and June 30, 1991, and (ii) by materially
understating the true extent of the write-off of goodwill in connection with the
sale of Lieberman Enterprises Incorporated ("Lieberman") to Handleman Company
("Handleman") in July 1991. In addition, the complaint alleges that certain of
the defendants are liable as controlling persons under Section 20 of the
Exchange Act and alleges that certain other defendants are liable for aiding and
abetting the primary violations. Subsequently, two additional lawsuits were
filed in the U.S. District Court, Central District of California, by alleged
stockholders of LIVE against the same persons and entities who were defendants
in the original action, making substantially the same allegations as were made
in the first lawsuit. On March 30, 1992, these lawsuits were consolidated.
Further, in April 1992, an amended complaint was filed in the consolidated
action (the "Amended Complaint"). The Amended Complaint contains substantially
the same allegations as the three original complaints. In addition, the Amended
Complaint lengthened the alleged class period and added as defendants certain
substantial shareholders (New CIBV, Pioneer and Canal+), directors and former
directors of Carolco (Messrs. Afman, Bonnell, Matsumoto, and Noda) and a lender
to the Company. In addition to the claims asserted in the individual actions, a
claim for respondeat superior liability was added. On June 17, 1992, the U.S.
District

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Court, Central District of California, entered an order conditionally certifying
the class, subject to possible decertification after discovery is completed. On
or about January 27, 1993, a Second Amended Complaint was filed in the
consolidated action expanding the allegations against certain directors, a
lender to the Company and Pioneer. On April 19, 1993, the Court granted
Pioneer's Motion to Dismiss the Second Amended Complaint as against Pioneer.

In February 1992, a purported class action lawsuit was filed in the U.S.
District Court, District of Delaware, by an alleged holder of the Company's
public debt, against the Company, LIVE and certain executive officers and
directors of the Company and LIVE. The Delaware complaint alleges, among other
things, that the defendants violated Section 10(b) of the Exchange Act and Rule
10b-5 promulgated thereunder by concealing the true value of certain of LIVE's
assets, and overstating goodwill, stockholders' equity, operating profits and
net income in LIVE's Form 10-K for the year ended December 31, 1990 and in its
Forms 10-Q for the quarters ended March 31, 1991 and June 30, 1991. In April
1992, this lawsuit was transferred to the U.S. District Court, Central District
of California. The proceedings are being coordinated with the consolidated
action described in the preceding paragraph. On June 17, 1992, the U.S. District
Court, Central District of California, entered an order conditionally certifying
the class, subject to possible decertification after discovery is completed. The
purported class action complaints do not contain a damage claim of any specific
dollar amount. To date, there has been only preliminary discovery in these
actions. See Note P of the Company's Notes to the Consolidated Financial
Statements.

On December 1, 1992, Parafrance Communication, S.A. and Paravision
International S.A. filed identical lawsuits in Los Angeles County Superior Court
and the United States Bankruptcy Court, Central District of California, against
the Company and certain of its affiliates for (i) breach of contract, (ii) fraud
and (iii) unjust enrichment with respect to the motion pictures THE PRODUCERS,
DARLING and BILL AND TED'S EXCELLENT ADVENTURE as a result of the alleged
failure by DEG to deliver certain rights in such pictures to the plaintiffs
under a 1990 Asset Purchase Agreement. The State Court action was removed to the
Bankruptcy Court and consolidated with the other action. Plaintiffs allege
damages in excess of $3 million. The Company believes that any judgment against
it in this action will be satisfied from a reserve fund of the DEG Liquidation
Estate set aside for such claims, which is also named as a defendant in this
action.

On December 10, 1992, Lang Elliott Entertainment Inc. ("Lang Elliott") filed
a lawsuit in Los Angeles County Superior Court against the Company, CTI, Vista
and certain affiliates of the Company for breach of contract and an accounting
relating to amounts allegedly owed by Vista to Lang Elliott with respect to the
motion picture CAGE. In addition, the complaint alleges claims for conversion,
constructive trust, intentional misrepresentation, breach of covenant of good
faith and fair dealing, interference with prospective business advantage, unfair
competition and anti-trust violations. In addition to monetary damages, the suit
also seeks rescission and restitution. The suit arises out of a 1989
distribution agreement under which the Vista Partnership, of which an affiliate
of the Company is the general partner, acquired all distribution rights to the
picture. The complaint seeks damages of $1,350,000 (which claim includes $1
million of punitive damages) for (i) license fees allegedly due to Lang Elliott
under a rescinded agreement between a Company affiliate and CTI and (ii) alleged
damage to the home video and free television value of CAGE due to a nine month
extension by the Vista Partnership of the pay television rights of HBO and
Showtime to the film for which the Vista Partnership received no fee. The
Company has successfully demurred to parts of Lang Elliott's complaint resulting
in dismissal of the antitrust and breach of covenant of good faith and fair
dealing causes of action. The Vista Partnership previously defended itself
successfully against Lang Elliott in a recent arbitration which raised some of
the same issues. The Company and the other defendants have filed an answer
denying the allegations in Lang Elliott's complaint and both sides are engaging
in discovery.

15
<PAGE>
settling certain other litigation and wherein it was agreed that the Company and
CINV could assign the May 19, 1990 agreement to RCS NV, provided that RCS NV
assume in writing the obligations thereunder and provided that the Company and
CINV remain jointly and severally liable with RCS NV under the May 19, 1990
agreement. Plaintiffs alleged that the Company and the other defendants breached
the foregoing agreements by denying any obligation to accord producer credit to
Golan, by assigning the May 19, 1990 agreement to a party other than RCS NV, and
by failing to provide plaintiffs with a written document showing that the
Company and the other defendants have assumed the obligations of the May 19,
1990 agreement. Finally, plaintiffs allege that the Company and the other
defendants entered into the foregoing agreements fraudulently in that they did
not intend to perform their alleged promises at the time they entered into the
agreements.

Based on the foregoing allegations, plaintiffs sought compensatory damages
in excess of $5 million, unspecified punitive damages, attorneys' fees,
rescission of the May 19, 1990 agreement, a declaration as to the plaintiffs'
alleged rights, and a preliminary and permanent injunction preventing the
Company and the other defendants from distributing SPIDERMAN without according
producer screen credit to Golan or from issuing press releases or other
information to the media without according producer credit to Golan.

On October 22, 1993, the plaintiffs, following several successful demurrers
by the defendants to the plaintiffs' previous complaints, filed a Third Amended
Complaint against the Company, CINV, Spiderman Productions Ltd. and RCS NV. On
November 19, 1993, all four defendants filed an answer to the Third Amended
Complaint in which they agreed that the May 19, 1990 agreement was rescinded,
thereby accepting the demand and offer of rescission contained in the Third
Amended Complaint, and filed a cross-complaint seeking restitution of the more
than $5,000,000 that plaintiffs were paid under the rescinded agreement. The
plaintiffs contend that assuming they make such restitution to the Company and
its co-defendants and co-cross-complainants, the plaintiffs would be entitled to
recover the rights, or the monetary value of the rights, that were transferred
under the May 19, 1990 agreement.

On December 14, 1993, the plaintiffs became debtors under Chapter 7 of the
bankruptcy laws as a result of petitions for involuntary bankruptcy that were
filed by various creditors of the plaintiffs (other than the parties to the
above-described litigation). On December 15, 1993, the bankruptcy proceedings
were converted to voluntary reorganization proceedings under Chapter 11 of the
bankruptcy laws. The bankruptcy filings have resulted in an automatic stay of
the Los Angeles Superior Court litigation for the time being. There have been no
other procedural developments in that litigation since the bankruptcy filings.

On February 3, 1994, the Company, CII, Spiderman Productions Ltd. and RCS NV
filed declaratory relief actions against Viacom International Inc., its
division, Viacom Enterprises, and various Doe defendants (collectively
"Viacom"), and against CPT Holdings, Inc. and Columbia Pictures Home Video, Inc.
jointly doing business as Columbia Tri-Star Home Video, and various Doe
defendants (collectively "Columbia Tri-Star"), seeking declarations that such
defendants do not have certain distribution rights in SPIDERMAN. Both Viacom and
Columbia Tri-Star contend that they acquired certain distribution rights from
21st prior to the Company's and 21st's entering into the May 19, 1990 agreement,
and allegedly continue to hold such rights after the May 19, 1990 agreement was
entered into and after it was rescinded on November 19, 1993 as described above.

Viacom and Columbia Tri-Star each have answered the Company's complaints
against them, denying the material allegations of the complaints. In addition,
on April 8, 1994, Columbia Tri-Star served a cross-complaint on the Company and
its co-plaintiffs for anticipatory repudiation of contract, specific performance
of contract, breach of the implied covenant of good faith and fair dealing, and
declaratory relief. Columbia Tri-Star is seeking a judicial declaration that the
Company and its co-plaintiffs are contractually obligated to accord to Columbia
Tri-Star the distribution rights that Columbia Tri-Star alleges it has, an order
commanding the performance of those alleged obligations, and, alternatively,
damages "in a sum not less than $5,000,000" if those alleged obligations are not
performed.

16
<PAGE>
the rights the Company and its co-plaintiffs contend they have. The Company is
unable to place a monetary value on these rights. Viacom asserts that it paid
21st $2,000,000 for the domestic television distribution rights that it contends
it still holds.

Other than as described above, there are no material pending legal
proceedings to which the Company or any of its subsidiaries is a party or to
which any of its property is the subject, other than ordinary routine litigation
incidental to the business of the Company and its subsidiaries.

Management and counsel to the Company are unable to predict the ultimate
outcome of the above-described actions at this time. However, the Company
believes that all of these lawsuits are without merit and is defending them
vigorously. Accordingly, no provision for any liability which may result has
been made in the Company's consolidated financial statements. In the opinion of
management, these actions, when finally concluded and determined, will not have
a material adverse effect upon the Company's financial position.

GUILD SETTLEMENT

In August 1992, the Company reached an agreement with the Screen Actors
Guild, the Writers' Guild of America, the Directors' Guild of America and the
Motion Picture Industry Pension and Health Plan (collectively, the "Guilds")
with respect to amounts owed to the Guilds under certain collective bargaining
agreements. Pursuant to the agreement, the Company issued a note payable to the
Guilds in the amount of $15,000,000 (the "Guild Note") with a payment of
$3,000,000 due on or before December 31, 1992. The Guilds agreed to extend the
due date of the $3,000,000 obligation until June 1, 1993. On June 23, 1993, the
Company made the $3,000,000 payment to the Guilds which cured the event of
default that resulted from the previous failure to make such payment. The
balance of the note payable is due in four equal annual installments on October
1 of each year commencing in 1993 and bears interest at 3-month LIBOR plus 1%
per year, payable in cash or additional notes payable. A provision of the note
allows the Company to prepay all or a portion of the note in full prior to
October 1, 1993 at a redemption price of 60% of the then outstanding balance,
plus accrued interest, or between October 1, 1993 and October 1, 1994 at a
redemption price of 70% of the then outstanding balance, plus accrued interest.
On September 29, 1993, the Company redeemed $3,000,000 of the Guild Note with a
cash payment to the Guilds of $1,873,000, representing 60% of the payment due on
October 1, 1993, including accrued interest of approximately $122,000. As a
result, the Company recorded an extraordinary gain on early extinguishment of
debt of $1,249,000. At December 31, 1993, $9,367,000 was outstanding under the
Guild Note, including accrued interest. The note payable to the Guilds is
secured by a lien on substantially all of the Company's assets, which lien is
subordinated to the lien of CLBN pursuant to the CLBN Facility and third-party
liens in existence on June 30, 1992.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Except as set forth in the Company's Current Report on Form 8-K dated
October 20, 1993, no other matters have been submitted to a vote of security
holders.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

MARKET PRICES

Since the Company's initial public offering in November 1986, the Company's
Common Stock has been listed with, and has been traded on, the New York Stock
Exchange ("NYSE") under the symbol "CRC." The Company's Common Stock has also
been listed on the Pacific Stock Exchange ("PSE") since February 2, 1987 and on
the Toronto Stock Exchange since January 18, 1988. The Company's Common Stock
was voluntarily delisted from the Toronto Stock Exchange upon the close of
business of such exchange on Friday, November 5, 1993. No other securities of
the Company are listed on the Toronto Stock Exchange.

17
<PAGE>
The following table sets forth for the periods indicated the high and low
sales prices for the Company's Common Stock on the NYSE.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1992
--------------------
HIGH LOW
--------- --------
<S> <C> <C>
QUARTER ENDED
March 31, 1992........................................................... $ 3 3/4 $ 7/8
June 30, 1992............................................................ 2 5/8 1 1/4
September 30, 1992....................................................... 1 1/2 1/2
December 31, 1992........................................................ 1 7/8 5/16

<CAPTION>
YEAR ENDED
DECEMBER 31, 1993
--------------------
HIGH LOW
--------- --------
<S> <C> <C>
QUARTER ENDED
March 31, 1993........................................................... $ 1 1/4 $ 3/4
June 30, 1993............................................................ 1 5/8 3/4
September 30, 1993....................................................... 15/16 9/16
December 31, 1993........................................................ 1 1/2 1/2

<CAPTION>
QUARTER ENDED
MARCH 31, 1994
--------------------
HIGH LOW
--------- --------
<S> <C> <C>
QUARTER ENDED
March 31, 1994........................................................... $ 3/4 $ 7/16
</TABLE>

HOLDERS. As of March 31, 1994, there were approximately 1,040 holders of
record of the Company's Common Stock and there were 137,687,728 shares issued
and outstanding (not including 2,327,381 shares held as treasury stock) of the
650,000,000 shares authorized.

DIVIDENDS. The Company has never paid cash dividends on its Common Stock
and presently intends to retain all future earnings to finance the operation of
its business. Pursuant to the DGCL, the Company may declare and pay dividends
only out of its surplus (net assets (total assets less total liabilities) in
excess of capital as determined in good faith by the Company's Board of
Directors) or its net profits for the fiscal year in which the dividend is
declared and/or the preceding fiscal year. On July 2, 1990, the Company paid a
dividend to holders of record of the Company's Common Stock of one preferred
stock purchase right for each share of Common Stock outstanding as of such date,
pursuant to the Rights Agreement dated as of June 18, 1990, as amended on March
19, 1992, April 14, 1992 and May 25, 1993. At a meeting held on October 17,
1993, the Company's Board of Directors approved the redemption of all the
outstanding preferred stock purchase rights (the "Rights") issued under the
Rights Agreement dated as of June 18, 1990, as amended, by and between the
Company and American Stock Transfer & Trust Company, as Rights Agent. The record
date and effective date of the redemption was October 19, 1993. Holders of
Rights on the record date were entitled to receive the redemption price of $.01
per Right in cash. The aggregate redemption price for all outstanding Rights
totalled $285,962 and was paid in November 1993.

18
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA

Set forth below are selected financial data of Carolco. The financial data
for each of the years ended December 31, 1989 through 1993 have been derived
from the Consolidated Financial Statements of Carolco which have been audited by
Ernst & Young, independent auditors. The following data should be read in
conjunction with the Consolidated Financial Statements and related notes and
with "Management's Discussion and Analysis of Results of Operations and
Financial Condition" appearing elsewhere in this Form 10-K.

The 1991 and 1992 amounts are not comparable with amounts from prior periods
or amounts from 1993 due to the consolidation of LIVE in 1991 and 1992. The
Company accounted for LIVE under the equity method of accounting in 1989, 1990
and 1993. In March 1994, LIVE announced its intention to dispose of its interest
in the Special Retail Division. Accordingly, the amounts for 1989, 1990, 1991
and 1992, have been restated to reflect the Specialty Retail Division as
discontinued operations.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1989 1990 1991 1992 1993
--------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
REVENUES:
Feature films......................................................... $ 136,665 $ 258,850 $ 234,529 $ 269,285 $ 103,180
LIVE Entertainment Inc. -- net sales.................................. -- -- 264,418 192,513 --
Other, including interest income...................................... 4,798 10,295 5,219 4,622 5,128
--------- --------- --------- --------- ---------
TOTAL REVENUES................................................ 141,463 269,145 504,166 466,420 108,308
COSTS AND EXPENSES:
Amortization of film, television and video costs, residuals and
participations...................................................... 104,892 204,108 482,542 458,237 108,620
Costs associated with restructurings.................................. -- -- 88,400 2,626 4,744
Costs associated with disposal of portion of line of business......... -- -- -- -- 2,072
Selling, general and administrative................................... 19,879 32,942 60,811 57,751 24,634
Interest.............................................................. 12,598 24,314 48,211 40,449 23,505
Amortization of goodwill and covenants................................ -- -- 3,656 4,874 --
Write-off of excess cost over net assets acquired (goodwill).......... -- -- 30,062 -- --
Other................................................................. -- -- 10,465 7,238 --
--------- --------- --------- --------- ---------
TOTAL COSTS AND EXPENSES...................................... 137,369 261,364 724,147 571,175 163,575
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE EQUITY IN INCOME
(LOSS) FROM CONTINUING OPERATIONS OF AFFILIATED COMPANIES, PROVISION
FOR INCOME TAXES AND MINORITY INTEREST.............................. 4,094 7,781 (219,981) (104,755) (55,267)
Equity in income (loss) from continuing operations of affiliated
companies........................................................... 6,313 19,819 -- -- (3,832)
--------- --------- --------- --------- ---------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE PROVISION FOR INCOME
TAXES AND MINORITY INTEREST......................................... 10,407 27,600 (219,981) (104,755) (59,099)
(Provision for) benefit from income taxes............................. (920) (3,823) (5,498) 594 (4,555)
--------- --------- --------- --------- ---------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE MINORITY INTEREST..... 9,487 23,777 (225,479) (104,161) (63,654)
Minority interest in continuing operations............................ -- -- 8,695 6,713 --
--------- --------- --------- --------- ---------
INCOME (LOSS) FROM CONTINUING OPERATIONS.............................. 9,487 23,777 (216,784) (97,448) (63,654)
Income (loss) from discontinued operations, net of income taxes and
minority interest (1991 and 1992)................................... 4,549 (6,479) (48,271) 548 (730)
--------- --------- --------- --------- ---------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM............................... 14,036 17,298 (265,055) (96,900) (64,384)
Extraordinary gain on early extinguishment of debt.................... -- -- -- 8,883 426
--------- --------- --------- --------- ---------
NET INCOME (LOSS)..................................................... $ 14,036 $ 17,298 $(265,055) $ (88,017) $ (63,958)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Income (loss) per common share from continuing operations, after
minority interest................................................... $ .31 $ .71 $ (7.76) $ (3.38) $ (1.28)
Income (loss) per common shares from discontinued operations, after
minority interest................................................... .15 (.22) (1.68) .02 (.01)
Income per common share from extraordinary item....................... -- -- -- .30 .01
--------- --------- --------- --------- ---------
Net income (loss) per common share.................................... $ .46 $ .49 $ (9.44) $ (3.06) $ (1.28)
--------- --------- --------- --------- ---------
</TABLE>

<TABLE>
<CAPTION>
1989 1990 1991 1992 1993
--------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash.................................................................... $ 8,871 $ 12,552 $ 19,115 $ 24,202 $ 56,697
Restricted cash......................................................... -- -- 52,728 7,825 1,255
Accounts receivable..................................................... 41,156 82,196 151,996 82,258 12,837
Film costs, net of amortization......................................... 333,303 387,845 364,650 135,395 78,427
Inventories and video rights, net of amortization....................... -- -- 148,564 123,701 --
Total assets............................................................ 520,148 631,907 925,172 532,615 188,071
Bank debt -- Carolco.................................................... 139,318 181,309 183,429 37,972 14,000
Bank debt -- LIVE....................................................... -- -- 76,513 13,684 --
10% Convertible Subordinated Debentures due 2006........................ -- -- 12,500 14,600 --
14% Senior Notes due 1993............................................... 49,989 76,126 65,794 33,452 --
14.5% Senior Subordinated Notes due 1999................................ -- -- 110,000 -- --
Increasing Rate Senior Subordinated Notes due 1999...................... -- -- -- 64,245 --
New Senior Notes........................................................ -- -- -- -- 41,678
New Senior Subordinated Notes........................................... -- -- -- -- 13,432
Other debt, including notes and amounts payable to related parties...... 85,061 40,944 86,353 164,799 51,776
Stockholders' equity (deficiency)....................................... 134,243 191,077 (37,827) (116,758) (21,070)
</TABLE>

19
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

Carolco is an entertainment company which finances, produces and leases
motion pictures for exhibition in domestic and foreign markets and for later
worldwide release in all media including home video and pay and free television.
The Company anticipates that it will produce a limited number of "event" motion
pictures per year, with commercial subject matter and well-known creative
elements, provided that the Company is able to obtain sufficient funds to enable
it to do so. In 1993, the Company produced and released one film, CLIFFHANGER,
which was financed in part through a co-production arrangement with the
Company's Strategic Investors. Feature film revenues are derived primarily from
the distribution of feature films in both domestic and foreign markets and from
the U.S. free television syndication market. The Company recognizes minimum
guaranteed amounts from theatrical exhibition and revenues from home video,
television and pay television license agreements when the license period begins
for each motion picture or television program and such motion pictures or
television programs are available pursuant to the terms of the license
agreement. Revenues from theatrical exhibition in excess of minimum guaranteed
amounts are recognized ratably during the period of exhibition.

LIVE and its subsidiaries acquire, market and distribute motion pictures and
other programming on videocassettes to wholesalers and retailers in the United
States and Canada. LIVE's Specialty Retail Division (the "Specialty Retail
Division") engages in the retail sale of video product, audio records, tapes and
compact discs in the northeast United States. As a result of transactions in
March and April 1993, the Company's voting equity of LIVE was reduced to 36.7%.
Therefore, from January 1, 1993 through October 20, 1993, LIVE was accounted for
using the equity method. In October 1993, as a result of the Restructuring, the
Company transferred all of its ownership interest in LIVE to Pioneer, Cinepole
and RCS. In March 1994, the management of LIVE announced its plan to dispose of
its interest in the Specialty Retail Division. Accordingly, the amounts for 1991
and 1992 have been restated to reflect the Specialty Retail Division as
discontinued operations.

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 1993 AS COMPARED TO YEAR ENDED DECEMBER 31, 1992

CONTINUING OPERATIONS

Feature film revenues decreased from $269,285,000 for the year ended
December 31, 1992 to $103,180,000 for the year ended December 31, 1993. This
represents a decrease of $166,105,000, or approximately 61.7%, mainly
attributable to the fact that the Company had no theatrical releases in 1993.
CLIFFHANGER was produced by a joint venture in which the Company owns less than
50%. Therefore, the revenues associated with the May 1993 theatrical release of
CLIFFHANGER are not included in the feature film revenues of the Company.
Feature film revenues for the year ended December 31, 1993 consist primarily of
revenues generated from the exploitation in secondary markets of films released
theatrically in prior years. Feature film revenues for the year ended December
31, 1992 include revenues of approximately $49,000,000 recorded in connection
with the sale of domestic television rights to Worldvision. In addition,
revenues for the year ended December 31, 1992 include approximately $14,016,000
from the worldwide theatrical release of UNIVERSAL SOLDIER; approximately
$25,300,000 from the worldwide theatrical release of CHAPLIN; approximately
$51,740,000 related to the worldwide theatrical release and approximately
$1,250,000 from the foreign video release of BASIC INSTINCT; approximately
$25,096,000 in foreign theatrical overages, approximately $4,675,000 from the
foreign video availability, approximately $13,500,000 from the domestic pay
television availability and approximately $5,950,000 from the foreign television
availability of TERMINATOR 2: JUDGMENT DAY, released theatrically in 1991; and
approximately $11,451,000 from the foreign pay and free television availability
of TOTAL RECALL released theatrically in 1990. Feature film revenues for 1992
also include approximately $21,900,000 in domestic television syndication
revenues.

Amortization of film, television and video costs, residuals and
participations decreased $349,617,000, or 76.3%, from $458,237,000 for the year
ended December 31, 1992 to $108,620,000 for the comparable period in 1993.
Amounts for 1992 include $168,451,000 of amortization of video costs
attributable to LIVE. Amortization of film costs, as a percentage of the
Company's feature film revenues, decreased by 2.3% from

20
<PAGE>
107.6% in 1992 to 105.3% in 1993. For the years ended December 31, 1992 and
December 31, 1993, the Company recorded costs of $34,118,000 and $21,287,000,
respectively, related to reductions in the estimated net realizable value of its
film inventory.

Selling, general and administrative ("S,G&A") expenses (including production
overhead costs), net of amounts capitalized, decreased by $33,117,000, or 57.3%,
from $57,751,000 during the year ended December 31, 1992 to $24,634,000 during
the year ended December 31, 1993. Amounts for 1992 include $23,813,000 of SG&A
expenses attributable to LIVE. The Company's SG&A expenses decreased by
$9,304,000, or 27.4%, from $33,938,000 for the year ended December 31, 1992 to
$24,634,000 for the year ended December 31, 1993. This decrease represents an
overall decrease in the Company's SG&A expenses resulting from reductions in the
work force and downsizing operations of the Company, offset by the fact that the
Company had no films in production in 1993, and was therefore unable to
capitalize any of its production overhead to film costs. In the year ended
December 31, 1992, the Company capitalized $5,240,000, or 13%, of SG&A expenses
to film costs.

Interest expense, net of capitalized interest, decreased by $16,944,000 or
41.9%, from $40,449,000 during the year ended December 31, 1992 to $23,505,000
for the year ended December 31, 1993. Amounts in 1992 include $14,653,000 of
interest expense attributable to LIVE. The Company's interest expense decreased
by $2,291,000, or 8.9%, from $25,796,000 in 1992 to $23,505,000 in 1993 as a
result of lower debt levels and reduced interest rates partially offset by the
fact that the Company had no films in production in 1993 and therefore could
capitalize none of its interest expense to film costs. In the year ended
December 31, 1992, the Company capitalized $3,315,000, or 11%, of its interest
expense to film costs.

Other income for 1993 includes interest income of approximately $507,000 and
approximately $3,649,000 relating to facility and equipment rentals at Carolco's
motion picture studio, foreign currency exchange gains and losses, which were
not material, and property rental income of approximately $435,000. Other income
for 1992 includes approximately $1,398,000 of interest income, $2,419,000
relating to facility and equipment rentals at Carolco's motion picture studio
and foreign currency exchange gains and losses, which were not material.

Other expenses in 1992 include losses totalling $1,116,000 resulting from
the sale of the LIVE shares to the Strategic Investors in June 1992, a loss of
$3,080,000 relating to the write-off of costs associated with films in which the
Company no longer owns distribution rights, and a loss of $3,000,000 resulting
from the write-down of the Company's aircraft to the estimated net realizable
value. There were no comparable expenses in 1993.

As a result of the Restructuring described in "Item 1. Business -- Recent
Developments -- Financial Restructuring", the Company has altered its business
strategy to focus on the production and distribution of its "event" motion
pictures. The Company has abandoned the business of acquiring and distributing
foreign rights for films produced by other motion picture companies. Therefore,
the remaining foreign distribution rights owned by the Company cannot be
packaged with newly acquired rights, and the Company's ability to recoup the
value of such foreign rights has been significantly impaired. Also, as a result
of the MGM Distribution Agreement, MGM will license all future motion pictures
produced by the Company in certain territories. The Company believes this
arrangement will impair its ability to license remaining rights to previous
motion pictures in these territories. Accordingly, in 1993 the Company reduced
the net realizable value of its film costs by $4,744,000. In 1992, the Company
recorded the balance of $2,626,000 of costs associated with a restructuring
completed in March 1992. The majority of the costs related to such restructuing
were recorded in 1991.

As a result of the 1992 sale of its library to Worldvision and the new MGM
Distribution Agreement entered into pursuant to the Restructuring, in December
1993, CTI ceased its domestic syndication operations and the Company recognized
a loss of $2,072,000 on the disposal of a portion of a line of business. This
loss consists of unrecouped advances paid for distribution rights to third-party
producers ($1,475,000), unamortized film costs of television programs produced
by CTI ($397,000) and costs associated with the closing of CTI's principal
offices ($200,000).

21
<PAGE>
In October 1993, pursuant to the Restructuring, the Company disposed of its
ownership interest in LIVE. Therefore, the Company's results of operations for
the year ended December 31, 1993 include the Company's share of the results of
operations of LIVE only for the period from January 1, 1993 through October 20,
1993 (the "Ownership Period.") The Company recognized a loss of $3,832,000
representing its equity interest of the continuing operations of LIVE for the
Ownership Period.

DISCONTINUED OPERATIONS: As a result of the management of LIVE's decision
to dispose of LIVE's interest in the Specialty Retail Division, the Specialty
Retail Division's results of operations have been classified as discontinued
operations. As a result, the Company recorded a loss of $730,000 representing
its equity interest of the discontinued operations of LIVE for the Ownership
Period.

YEAR ENDED DECEMBER 31, 1992 AS COMPARED TO YEAR ENDED DECEMBER 31, 1991

CONTINUING OPERATIONS

Feature film revenues increased from $234,529,000 for the year ended
December 31, 1991 to $269,285,000 for the year ended December 31, 1992. This
represents an increase of $34,756,000 or approximately 15%. Feature film
revenues for the year ended December 31, 1992 include revenues of approximately
$49,000,000 recorded in connection with the sale of domestic television rights
to Worldvision. Revenues for 1992 also included approximately $14,016,000 from
the worldwide theatrical release of UNIVERSAL SOLDIER; approximately $25,300,000
from the worldwide theatrical release of CHAPLIN; approximately $51,740,000
related to the worldwide theatrical release of BASIC INSTINCT; approximately
$25,096,000 in foreign theatrical overages and approximately $13,500,000,
$4,675,000 and $5,950,000, respectively, from the domestic pay television,
foreign video and foreign television availabilities of TERMINATOR 2: JUDGMENT
DAY, released theatrically in 1991; approximately $11,451,000 from the foreign
television availability of TOTAL RECALL released theatrically in 1990. Feature
film revenues for 1992 also include approximately $21,900,000 in domestic
television syndication revenues. Feature film revenues for 1991 include
approximately $89,700,000 related to the worldwide theatrical release of
TERMINATOR 2: JUDGMENT DAY; approximately $19,508,000 related to the worldwide
theatrical release of THE DOORS; approximately $4,597,000 and $3,658,000,
respectively, related to the foreign theatrical release of RAMBLING ROSE and
DARK WIND; approximately $8,284,000 in worldwide theatrical overages related to
TOTAL RECALL, released theatrically in 1990; approximately $5,462,000 and
$2,503,000, respectively, from the domestic pay and foreign television
availabilities of AIR AMERICA, released theatrically in 1990; approximately
$5,153,000 and $1,750,000, respectively, from the domestic pay and foreign
television availabilities of JACOB'S LADDER, released theatrically in 1990;
approximately $3,799,000 from the foreign television availability of MOUNTAINS
OF THE MOON, released theatrically in 1989; and approximately $11,443,000 and
$4,500,000, respectively, from the domestic pay and foreign television
availabilities of TOTAL RECALL, released theatrically in 1990. In addition,
feature films revenues for 1991 include approximately $34,900,000 in domestic
network and syndication television revenues.

The combined net sales of LHV and VCL decreased to $192,513,000 during 1992
compared to $264,418,000 during 1991. The decrease of $71,905,000, or 27.2%, was
primarily attributable to a decrease in sales at LHV, resulting from a
combination of a weaker release schedule in 1992 compared to 1991, as well as a
soft video market for straight to video feature films. Results for 1991 included
revenues from the initial rental releases of the theatrical films AIR AMERICA,
L.A. STORY, THE PUNISHER, NARROW MARGIN, THE DOORS, MADONNA: TRUTH OR DARE,
JACOB'S LADDER and TERMINATOR 2: JUDGMENT DAY. The only similar video releases
by LHV in 1992 were the initial rental releases of DEFENSELESS, RAMBLING ROSE,
BASIC INSTINCT and UNIVERSAL SOLDIER, along with the sell-through release (i.e.
priced under $25 for purchase by consumers) of TERMINATOR 2: JUDGMENT DAY.
Revenues generated by LHV from Carolco titles amounted to 38.4% and 40.3% of
combined net sales for 1992 and 1991, respectively. VCL/Carolco Communications
GmbH ("VCL") sales increased during 1992 compared to 1991, primarily due to the
home video rental release of TERMINATOR 2: JUDGMENT DAY in Germany.

Amortization of film, television and video costs, residuals and
participations decreased by $24,305,000 (5.0%) from $482,542,000 for the year
ended December 31, 1991 to $458,237,000 for the year ended December 31, 1992.
Amounts for 1992 include $168,451,000 ($215,799,000 in 1991) of amortization of
video costs attributable to LIVE. Amortization of film costs, as a percentage of
the Company's feature film revenues, decreased from 113.7% for the year ended
December 31, 1991 to approximately 107.6% of

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Carolco-related revenues for the year ended December 31, 1992. This decrease is
mainly due to the fact that amortization expense for 1991 included $13,500,000
of write offs of development projects, $13,500,000 related to reductions in
estimated values of foreign television rights and losses of $5,600,000 on
certain television products. In 1992, the write off of development projects was
approximately $17,000,000.

Combined gross profits of LHV and VCL decreased $24,557,000, or 50.5%, to
$24,062,000 during 1992 compared to $48,619,000 during 1991. As a percentage of
sales, gross profit decreased from 18.4% during 1991 to 12.5% during 1992. The
decrease in gross profit dollars and margin percentages was primarily
attributable to lower sales volumes and margins at LHV. The decrease in margins
at LHV was partially attributable to higher than anticipated returns of, and
allowances related to, product released in 1991 (including price protection and
rebate claims), amounting to approximately $4,100,000. With the exception of
RAMBLING ROSE, DEFENSELESS, BASIC INSTINCT, UNIVERSAL SOLDIER and TERMINATOR 2:
JUDGMENT DAY (at a sell-through price), the titles released by LHV in 1992 were
mostly "secondary" titles. Secondary titles are those films that are released on
video that have a modest production budget and are either released directly to
video or, if released theatrically, are done so on a limited or regional basis.
The market for secondary titles continued to weaken in 1992, partly because of a
general weakness in the United States economy, and partly because of a shift in
buying and rental patterns of video retailers and consumers. Among the causes
for the shift in buying and rental patterns were (a) a reduction in disposable
income during the economic recession in 1991 and 1992 which negatively affected
video retailers' revenues and, in turn, limited their budgets to purchase videos
and (b) in order to meet reduced demand by consumers for video product and
retailers' reduced purchasing budgets, video retailers limited their purchases
of secondary titles and shifted their spending to "A" titles. Therefore,
additional costs (in the form of rebates and price protection) were necessary to
attempt to obtain increased sales volumes for secondary product. These
additional costs decreased gross profit as a percentage of sales. LIVE's
response to this shift has been, among other actions, to change the model LHV
uses for acquisition and marketing of secondary titles. The decreased gross
profit percentage at LHV also is partially attributable to an increase in sales
of sell-through product (which usually generates lower margins as a percentage
of total sales) and higher distribution costs associated with the WEA
distribution agreement (9% of gross domestic video sales) as compared to the Uni
distribution agreement (5% of gross domestic video sales), offset by a decrease
in LHV's film amortization as a percentage of LHV's sales from 46.7% in 1991 to
40.2% in 1992 and a decrease of advertising expenditures as a percentage of
sales from 15.1% in 1991 to 14.1% in 1992.

Management of LIVE believes the decrease in gross profit dollars and
percentages from 1991 to 1992 was exacerbated by LIVE's financial condition in
1992 and published reports in 1992 regarding such financial condition, which
management believes resulted in lower video sales, higher than normal returns of
video product from wholesale customers and difficulty in acquiring video product
on favorable terms.

SG&A expenses, net of amounts capitalized, decreased from $60,811,000 in
1991 to $57,751,000 in 1992. This decrease of $3,060,000, or 5.0%, represents an
overall decrease in the Company's SG&A of $12,299,000 resulting from reductions
in the work force and downsizing operations of the Company, offset by increases
in legal and professional fees as a result of the Company's liquidity problems
and by a reduction of $11,859,000 in production overhead capitalized to film
costs (such production overhead costs are included in the SG&A expense caption).
Due to lower film production in 1992, the Company capitalized only 13% of its
production overhead to film costs as compared to 33% in 1991. The Company's
SG&A, for the year ended December 31, 1992 net of production overhead
capitalized to films, decreased by approximately $440,000 as compared to the
same period in 1991. Combined SG&A expenses of LHV and VCL decreased $2,620,000,
or 10.0%, to $23,813,000 during 1992 compared to $26,433,000 during 1991. As a
percentage of sales, the amount increased from 10% during 1991 to 12.3% during
1992. The dollar decrease is primarily attributable to a reduction in corporate
overhead of approximately $2,700,000 while the percentage increase is primarily
due to the decrease in sales.

Interest expense, net of capitalized interest, decreased from $48,211,000 in
1991 to $40,449,000 in 1992. This decrease of $7,762,000 reflects an overall
decrease in the Company's interest expense of $6,371,000 for the year ended
December 31, 1992 as compared to the same period in 1991. This represents a
gross decrease of $13,007,000 resulting from lower debt levels and reduced
interest rates. However, due to lower film production in 1992, the Company
capitalized only $3,315,000, or 11%, of its interest costs to film costs as

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compared to $9,951,000, or 23% in 1991. Combined net interest expenses of LHV
and VCL decreased $1,391,000, or 8.7%, from $14,653,000 during 1992 compared to
$16,044,000 during 1991. Effective September 1, 1992, interest stopped accruing
on LIVE's outstanding 14.5% Senior Subordinated Notes due May 15, 1999 (the
"14.5% Notes"), reducing 1992 interest expense by $5,450,000. Interest to
maturity on $36,872,000 of the New Increasing Rate Secured Senior Subordinated
Notes due 1999 (the "LIVE New Notes") has been included in the carrying value of
the LIVE New Notes and will not be recognized as interest expense in current and
future years. Interest expense recognized in 1992 on the remaining $3,128,000 of
LIVE New Notes was $104,000. In 1991, approximately $2,389,000 of interest
relating to the 14.5% Notes was allocated to Lieberman and was included in
discontinued operations; such interest is included in continuing operations
through August 31, 1992.

Combined amortization of goodwill and covenants of LHV and VCL increased by
$1,218,000, or 33.3%, to $4,874,000 during 1992 compared to $3,656,000 during
1991. The increase is primarily due to a full year of amortization of goodwill
associated with the acquisition of the assets of Vestron Inc. ("Vestron") in
July 1991. During 1991, LIVE wrote off $15,000,000 of the excess purchase cost
over the fair value of net assets acquired related to its acquisition of
Vestron. Also, Carolco wrote off $15,062,000 of the excess purchase cost over
the fair market value of net assets acquired related to the acquisition of Vista
and DEG. There were no similar write offs in 1992.

Both LHV and VCL had operating losses during 1992. The combined loss from
continuing operations before income taxes was $19,278,000 in 1992 compared to a
combined loss from continuing operations of $16,420,000 in 1991. LIVE's
consolidated loss from continuing operations in 1991 was principally due to the
$15,000,000 write-off of the excess of the Vestron purchase price over the fair
value of net assets acquired and the $3,905,000 of expenses relating to the
proposed business combination with Carolco in 1991 and related restructuring of
LIVE's management (there were no similar transactions during 1992); 1992's
combined loss was due principally to lower sales and gross profits.

Other expenses in 1992 include losses totaling $1,116,000 resulting from the
sale of LIVE shares in June 1992 to the Strategic Investors, a loss of
$3,080,000 relating to costs incurred by the Company on films to which the
Company no longer owns distribution rights, and a loss of $3,000,000 resulting
from the write-down to net realizable value of the Company's aircraft. Other
expenses for 1991 include $4,706,000 related to the Company's settlement of a
derivative lawsuit and $3,905,000 of LIVE costs associated with a proposed
business combination with Carolco and LIVE's related corporate restructuring
(the "LIVE Restructuring").

In 1991, costs associated with restructurings of $88,400,000 related to
Carolco's previous restructuring completed in March 1992, and consisted of
provision for losses due to the sale of certain film rights and programming
($57,400,000), writedown of development and term deal costs ($13,500,000) and
legal, severance and other expenses ($17,500,000). Costs associated with
restructurings in 1992 represent the balance of additional costs of $2,626,000
related to a restructuring completed in March 1992.

Other income includes interest income of $2,914,000 and $1,398,000 in 1991
and 1992, respectively. In addition, other income for the years ended December
31, 1991 and 1992 includes 1,027,000 and $2,419,000, respectively, relating to
facility and equipment rentals at Carolco's motion picture studio. Other income
in 1991 includes $872,000, which represents fees, net of certain expenses, in
connection with transactions involving Canadian limited partnerships and
unrelated foreign corporations. Foreign currency exchange gains and losses which
were not material have also been included in other income for each of the years
presented.

The 1991 provision for income taxes relates primarily to the operations of
LIVE. LIVE's effective income tax expense (benefit) rate from continuing
operations for 1992 and 1991 was approximately 9.4% and (8.0%), respectively. In
1992, LIVE recognized a pre-tax gain of $3,177,000 associated with the LIVE
Restructuring of the 14.5% Notes. The income tax benefit associated with this
transaction was $790,000.

In March 1992, the Company paid $500,000 in dividends on the Series C
Convertible Exchangeable Preferred Stock, $60,000,000 aggregate liquidation
preference (the "Series C Preferred") to Pioneer and $250,000 in dividends on
the Series B Convertible Preferred Stock, $30,000,000 aggregate liquidation
preference (the "Series B Preferred") to Canal+. In January and April 1992, the
Company also paid to

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Canal+ an aggregate of $250,000 in dividends on the Series D Preferred. In
addition, pursuant to the terms of the Deferred Payments Agreement, Pioneer and
Canal+ deferred a total of $2,000,000 in dividends owed to them on the Series B
Preferred, Series C Preferred and Series D Preferred.

Revenues, operating profit (losses) and identifiable assets of LIVE's
foreign operations were $32,993,000, ($3,043,000) and $42,983,000, respectively
in 1992 compared to $27,788,000, $985,000 and $52,913,000, respectively, in
1991.

DISCONTINUED OPERATIONS

The Specialty Retail Division's revenues for the year ended December 31,
1992 were $98,894,000 compared to $96,945,000 for the comparable period in 1991.
The increase is due to increased inventories made possible by the Division's
two-year, $10,000,000 credit facility obtained from Foothill Capital Corporation
in June 1992 (the "Strawberries Credit Facility"), as well as the re-institution
of the Division's store development, expansion and relocation programs in 1992.
The Division had income before income taxes of $992,000 during 1992 compared to
a loss before income taxes of $2,796,000 during 1991. The increase in profits is
primarily due to increased sales and a reduction in interest expense during 1992
compared to 1991.

There were no sales at Lieberman during 1992 due to the sale of Leiberman's
assets to Handleman in July 1991. Lieberman's net sales during 1991 (through
July 26, 1991, the date operations ceased) were $150,423,000.

Lieberman's loss from discontinued operations after tax benefits was
$11,629,000 during 1991. Losses of $8,336,000 during 1992, were charged against
the provision of $20,711,000 which was established upon the decision to dispose
of Lieberman's assets.

LIQUIDITY AND CAPITAL RESOURCES

CONSUMMATION OF FINANCIAL RESTRUCTURING

On October 20, 1993, the Company completed its Restructuring, which had been
proposed in order to reduce or satisfy certain of the Company's financial
obligations and to provide the Company with additional capital to permit the
continuation of the Company as a going concern. See "Recent Developments --
Financial Restructuring" for a description of the Restructuring.

CASH TRANSACTIONS. As a result of the consummation of the Restructuring,
the Company received $112,500,000 in cash in exchange for the purchases of New
Preferred and 5% Notes. From these proceeds the Company paid approximately
$12,701,000 in principal and interest to those holders of the 14% Notes who did
not tender their 14% Notes, $3,030,000 in interest to those holders of 13% Notes
and 14% Notes who tendered their notes for New Senior Subordinated Notes and New
Senior Notes, and $235,000 in interest to holders of 13% who did not tender
their 13% Notes. The Company also paid approximately $3,465,000 to those holders
of Vista Common Stock and associated Series A Puts who tendered their Vista
Common Stock and associated Series A Puts for cash or who were cashed out in the
subsequent merger and approximately $1,961,000 in interest to those holders of
Vista Common Stock and associated Series A Puts who tendered their Vista Common
Stock and associated Series A Puts for New Notes. Additionally, the Company paid
$27,024,000 to the Strategic Investors, principally related to amounts due to
Canal+ and RCS as their participation in the net receipts of certain of the
motion pictures produced by the Company, net of $10,729,000 owed to the Company
by Canal+ for certain distribution rights in France of certain motion pictures
produced by the Company. The Company also paid $18,609,000 in costs related to
the Restructuring. The issuance of New Preferred and 5% Notes will result in an
increase in dividend charge and interest expense of approximately $6,585,000 per
year. However, the Company intends to pay interest and dividends "in-kind" on
the 5% Notes and New Preferred; therefore, there will be no cash payments in
1994 related to these new issuances. The reduction in 14% Notes will result in a
decrease in annual interest expense and annual cash payments of interest of
approximately $1,576,000.

OTHER TRANSACTIONS. In addition to the cash transactions discussed above,
the Company exchanged $22,496,000 in principal amount of 14% Notes for
$22,496,000 in principal amount of New Senior Notes. It also issued
approximately $13,432,000 in principal amount of New Senior Subordinated Notes
in exchange

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for $12,700,000 in principal amount of 13% Notes, plus 50% of accrued interest.
(The remaining 50% of accrued interest was paid in cash.) The result of these
exchanges will be a reduction in future cash payments of interest and interest
expense of approximately $467,000 per year.

The Company also issued 22,500,000 shares of Common Stock of the Company in
exchange for $14,600,000 outstanding principal amount of Existing 10% Debentures
and 8,000 shares of Series D Preferred. This exchange resulted in a reduction in
debt of $14,600,000 and will reduce future cash payments for dividends and
interest by $1,500,000 per year.

The Company issued 72,000,000 shares of Common Stock of the Company to the
Strategic Investors in exchange for a portion of the Series B Convertible
Preferred Stock, Series C Convertible Exchangeable Preferred Stock, Series D
Preferred, Series E Convertible Preferred Stock and Existing 10% Debentures
owned by the Strategic Investors. The remaining balance of the Series B
Convertible Preferred Stock, Series C Convertible Exchangeable Preferred Stock,
Series D Preferred, Series E Convertible Preferred Stock and Existing 10%
Debentures and certain other interest obligations due to RCS were contributed to
the Company by the Strategic Investors as a capital contribution. This exchange
resulted in a decrease in debt of $35,000,000, plus a decrease in accrued
interest and accrued dividends of approximately $9,148,000. This exchange will
also result in a reduction in future cash payments of interest and dividends and
dividend charge and interest expense of approximately $10,780,000 per year.

In exchange for the Strategic Investor Loan (approximately $33,880,000
including accrued interest), the Company issued approximately 14,891,000 shares
of Common Stock of the Company and transferred its ownership in approximately
6,245,000 shares of Common Stock of LIVE. This exchange resulted in the
elimination of the Company's investment in LIVE of approximately $23,441,000 and
will reduce future cash payments of interest and interest expense by
approximately $1,581,000 per year.

The Company issued $19,181,800 principal amount of New Senior Notes to those
holders of Vista Common Stock and associated Series A Puts who exchanged their
Vista Common Stock and associated Series A Puts for New Senior Notes. See
"Recent Developments -- Vista Offer to Purchase and Vista Merger." This exchange
will result in an increase in future cash payments of interest and interest
expense of approximately $2,206,000 per year.

In addition to the transactions described above, Pioneer, Cinepole and RCS
have committed to purchase up to $27,500,000 of 7% Notes and TCI and Canal+ have
committed to invest up to $27,500,000 in co-productions of the Company's future
motion pictures. The combined commitments will be limited to $47,500,000. Canal+
is entitled to reduce its co-production investment by up to $7,500,000 if
Cinepole commits to purchase additional 7% Notes in the amount of such
reduction. Beginning in 1995, the Company's interest expense and cash payments
for interest will increase by up to $1,925,000 per year resulting from the
purchase of up to $27,500,000 of 7% Notes.

SUMMARY. The Restructuring resulted in an aggregate net reduction in debt,
including notes payable to related parties and the Company's obligation related
to the Vista Common Stock and associated Series A Puts, of approximately
$114,500,000 and an increase in stockholders equity of $153,889,000. Interest
expense and dividend charge in 1994 will decrease by approximately $7,113,000.
Cash payments for interest and dividends in 1994 will decrease by approximately
$13,698,000.

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OTHER FINANCING

On January 8, 1993, the Company entered into a prepayment agreement with
Showtime whereby Showtime prepaid certain license fees due to the Company for
the domestic pay television exploitation of certain of the Company's motion
pictures. Pursuant to the prepayment agreement, Showtime paid approximately
$25,900,000 to the Company, representing the present value of future license
fees (with face value of approximately $28,000,000) due from Showtime at various
times through March 1994, net of a deferred prepayment amount of $1,450,000, of
which $1,000,000 was paid upon the theatrical release of CHAPLIN in December
1992. The balance of $450,000 is due upon completion of an audit by Showtime.
Proceeds from the prepayment were used to reduce bank debt, to pay associated
Guild obligations, and for general working capital purposes.

The Company has a credit facility with Credit Lyonnais Bank Nederland N.V.
("CLBN") acting as agent and lender (the "CLBN Facility"). At December 31, 1993
and March 31, 1994, approximately $14,000,000 was outstanding under the CLBN
Facility. The CLBN Facility was originally scheduled to mature on November 29,
1992. The maturity date of the loans under the CLBN Facility has been extended
to September 30, 1994 provided certain events of default do not occur. CLBN has
also agreed to remit to CII all collections from accounts receivable pledged to
CLBN, so long as certain defaults do not occur. The CLBN Facility is secured by
substantially all of the Company's assets.

CLBN has committed to use its best efforts to organize a syndicate of
lenders (in which CLBN will participate) to provide a revolving corporate and
production credit facility (the "New Credit Facility.") However, negotiations
between the Company and CLBN with respect to the New Credit Facility have been
temporarily postponed, pending the consummation of the Business Combination. See
"Item 1. Business -- Recent Developments -- Business Combination with LIVE
Entertainment Inc." It is the Company's intention to refinance the $14,000,000
balance of the CLBN Facility with proceeds provided by the New Credit Facility.
However, there is no assurance that the New Credit Facility will be negotiated.
In that event, the Company believes it can negotiate a further extension of the
maturity date of the CLBN Facility. If the Company is unable to negotiate such
an extension, the Company believes it will be able to repay the CLBN Facility
from its working capital.

Pursuant to the 13% Note Indenture, if the Company's consolidated net worth
is less than $33,334,000 on the last day of any fiscal quarter (commencing with
the quarter ended December 31, 1992), the Company is obligated to offer to
purchase $5,000,000 aggregate principal amount of the 13% Notes on last day of
the sixth month thereafter. Since the Company's consolidated net worth was less
than $33,334,000 on each of December 31, 1992, March 31, 1993, June 30, 1993 and
September 30, 1993, the Company was obligated to offer to purchase $5,000,000 in
aggregate principal amount of its 13% Notes on each of June 30, 1993, September
30, 1993, December 31, 1993 and March 31, 1994. Pursuant to the terms of the 13%
Note Indenture, the Company credited the $12,700,000 in principal amount of 13%
Notes acquired in the Exchange Offers against its June 30, 1993, September 30,
1993, December 31, 1993 and March 31, 1994 obligations to offer to purchase 13%
Notes and as a result of such credits did not purchase any additional 13% Notes.
As a result of the Amendments to the 13% Note Indenture (see "Item 1 Business --
Recent Developments -- Financial Restructuring") the Company has no future
obligation to offer to purchase the balance of the 13% Notes.

The Company incurred a consolidated net loss for the year ended December 31,
1992 of $88,017,000, including $6,232,000 attributable to its ownership interest
in LIVE and consolidated net losses for the year ended December 31, 1993 of
$64,384,000 including $4,562,000 attributable to its equity interest in the net
loss of LIVE. At December 31, 1993, the Company had a deficiency in assets of
$21,070,000.

Shortly after the consummation of the Restructuring, the Company began the
process of preparing certain of its motion picture projects for eventual
production, including the contracting of artists, directors and other production
executives with respect to an anticipated production slate for calendar year
1994. In December 1993, an affiliate of the Company commenced principal
photography of WAGONS EAST, starring John Candy and Richard Lewis. Mr. Candy's
untimely death prior to the completion of the picture is not expected to have a
material adverse effect on the Company's operations. The Company currently has
two other motion pictures in pre-production: CRUSADE starring Arnold
Schwarzenegger and directed by Paul

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Verhoeven; and CUTTHROAT ISLAND starring Michael Douglas and Geena Davis, and
directed by Renny Harlin. Both pictures are currently scheduled to commence
principal photography in the third quarter of 1994, and be completed and
available for release in mid-1995. However, there can be no assurances that both
films will begin principal photography, be completed or be released according to
this production schedule.

As a result, the Company anticipates that it will not generate revenues from
new production in the last half of 1994 and that it will continue to experience
losses through 1994 and much of 1995. Moreover, because of the substantial
capital requirements involved in the pre-production and principal photography
stages of CRUSADE and CUTTHROAT ISLAND, (the combined direct negative costs of
CRUSADE and CUTTHROAT ISLAND is estimated to be in excess of $150,000,000) the
Company expects it will experience significant liquidity constraints in the
third and fourth quarters of 1994 prior to the funding of the Co-Production
Investments and 7% Notes on January 1, 1995. See "Item 1. Business -- Recent
Developments -- Financial Restructuring." The Company believes that although it
may have to adjust some of its discretionary spending plans in the latter half
of 1994, a combination of bank financing based on presales of foreign
distribution rights and the funding of the Co-Production Investments and 7%
Notes should provide sufficient resources to continue financing the production
of CRUSADE and CUTTHROAT ISLAND.

TAX MATTERS

The domestic entities of the Company and its predecessors have in prior
periods paid little or no federal or state income taxes as a result of
significant foreign source revenues being earned by CINV, a wholly-owned
Netherlands Antilles subsidiary of the Company, and as a result of losses
incurred in certain years. Prior to October 19, 1993, CINV was subject to
substantially lower tax rates in the Netherlands Antilles. On October 19, 1993,
CINV was reorganized into a wholly-owned subsidiary of the Company incorporated
under the laws of Delaware. Such reorganization should not have resulted in the
United States or California income tax liability to the Company. See Note M to
the Company's December 31, 1993 Consolidated Financial Statements. As a result
of the reorganization of CINV, foreign source income of the Company in future
periods will be subject to United States income taxation, which could result in
a significant increase in the Company's effective tax rate.

The Company's tax position for prior taxable years may be adversely affected
by the following:

1. The allocation of income and deductions between the Company and CINV
may be subject to challenge by the Internal Revenue Service since the
Company and CINV were related parties. Management believes that its
allocation of income and deductions was fair and equivalent to those which
would result from an arm's-length transaction.

2. The Company and its subsidiaries may be deemed to have been personal
holding companies and the Company's foreign subsidiary may be deemed to have
been a foreign personal holding company due to the substantial stock
ownership potentially attributable to Mr. Kassar and other persons. As a
result, the Company may have been required to pay current dividends or a
penalty tax if its income from motion picture distribution is not classified
as "rents" or "produced film rents" under certain provisions of the Internal
Revenue Code. Management believes that this income should be so classified
and that the Company and its subsidiaries should not be taxed as personal or
foreign personal holding companies in prior periods.

3. CINV earned only foreign source income and, prior to December 31,
1987, none of its foreign income should have been directly subject to U.S.
taxation because of specific provisions in the United States -- Netherlands
Antilles Income Tax Treaty. With the expiration of this treaty as of
December 31, 1987, it is possible, under certain theories which apply to
foreign corporations engaged in certain activities in the U.S., for the
Internal Revenue Service to contend that some of the CINV's income in prior
periods was directly subject to U.S. tax. Management believes that CINV has
not engaged in such activities in the U.S. and therefore none of these
theories would apply. See Note M of the Notes to the Consolidated Financial
Statements.

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The Company has available net operating loss carryovers of approximately
$138,000,000 and $106,000,000, respectively, for federal regular tax and
alternative minimum tax purposes as of December 31, 1993. Such carryovers will
expire between the years 1996 and 2008 if not otherwise utilized to reduce
future taxable income.

Section 382 of the Code provides rules limiting the utilization of a
corporation's net operating loss carryovers following a specified change in the
ownership of a corporation's equity (an "Ownership Change"). Following an
Ownership Change, the amount of taxable income of a corporation that can be
offset by pre-Ownership Change net operating loss carryovers generally cannot
exceed an amount equal to the fair market value of the corporation's stock
immediately before the Ownership Change (subject to certain adjustments)
multiplied by the federal long-term tax-exempt rate in effect on the date of the
Ownership Change (the "Annual Limitation") as adjusted for certain built-in gain
items. For this purpose, the fair market value of the corporation's stock may
exclude certain stock issued within the two-year period prior to the Ownership
Change. If the Annual Limitation for a taxable year exceeds the taxable income
for such year, the Annual Limitation for the next taxable year is increased by
the amount of such excess.

An Ownership Change occurred with respect to Carolco on December 30, 1989.
As a result, the utilization of Carolco's approximately $64,000,000 of net
operating loss carryovers attributable to periods prior to the Ownership Change
was limited to approximately $25,000,000 per year. A second Ownership Change
occurred with respect to Carolco on November 1, 1991. Consequently, the
utilization of Carolco's approximately $79,000,000 of net operating loss
carryovers attributable to periods prior to November 1, 1991 will be limited in
utilization for periods after November 1, 1991. The amount of such Annual
Limitation is approximately $10,000,000 per year. Concurrent with the
Restructuring, a third ownership change occurred with respect to the Company on
October 20, 1993. As a result, the utilization of the Company's approximately
$138,000,000 of net operating loss carryovers attributable to periods prior to
the ownership change is limited in utilization for periods after the third
ownership change. The amount of such Annual Limitation is approximately
$2,500,000 per year. For additional information regarding the net operating loss
carryovers of subsidiaries of the Company, see Note M of the Notes to
Consolidated Financial Statements.

The Internal Revenue Service ("IRS") is conducting an ongoing examination of
the Company's 1988, 1989 and 1990 federal income tax returns. In addition, the
California Franchise Tax Board ("FTB") is conducting an examination of the
Company's 1988 and 1989 state income tax returns. The Company has recently
received notices from the IRS regarding proposed adjustments to the Company's
income tax returns for the taxable years under audit. The proposed adjustment
format being used by the IRS allows for a period of discussion of the issues and
the submission of more data before an actual adjustment is made. The Company is
continuing discussions with the IRS regarding the issues raised by these
proposed adjustments and the IRS has not yet indicated the nature and amount of
any additional adjustments. As a result, the tax liabilities, if any, that may
ultimately result from the IRS and FTB examinations cannot be determined at this
time. The Company believes that its current and non-current deferred income tax
liability as of December 31, 1993 is adequate to cover any potential liability
arising from such examinations. See Note M of the Notes to Consolidated
Financial Statements.

In March 1992, Carolco pledged all of its LIVE Common Stock to Carolco's
Strategic Investors. The pledge of the LIVE Common Stock, combined with previous
changes in LIVE stock ownership, resulted in an Ownership Change with respect to
LIVE in March 1992. The Ownership Change resulted in an Annual Limitation on the
future utilization of LIVE's then approximately $104,000,000 of net operating
loss carryovers attributable to periods prior to the Ownership Change. Such
carryovers will expire between the years 1996 and 2006.

At December 31, 1992, LIVE had approximately $81,000,000 of net operating
loss carryforwards available for regular federal income tax purposes expiring
between the years 1996 and 2006. In accordance with Section 108 of the Code,
LIVE was required to reduce its "tax attributes" due to the confirmation of its
prepackaged plan of reorganization in U.S. Bankruptcy Court. This resulted in
the reduction of net operating loss carryforwards for federal income tax
purposes by approximately $35,000,000. At December 31, 1992, California net
operating loss carryforwards were $13,000,000 prior to the reduction in "tax
attributes." After the reduction in "tax attributes," LIVE had no net operating
loss carryforwards for

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<PAGE>
California tax purposes. For Federal Alternative Minimum Tax ("AMT") purposes,
$58,000,000 of net operating loss carryforwards were available before the
reduction in "tax attributes" and $23,000,000 after the reduction in "tax
attributes." The AMT net operating loss carryforwards will expire between 1996
and 2006. Approximately $1,634,000 of AMT credits were available to offset
future regular federal income tax liabilities. However, these credits are also
subject to limitations under Section 382 as described above.

On March 17, 1993, the bankruptcy court confirmed LIVE's prepackaged plan.
The plan resulted in an Ownership Change under Section 382 of the Code, which
resulted in an Annual Limitation on the future utilization of LIVE's net
operating loss carryforwards beginning with the year ending December 31, 1993.
The Annual Limitation is approximately $1,600,000 per year, subject to certain
increases for built-in gain items.

The California Franchise Tax Board is currently conducting an examination of
certain of LIVE's income tax returns.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The index to Consolidated Financial Statements of the Company is included in
Item 14.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

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<PAGE>
PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT

The following table sets forth information with respect to the current
directors and executive officers of the Company, as well as the director
nominees, as of March 31, 1994.

CURRENT DIRECTORS AND EXECUTIVE OFFICERS.

<TABLE>
<CAPTION>
NAME POSITION AGE PERIOD WITH CAROLCO
- -------------------------------------- -------------------------------------- ---- ---------------------
<S> <C> <C> <C>
Mario F. Kassar Chairman of the Board of Directors and 42 Since 1975(1)
Chief Executive Officer
Lynwood Spinks Executive Vice President/President of 41 Since 1986
Production and Director
William A. Shpall Executive Vice President and Chief 43 Since 1992
Financial Officer
Hector Patrick Dowd Director 58 Since 1994
Guy-Etienne Dufour Director 56 Since 1993
Michael E. Garstin Director 45 Since 1986
Paolo Glisenti Director 42 Since 1991
Olivier Granier Director 34 Since 1993
Michael S. Hope Director 51 Since 1993
Kaneo Ito Director 57 Since 1993
Rene-Claude Jouannet Director 52 Since 1993
Tetsuro Kudo Director 54 Since 1993
Pierre Lescure Director 48 Since 1993
Gordon C. Luce Director 68 Since 1994
Michael Meltzer Director 47 Since 1993
Ryuichi Noda Director 59 Since 1990
Joseph A. Scudero Director 63 Since 1994
Adam Singer Director 42 Since 1993
Masaaki Sono Director 61 Since 1992
Robert W. Goldsmith Senior Vice President, General Counsel 41 Since 1990
and Corporate Secretary
Karen A. Taylor Senior Vice President/Finance 39 Since 1988
<FN>
- ------------------------
(1) Includes service with predecessors of the Company.
</TABLE>

The directors of Carolco are elected for one year terms or until their
successors are elected and have qualified. Certain of the Company's directors
have been elected to the Board pursuant to various arrangements entered into
between the Company and the Strategic Investors. See
"-- Management Arrangements -- Arrangements Pursuant to Which Certain Directors
Have Been Elected" below. As set forth herein under "1994 Annual Stockholders
Meeting", the Company's stockholders will be asked to elect (or re-elect, as the
case may be) the full slate of directors to the Company's Board. Certain of the
Company's incumbent directors are defendants in the stockholder litigation
described above under "Item 3. -- Legal Proceedings."

All officers hold office until the meeting of the Board of Directors
following the next annual meeting of stockholders or until removal by the Board
of Directors. All directors, executive officers and director nominees are
citizens of the United States unless otherwise indicated below.

CURRENT DIRECTORS AND EXECUTIVE OFFICERS

MARIO F. KASSAR has been Chairman of the Board of Directors of the Company
since November 1989 and Chief Executive Officer of the Company since March 1992.
From 1986 until November 1989, Mr. Kassar was Co-Chairman of the Board of
Directors of the Company. He was a co-founder of the Company's predecessor
companies in 1975, which initially involved the sale, distribution and servicing
of feature films

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<PAGE>
worldwide. He has also been a Director of LIVE since 1988, and a Director of
Lieberman, LIVE's entertainment software distributor that was sold in 1991, from
March 1989 until 1991. As part of a financial restructuring, on February 2,
1993, LIVE filed a voluntary petition under Chapter 11 of the U.S. Bankruptcy
Code for a pre-packaged plan of reorganization. The pre-packaged plan was
confirmed on March 17, 1993 and LIVE emerged from bankruptcy on March 23, 1993.
Mr. Kassar is executive producer or co-executive producer of a number of motion
pictures produced by the Company, including the Rambo trilogy, TOTAL RECALL,
TERMINATOR 2: JUDGMENT DAY, BASIC INSTINCT, CHAPLIN and CLIFFHANGER.

LYNWOOD SPINKS became Executive Vice President/President of Production in
July 1993. Prior to that date, he served as Executive Vice President for
Business and Production Affairs of the Company since March 1990. Mr. Spinks
received the additional title of President of Production in March 1993. He
became a Director of the Company in March 1990. From September 1988 until March
1990, he was Senior Vice President of the Company. From June 1986 until
September 1988, he was Vice President of the Company. Mr. Spinks became a
Director of LIVE in June 1992. As part of a financial restructuring, on February
2, 1993, LIVE filed a voluntary petition under Chapter 11 of the U.S. Bankruptcy
Code for a pre-packaged plan of reorganization. The pre-packaged plan was
confirmed on March 17, 1993 and LIVE emerged from bankruptcy on March 23, 1993.

WILLIAM A. SHPALL became Executive Vice President of the Company in May
1992, and Chief Financial Officer of the Company in June 1992. For the 12 years
preceding his employment with the Company, Mr. Shpall was employed by Bankers
Trust, one of the Company's principal lenders until September 1992, in various
capacities. From 1991 to 1992, Mr. Shpall served as a Managing Director in
Bankers Trust's Los Angeles office.

HECTOR PATRICK DOWD became a Director of the Company in February 1994. Mr.
Dowd is the founder, Chairman of the Board and Chief Executive Officer of Dowd
Brothers, Inc., a manufacturing, marketing and sales organization of women's
apparel for almost 30 years. Mr. Dowd distributes more than 30 individual lines
of women's apparel throughout 12 states in the Southwest section of the U.S. Mr.
Dowd is the proprietor and operator of the Singletree Ranch in Hunt County,
Texas where he specializes in breeding Quarter horses and Brangus cattle. Mr.
Dowd is a member of the Board of Governors of the International Apparel Mart of
Dallas, Texas and the Executive Vice President and Treasurer of the Apparel Mart
Association. Mr. Dowd also is a member of the Board of Governors of Miss Wade's
Fashion College of Dallas, Texas.

GUY-ETIENNE DUFOUR became a Director of the Company in October, 1993. Mr.
Dufour has served as Executive Vice President and General Manager of the
International Division, Entertainment Industry Financing Group of Credit
Lyonnais S.A. since July 1991. Mr. Dufour also is Chairman of the Entertainment
Business Credit Committee EIF/EBD Rotterdam (Entertainment Industry
Financing/Entertainment Business Division Rotterdam). Prior thereto, he served
as Executive Vice President and General Manager of the International Trade
Financing, Correspondent Banking and Country Risks Division of Credit Lyonnais
S.A. from October 1989 until June 1991. Prior thereto he served Credit Lyonnais
S.A. as Executive Vice President and General Manager for Africa and the Middle
East from August 1985 to September 1989. Mr. Dufour has been a Director of
Metro-Goldwyn-Mayer Inc. since January 1992. Mr. Dufour also is a Director of
Banque de La Reunion and Commercial-Bank Credit Lyonnais Nigeria. He was elected
a Director of the Pathe Communication Corporation in July 1991 and served as a
Director from January 1992 until November 1992. Mr. Dufour has been Secretary of
MGM Holdings Corporation since April 30, 1992.

MICHAEL E. GARSTIN became a Director of the Company in 1986. He has been an
Executive Vice President and Senior Managing Director in charge of investment
banking of Daniels & Associates ("Daniels") since July 1992. Previously, he was
a Senior Managing Director of Bear, Stearns & Co. Inc. since May 1987 and an
Associate Director since 1985. From 1981 until 1985, he was Senior Vice
President and Chief Financial Officer of Orion Pictures Corporation.

PAOLO GLISENTI became a Director of the Company in December 1991. Mr.
Glisenti is a director of RCS NV and has been the Managing Director of RCS Films
& TV, the Rizzoli Corriere della Sera Group's subholding company operating in
the audiovisual area, since December 1991. From 1990 through 1991, he held the
position of Director for Strategic Planning at Rizzoli Corriere della Sera
Group. From 1988 through

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<PAGE>
1990 he was President and a principal of Worldwide Investment Network, a New
York consulting firm. From 1984 to 1988, he was President and Managing Director
of Montedison USA, the holding company of the Montedison Group in the United
States.

OLIVIER GRANIER became a Director of the Company in April 1993. He is the
Chief Executive Officer of Cerito Films. Mr. Granier was named Executive Vice
President Finance and Administration of Le Studio Canal+ in July 1993. Prior to
that date, he served as the Finance Director of Le Studio Canal+ (formerly
Canal+ Productions) since December 1989. In November 1987, Mr. Granier joined
the Finance Department of Canal+ S.A. Prior to that date, he was Administrative
Manager of FINEMBAL, a subsidiary of the group Nord-Est.

MICHAEL S. HOPE became a Director of the Company in October 1993. Mr. Hope
is Executive Vice President of Metro-Goldwyn-Mayer Inc. He has held that post
since August 1993. Mr. Hope's prior position was as a consultant to Paramount
Communications Incorporated from November 1990 to October 1991. From November
1987 to October 1990, he served as Executive Vice President of Planning and
Operations for Paramount Communications Incorporated.

KANEO ITO became a Director of the Company in October 1993. Mr. Ito has been
Senior Managing Director, Representative Director and General Manager of the
International Business Group of Pioneer Electronic since June 1991. From
December 1988 until June 1991, Mr. Ito was Managing Director of Pioneer
Electronic. He was also General Manager of the International Division of Pioneer
Electronic from April 1984 until June 1991, and has been a Director of Pioneer
Electronic since December 1982.

RENE-CLAUDE JOUANNET became a Director of the Company in October 1993. Mr.
Jouannet is the General Counsel of the Entertainment Industry Financing Group of
Credit Lyonnais S.A. He has held that post since February 1992. Mr. Jouannet
also is a member of the EIF/EBD Rotterdam (Entertainment Industry
Financing/Entertainment Business Division Rotterdam) Entertainment Business
Credit Committee. From April 1985 to January 1992, Mr. Jouannet served as
Director and General Secretary of Banco Frances e Brasileiro, a Brazilian
subsidiary of Credit Lyonnais S.A., where he was in charge of the
Administration, Accounting, Legal and Tax Departments. Mr. Jouannet has served
as a Director of MGM Holdings Corporation since April 30, 1992 and as its
President and Treasurer since May 15, 1992. Mr. Jouannet served as Chairman of
the Board of Directors of the Pathe Communications Corporation from November
1992 until May 1993 and served as a Director of the Pathe Communications
Corporation from January 1992 until May 1993.

TETSURO KUDO became a Director of the Company in December 1993. Mr. Kudo has
served as President of Pioneer LDCA, Inc., a company engaged in the business of
distributing laserdiscs, since April 1987. For three years prior to joining
Pioneer LDCA, Inc., Mr. Kudo served as head of European operations for the
International Division of Pioneer Electronic Corporation in Tokyo, Japan.

PIERRE LESCURE became a Director of the Company in October 1993. Mr. Lescure
had previously served as a member of the Board of Directors of the Company from
April 14, 1992 through August 6, 1992. From May 1986 to February 1994 Mr.
Lescure was the Chief Executive Officer and a Director of Canal+ S.A. On
February 16, 1994 he was named as Chairman of Canal+ S.A. In addition, he has
been the Chairman of the Board and Chief Executive Officer of Le Studio Canal+
since October 1991. From November 1983 through May 1986, Mr. Lescure served as
the General Manager of Canal+ S.A. in charge of production.

GORDON C. LUCE became a director of the Company in February 1994. Mr. Luce
has been an advisor to Eastman & Benirschke Financial Group (financial planning
and insurance brokerage) since July 1990. Mr. Luce was Chairman of the Board and
Chief Executive Officer of Great American First Savings Bank (formerly San Diego
Federal Savings) from 1970 until his retirement in June 1990. The bank was
placed into a conservatorship with the Resolution Trust Corporation as
conservator in August 1991. Mr. Luce has had a career in public service and was
a member of the President's Foreign Intelligence Advisory Board from 1988 to
1990 and the Presidential Board of Advisors on Private Sector Initiative from
1985 to 1988. Mr. Luce was also an Alternate Delegate to the United Nations with
rank of Ambassador in 1982, and served as California's Secretary of Business and
Transportation from 1967 to 1969. Mr. Luce is a member of the Board of

33
<PAGE>
Directors of All American Communications, Inc. (a diversified entertainment
company with operations principally in television production and distribution as
well as recorded music production and distribution). He is also a director of PS
Group, Inc., (a diversified investment company) and Molecular Biosystems, Inc.
(a medical research enterprise). In addition, from October 1988 to October 1991
Mr. Luce was Chairman of the Board of Trustees of the Scripps Clinic and
Research Foundation of La Jolla, California and he is currently a member of the
Board of Trustees of the University of Southern California.

MICHAEL MELTZER became a Director of the Company in December 1993. Mr.
Meltzer joined Le Studio Canal+ (U.S.) in September 1993 where he currently
serves as Executive Vice President and Chief Financial Officer and a member of
the Board of Directors. From November 1989 until September 1993, Mr. Meltzer was
Chief Financial Officer and Treasurer of Imagine Films Entertainment, Inc., a
well as Executive Vice President since November 1990 and a member of the Office
of the President since December 1992. Prior thereto, he served as Senior Vice
President and Group Controller of Lorimar Telepictures Corporation (and its
predecessor, Lorimar, Inc.) from October 1985 until November 1989 and Vice
President and Corporate Controller of Lorimar, Inc. from April 1985 until
October 1985. From June 1978 until April 1985, Mr. Meltzer was an Audit Partner
of Peat Marwick Mitchell & Co., now known as KPMG Peat Marwick, in New York
City.

RYUICHI NODA became a Director of the Company in June 1990. Mr. Noda became
President of Pioneer LDC, Inc., a subsidiary of Pioneer Electronic, in April
1991 and has been a Director of Pioneer Electronic since December 1988. From
October 1988 to April 1991, he was Deputy General Manager of the International
Division of Pioneer Electronic. From January 1986 until October 1988, he was
President and Chief Executive Officer of Pioneer Electronics (U.S.A.) Inc., a
company engaged in sales and marketing of consumer electronics in the United
States. From 1985 to 1986, he served as General Manager of the Planning and
Coordination Department of the International Division of Pioneer Electronic.

JOSEPH A. SCUDERO became a director of the Company in February 1994. Mr.
Scudero has been the Assistant to the Secretary for Labor Relations, U.S.
Department of Housing and Urban Development since 1989. Mr. Scudero formerly
held the position of Special Assistant to Secretary for Labor Relations for OSHA
(Occupational Safety and Health Administration) from 1981 to 1986. From 1975 to
1977, Mr. Scudero was the Deputy Director of Congressional Relations for the
Federal Energy Administration. From 1968 to 1971, Mr. Scudero was the Branch
Chief, Community Relations for the Office of Minority Business Enterprise in the
U.S. Department of Commerce, and from 1965 to 1967 was the National Deputy
Director for Domestic Programs for the Office of the Vice President (Hubert
Humphrey).

ADAM SINGER became a Director of the Company in October 1993. Mr. Singer has
been Vice President -- International for TCI, an operator and owner of cable
television systems in the United States and abroad, since June 1992. From
September 1988 to present, Mr. Singer also has been President of United Artists
Entertainment (Programming) Ltd. From March 1987 to September 1988, Mr. Singer
was Senior Vice President -- Marketing and New Media Development for Viacom.

MASAAKI SONO became a Director of the Company in March 1992. Mr. Sono has
been a member of the Board of Directors of Pioneer Electronic since December
1977, became Managing Director of Pioneer Electronic in June 1989 and Senior
Managing Director of Pioneer Electronics in June 1993. Since November 1975, he
has also served as General Manager of the Finance and Accounting Division of
Pioneer Electronic.

ROBERT W. GOLDSMITH became Senior Vice President and General Counsel of
Carolco in May 1990 when Carolco acquired an interest in DEG which subsequently
changed its name to Carolco Television Inc. and then to Carolco Studios Inc.
(Delaware). Mr. Goldsmith was named Corporate Secretary of Carolco in October
1990, and he also serves as Executive Vice President and General Counsel of
Carolco Studios Inc. (Delaware). Mr. Goldsmith served as Executive Vice
President and General Counsel and a Director of DEG from September 1988 to May
1990, and Vice President and Corporate Counsel of DEG from August 1987 to
September 1988. From September 1984 until June 1987, Mr. Goldsmith was a partner
in the law firm of Austrian, Lance & Stewart, New York, New York.

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<PAGE>
KAREN A. TAYLOR has been Senior Vice President/Finance of the Company since
March 1991. From June 1990 until March 1991 she was Vice President/Finance of
the Company and from January 1988 until June 1990 she was the Controller of the
Company. From July 1984 until December 1987, she was Assistant Controller for
Columbia Pictures Entertainment Inc. (Motion Picture Division).

BOARD MEETINGS

During the fiscal year ended December 31, 1993, there were ten meetings of
the Board of Directors. Messrs. Glisenti, Simenon (a former director) and Sono
each attended fewer than 75% of the total number of Board meetings and committee
meetings of which they were members held during their respective tenures on the
Board and such committees in 1993.

EXECUTIVE COMMITTEE

Prior to the consummation of the Restructuring, the Executive Committee of
the Board of Directors was authorized to exercise all powers of the Board of
Directors (except those powers specifically reserved by Delaware law to the full
Board of Directors) in the management and direction of the business and conduct
of the affairs of the Company in all cases in which specific directions had not
been given by the Board of Directors. In accordance with the terms of a
stockholders' agreement entered into in March 1992 (the "Old Stockholders
Agreement") among the Strategic Investors and New CIBV discussed below, the
Executive Committee consisted of two nominees of New CIBV (Mario Kassar and
Lynwood Spinks), one nominee of Canal+ (John Simenon, a former director), one
nominee of Pioneer (Ryuichi Noda) and one nominee of RCS (Paolo Glisenti). The
Executive Committee met once in 1993 and took action three times in 1993 by
unanimous written consent of its members. The Executive Committee ceased to
exist and the Old Stockholders Agreement was replaced by a new stockholders
agreement dated as of October 20, 1993 (the "New Stockholders Agreement") upon
consummation of the Restructuring.

SUPERVISORY COMMITTEE

Upon the consummation of the Restructuring and in accordance with the New
Stockholders Agreement dated as of October 20, 1993 among Pioneer, RCS,
Cinepole, MGM Holdings and New CIBV discussed below, the Supervisory Committee
was formed to replace the Executive Committee. The Supervisory Committee
consists of one management member (Mario F. Kassar), one independent member
(Michael Garstin), one nominee of Canal+ (Olivier Granier), one nominee of MGM
Holdings (Michael S. Hope), one nominee of Pioneer (Ryuichi Noda) and one
nominee of RCS (Paolo Glisenti). During intervals between the meetings of the
Board of Directors of the Company, the Supervisory Committee exercises all
powers of the Board of Directors (except those powers specifically reserved by
Delaware law to the full Board of Directors) in management and direction of the
business and conduct of the affairs of the Company in all cases in which
specific directions have not been given by the Board of Directors. The
Supervisory Committee took action once in 1993 by unanimous written consent of
its members. See "-- Management Arrangements -- Stockholders Agreement."

STOCK OPTION COMMITTEE

The Company's Stock Option Plans are administered by the Stock Option
Committee. As part of the Restructuring, the 1989 Plan was amended to provide
that the committee of the Board of Directors which may administer the 1989 Plan
shall consist of two or more directors of the Company as permitted by Rule
16b-3(c)(2)(i) under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). The Stock Option Committee currently consists of Hector Patrick
Dowd, Gordon C. Luce and Joseph A. Scudero. Prior to March 4, 1994, the Stock
Option Committee consisted of the entire Board of Directors. The Board of
Directors sitting as the Stock Option Committee held two meetings in 1993.

INDEPENDENT COMMITTEE

In February 1994 the Board of Directors formed a new Independent Committee
consisting of Hector Patrick Dowd, Gordon C. Luce and Joseph A. Scudero. Prior
to February 1994, the Independent Committee of the Company consisted of Michael
Garstin. The Independent Committee did not meet in 1993 and material
transactions between the Company and its affiliates were approved by the
disinterested members of the Company's Board of Directors with respect to such
transactions. In the future, the Company intends to

35
<PAGE>
refer transactions between itself and its affiliates to the Independent
Committee to ensure that the interests of the Company are protected in such
transactions. See "Item 3. -- Legal Proceedings -- Settlement of Purported
Derivative Action."

AUDIT COMMITTEE

Prior to March 4, 1994, the Audit Committee consisted of Michael Garstin.
The function of the Audit Committee is to review and approve the selection of,
and all services performed by, the Company's independent auditors; to meet and
consult with, and to receive reports from, the Company's independent auditors,
and its financial and accounting staff; and to review and act with respect to
the scope of audit procedures, accounting practices and internal accounting and
financial controls of the Company. The Audit Committee met once in 1993. The
current audit committee consists of Hector Patrick Dowd, Michael Garstin and
Gordon C. Luce.

MANAGEMENT ARRANGEMENTS

The following contains a description of (i) the current management
arrangements with respect to the Company, including various arrangements
pursuant to which certain present members of the Board of Directors have been
elected, (ii) the Company's Supervisory Committee, (iii) Bylaw provisions
affecting management of the Company and (iv) the New Stockholders Agreement. As
described in further detail below, of the 18 current members of the Board of
Directors, four members were nominated by Pioneer, three members were nominated
by Canal+, three members were nominated by MGM, and one member was nominated by
RCS for inclusion as part of the Company management's slate for election to the
Board of Directors. In addition, two directors (including the Chairman of the
Board) were nominated by the Chairman of the Board of the Company and two
directors were nominated as Independent Directors. New CIBV, Pioneer, RCS,
Cinepole and MGM have entered into the New Stockholders Agreement in connection
with the Restructuring (described below), which includes an agreement to vote in
the election of directors for the directors nominated by the other parties to
this agreement. Nominees of the Strategic Investors and MGM, if considered
together, constitute in excess of a majority of the members (approximately 61%)
of the Board of Directors. In February 1994, three outside, unaffiliated
directors were appointed to the Board of Directors pursuant to the terms of a
settlement agreement. See "Legal Proceedings -- Settlement of Purported
Derivative Action."

ARRANGEMENTS PURSUANT TO WHICH CERTAIN DIRECTORS HAVE BEEN ELECTED

Pursuant to the New Stockholders Agreement, the following directors were
elected at the Special Meeting of Stockholders held in connection with the
Restructuring: Ryuichi Noda, Kaneo Ito, Satoshi Matsumoto and Masaaki Sono as
Pioneer director designees; Olivier Granier, Pierre Lescure and John Simenon as
Canal+ director nominees, Guy-Etienne Dufour, Rene-Claude Jouannet and Michael
Hope as MGM Holdings director designees, Paolo Glisenti as the RCS director
designee, Mario Kassar and Lynwood Spinks as the Chairman's director designees
and Michael Garstin and Adam Singer as independent nominees. Subsequent to the
Special Meeting, Satoshi Matsumoto and John Simenon resigned from the Board and
Tetsuro Kudo and Michael Meltzer, as designees of Pioneer and Canal+
respectively, were appointed to the Board as their replacements.

BYLAW PROVISIONS

As part of the Restructuring, the Bylaws of the Company were amended and
restated. Specifically, among other things, the Bylaws were amended to establish
the number of members of the Board of Directors at 15 and to provide for a
Supervisory Committee of the Board of Directors in lieu of an Executive
Committee. Section 3.02 of the Bylaws ("Committees of the Board") was amended to
provide that the Company will, by resolution adopted by the Board, designate a
supervisory committee consisting of six directors which, during intervals
between meetings of the Board, will have all the powers and authority of the
Board in the management of the business and affairs of the Company with certain
exceptions equivalent to those specified under Delaware General Corporation Law
("the DGCL"). Subsequently, in February 1994, the Board of Directors amended the
Bylaws to establish the number of members of the Board of Directors at 18.

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<PAGE>
STOCKHOLDERS' AGREEMENT

The New Stockholders Agreement includes an agreement among the parties to
vote in the election of directors for a slate of directors composed of four
Pioneer nominees, three MGM Holdings nominees, three Canal+ nominees, one RCS
nominee, two independent nominees and two nominees of the Chairman of the Board
of the Company.

The New Stockholders Agreement also includes an agreement with respect to
the composition of a new Supervisory Committee of the Board of Directors
consisting of six members, with one director nominated by each of the Strategic
Investors and MGM Holdings plus Mario F. Kassar and one independent director.
During intervals between meetings of the Board of Directors, the Supervisory
Committee will exercise all powers of the Board of Directors (except those
powers specifically reserved by Delaware law to the full Board of Directors).
Under the terms of the New Stockholders Agreement, (i) a quorum of the
Supervisory Committee will consist of Mr. Kassar and all nominees of the
Strategic Investors and MGM Holdings and (ii) the Supervisory Committee may only
act with the affirmative vote of all nominees of the Strategic Investors and MGM
Holdings.

The New Stockholders Agreement also includes an agreement by each party to
direct its director designees to vote in favor of the adoption of certain board
resolutions which provide that certain actions will not be taken unless approved
by at least 85% of the Board of Directors and the director designees of at least
three of the parties to the agreement other than New CIBV (the "Operating
Resolutions"). These certain actions are (1) certain amendments to the New
Certificate or Bylaws, (2) any merger, consolidation, liquidation, dissolution
or winding up of the Company or any material subsidiary, (3) any disposition of
assets in excess of $10,000,000, other than in the ordinary course of business,
(4) any acquisition by the Company or any material subsidiary of assets or
property for consideration in excess of $10,000,000, other than certain motion
picture rights or assets acquired in the ordinary course of business and with
certain other exceptions, (5) any creation, incurrence, assumption or guaranty
of any indebtedness in excess of $10,000,000, with certain exceptions, (6) any
creation, incurrence or assumption of any lien or other encumbrance in excess of
$10,000,000, with certain exceptions, (7) any declaration or payment of
dividends on Common Stock or any other capital stock junior to the New
Preferred, (8) termination or material amendment of the employment agreement and
related agreements with Mr. Kassar and (9) investments in excess of $3,000,000,
with certain exceptions. The Bylaws were amended to authorize the Board of
Directors to adopt resolutions requiring a greater than majority vote of the
Board with respect to certain actions, and the Board of Directors have adopted
the Operating Resolutions.

Pursuant to the New Stockholders Agreement, each of the Strategic Investors,
MGM Holdings and New CIBV (each a "Major Shareholder" and, collectively, the
"Major Shareholders") also agreed not to exercise its voting rights in favor of,
or cause a special meeting to be called with respect to, certain actions without
the agreement of (1) Major Shareholders entitled to cast at least 85% of the
vote entitled to be cast and (2) at least three Major Shareholders (other than
New CIBV). The agreement further provides certain Major Shareholders with
certain co-sale rights with respect to sales of the Company's securities by
other Major Shareholders. A Put and Call Agreement with respect to the 5% Notes
was entered into among MGM Holdings, Credit Lyonnais S.A. and Canal+ on October
20, 1993.

COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934

Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than ten percent (10%) of a
registered class of the Company's equity securities ("10% Stockholders"), to
file with the Commission, the NYSE and the PSE initial reports of ownership and
reports of changes in ownership of Common Stock and other equity securities of
the Company. Officers, directors and 10% Stockholders are required by Commission
regulation to furnish the Company with copies of all Section 16(a) forms they
file.

To the Company's knowledge (based solely upon a review of the copies of such
Section 16(a) reports furnished to the Company and written representations that
no other reports were required), during the year ended December 31, 1993, all
Section 16(a) filing requirements applicable to the Company's officers,

37
<PAGE>
directors and 10% Stockholders were complied with, except that Mr. Roger R.
Smith, a former director of the Company, failed to file with the Commission on a
timely basis one required report relating to one transaction, which report was
subsequently filed.

CONSULTING AGREEMENT WITH MR. SCOTTI

In June 1993, the Company entered into a non-exclusive consulting agreement
with Anthony J. Scotti for the period commencing immediately after the
Restructuring and ending twelve months thereafter. Pursuant to the agreement,
Mr. Scotti shall consult with management of the Company with respect to the
operation of the Company's business and such other matters as may be agreed upon
between the Company and Mr. Scotti. In consideration for the services to be
provided by Mr. Scotti, the Company will pay Mr. Scotti $40,000 per month plus
reimbursement of all expenses incurred by Mr. Scotti in connection with the
services to be provided by him under the agreement. Mr. Scotti will be entitled
to participate in any and all of the Company's employee stock option plans
during the term of the agreement, and will be granted options to purchase shares
of the Company's Common Stock (the terms and number of options to be negotiated
in the future) at an exercise price per share equal to the market price of the
Common Stock at the date of commencement of the consulting period. In addition,
Mr. Scotti will be indemnified from certain liabilities in connection with the
performance of his duties under the agreement. During the year ended December
31, 1993, the Company paid $120,000 to Mr. Scotti for his services under this
agreement.

In addition to the consulting agreement described above, in September 1992,
the Company retained Mr. Scotti as a consultant to the Company and Daniels and
Jefferson Capital Group, Ltd. ("Jefferson Capital"), collectively, the
"Financial Advisors" in connection with the Restructuring. In consideration of
the services to be provided by Mr. Scotti in connection with the Restructuring,
the Company, pursuant to a Retainer Letter with Mr. Scotti dated as of September
1, 1992, as amended as of May 25, 1993, agreed to pay Mr. Scotti the following
compensation: (i) an initial non-refundable cash fee in the amount of $50,000;
(ii) commencing September 13, 1992 and payable monthly thereafter, a monthly
retainer fee in the amount of $50,000; (iii) 1/3 of 2% of the aggregate amount
of any new financing made available to the Company from Pioneer, Canal+ and RCS,
and/or any of their affiliates, as a result of the services of the Financial
Advisors or Mr. Scotti; (iv) 1/3 of 2% of the aggregate amount of any new
financing made available to the Company from MGM, and/or any of its affiliates,
as a result of services of the Financial Advisors or Mr. Scotti; (v) 1/3 of 1%
of the aggregate amount received by the Company from any sales of accounts
receivable with respect to the Company's television division (with certain
exceptions) arranged by the Financial Advisors or Mr. Scotti; (vi) 1/6 of 1% of
the aggregate face amount of any new working capital facility arranged by the
Financial Advisors or Mr. Scotti or with respect to which the Financial Advisors
or Mr. Scotti had substantial and substantive involvement; (vii) 1/3 of 2% of
the aggregate amount contributed as Co-Production Investments by Canal+ and
(viii) 1/3 of 2% of the aggregate principal amount of 7% Notes; provided,
however, that any amounts payable pursuant to (iii), (iv), (vi), (vii) and
(viii) above will be reduced by any amounts previously paid pursuant to (i) and
(ii) above. In addition, the Company agreed to pay all reasonable out-of-pocket
expenses incurred by Mr. Scotti (including legal fees and expenses). The Company
also agreed to indemnify Mr. Scotti from certain liabilities in connection with
the Restructuring, including liabilities under the Securities Act and the
Exchange Act. Pursuant to these arrangements, the Company paid fees and expenses
to Mr. Scotti totalling approximately $207,000 in 1992 and approximately
$912,000 in 1993.

38
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION

COMPENSATION TABLES

The following "Summary Compensation Table" sets forth individual
compensation information with respect to the individual serving as chief
executive officer of the Company during the Company's fiscal year ended December
31, 1993 (Mario F. Kassar) and each of the four other most highly compensated
executive officers of the Company during the fiscal year ended December 31, 1993
(i) whose total salary and bonus compensation during fiscal 1993 was in excess
of $100,000, and (ii) who was serving as an executive officer at the end of
fiscal 1993 (Lynwood Spinks, William A. Shpall, Robert W. Goldsmith and Karen A.
Taylor). Such five executives are referred to herein as the "Named Executives."
The Summary Compensation Table includes compensation information with respect to
the Named Executives for services rendered as executive officers to the Company
and its subsidiaries during the fiscal years ended December 31, 1993, December
31, 1992 and December 31, 1991.

Following the Summary Compensation Table are certain additional charts and
tables detailing other aspects of the compensation of the Named Executives
including (i) an Option Grants Table that includes information regarding
individual grants of options made to the Named Executives during fiscal 1993
along with the potential realizable values of such options, (ii) a Fiscal Year
End Option Table that indicates whether any of the Named Executives exercised
options in fiscal 1993 and includes the number and value of unexercised options
held by the Named Executives at December 31, 1993, and (iii) a Long-Term
Incentive Plans ("LTIP") Table that includes information on LTIPs granted during
fiscal 1993 to the Named Executives.

SUMMARY COMPENSATION TABLE FOR FISCAL 1993

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION(1)
-----------------------
AWARDS
ANNUAL COMPENSATION ------------- PAYOUTS
----------------------------------------------- SECURITIES -------
OTHER ANNUAL UNDERLYING LTIP ALL OTHER
NAME AND SALARY BONUS COMPENSATION(2) OPTIONS/SARS PAYOUTS COMPENSATION(2)
PRINCIPAL POSITION YEAR ($) ($) ($) (#) ($) ($)
- --------------------------- ---- -------------- ------------ --------------- ------------- ------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Mario F. Kassar(3) 1993 $2,161,538(4) $597,383(5) $ 159,480(6) 16,720,000(7) -0- $960,907(8)(37)
Chairman of the Board 1992 1,586,538(9) -0- 1,159,073(10) 750,000 -0- 918(11)(37)
and Chief Executive
Officer
Lynwood Spinks(12) 1993 $ 479,037(13) $ -0- $ -0- 125,000(14) -0- $ 28,207(15)(37)
Executive Vice President/ 1992 327,917 200,000(16) -0- -0- -0- 4,659(17)(37)
President of Production 1991 220,833 -0- -0- -0- -0-
William A. Shpall(18) 1993 $ 355,591(19) $200,000(36) -0- 25,000(20) -0- $ 3,207(21)
Executive Vice President 1992 196,731 100,000(22) -0- 25,000 -0- 612(23)
and Chief Financial
Officer
Robert W. Goldsmith(24) 1993 $ 229,681(25) $100,000(36) $ -0- 30,000(20) -0- $ 3,105(26)
Senior Vice President, 1992 205,419(27) 87,000(28) -0- -0- -0- 32,714(29)
General Counsel and 1991 172,446 -0- -0- 25,000 -0-
Corporate Secretary
Karen A. Taylor(30) 1993 $ 186,362(31) $105,000(36) $ -0- 19,000(20) -0- $ 2,631(32)
Senior Vice President 1992 159,346(33) 50,000(34) -0- -0- -0- 2,344(35)
of Finance 1991 140,000 -0- -0- 12,000 -0-
<FN>
- ------------------------
(1) During the years indicated, restricted stock was not awarded to the Named
Executives.
(2) In accordance with the transitional provisions applicable to the revised
rules on executive officer compensation disclosure adopted by the
Commission, amounts of Other Annual Compensation and All Other
Compensation are excluded for the Company's 1991 fiscal year. For purposes
of Other Annual Compensation, perquisites with respect to each of Ms.
Taylor and Messrs. Spinks, Shpall and Goldsmith did not exceed the lesser
of $50,000 or 10% of such executive officer's salary and bonus in the
years indicated.
(3) Mr. Kassar was appointed Chief Executive Officer of the Company in March
1992. Mr. Kassar became Co-Chairman of the Board of Directors of the
Company in 1986 and Chairman of the Board of Directors of the Company in
November 1989. See "Item 10 -- Directors and Executive Officers of
Registrant."
</TABLE>

39
<PAGE>
<TABLE>
<S> <C>
(4) Includes salary of $2,000,000 pursuant to Mr. Kassar's current employment
agreement and $161,538 of pay in lieu of vacation.
(5) Represents a bonus paid pursuant to Mr. Kassar's previous employment
agreement with the Company in recognition of the achievements of
TERMINATOR 2: JUDGMENT DAY. This bonus was required to be deferred under
such employment agreement. On April 20, 1993, Mr. Kassar received such
bonus payment and accrued interest thereon. On March 2, 1994, the
Independent Committee approved a bonus of $1,250,000 for Mr. Kassar. Such
bonus was in recognition of Mr. Kassar's efforts in connection with the
Restructuring and was paid on March 3, 1994.
(6) Includes auto allowances of $46,177 and unaccountable travel and
entertainments costs of $90,000, paid pursuant to the terms of Mr.
Kassar's current employment agreement.
(7) Includes 15,000,000 options granted pursuant to Mr. Kassar's current
employment agreement, 75,000 options granted to Mr. Kassar as a director
of the Company and as a member of the Supervisory Committee of the Board
of Directors. Also includes 1,645,000 options which were granted pursuant
to the stock option cancellation and reissuance program described in "--
Certain Information concerning Stock Options and Other Plans."
(8) Includes $959 for Company paid term life insurance, $2,248 representing
the Company's 1993 contribution on behalf of Mr. Kassar pursuant to the
profit sharing plan, $400,000 paid by the Company as an executive
producing fee for the motion picture STARGATE in connection with an
agreement whereby Mr. Kassar's services will be provided to Hexagon Films
(U.S.), an indirect wholly-owned subsidiary of Canal + ("Hexagon"),
$500,000 paid upon commencement of principal photography of WAGONS EAST,
pursuant to Mr. Kassar's current employment agreement, and $57,700
representing the fair market value of an automobile owned by the Company,
the ownership of which was transferred to Mr. Kassar pursuant to his
current employment agreement.
(9) Includes salary of $1,500,000 pursuant to Mr. Kassar's previous employment
agreement and $86,538 of pay in lieu of vacation. In addition, on May 12,
1992, Mr. Kassar received $519,231 of pay in lieu of vacation for the
period January 1, 1986 through December 31, 1991.
(10) Includes legal and accounting fees in the amount of $550,000 incurred by
Mr. Kassar in connection with the 1992 Restructuring and paid by the
Company pursuant to the terms of his previous employment agreement. Also
includes $90,000 in unaccountable travel and entertainment costs and
$175,000 in legal and accounting fees paid pursuant to Mr. Kassar's
previous employment agreement.
(11) Represents $918 for Company paid term life insurance.
(12) Mr. Spinks became Executive Vice President/President of Production in July
1993. Prior to that date he served as Executive Vice President for
Business and Production Affairs since March 1990. From September 1988
until March 1990, he served as Senior Vice President of the Company. Mr.
Spinks is also a director of the Company. See "Item 10 -- Directors and
Executive Officers of Registrant."
(13) Includes salary of $394,425 pursuant to Mr. Spinks' employment agreement
and $84,612 of pay in lieu of vacation.
(14) Includes 75,000 options which were granted pursuant to the stock option
cancellation and reissuance program described in "-- Certain Information
concerning Stock Options and Other Plans" and 50,000 options granted to
Mr. Spinks as a director of the Company.
(15) Includes $25,000 paid upon commencement of principal photography of WAGONS
EAST, pursuant to Mr. Spinks employment agreement, $2,248 representing the
Company's 1993 contribution on behalf of Mr. Spinks pursuant to the profit
sharing plan, and $959 for term life insurance paid by the Company in
1993.
(16) Represents bonus received in 1992 upon execution of Mr. Spinks' employment
agreement.
(17) Includes $3,741 representing the 1992 Company contribution on behalf of
Mr. Spinks pursuant to the profit sharing plan and $918 for term life
insurance paid by the Company in 1992.
(18) Mr. Shpall became Executive Vice President of the Company on May 6, 1992
and Chief Financial Officer of the Company on June 4, 1992. See "Item 10
-- Directors and Executive Officers of Registrant."
(19) Includes salary of $333,381 paid pursuant to Mr. Shpall's employment
agreement and $22,210 of pay in lieu of vacation.
</TABLE>

40
<PAGE>
<TABLE>
<S> <C>
(20) Represents options which were granted pursuant to the stock option
cancellation and reissuance program described in "-- Certain Information
concerning Stock Options and Other Plans."
(21) Includes $2,248 representing the Company's 1993 contribution on behalf of
Mr. Shpall pursuant to the profit sharing plan, and $959 for term life
insurance paid by the Company in 1993.
(22) Represents bonus received in 1992 upon execution of Mr. Shpall's
employment agreement.
(23) Represents term life insurance paid by the Company in 1992.
(24) Mr. Goldsmith became Senior Vice President and General Counsel of the
Company in May 1990 and Corporate Secretary of the Company in October
1990.
(25) Includes salary of $221,028 paid pursuant to Mr. Goldsmith's employment
agreement and $8,653 of pay in lieu of vacation.
(26) Includes $2,248 representing the Company's 1993 contribution on behalf of
Mr. Goldsmith pursuant to the profit sharing plan, and $857 for term life
insurance paid by the Company in 1993.
(27) Includes salary of $199,900 paid pursuant to Mr. Goldsmith's employment
agreement and $5,519 of pay in lieu of vacation.
(28) Represents bonus received in 1992 upon execution of amendment to Mr.
Goldsmith's employment agreement.
(29) Includes $30,000 received by Mr. Goldsmith from the Company in 1992 in
exchange for options for 100,000 shares of common stock of Carolco Studios
Inc. (Delaware), $2,000 representing the 1992 Company contribution on behalf
of Mr. Goldsmith pursuant to the profit sharing plan and $714 for term life
insurance paid by the Company in 1992.
(30) Ms. Taylor became Senior Vice President of Finance in March 1991. She
previously served as Vice President of Finance since June 1990.
(31) Includes salary of $167,694 paid pursuant to Ms. Taylor's employment
agreement and $18,668 of pay in lieu of vacation.
(32) Includes $2,248 representing the Company's 1993 contribution on behalf of
Ms. Taylor pursuant to the profit sharing plan, and $383 for term life
insurance paid by the Company in 1993.
(33) Includes salary of $157,500 paid pursuant to Ms. Taylor's employment
agreement and $1,846 of pay in lieu of vacation.
(34) Represents bonus received in 1992 upon execution of amendment to Ms.
Taylor's employment agreement.
(35) Includes $1,994 representing the 1992 Company contribution on behalf of Ms.
Taylor pursuant to the profit sharing plan and $350 for term life insurance
paid by the Company in 1992.
(36) Represents cash bonuses paid in recognition of such executive officers'
efforts in connection with the Restructuring.
(37) Pursuant to Article Eleven of Carolco's Restated Certificate of
Incorporation, Article V, Section 5.06 of Carolco's bylaws and Section 10 of
various indemnity agreements entered into between Carolco and its directors
as permitted by Section 145(c) of the DGCL, the Company has paid the
expenses of such directors incurred in the director's defense of certain
lawsuits as described under "Board Fees and Certain Indemnification
Arrangements" below. Such amounts, which are set forth under such section,
are not included herein.
</TABLE>

41
<PAGE>
OPTION GRANTS IN FISCAL 1993(1)

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- ----------------------------------------------------------------------------------------- POTENTIAL REALIZABLE GRANT DATE
NUMBER OF VALUE AT ASSUMED ANNUAL VALUE
SECURITIES % OF TOTAL RATES OF STOCK PRICE -----------
UNDERLYING OPTIONS/SARS APPRECIATION FOR OPTION GRANT DATE
OPTIONS/SARS GRANTED EXERCISE OR TERM (2) PRESENT
GRANTED TO EMPLOYEES BASE PRICE EXPIRATION ------------------------ VALUE (3)
NAME (#) IN FISCAL YEAR ($/SH) DATE 5%($) 10%($) ($)
- ------------------------------ ------------- -------------- ----------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Mario F. Kassar 1,645,000(4) 1% $ 1.250 04/20/03 $ 1,293,164 $ 3,277,133 $ 1,517,211
15,000,000(5) 86% $ 1.250(8) 10/20/03 $11,791,774 $29,882,671 $14,423,957
75,000(6) * $ 0.563(9) 12/01/03 $ 26,555 $ 67,295 $ 18,056
Lynwood Spinks 75,000(4) * $ 1.250 04/20/03 $ 58,959 $ 149,414 $ 69,173
50,000(7) * $ 0.563(9) 12/01/03 $ 17,703 $ 44,863 $ 12,037
William A. Shpall 25,000(4) * $ 1.250 04/20/03 $ 19,653 $ 49,804 $ 23,057
Robert W. Goldsmith 30,000(4) * $ 1.250 04/20/03 $ 23,583 $ 59,765 $ 27,669
Karen A. Taylor 19,000(4) * $ 1.250 04/20/03 $ 14,936 $ 37,851 $ 17,524
<FN>
- --------------------------
(1) Although the Company's 1989 Plan provides for the granting of stock
appreciation rights, no grant of such rights has been made by the Company.
(2) These values were determined using 5% and 10% annual growth projections over
the full-term of the options (until expiration) beginning December 31, 1993.
(3) These values were established using the Black-Scholes stock option valuation
model, a method that is permitted to be used by the Commission. The actual
value, if any, an executive may realize upon exercise of such options will
depend upon the excess of the stock price over the exercise price on the
date the option is exercised. Therefore, there can be no assurance that the
value realized by an executive will be at or near the value estimated by the
Black-Scholes model. The estimated values under that model are based on
arbitrary assumptions as to variables and as to interest rates, stock price
variability and future dividend yield. The above model assumes a period of
180 days after vesting to exercise, a volatility of the stock price equal to
that experienced in 1993 (1.5851), an interest rate of 3.89% (rate of U.S.
Treasury Bills with a term of 180 days) and a dividend yield of 0%.
(4) Options which were granted pursuant to the stock option cancellation and
reissuance program described in "-- Certain Information Concerning Stock
Options and Other Plans" below. Fifty percent (50%) of such options vest on
April 20, 1994 and fifty percent (50%) vest on April 20, 1995.
(5) Options which were granted pursuant to Mr. Kassar's new employment agreement
entered into as of May 3, 1993. Such options vest monthly over the term of
the agreement.
(6) Options which were granted to Mr. Kassar as a director of the Company and as
a member of the Supervisory Committee of the Board of Directors. Such
options vest immediately.
(7) Options which were granted to Mr. Spinks as a director of the Company and
which vest immediately.
(8) Pursuant to Mr. Kassar's current employment agreement, exercise price was
market price of the Company's Common Stock on October 20, 1993.
(9) Market price of the Company's Common Stock on the day of grant (December 1,
1993).
* Less than 1%.
</TABLE>

42
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST
FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUES(1)

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS/SARS
OPTIONS/SARS AT AT
DECEMBER 31, 1993 DECEMBER 31, 1993(3)
SHARES ACQUIRED ON
EXERCISE(2) VALUE REALIZED(2) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
NAME (#) ($) (#) ($)
- ------------------------------- ------------------ ------------------ ------------------------- -------------------------
<S> <C> <C> <C> <C>
Mario F. Kassar 0 $0 957,351/15,762,649 $0
Lynwood Spinks 0 $0 50,000/75,000 $0
William A. Shpall 0 $0 0/25,000 $0
Robert W. Goldsmith 0 $0 0/30,000 $0
Karen A. Taylor 0 $0 0/19,000 $0
<FN>
- ------------------------
(1) Although the Company's 1989 Plan provides for the granting of stock
appreciation rights, no grant of such rights has been made by the Company.
(2) None of the Named Executives exercised options during the fiscal year ended
December 31, 1993.
(3) None of the Named Executives held options at December 31, 1993 for which the
market price at such date exceeded the exercise price.
</TABLE>

LONG-TERM INCENTIVE PLAN AWARDS IN FISCAL 1993

<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS
UNDER NON-STOCK PRICE-BASED PLANS
NUMBER OF SHARES, PERFORMANCE OR OTHER --------------------------------------
UNITS OR OTHER RIGHTS PERIOD UNTIL MATURATION THRESHOLD TARGET MAXIMUM
NAME (#) OR PAYOUT ($ OR #) ($ OR #) ($ OR #)
- ------------------------ ------------------------ ------------------------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Mario F. Kassar (1) (3) (2) (3) (3)
Lynwood Spinks 0 -- -- -- --
William A. Shpall 0 -- -- -- --
Robert W. Goldsmith 0 -- -- -- --
Karen A. Taylor 0 -- -- -- --
<FN>
- ------------------------
(1) The current employment agreement of Mr. Kassar dated as of May 3, 1993
(the "Kassar Agreement"), provides that with respect to the motion
pictures CLIFFHANGER, UNIVERSAL SOLDIER, BASIC INSTINCT and CHAPLIN (the
"1992 Covered Pictures"), Mr. Kassar will be entitled to
production-related incentive compensation equal to a "Percentage" of
Aggregate Gross Profits (as determined in Mr. Kassar's previous employment
agreement which became effective on March 23, 1992 (the "Previous Kassar
Agreement")) once certain "Thresholds" (as defined in the Previous Kassar
Agreement and described below) are achieved. The "Percentage" for 1992
Covered Pictures means five percent of Aggregate Gross Profits up to
$50,000,000 and three and one-half percent thereafter, which percentages
shall apply retroactively to the first dollar of Aggregate Gross Profits
once the Aggregate Gross Profits exceed the Threshold. The "Threshold" for
1992 Covered Pictures means Aggregate Gross Profits of $17,500,000. The
1992 Covered Pictures are cross-collateralized for the purpose of
determining the amount of Aggregate Gross Profits and whether the
Threshold has been met for such 1992 Covered Pictures. The Kassar
Agreement provides a separate formula for similar producer's fees for
motion pictures as to which principal photography commences from January
1, 1993 through the term of the Kassar Agreement as described under "--
Employment Agreements" below. Other than WAGONS EAST, no motion pictures
commenced principal photography during 1993.
(2) For 1992 Covered Pictures, once Aggregate Gross Profits for such pictures,
on a cross-collateralized basis, achieve the applicable Threshold (as set
forth in footnote (1) above), Mr. Kassar would receive $875,000 plus (i)
an additional five percent of Aggregate Gross Profits in excess of the
Threshold, if any, up to Aggregate Gross Profits of $50,000,000, and (ii)
an additional three and one-half percent of Aggregate Gross Profits in
excess of $50,000,000, if any. In accordance with the Kassar Agreement,
Mr. Kassar was paid a $500,000 non-refundable advance against his
producer's fees for WAGONS EAST which has been reflected in the "Summary
Compensation Table for Fiscal 1993" above.
(3) Not applicable.
</TABLE>

43
<PAGE>
CERTAIN INFORMATION CONCERNING STOCK OPTION AND OTHER PLANS

During the Company's fiscal year ended December 31, 1993, the Company had in
effect the following plans which provide, as applicable, for certain benefits to
the Company's officers, directors, employees and consultants: (i) three stock
option plans -- the Employee Stock Option Plan ("the 1986 Plan"), the 1989 Stock
Option and Stock Appreciation Rights Plan (the "1989 Plan") and the 1986
Non-Employee Stock Option Plan (the "Non-Employee Plan"), (ii) a deferred
compensation plan under which certain executive officers may elect on or before
the close of a fiscal year to credit to an account a portion of the officer's
base annual compensation and/or incentive compensation for the succeeding year
(the "Deferred Compensation Plan"), and (iii) the profit sharing plan, a 401(k)
plan, under which the Company matches certain tax deferred voluntary
contributions to the plan by qualified employees.

CANCELLATION AND REISSUANCE OF EXISTING OPTIONS

In April 1993 the Board of Directors of the Company, acting as the Stock
Option Committee pursuant to the 1986 Plan and the 1989 Plan (collectively, the
"Plans"), approved a voluntary program for the cancellation and reissuance of
outstanding stock options granted under the Plans prior to such date by granting
to current employees and directors of the Company the right to agree to cancel
such options ("Cancelled Options") and to receive in return therefor new options
("New Options") for an equal number of shares pursuant to the Plans, on certain
terms and conditions including, among others (i) the exercise price for the New
Options would equal $1.250, the closing price of Common Stock on the NYSE on
April 20, 1993; (ii) fifty percent (50%) of the New Options would vest on April
20, 1994, the remainder would vest on April 20, 1995; provided that no New
Options would vest earlier than the scheduled vesting date for the corresponding
Canceled Options and (iii) all New Options would expire on April 20, 2003 unless
the recipient's employment terminates causing his New Options to expire prior to
such date. In connection with this arrangement, options to purchase 2,109,500
shares were exchanged for New Options.

BOARD FEES AND CERTAIN INDEMNIFICATION ARRANGEMENTS

All directors of the Company who are not employed by the Company and who are
not members of the Independent Committee are entitled to receive a fee of
$1,000, plus reimbursement of expenses, for each Board and committee meeting
attended. In addition, each director who served on one or more Committees of the
Board other than the Independent Committee is entitled to receive an annual fee
of $10,000. Each director who served on the Independent Committee is entitled to
receive an annual fee of $50,000. All directors of the Company are entitled to
receive 50,000 non-qualified options to acquire the Company's Common Stock on
the first business day of December of each year with exercise prices equal to
the market price of the Company's Common Stock on the date of grant.

Each director who is a member of one committee of the Board is entitled to
receive an additional 25,000 non-qualified options on the same date. Each
director who serves on two or more committees of the Board is entitled to
receive an additional 50,000 non-qualified options on the same date.

In addition to the foregoing, please see "Certain Relationships and Related
Transactions" for a description of certain transactions involving certain
directors and their affiliates and the Company and its affiliates.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Until March 1994, the Company did not have a standing Compensation Committee
or Stock Option Committee. Instead, the functions of the Stock Option Committee
were handled by the Board of Directors as a whole, and the functions of the
Compensation Committee were handled by the Board of Directors as a whole and by
its existing committees, including, until the consummation of the Restructuring,
the Executive Committee, and subsequent to the consummation of the
Restructuring, the Supervisory Committee, which during intervals between the
meetings of the Board of Directors exercised all powers of the Board of
Directors (except the powers specifically reserved by Delaware law to the full
Board of Directors) in the management and direction of the business and conduct
of the affairs of the Company in all cases in which specific directions have not
been given by the Board of Directors. Messrs. Kassar and Spinks, executive
officers, Directors and members of the Executive Committee of the Board of
Directors participated, during the fiscal year ended December 31, 1993 in
deliberations concerning the compensation of executive officers

44
<PAGE>
of the Company; but Messrs. Kassar and Spinks abstained from deliberations
relating to their own respective compensation. Messrs. Kassar and Spinks are
each also directors and executive officers of certain subsidiaries of the
Company, but do not receive separate compensation for such service.

EMPLOYMENT AGREEMENTS

MARIO F. KASSAR is one of the founders and Chairman of the Board of
Directors and Chief Executive Officer of Carolco and has responsibility for
substantially all of the production and leasing operations of Carolco. Mr.
Kassar currently serves under an employment agreement dated as of May 3, 1993
for the period that commenced on the consummation date of the Restructuring (the
"Agreement Effective Date") and ending December 31, 1997 (the "Term"). Upon the
Agreement Effective Date, Mr. Kassar's Previous Employment Agreement was deemed
terminated; provided, however, that Mr. Kassar will be entitled to receive any
Production-related Incentive Compensation (as defined in the Previous Kassar
Agreement) and Turnaround Incentive Compensation (as defined in the Previous
Employment Agreement) to which Mr. Kassar became entitled prior to the Agreement
Effective Date.

Pursuant to the Kassar Agreement, Mr. Kassar serves as Chairman of the Board
of Directors, a member of the Supervisory (or comparable) Committee, as Chief
Executive Officer of the Company (unless a successor is selected in the manner
set forth below) and is the executive producer or producer of all films produced
by the Company during the Term. In addition, Mr. Kassar has the right to approve
the selection of any Chief Executive Officer of the Company (which approval is
in Mr. Kassar's sole discretion), as well as the Chief Operating Officer and
Chief Financial Officer of the Company (which approval will not be unreasonably
withheld). The Chief Operating Officer, if any, and Chief Financial Officer of
the Company will report to Mr. Kassar until a successor Chief Executive Officer,
if any, is hired or appointed by the Company. If and when a successor Chief
Executive Officer is hired or appointed, the Chief Operating Officer and Chief
Financial Officer will report to the Chief Executive Officer, and the Chief
Executive Officer will report to Mr. Kassar. Pursuant to the Kassar Agreement,
in the event the Company is a party to any merger or consolidation involving an
affiliate (including LIVE, whether or not it is then an affiliate), Mr. Kassar
will be Chairman of the Board of the surviving entity or, in the event of a
consolidation transaction with an affiliate (including LIVE, whether or not it
is then an affiliate), the ultimate parent of the Company. Pursuant to the
Kassar Agreement, Mr. Kassar has the sole and exclusive right and authority to
cause the Company to develop, produce and distribute any motion picture produced
by the Company or its affiliates once certain budgetary and approval thresholds
have been met.

As compensation for his services, Mr. Kassar received an annual fixed
compensation of $2,000,000 in 1993, which amount will increase by $250,000 in
each year of the Term thereafter. Mr. Kassar is also entitled to receive
producer's fees with respect to "Covered Pictures" equal to one percent of
"Gross Rentals" computed and paid retroactively to the first dollar of Gross
Rentals until Actual Break-Even (as described below) (the "One Percent Fee"),
plus three percent of Gross Rentals commencing at Actual Break-Even (the "Three
Percent Fee") plus 10% of "Ancillary Gross Revenues" after Actual Break-Even is
achieved, retroactive to the first dollar of Ancillary Gross Revenues (the
"Ancillary Gross Participation"). The One Percent Fee and the Three Percent Fee
are payable solely out of the Company's receipts (other than Ancillary Gross
Revenues) from the exploitation of Covered Pictures in excess of Actual
Break-Even, and the Ancillary Gross Participation is payable solely out of the
Company's receipts from Ancillary Gross Revenues in excess of Actual Break-Even.
Mr. Kassar is also entitled to receive $1,000,000 for each "Covered Picture" as
a non-refundable minimum advance against the producer's fees. "Covered Pictures"
are motion pictures as to which principal photography has commenced or will
commence through the Term. "Gross Rentals" are all amounts (other than Ancillary
Gross Revenues) received by or credited to the account of the Company or an
affiliate, or if the Company does not directly distribute a Covered Picture,
then all amounts received by or credited to the account of the Company's
licensees or distributors (with certain exceptions) from all sources other than
amounts received by exhibitors or other entities engaged in retail sales to the
general public with respect to the rights granted or licensed to such entity.
"Ancillary Gross Revenues" are all amounts received by the Company or any
affiliate from or in connection with the exploitation of merchandising,
publishing, soundtrack record and/or music publishing rights in connection with
a Covered Picture. "Actual Break-Even" for each Covered Picture is the sum of
(i) the Company's and its affiliates' actual production costs, (ii) certain
related interest, financing fees and costs, (iii) a fixed

45
<PAGE>
overhead charge, (iv) certain distribution costs and participations, (v) Mr.
Kassar's non-refundable minimum advance, and (vi) in the event of certain cost
overruns, up to $250,000 per picture. The producer's fees payable to Mr. Kassar
are subject to certain adjustments in the event that the final costs of a
Covered Picture exceed the budget for such Covered Picture by more than the
"Contingency" (the greater of ten percent of approved budget or the contingency
required by the completion bond company, if any). The producer's fees are
payable at Mr. Kassar's election in either cash or shares of the Company's
Common Stock valued at the Market Price (as defined in the Kassar Agreement) on
the date of such election. Until such time as the repayment in full of the
amended and restated non-recourse secured promissory notes made by New CIBV in
favor of each of the Strategic Investors on April 30, 1993 (the "Amended Notes")
has occurred, Mr. Kassar is required to receive the Three Percent Fee in cash
and has directed the Company to make payments of one-half of the Three Percent
Fee on (a basis that is after-tax from Mr. Kassar's point-of-view) directly to
the Strategic Investors on a pro rata basis to satisfy any amounts due to each
of them on the Amended Notes in accordance with the terms of such Amended Notes.
Additional information with respect to the Amended Notes is set forth herein
under "Item 12 -- Security Ownership of Certain Beneficial Owners and
Management."

The Kassar Agreement also provides that if, commencing January 1, 1994,
during any year of the Term, the Company, because of its financial condition, is
not expected to commence principal photography on at least two pictures in that
year of the Term and the Company elects not to proceed to production on any
project in development submitted by Mr. Kassar, then Mr. Kassar is entitled to
set up the production elsewhere and receive a fee equal to fifty percent of the
aggregate executive producing and other fees paid to the Company for Mr.
Kassar's services after the Company has recouped its development and other
related expenses with respect to such project ("Turnaround Compensation").
Turnaround Compensation is limited to two projects in each calendar year during
the Term. Turnaround Compensation is payable at Mr. Kassar's election in either
cash or shares of the Company's Common Stock valued at the Market Price on the
date of such election. Until such time as the repayment of the Amended Notes has
occurred in full, Mr. Kassar is required to receive the Turnaround Compensation
in cash and has directed the Company to make payments of seventy-five percent of
the Turnaround Compensation (on a basis that is after-tax from Mr. Kassar's
point-of-view) directly to the Strategic Investors on a pro rata basis to
satisfy any amounts due to each of them on the Amended Notes in accordance with
the terms of such Amended Notes. The Kassar Agreement also provides that Mr.
Kassar is entitled to such additional incentive compensation as may be approved
by the Company's Board of Directors.

The Kassar Agreement also provides that Mr. Kassar received $7,500 per month
for non-accountable business expenses and reimbursement of all reasonable and
customary business travel and entertainment expenses and certain other fringe
benefits. Mr. Kassar is also entitled to reimbursement of legal and accounting
fees and expenses incurred in connection with the Kassar Agreement and the
Restructuring, not to exceed $500,000. The Company is also to provide Mr. Kassar
with a split rate life insurance policy for his benefit in the amount of not
less than $25,000,000. Pursuant to and simultaneous with the execution and
delivery of the Kassar Agreement, the Company and Mr. Kassar executed and
delivered a stock option agreement pursuant to which the Company granted to Mr.
Kassar stock options under the 1989 Plan, as amended pursuant to the terms of
the Restructuring, to purchase 15,000,000 shares of the Company's Common Stock
at the fair market value as of the Agreement Effective Date, such options to
vest pro rata on a monthly basis during the Term. Pursuant to the Kassar
Agreement, the Company also agreed to use its best efforts to register under the
Securities Act, upon Mr. Kassar's demand, the unregistered shares of Company
Common Stock presently held by or to be issued to Mr. Kassar or his affiliates.
Mr. Kassar has informed the Company that he has no current intention to demand
such registration rights.

If the Kassar Agreement is terminated by Mr. Kassar for "Good Reason" (which
includes, among other things, a change in control defined as (i) the acquisition
by any person, excluding each of the Strategic Investors, MGM and their
respective affiliates, of 40% or more of the full voting power of the Company as
defined in the Kassar Agreement or (ii) the acquisition by any Strategic
Investor, MGM or any of their respective affiliates of an additional 20% of the
full voting power of the Company in excess of the amount of the full voting
power of such Strategic Investor, MGM or any of their respective affiliates as
of the Agreement Effective Date giving effect to the transactions contemplated
by the Restructuring, excluding

46
<PAGE>
from what is deemed to be acquired (a) any securities issued pursuant to the
Standby Agreement, (b) any securities obtained by Canal+ under the put/call
arrangement between MGM and Canal+ regarding the 5% Notes entered into by MGM in
connection with the Restructuring and (c) the realization of Common Stock
pledged by New CIBV to each of the Strategic Investors pursuant to the Amended
Pledge Agreements, and excluding from what is deemed to be a change in control,
the exercise of certain tag along rights that are part of the New Stockholders
Agreement) or by the Company other than for "Cause," "Retirement," "Death," or
"Disability", Mr. Kassar shall receive a payment equal to 299% of the aggregate
of all fixed annual compensation discounted to its then present value at a
discount rate of five percent per annum with respect to each future payment plus
any producer's fees, Turnaround Compensation and additional incentive
compensation to which Mr. Kassar has become entitled, and all stock options
granted under the Kassar Agreement will become immediately exercisable. In
addition, if the Kassar Agreement is terminated by Mr. Kassar for "Good Reason,"
or by the Company other than for "Cause," "Retirement," "Death" or "Disability,"
the Company will retain Mr. Kassar as a consultant for a period of three years
commencing on the date of such termination at an annual compensation rate equal
to fifty percent of Mr. Kassar's annual fixed compensation under the Kassar
Agreement. Mr. Kassar will be entitled, under certain limited circumstances, to
continue to develop certain projects in development by the Company at the time
of such termination.

LYNWOOD SPINKS and the Company have entered into an agreement for the
services of Mr. Spinks as Executive Vice President/President of Production of
the Company from March 1992 through December 31, 1997. The agreement replaced a
previous employment agreement with Mr. Spinks which commenced in March 1990 and
was to expire in March 1994. Under the agreement, Mr. Spinks receives an annual
base salary of $360,000 for the first year of the term, $400,000 for the second
year of the term, and increases in the annual base salary of 7% for each
successive full year (or partial year for March through December 1997) of the
term. In contemplation of the new agreement, Mr. Spinks received bonuses
aggregating $200,000 in 1992. In addition, he received a loan of $300,000 upon
consummation of the Restructuring which loan will bear interest at the Company's
borrowing rate. The loan plus accrued interest is to be forgiven 25% on March 1
of each year commencing March 1, 1994. Mr. Spinks will be entitled to a bonus of
$50,000 for each motion picture produced by the Company during the term of the
agreement subsequent to the consummation of the Restructuring. In addition, Mr.
Spinks will be granted 1,250,000 options for Company Common Stock which options
will be exercisable at the fair market value on the date of grant. One-third of
such options will become exercisable on each of June 1, 1994, June 1, 1995, and
June 1, 1996. Mr. Spinks is also entitled to split rate term life insurance in
the amount of $1,350,000. The Company will pay the premiums for such life
insurance and will have the right to recoup such premiums plus 6% interest per
annum out of any benefits paid under the policy. Mr. Spinks has certain minimum
compensation, incentive compensation and benefits protection under the
agreement.

If Mr. Spinks' employment is terminated by the Company for other than a
"Material Breach," "Death," "Retirement" or "Disability" (physical or mental
incapacity for over 120 consecutive days, or for shorter periods aggregating 20
weeks within one year), or by Mr. Spinks for (i) the failure by the Company to
substantially perform a material condition or covenant of the agreement, or (ii)
a "Change in Control" of the Company, Mr. Spinks is entitled to receive (i) a
lump sum payment equal to 200% of the aggregate of all annual base salary due
for the remainder of the term, each payment to be discounted to its then present
value at a discount rate of LIBOR plus 2% per annum, (ii) any per picture bonus
or other incentive compensation then due but not yet paid and (iii) certain
insurance until December 31, 1997. For purposes of the agreement, "Change in
Control" is defined as the acquisition of 40% or more of the "Full Voting Power"
of the Company by any person other than Canal+, MGM, Pioneer or RCS. With
respect to Canal+, MGM, Pioneer and RCS, a Change in Control will be deemed to
have occurred if any of them acquires an additional 20% of the Full Voting Power
of the Company in excess of the amount of such person's Full Voting Power upon
the closing of the Restructuring excluding certain specified acquisitions of
securities. Mr. Spinks also has the right to terminate his agreement in the
event Mr. Kassar's employment with the Company terminates other than by reason
of death, disability or retirement. In the event Mr. Spinks terminates his
employment for such reason, he will be required to render services for a period
to be agreed to with the Company, but in no event less than 90 days nor more
than 180 days. Upon the expiration of this period, Mr. Spinks will not be
entitled to any additional compensation under the agreement.

47
<PAGE>
WILLIAM A. SHPALL and the Company have entered into an employment agreement
for the services of Mr. Shpall from May 6, 1992 to May 5, 1995. Pursuant to the
agreement, Mr. Shpall will serve as an Executive Vice President of the Company,
and will at all times be subject to the control of the Board of Directors of the
Company and only report to, and be subject to the direction of, the Chief
Operating Officer of the Company (or the Chief Executive Officer of the Company
until such time as the position of Chief Operating Officer is filled) thereby.
Pursuant to the terms of his employment agreement, Mr. Shpall became the Chief
Financial Officer of the Company on June 4, 1992. Mr. Shpall is entitled to
receive an annual base salary of $300,000 for the first year of the agreement,
$350,000 for the second year, and $400,000 for the third year, plus such
incentive compensation as may be determined from time to time by the Company's
Board of Directors. In addition, upon execution of the agreement, Mr. Shpall
received a $100,000 signing bonus and immediately exercisable options to
purchase 25,000 shares of the Company's Common Stock at an option price of
$2.875 per share. During the term of the agreement, Mr. Shpall is provided with
health and disability insurance. If Mr. Shpall's employment is terminated by the
Company for other than a "Material Breach," "Death" or "Disability" (physical or
mental incapacity for over 120 consecutive days, or for shorter periods
aggregating 20 weeks) or by Mr. Shpall for "Material Breach" (which includes (i)
Mario F. Kassar ceasing to be employed as the Chairman of the Board of Directors
and/or the Chief Executive Officer of the Company and (ii) any change in Mr.
Shpall's duties or reporting obligations under the agreement), Mr. Shpall is
entitled to receive the total salary remaining under the agreement at such time
discounted to its then present value at a discount rate of six month LIBOR plus
2% per annum.

ROBERT W. GOLDSMITH and the Company have entered into an employment
agreement for the services of Mr. Goldsmith from April 1, 1991, through March
31, 1995. Under the agreement Mr. Goldsmith receives an annual base salary of
$185,000 for the first year, $205,000 for the second year, $225,000 for the
third year and $245,000 for the fourth year. In addition, under the terms of the
agreement, Mr. Goldsmith received 25,000 stock options for Company Common Stock
at an option price of $7.75 per share, vesting ratably over the term of the
agreement, and 100,000 shares (or no cost options to acquire 100,000 shares) of
the common stock of CSI vesting ratably over the term of the contract. Pursuant
to the terms of the employment agreement, in May 1992, the Company repurchased
such CSI stock from Mr. Goldsmith for $30,000. If Mr. Goldsmith's employment is
terminated by the Company for other than a "Material Breach," "Death" or
"Disability" (physical or mental incapacity for over 120 consecutive days, or
shorter periods aggregating 20 weeks), or by Mr. Goldsmith for "Material Breach"
(which includes (i) any material change in Mr. Goldsmith's duties under the
agreement and (ii) any change in location of principal services), Mr. Goldsmith
is entitled to receive the total salary remaining under the agreement at such
time discounted to its then present value at a discount rate of nine percent per
annum. In November 1992, Mr. Goldsmith received a signing bonus of $87,000 from
the Company upon execution of an amendment to his employment agreement which
extended the term to its current expiration date.

KAREN A. TAYLOR and the Company have entered into an employment agreement
for the services of Ms. Taylor as Senior Vice President of Finance from March
20, 1991, through March 19, 1995 as amended on November 1, 1993. Under the
agreement, as amended, Ms. Taylor receives an annual fixed compensation of
$145,000 for the first year, $160,000 for the second year, $160,000 for the
period from March 20, 1993 through October 31, 1993, $200,000 for the period
from November 1, 1993 through March 19, 1994 and $225,000 for the fourth year.
Pursuant to the agreement, on May 1, 1991, the Company granted to Ms. Taylor
options to purchase 12,000 shares of Company Common Stock at an exercise price
of $8.25 per share vesting as follows: 3,000 on May 1, 1991, 3,000 on August 20,
1991, 3,000 on March 20, 1992 and 3,000 on August 20, 1992. In May 1992, Ms.
Taylor received a bonus of $50,000 from the Company upon execution of an
amendment to this employment agreement which extended the term to its current
expiration date. If Ms. Taylor's employment is terminated by the Company for
other than a "Material Breach," "Death" or "Disability" (physical or mental
incapacity for over 120 consecutive days, or shorter periods aggregating 20
weeks), or by Ms. Taylor for "Material Breach" (which includes (i) any material
change in Ms. Taylor's duties under the agreement and (ii) any change in
location of principal services), Ms. Taylor is entitled to receive the total
salary remaining under the agreement at such time discounted to its then present
value at a discount rate of nine percent per annum, and all stock options
granted under the agreement will immediately vest and become exercisable. In the
event the Company fails to renew the employment agreement upon expiration,

48
<PAGE>
the Company will pay to Ms. Taylor $80,000 during the six month period
immediately following the expiration of the employment agreement reduced by any
amounts earned by Ms. Taylor during such six month period for other engagements
or employment.

The employment agreements of Ms. Taylor and Messrs. Kassar, Spinks, Shpall
and Goldsmith each provide that such employee will keep secret all material
confidential matters of the Company that are not otherwise in the public domain
and will not intentionally disclose them to anyone outside of the Company,
either during or after the term of employment, except with the Company's written
consent. Most other employment agreements which the Company has entered into
with various employees contain similar provisions. None of the Named Executives
has entered into non-competition agreements with the Company.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

INTRODUCTION

The following table sets forth as of March 31, 1994, certain information
concerning the ownership of shares of the Company's voting securities: its
Common Stock and its New Preferred which vote on all matters which may come
before the holders of Common Stock voting together on such matters with the
Common Stock. Information is provided concerning the ownership of the Company's
voting securities by (i) the holders of more than 5% of any class of the
Company's voting securities known to the Company, (ii) each director of the
Company, (iii) all officers and directors of the Company as a group, and (iv)
each of the Named Executives listed in the summary compensation table under
"Item 11 -- Executive Compensation -- Compensation Tables" above, Mario F.
Kassar, Lynwood Spinks, William A. Shpall, Robert W. Goldsmith and Karen A.
Taylor.

The first two columns of the table provide information regarding the voting
power of the foregoing persons, entities and groups. Columns 3 through 7 of the
table show their beneficial ownership of voting securities issued and
outstanding as of March 31, 1994. Beneficial ownership has been determined in
accordance with Rule 13d-3(a) under the Exchange Act which provides that a
beneficial owner of a security includes any person who, directly or indirectly,
through any contract, arrangement, understanding, relationship, or otherwise has
or shares (i) voting power which includes the power to vote, or to direct the
voting of, such security, and/or (ii) investment power which includes the power
to dispose of, or to direct the disposition of, such security. Where known by
the Company, the footnotes to the table indicate when shares have been included
in the table based upon beneficial ownership resulting other than from actual
ownership of the shares.

Column 5 of the table ("Number of Shares of Issued and Outstanding Common
Stock") includes only shares of Common Stock actually issued and outstanding as
of March 31, 1994. Column 7 ("Shares of Common Stock in Which Person Has Right
to Acquire Beneficial Ownership of Within 60 Days") provides information with
respect to shares of Common Stock that are not held by a person as of March 31,
1994, but which a person has the right to acquire beneficial ownership of within
60 days of that date (such as upon the exercise of options or warrants, the
conversion of convertible securities or through other similar securities or
arrangements). Shares of Common Stock issuable upon exercise of options or
warrants, upon conversion of convertible securities, or through other similar
securities or arrangements are included in Column 7 if such options, warrants,
convertible securities or other similar securities or arrangements are
exercisable (or convertible) within 60 days of March 31, 1994, regardless of
whether the exercise, conversion or other acquisition price is above or below
the current market price for the Company's Common Stock. On March 31, 1994, the
closing price of the Company's Common Stock on the NYSE was $0.438.

The final two columns of the table show each of the person's, entity's and
group's beneficial ownership of the Company's Common Stock calculated in
accordance with Rule 13d-3(d)(1) under the Exchange Act, and includes shares of
Common Stock issued and outstanding as of March 31, 1994, as well as shares for
which beneficial ownership may be acquired within 60 days of that date. In
accordance with Rule 13d-3(d)(1) under the Exchange Act, any securities not
outstanding but which are the subject of options, warrants, rights, or
conversion privileges (or other arrangements which could result in the issuance
of additional shares of Common Stock by the Company) exercisable within 60 days
of March 31, 1994, are deemed to be outstanding for the purpose of computing the
percentage of outstanding securities of the class owned by such person, but are
not deemed to be outstanding for the purpose of computing the percentage of

49
<PAGE>
the class owned by any other person. As a result of the manner in which the
percentage of beneficial ownership is calculated, the aggregate percentages of
beneficial ownership held by the persons, entities and groups in the table may
exceed 100%.

Certain members of the Board of Directors named in the table are affiliated
with one of the beneficial owners of more than 5% of the Company's voting
securities (a "5% Owner"). In certain circumstances, a 5% Owner may be deemed to
beneficially own the Company's voting securities held by such directors, and
vice versa. For purposes of the table below, (i) the beneficial ownership of a
5% Owner includes such director's ownership where indicated by footnote even
though the 5% Owner may disclaim beneficial ownership of such shares, and (ii)
the beneficial ownership of the director does not include such 5% Owner's
beneficial ownership solely by reason of such director's affiliation for service
by such 5% Owner.

50
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
PERCENT OF NUMBER OF ISSUED AND
BENEFICIAL OWNERS OF MORE VOTES VOTES SHARES OF PERCENT OUTSTANDING PERCENT
THAN 5% OF ANY OF CAROLCO'S ENTITLED THAT MAY NEW OF COMMON OF
VOTING SECURITIES TO CAST BE CAST(2) PREFERRED CLASS STOCK CLASS
- ---------------------------------- ----------- ---------- --------- ------- ------------ -------
<S> <C> <C> <C> <C> <C> <C>
New CIBV(3)....................... 7,929,328 2.9% 7,929,328 5.8%
Le Studio Canal+.................. 46,933,364(5) 17.1% 12,500 15.2% 26,100,031 19.0%
Pioneer........................... 113,087,240(8) 41.1% 40,000 48.5% 46,420,574 33.7%
RCS Editori S.p.A................. 15,960,316(11) 5.8% 15,960,316 11.5%
MGM Holdings...................... 50,000,000 18.2% 30,000 36.3% 0 *
New CIBV, Le Studio Canal+,
Pioneer, RCS Editori S.p.A. and
MGM Holdings as a group(15)...... 233,910,248(4)(5)(8)(11)(14) 85.1% 82,500 100% 96,410,249 70.0%
MANAGEMENT
Mario F. Kassar(3)(16)............ 7,929,328 2.9% 7,929,328 5.8%
Lynwood Spinks(17)................ 0 * 0 *
William A. Shpall(18)............. 0 * 0 *
Hector P. Dowd(19)................ 0 * 0 *
Guy-Etienne Dufour(20)............ 0 * 0 *
Michael E. Garstin(21)............ 5,000 * 5,000 *
Paolo Glisenti(22)................ 0 * 0 *
Olivier Granier(23)............... 0 * 0 *
Michael S. Hope(24)............... 0 * 0 *
Kaneo Ito(25)..................... 0 * 0 *
Rene-Claude Jouannet(26).......... 0 * 0 *
Tetsuro Kudo(27).................. 0 * 0 *
Pierre Lescure(28)................ 0 * 0 *
Gordon C. Luce(29)................ 0 * 0 *
Michael Meltzer(30)............... 0 * 0 *
Ryuichi Noda(31).................. 0 * 0 *
Joseph A. Scudero(32)............. 0 * 0 *
Adam Singer(33)................... 0 * 0 *
Masaaki Sono(34).................. 0 * 0 *
Robert W. Goldsmith(35)........... 0 * 0 *
Karen A. Taylor(36)............... 0 * 0 *
All officers and directors as a
group+(37)....................... 7,934,328 2.9% 7,934,328 5.8%

<CAPTION>
SHARES OF
COMMON
STOCK IN
WHICH
PERSON HAS
RIGHT TO AMOUNT OF BENEFICIAL OWNERSHIP
ACQUIRE OF COMMON STOCK
BENEFICIAL AS OF MARCH 31, 1994(1)
BENEFICIAL OWNERS OF MORE OWNERSHIP -------------------------------------------------
THAN 5% OF ANY OF CAROLCO'S WITHIN 60 NUMBER OF
VOTING SECURITIES DAYS SHARES PERCENT
- ---------------------------------- ----------- ----------- -------
<S> <C> <C> <C>
New CIBV(3)....................... 0 7,929,328(4) 5.8%
Le Studio Canal+.................. 24,151,443 50,251,474(6)(7) 31.7%
Pioneer........................... 70,037,276 116,457,850(9)(10) 56.9%
RCS Editori S.p.A................. 3,218,110 19,178,426(12)(13) 13.9%
MGM Holdings...................... 50,000,000 50,000,000(14) 26.6%
New CIBV, Le Studio Canal+,
Pioneer, RCS Editori S.p.A. and
MGM Holdings as a group(15)...... 139,477,502 235,887,751(4)(6)(7)(9)(10)(12)(13)(14) 85.6%
MANAGEMENT
Mario F. Kassar(3)(16)............ 2,956,319 10,885,647 7.7%
Lynwood Spinks(17)................ 87,500 87,500 *
William A. Shpall(18)............. 12,500 12,500 *
Hector P. Dowd(19)................ 0 0 *
Guy-Etienne Dufour(20)............ 0 0 *
Michael E. Garstin(21)............ 117,500 122,500 *
Paolo Glisenti(22)................ 75,000 75,000 *
Olivier Granier(23)............... 75,000 75,000 *
Michael S. Hope(24)............... 0 0 *
Kaneo Ito(25)..................... 50,000 50,000 *
Rene-Claude Jouannet(26).......... 0 0 *
Tetsuro Kudo(27).................. 50,000 50,000 *
Pierre Lescure(28)................ 50,000 50,000 *
Gordon C. Luce(29)................ 0 0 *
Michael Meltzer(30)............... 50,000 50,000 *
Ryuichi Noda(31).................. 77,500 77,500 *
Joseph A. Scudero(32)............. 0 0 *
Adam Singer(33)................... 50,000 50,000 *
Masaaki Sono(34).................. 50,000 50,000 *
Robert W. Goldsmith(35)........... 15,000 15,000 *
Karen A. Taylor(36)............... 9,500 9,500 *
All officers and directors as a
group+(37)....................... 3,725,819 11,660,147 8.3%
<FN>
- ------------------------
* Less than 1%.
+ 21 persons comprised of all of those named above.
</TABLE>

51
<PAGE>
All of the persons listed in the chart above have sole voting power and sole
investment power over the capital stock they beneficially own unless otherwise
indicated in the footnotes below.

(1) The number of shares and percentages are based upon an anticipated
137,687,728 shares of Common Stock outstanding, excluding 2,327,381 shares
of treasury stock outstanding as of March 31, 1994. The shares of Common
Stock underlying immediately exercisable options, warrants or rights,
immediately convertible securities, or options, rights or convertible
securities that become exercisable or convertible within 60 days of March
31, 1994 are deemed to be outstanding for the purpose of calculating the
number and percentage owned by the holders of such options, warrants,
rights or convertible securities.

(2) Based upon 275,187,727 possible votes (comprised of (i) the 137,687,728
votes which may be cast by all holders of outstanding Common Stock, and
(ii) the 137,499,999 votes which may be cast by the holders of the New
Preferred (20,833,333 votes by Le Studio Canal+, 66,666,666 votes by
Pioneer and 50,000,000 votes by MGM Holdings)). The holders of the New
Preferred have the same voting rights (and thus are entitled to the same
number of votes) as such holders would be entitled to if such holders
converted such preferred stock into Common Stock.

(3) All of the capital stock of New CIBV is owned by Clorenda Corporation
A.V.V., an Aruba corporation, which is in turn owned 50.1% by The Kassar
Family Trust, which benefits certain members of Mr. Kassar's family, and
49.9% by Canora A.V.V., an Aruba corporation, owned 100% by Mr. Kassar. The
address of New CIBV is Parklaan 46, 3016 BC Rotterdam, The Netherlands. The
address of Clorenda Corporation A.V.V. is P.O Box 767, Polarisweg 36A,
Willemstad, Curacao, Netherlands Antilles. The address of The Kassar Family
Trust is BT Trustees (Jersey) Ltd., P.O. Box 634, Charles Place, Charles
Street, St. Helier, Jersey, JB4 8YE Channel Islands.

(4) Includes 7,929,327 shares of Common Stock held by New CIBV which are
pledged to Le Studio Canal+, Pioneer and RCS (2,643,109 shares each) as
security for loans outstanding. See "-- Certain Transactions Involving New
CIBV and the Strategic Investors" below.

(5) Includes 26,100,031 shares of Common Stock indirectly owned by Le Studio
Canal+ through its wholly-owned subsidiary Cinepole, and 20,833,333 shares
of Common Stock issuable upon conversion of the 12,500 shares of New
Preferred held by Le Studio Canal+ through Cinepole.

(6) Le Studio Canal+ owns 100% of the outstanding stock of Cinepole. Includes
20,833,333 shares of Common Stock issuable upon conversion of the 12,500
shares of New Preferred held by Le Studio Canal+ through Cinepole. The New
Preferred is entitled to vote together with the Common Stock on all matters
coming before the Common Stock as if its holder had converted the New
Preferred into Common Stock. On that basis, Le Studio Canal+ is entitled to
cast 20,833,333 votes on matters coming before the holders of Common Stock
pursuant to its ownership of the New Preferred. In addition, the New
Preferred is entitled to vote separately as a class in certain limited
circumstances. Does not include an additional 246,667 shares of Common
Stock issuable upon conversion of an additional 148 shares of New
Preferred, representing the in-kind quarterly dividends on the 12,500
shares of New Preferred held by Le Studio Canal+ through Cinepole which
accrued, but were not paid, on January 1, 1994. Cinepole has informed the
Company that it has shared voting power and shared investment power over
all of its currently held securities with Le Studio Canal+ and Le Studio
Canal+'s corporate parent, Canal+ S.A. The address of Cinepole is
Surinameweg 2, NL - 2035 VA Haarlem, The Netherlands. The address of Le
Studio Canal+ is 17, rue Dumont d'Urville, 75116 Paris, France. The address
of Canal+ S.A. is 85-89, Quai Andre-Citroen, 75015 Paris, France.

(7) Includes 2,643,109 shares of Common Stock, pursuant to Rule 13-3(d)(3)(i)
of the Exchange Act, over which Le Studio Canal+ has a first priority
security interest and over which Le Studio Canal+ does not exercise voting
or dispositive power. Also includes 500,001 shares of Common Stock issuable
upon exercise of a call right over which Le Studio Canal+ does not exercise
voting or dispositive power. Does not include 499,999 shares of Common
Stock issuable upon exercise of such call right, since the call right is
not presently exercisable or exercisable within 60 days of March 31, 1994
with respect to

52
<PAGE>
such shares. See "-- Certain Transactions Involving New CIBV and the
Strategic Investors" below. Includes 175,000 options to purchase the
Company's Common Stock held by Le Studio Canal+ affiliated or nominated
directors.

(8) Includes 46,420,574 shares of Common Stock directly owned by Pioneer, and
66,666,666 shares of Common Stock issuable upon conversion of the 40,000
shares of New Preferred held by Pioneer.

(9) Includes 66,666,666 shares of Common Stock issuable upon conversion of the
40,000 shares of New Preferred held by Pioneer. The New Preferred is
entitled to vote together with the Common Stock on all matters coming
before the Common Stock as if its holder had converted the New Preferred
into Common Stock. On that basis, Pioneer is entitled to cast 66,666,666
votes on matters coming before the holders of Common Stock pursuant to its
ownership of the New Preferred. In addition, the New Preferred is entitled
to vote separately as a class in certain limited circumstances. Does not
include an additional 786,667 shares of Common Stock issuable upon
conversion of an additional 472 shares of New Preferred, representing the
in-kind quarterly dividends on the 40,000 shares of New Preferred held by
Pioneer which accrued, but were not paid, on January 1, 1994. Pioneer
Electronic Corporation owns all of the outstanding shares of capital stock
of Pioneer North America, Inc., which in turn owns all of the outstanding
shares of Common Stock of Pioneer. In their most recent Schedules 13D filed
with the Commission, Pioneer Electronic Corporation and Pioneer North
America, Inc. also claimed beneficial ownership over all of the securities
of Carolco held by Pioneer. The address of Pioneer and Pioneer North
America, Inc. is 2265 East 220th Street, Long Beach, California 90816. The
address of Pioneer Electronic Corporation is 1-4-1 Meguro Meguro-Ku, Tokyo
153, Japan.

(10) Includes 2,643,109 shares of Common Stock, pursuant to Rule 13d-3(d)(3)(i)
of the Exchange Act, over which Pioneer has a first priority security
interest and over which Pioneer does not exercise voting or dispositive
power. Also includes 500,001 shares of Common Stock issuable upon exercise
of a call right over which Pioneer does not exercise voting or dispositive
power. Does not include 499,999 shares of Common Stock which are issuable
upon exercise of such call right, since the call right is not presently
exercisable or exercisable within 60 days of March 31, 1994 with respect to
such shares. See "-- Certain Transactions Involving New CIBV and the
Strategic Investors" below. Includes 227,500 options to purchase the
Company's Common Stock held by Pioneer affiliated or nominated directors.

(11) Includes 15,960,316 shares of Common Stock directly owned by RCS.

(12) RCS Editori S.p.A. directly owns 60% of the outstanding stock of RCS and
indirectly owns 40% of the outstanding stock of RCS. Prior to December
1992, RCS owned 100% of the outstanding stock of RCS NV. In December 1992,
RCS transferred to RCS Communications all of the outstanding stock of RCS
NV. RCS Communications is 100% owned by RCS Editori S.p.A. RCS Editori
S.p.A. may therefore be deemed to own beneficially all of the securities
owned by RCS, RCS NV and RCS Communications. RCS Editori S.p.A. has
informed the Company that it has shared voting power and shared investment
power over all of its beneficially owned securities with RCS, RCS NV and
RCS Communications. The address of RCS Editori S.p.A. is Via A. Rizzoli 2,
20132 Milan, Italy. The address of RCS and RCS Communications is
Museumplein 11, 1071 DJ Amsterdam, The Netherlands. The address of RCS NV
is Emmalaan 6, P.O. Box 837, Curacao, Netherlands Antilles.

(13) Includes 2,643,109 shares of Common Stock, pursuant to Rule 13d-3(d)(3)(i)
of the Exchange Act, over which RCS has a first priority security interest
and over which RCS and RCS Editori S.p.A. do not exercise voting or
dispositive power. Also includes 500,001 shares of Common Stock issuable
upon exercise of a call right over which RCS and RCS Editori S.p.A. do not
exercise voting or dispositive power. Does not include 499,999 shares of
Common Stock which are issuable upon exercise of such call right, since the
call right is not presently exercisable or exercisable within 60 days of
March 31, 1994 with respect to such shares. See "-- Certain Transactions
Involving New CIBV and the Strategic Investors" below. Includes 75,000
options to purchase the Company's Common Stock held by RCS affiliated or
nominated directors.

(14) MGM Holdings is 100% owned by Credit Lyonnais International Services S.A.,
which is 100% owned by Credit Lyonnais S.A. Includes 50,000,000 shares of
Common Stock issuable upon conversion of the

53
<PAGE>
30,000 shares of New Preferred held by MGM Holdings. The New Preferred is
entitled to vote together with the Common Stock on all matters coming
before the Common Stock as if its holder had converted the New Preferred
into Common Stock. On that basis, MGM Holdings is entitled to cast
50,000,000 votes on matters coming before the holders of Common Stock
pursuant to its ownership of the New Preferred. In addition, the New
Preferred is entitled to vote separately as a class in certain limited
circumstances. Does not include an additional 590,000 shares of Common
Stock issuable upon conversion of an additional 354 shares of New
Preferred, representing the in-kind quarterly dividends on the 30,000
shares of New Preferred held by MGM Holdings which accrued, but were not
paid, on January 1, 1994. Also does not include 50,590,278 shares of Common
Stock issuable upon conversion of the $30,354,167 in aggregate principal
amount of 5% Notes which are convertible under certain circumstances, but
are not presently convertible within 60 days of March 31, 1994. In their
Schedules 13D, MGM Holdings, Credit Lyonnais International Services S.A.
and Credit Lyonnais S.A. claimed shared voting power and shared investment
power over 100,000,000 shares of Carolco Common Stock. The address of MGM
Holdings, Credit Lyonnais International Services S.A. and Credit Lyonnais
S.A. is 19 Boulevard des Italiennes, 75002 Paris, France.

(15) The information regarding such a group is given for illustrative purposes
only, and is not to be considered an admission by the Company or any of
such corporations as to the existence of such a group. Not all of the
corporations listed have affirmed the existence of such a group. On August
27, 1993, Le Studio Canal+ and Canal+ S.A. filed an Amendment No. 9 to
Schedule 13D with the Commission stating that RCS, Pioneer, MGM, New CIBV
and Le Studio Canal+ had formed a group. However, on October 20, 1993 RCS,
RCS NV and RCS Editori S.p.A. filed an Amendment No. 2 to Schedule 13D with
the Commission stating that they, Pioneer, MGM, New CIBV and Canal+ may be
deemed to be a group within the meaning of Regulation 13D-G under the
Exchange Act, but not affirming the existence or formation of such a group.
In addition, in their Amendment No. 4 to Schedule 13D filed with the
Commission in October 1993, Pioneer and its affiliates each disclaimed
membership in a group. In addition New CIBV filed an Amendment No. 13 to
Schedule 13D with the Commission on February 20, 1994 disclaiming
membership in a group. In their Amendment No. 1 to Schedule 13D filed with
the Commission on October 20, 1993, MGM Holdings, Credit Lyonnais
International Services S.A. and Credit Lyonnais S.A. expressly affirmed
membership in a group and reported that they, Le Studio Canal+, Canal+
S.A., Cinepole, Pioneer and RCS may be deemed to have formed a group for
the purpose of obtaining a majority representation on Carolco's Board of
Directors upon consummation of the Restructuring. Although the Strategic
Investors, MGM and New CIBV have only a limited agreement amongst
themselves as to certain voting agreements set forth in the stockholders
agreement described under "Management of Carolco -- Arrangements Pursuant
to Which Certain Directors Have Been Elected -- Stockholders' Agreement,"
and no written agreement as to the business operation of the Company, and
although the Strategic Investors have different interests as to the
Restructuring and the Company, information has been included in the table
above as if a change in control of the Company has occurred.

(16) Mr. Kassar is the Chairman of the Board of Directors and Chief Executive
Officer of the Company. Mr. Kassar may be deemed to own beneficially the
securities owned by New CIBV. Includes 2,956,319 shares of Common Stock
which are issuable to Mr. Kassar upon exercise of presently exercisable
options, 2,683,819 of which were granted pursuant to Mr. Kassar's prior and
current employment agreements.

(17) Includes 87,500 shares of Common Stock which are issuable upon exercise of
presently exercisable options, 12,500 of which were granted pursuant to Mr.
Spinks' prior employment agreement.

(18) Includes 12,500 shares of Common Stock which are issuable to Mr. Shpall
upon exercise of presently exercisable options.

(19) Mr. Dowd, a director of the Company, owns no shares.

(20) Mr. Dufour is the Executive Vice President and General Manager of the
International Division, Entertainment Industry Financing Group of Credit
Lyonnais S.A., a Director of Metro-Goldwyn-Mayer Inc., Secretary of MGM
Holdings, and a director of the Company. Although Mr. Dufour may

54
<PAGE>
be deemed to own beneficially the securities owned by MGM Holdings, Mr.
Dufour has disclaimed beneficial ownership of such securities. Mr. Dufour
declined to accept options to acquire 50,000 shares of the Company's Common
Stock which he was entitled to receive on December 1, 1993 for his service
as a director of the Company.

(21) Includes 117,500 shares of Common Stock which are issuable to Mr. Garstin
upon exercise of presently exercisable options.

(22) Mr. Glisenti is the Managing Director of RCS, a director of RCS NV, and a
director of the Company. Although Mr. Glisenti may be deemed to own
beneficially the securities owned by RCS and and its affiliates, Mr.
Glisenti has disclaimed beneficial ownership of such securities. Includes
75,000 shares of Common Stock which are issuable to Mr. Glisenti upon
exercise of presently exercisable options.

(23) Mr. Granier is the Executive Vice President Finance and Administration of
Le Studio Canal+ and a director of the Company. Although Mr. Granier may be
deemed to own beneficially the securities owned by Le Studio Canal+ and its
affiliates, Mr. Granier has disclaimed beneficial ownership of such
securities. Includes 75,000 shares of Common Stock which are issuable to
Mr. Granier upon exercise of presently exercisable options.

(24) Mr. Hope is Executive Vice President of Metro-Goldwyn-Mayer Inc., and a
director of the Company. Although Mr. Hope may be deemed to own
beneficially the securities owned by MGM Holdings, Mr. Hope has disclaimed
beneficial ownership of such securities. Mr. Hope declined to accept
options to acquire 75,000 shares of the Company's Common Stock which he was
entitled to receive on December 1, 1993 for his service as a member of the
Supervisory Committee of the Board of Directors and as a director of the
Company.

(25) Mr. Ito is the Senior Managing Director, Representative Director and
General Manager of the International Business Group of Pioneer Electronic,
and a director of the Company. Although Mr. Ito may be deemed to own
beneficially the securities owned by Pioneer, Mr. Ito has disclaimed
beneficial ownership of such securities. Includes 50,000 shares of Common
Stock which are are issuable to Mr. Ito upon exercise of presently
exercisable options.

(26) Mr. Jouannet is the General Counsel of the Entertainment Industry Financing
Group of Credit Lyonnais S.A., President, Treasurer and a Director of MGM
Holdings, and a director of the Company. Although Mr. Jouannet may be
deemed to own beneficially the securities owned by MGM Holdings, Mr.
Jouannet has disclaimed beneficial ownership of such securities. Mr.
Jouannet declined to accept options to acquire 50,000 shares of the
Company's Common Stock which he was entitled to receive on December 1, 1993
for his service as a director of the Company.

(27) Mr. Kudo is President of Pioneer and a director of the Company. Although
Mr. Kudo may be deemed to own beneficially the securities owned by Pioneer,
Mr. Kudo has disclaimed beneficial ownership of such securities. Includes
50,000 shares of Common Stock which are issuable to Mr. Kudo upon exercise
of presently exercisable options.

(28) Pierre Lescure is the Chief Executive Officer and a Director of Canal+
S.A., Chairman of the Board and Chief Executive Officer of Le Studio
Canal+, and a director of the Company. Although Mr. Lescure may be deemed
to own beneficially the securities owned by Le Studio Canal+ and its
affiliates, Mr. Lescure has disclaimed beneficial ownership of such
securities. Includes 50,000 shares of Common Stock which are issuable to
Mr. Lescure upon exercise of presently exercisable options.

(29) Mr. Luce, a director of the Company, owns no shares.

(30) Mr. Meltzer is Executive Vice President, Chief Financial Officer and a
director of Le Studio Canal+ (U.S.), as well as a director of the Company.
Although Mr. Meltzer may be deemed to own beneficially the securities owned
by Le Studio Canal+, Mr. Meltzer has disclaimed beneficial ownership of
such securities. Includes 50,000 shares of Common Stock which are issuable
to Mr. Meltzer upon exercise of presently exercisable options.

55
<PAGE>
(31) Mr. Noda is the President of Pioneer LDC, a director of Pioneer Electronic,
and a director of the Company. Although Mr. Noda may be deemed to own
beneficially the securities owned by Pioneer, Mr. Noda has disclaimed
beneficial ownership of such securities. Includes 77,500 shares of Common
Stock which are issuable to Mr. Noda upon exercise of presently exercisable
options.

(32) Mr. Scudero, a director of the Company, owns no shares.

(33) Mr. Singer is the Vice President-International for TCI and President of
United Artists Entertainment (Programming) Ltd., and a director of the
Company. Includes 50,000 shares of Common Stock which are issuable to Mr.
Singer upon exercise of presently exercisable options.

(34) Mr. Sono is the Managing Director of Pioneer Electronic, a director of
Pioneer Electronic, and a director of the Company. Although Mr. Sono may be
deemed to own beneficially the securities owned by Pioneer, Mr. Sono has
disclaimed beneficial ownership of such securities. Includes 50,000 shares
of Common Stock which are issuable to Mr. Sono upon exercise of presently
exercisable options.

(35) Includes 15,000 shares of Common Stock which are issuable upon exercise of
presently exercisable options, 12,500 of which were granted pursuant to Mr.
Goldsmith's employment agreement.

(36) Includes 9,500 shares of Common Stock which are issuable upon exercise of
presently exercisable options, 6,000 of which were granted pursuant to Ms.
Taylor's employment agreement.

(37) Includes shares of Common Stock which are issuable (a) upon exercise of
exercisable options and (b) upon exercise of options that become
exercisable within 60 days of March 31, 1994.

CERTAIN TRANSACTIONS INVOLVING NEW CIBV AND THE STRATEGIC INVESTORS

Valdina beneficially owns 6,807,600 shares of the Company's Common Stock, of
which 6,000,000 shares (the "Valdina Shares") were transferred to Valdina from
New CIBV in March 1992 as part of a settlement of certain obligations owed by
New CIBV to Valdina which were originally incurred in connection with the 1989
change in control of the Company. Management of the Company believes that Andrew
G. Vajna, Co-Chairman of the Board of Directors of Carolco with Mr. Kassar from
1986 to 1989, and various trusts or other entities established for the benefit
of certain descendants of the late Mong Hin Yan, formerly a resident of Hong
Kong, beneficially own all of the outstanding capital stock of Valdina. At the
time of the transfer of the Valdina Shares, New CIBV delivered to Valdina a
negotiable promissory note in the principal amount of $7,500,000 dated March 23,
1992 (the "Valdina Note"), which was secured by (and New CIBV granted Valdina a
first priority security interest in) 8,619,502 shares of the Company's Common
Stock held by New CIBV pursuant to a security and pledge agreement dated as of
March 23, 1992 (the "Valdina Security Agreement").

Each of Canal+, Pioneer and RCS acquired a one-third interest in the Valdina
Note and Valdina's rights under the Valdina Security Agreement pursuant to note
purchase agreements with Valdina dated as of March 23, 1992 (the "Note Purchase
Agreements"). The Valdina Note was presented by the Strategic Investors to New
CIBV, and New CIBV issued a non-recourse secured promissory note in the
principal amount of $2,500,000 dated March 23, 1992 to each of the Strategic
Investors (the "Strategic Investor Notes"). Each of the Strategic Investor
Notes, which are due March 31, 1995 (or earlier in the event the Strategic
Investor Notes are accelerated upon certain events of default), is secured by,
and New CIBV has granted to each of the Strategic Investors a separate first
priority security interest in 2,873,167 shares of Common Stock owned by New CIBV
pursuant to security and pledge agreements dated as of March 23, 1992. In the
event that New CIBV defaults on its obligations under the Strategic Investor
Notes or any other event of default occurs under the security and pledge
agreements, and such event of default is not cured by New CIBV (if applicable),
the Strategic Investors would be entitled to foreclose on their security
interests in the shares of Common Stock owned by New CIBV, thereby divesting New
CIBV of the majority of its Carolco Common Stock.

Pursuant to the Note Purchase Agreements, Valdina is entitled to sell, at
its election, to the Strategic Investors an aggregate of up to 3,000,000 of the
Valdina Shares and the associated registration rights from April 1, 1993 through
March 31, 1996 for a price per share equal to 75% of the average of the highest
Market Price (as defined in the Note Purchase Agreements) during a specified
time period. This put right generally

56
<PAGE>
(subject to certain limitations) is for 1,000,000 of the Valdina Shares in each
year during such period plus, in the second and third Put Years (as defined in
the Note Purchase Agreements), such portion not sold in any prior year up to a
limit of 500,000 additional shares. Notwithstanding this put right, the
Strategic Investors have the right not to purchase shares with an aggregate Put
Price (as defined in the Note Purchase Agreements) in excess of a specified
dollar amount in each year. In addition, pursuant to the Note Purchase
Agreements, the Strategic Investors are entitled to buy an aggregate of up to
3,000,000 of the Valdina Shares (subject to certain limitations on share amounts
purchased in a year and in the aggregate and other limitations) and the
associated registration rights for a purchase price of $5.50 per share during
the period from April 1, 1993 through March 31, 1996. Finally, the Strategic
Investors agreed to extend to Valdina the right of co-sale with respect to the
Valdina Shares in connection with certain privately negotiated transactions in
which the Strategic Investors together dispose of, for value, an aggregate of at
least 50% of the Company's Common Share Equivalents (as defined in the Note
Purchase Agreements) held by the Strategic Investors as of the date of issuance
of the Series E Preferred. As of the date of this Prospectus, neither Valdina
nor any of the Strategic Investors has exercised their respective put/call
rights under the Note Purchase Agreements.

Pursuant to an Inducement Agreement dated as of March 23, 1992 (the
"Inducement Agreement") among New CIBV, the Strategic Investors and certain
other parties listed therein, New CIBV has the right to acquire certain of the
Valdina Shares when held by the Strategic Investors. Specifically, while Mr.
Kassar is employed by the Company and afterwards in certain circumstances, New
CIBV has the right to acquire from the Strategic Investors that number of
Valdina Shares equal to the difference between 11,500,000 and the number of
shares of Common Stock beneficially owned by New CIBV (excluding stock options
beneficially owned by Mr. Kassar which were granted prior to March 23, 1992) at
a purchase price equal to the price paid by the Strategic Investors for such
shares, or, if this right is exercised by New CIBV more than 60 days after the
Strategic Investors have given New CIBV notice of a put or call pursuant to the
Note Purchase Agreements involving Valdina and the Strategic Investors with
respect to the Valdina Shares, for the Market Price (as defined in the
Inducement Agreement).

CLBN LOAN AGREEMENT -- NEW CIBV

Pursuant to the Inducement Agreement, each of the Strategic Investors paid
directly to CLBN on March 31, 1993 one-third of New CIBV's obligations under the
General Credit Agreement dated January 16, 1990 by and between CLBN and New CIBV
(the "CLBN Loan Agreement"). The indebtedness of New CIBV to each of the
Strategic Investors is evidenced by separate non-interest bearing non-recourse
secured promissory notes of New CIBV (the "Notes"). New CIBV agreed to repay the
Notes from 100% of the Production-related Incentive Compensation (as such term
is defined in Mr. Kassar's previous employment agreement) and 75% of the
Turnaround Incentive Compensation (as such term is defined in Mr. Kassar's
previous employment agreement) which may be payable to Mr. Kassar under the
terms of Mr. Kassar's previous employment agreement which is paid to Mr. Kassar
in cash by the Company, net of taxes.

New CIBV, the Strategic Investors and certain other parties listed therein,
entered into a First Amendment to the Inducement Agreement dated as of April 30,
1993 (the "First Amendment"). The First Amendment acknowledges the payment to
CLBN by each of the Strategic Investors of one-third of New CIBV's obligations
under the CLBN Loan Agreement, as required by the Inducement Agreement, and
provides that New CIBV shall amend the Strategic Investor Notes (as amended, the
"Amended Notes") to contain the following modifications: (i) the principal
amount of each Amended Note shall be the sum of one-third of New CIBV's
obligations under the CLBN Loan Agreement as of March 31, 1993 plus the
outstanding principal amount of the Strategic Investor Notes together with all
accrued and unpaid interest through April 30, 1993 on the Strategic Investor
Notes, (ii) interest will be fixed at 6.25% per annum, (iii) interest will be
cumulative (compounded quarterly) from April 30, 1993 through and including
December 31, 1994 and (except as otherwise provided in the First Amendment) will
not be due and payable until December 31, 1997; from January 1, 1995 through and
including December 31, 1997, interest will be payable on a quarterly basis in
arrears, commencing on April 1, 1995 (subject to certain exceptions), and (iv)
the maturity date of the Amended Notes shall be December 31, 1997.

57
<PAGE>
Concurrently with the execution of the Amended Notes, the three Security and
Pledge Agreements dated as of March 23, 1992 between each of the three Strategic
Investors and New CIBV (the "Pledge Agreements") were amended and restated (as
amended, the "Amended Pledge Agreements") to secure all of New CIBV's
obligations under the Amended Notes.

Pursuant to the terms of the First Amendment, each of the Strategic
Investors agreed to release and reassign to New CIBV, no later than ten business
days following the filing by the Company of Amendment No. 1 to the Registration
Statement with the Commission, free and clear of the Security Interests (as
defined in the Pledge Agreements), the number of Pledged Shares (as defined in
the Pledge Agreements) equal to the result of (a) the difference between (i) the
number of Pledged Shares required to satisfy the obligations of New CIBV
pursuant to the settlement agreement described under "Item 3. -- Legal
Proceedings -- Settlement of Purported Derivative Action," and (ii) 800,679
shares, divided by (b) three; provided, however, that the number of Pledged
Shares to be released by each Strategic Investor would not exceed 1,000,000
shares. Pursuant to such arrangements, on May 21, 1993, each of the Strategic
Investors released and reassigned to New CIBV, free and clear of the security
interests under the Pledge Agreements, 230,058 of the Pledged Shares. New CIBV
used these shares to satisfy its obligations pursuant to the Settlement
Agreement described under "Item 3. -- Legal Proceedings -- Settlement of
Purported Derivative Action."

The First Amendment further provided that upon the effective date of the
Kassar Agreement, the Inducement Agreement was restated to provide that the
Amended Notes will be repaid by New CIBV from (i) one-half of the Three Percent
Fee (as defined in the Kassar Agreement) paid to Mr. Kassar in cash by the
Company and (ii) 75% of the Turnaround Compensation (as defined in the Kassar
Agreement) payable to Mr. Kassar under the terms of the Kassar Agreement, net of
taxes. Pursuant to the First Amendment, Mr. Kassar granted a security interest
to the Strategic Investors in all present and future rights to receive the
specified portions of such compensation, agreed to furnish any financing
statements required to perfect such security interest, and agreed to elect to
receive such compensation in cash and direct the Company to make payments of the
specified portions of such compensation directly to the Strategic Investors. The
Inducement Agreement shall remain applicable with respect to any
Production-related Incentive Compensation and Turnaround Incentive Compensation
paid to Mr. Kassar under his previous employment agreement.

See "Item 11. -- Executive Compensation -- Employment Agreements" for a
description of the Kassar Agreement. Mr. Kassar granted a security interest to
the Strategic Investors in all present and future rights to receive the
incentive compensation set forth above.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

TRANSACTIONS WITH STRATEGIC INVESTORS

THE RESTRUCTURING

In connection with the Restructuring described above under "Recent
Developments -- Financial Restructuring," the Company and the Strategic
Investors agreed with respect to various arrangements which are more fully
described therein. Each of the Strategic Investors is a beneficial owner of more
than 5% of the Company's Common Stock. See "Item 12. -- Security Ownership of
Certain Beneficial Owners or Management" for a description of the beneficial
ownership of the Company's voting securities by the Strategic Investors. Olivier
Granier, a director and member of the Supervisory Committee of the Company, is
also the Executive Vice President Finance and Administration of Canal+ and Chief
Executive Officer of Cerito Films. Michael Meltzer, a director of the Company,
is also a director, Executive Vice President and Chief Financial Officer of Le
Studio Canal+ (U.S.). In addition, Pierre Lescure, a director of the Company, is
also the Chief Executive Officer and a Director of Canal+ S.A. and Chairman of
the Board and Chief Executive Officer of Canal+. Ryuichi Noda, a director and
member of the Supervisory Committee of the Company, is also a director of
Pioneer Electronic and President of Pioneer LDC. Masaaki Sono, a director of the
Company, is also an executive officer and a member of the Board of Directors of
Pioneer Electronic. Tetsuro Kudo, a director of the Company, is also President
of Pioneer. In addition, Kaneo Ito, a director of the Company, is also the
Senior Managing Director, Representative Director and General Manager of the

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International Business Group of Pioneer Electronic. Paolo Glisenti, a director
and member of the Supervisory Committee of the Company, is also an executive
officer of RCS and a director of RCS NV. Guy-Etienne Dufour, a director of the
Company, is also the Executive Vice President and General Manager of the
International Division, Entertainment Industry Financing Group of Credit
Lyonnais S.A., a director of MGM and Secretary of MGM Holdings. Rene-Claude
Jouannet, a director of the Company, is also the General Counsel of the
Entertainment Industry Financing Group of Credit Lyonnais S.A. and President,
Treasurer and a director of MGM Holdings. Michael S. Hope, a director and member
of the Supervisory Committee of the Company, is also Executive Vice President of
MGM.

In conjunction with the Restructuring, the Company, the Strategic Investors,
MGM and TCI have entered into agreements with respect to certain arrangements
described under "Recent Developments -- Financial Restructuring -- Standby
Purchase and Investment Agreement," "-- New Distribution Agreement" and "--
Other Agreements." In addition, the Company has entered into a domestic pay
television agreement with Encore, an affiliate of TCI, as described under "Item
1. -- Business -- The Business of Carolco -- Distribution of Motion Pictures and
Other Products -- Domestic Television Distribution." Adam Singer, a member of
the Board of Directors of the Company, is also the Vice President --
International for TCI and President of United Artists Entertainment
(Programming) Ltd.

On January 15, 1994, an additional $354,167 in aggregate principal amount of
5% Notes were issued, representing the in-kind quarterly payment due on the
$30,000,000 aggregate principal amount of 5% Notes outstanding. The in-kind
quarterly dividends of $813,700 on the Series A Preferred scheduled to be paid
on January 1, 1994 were accrued at December 31, 1993 but not paid due to
insufficient surplus.

OTHER TRANSACTIONS WITH THE STRATEGIC INVESTORS

In addition to the Restructuring, the Company has engaged in a number of
other transactions with the Strategic Investors which are summarized below.

In June 1990, the Company, through a nominee of CINV, and Canal+ formed a
partnership (the "Carolco/Canal+ Partnership"). After its formation, Canal+,
Pioneer and RCS entered into a series of co-production agreements with respect
to the production of CLIFFHANGER. Pursuant to these co-production agreements,
Canal+, Pioneer and RCS made equity contributions in the aggregate amount of
$16,726,000 bearing interest at 3-month LIBOR plus 1.5% per annum and Canal+,
Pioneer and an unrelated third party made bridge loans totaling $3,192,000 for
the production costs of CLIFFHANGER. The bridge loans bore interest at 3-month
LIBOR plus 2% per annum. As of December 31, 1993, the bridge loans and accrued
interest thereon had been repaid in full, and $4,547,000 of the equity
contributions including interest at 3 month LIBOR plus 2% per annum, had been
repaid. As of December 31, 1993 and March 31, 1994, the Company had advanced a
total of $5,740,000 toward the production costs of CLIFFHANGER. The balance of
the production costs of CLIFFHANGER were obtained through a production loan
provided by a syndicate of banks led by CLBN. The CLBN production loan earned
interest at 3-month LIBOR plus 2% per annum and was repaid in full including
accrued and unpaid interest on May 25, 1993. Pioneer, Canal+, RCS and the
Company are each entitled to receive a participation in certain net revenues
generated from the exploitation of CLIFFHANGER, following repayment of the CLBN
production loans, the bridge loans, recoupment by Pioneer, Canal+, RCS and the
Company of their investments plus interest, and payment of certain third party
obligations. Participation in such revenues will be approximately as follows:
the Company, 42%; RCS, 5%; Pioneer, 24%; and Canal+, 29%. As of December 31,
1993, no such participations in the net revenues of CLIFFHANGER had yet been
paid.

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December 31, 1992 and 1993 and March 31, 1994, respectively, CINV had recorded a
an obligation of $15,778,000, $3,521,000 and $3,766,000 collectively to Canal+
and RCS. In 1993, the Company paid $6,313,000 and $6,442,000, respectively, to
Canal+ and RCS, representing their share of the net receipts of CHAPLIN.

RCS has asserted a claim against the Company alleging that the Company
guaranteed 1) certain levels of performance and 2) to reimburse a portion of
RCS's unrecouped investment in the motion picture CHAPLIN. The Company believes
that the alleged guarantees have been relinquished. Although the Company and RCS
are discussing this claim, the Company is unable to predict the outcome of this
dispute.

REGISTRATION RIGHTS AGREEMENT. The Company has granted the Strategic
Investors and MGM certain registration rights covering the New Preferred, the 5%
Notes and the Common Stock issued to the Strategic Investors and MGM in
connection with the Restructuring and Common Stock issued upon conversion of the
New Preferred, 5% Notes and 7% Notes and certain other Common Stock held by RCS
(the "RCS Common") and by the other Strategic Investors. MGM and transferees of
MGM Securities (defined below) will be entitled for a period of twelve months
commencing six months after the closing of the Restructuring (the "MGM Priority
Registration Period") to request twice in the aggregate that the Company effect
the registration under the Securities Act of all or part of the MGM Securities
and the Company will use its best efforts to effect such registration, provided
that the Company need not effect the registration unless the request covers at
least (i) 50% of the 5% Notes (prior to the time the 5% Notes become
convertible), (ii) 50% of the aggregate amount of any other MGM Securities
(which for all purposes other than the registration of 5% Notes prior to the
time the 5% Notes become convertible, is determined on an "as converted" basis),
(iii) an amount of 5% Notes, prior to the time the 5% Notes become convertible,
having a market value equal to at least $10,000,000 on the date of the request,
or (iv) an amount of other MGM Securities having a market value on the date of
such request equal to at least $20,000,000. "MGM Securities" are the 5% Notes
and the New Preferred issued to MGM and any shares of Common Stock issued upon
conversion of such 5% Notes or New Preferred.

Upon the expiration of the MGM Priority Registration Period, which may be
extended under certain limited circumstances, each of the Strategic Investors
and MGM (each a "Purchaser") and certain of its respective transferees of
Registrable Securities (defined below) will be entitled to request twice in the
aggregate with respect to each Purchaser and certain of its transferees that the
Company effect the registration under the Securities Act of all or part of such
Purchaser's and its transferees' Registrable Securities and the Company will use
its best efforts to effect such registration, provided that the Company need not
effect the registration unless the request covers at least (i) 50% of the 5%
Notes (prior to the time the 5% Notes become convertible), (ii) 50% of the
aggregate amount of any other of such Purchaser's Registrable Securities (which
for all purposes other than the registration of 5% Notes prior to the time the
5% Notes become convertible shall be determined on an "as converted" basis),
(iii) an amount of 5% Notes, prior to the time the 5% Notes become convertible,
having a market value equal to at least $10,000,000 on the date of the request,
or (iv) an amount of such Purchaser's other Registrable Securities having a
market value on the date of such request at least equal to 66 2/3% of the
purchase price for Registrable Securities paid by the relevant Purchaser (or
$20,000,000 in the case of MGM) plus, if Common Stock is to be registered, for
each Purchaser issued Common Stock in connection with the Restructuring, 66 2/3%
of the value attributable to such shares of Common Stock received by the
relevant Purchaser plus, in the case of RCS, 66 2/3% of the consideration paid
by RCS for the RCS Common. "Registrable Securities" with respect to any
Purchaser include the 5% Notes, New Preferred or Common Stock issued to such
Purchaser in connection with the Restructuring, as applicable, Common Stock
issued upon conversion of such 5% Notes or New Preferred or upon conversion of
7% Notes issued to such Purchaser and, with respect to certain Purchasers,
certain other Common Stock. The Company will not be required to effect such a
registration if the request for registration is made within six months of
another such registration and the Company will not be required to effect more
than two such registrations during any 12 month period.

In addition, if the Company proposes to file a registration statement under
the Securities Act covering an offering by the Company for its own account or
the account of any other securityholder, the Company must offer to MGM and its
transferees during the MGM Priority Registration Period, and to all Purchasers

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and their transferees following the MGM Priority Registration Period, the
opportunity to register (a "Piggyback Registration") such Purchaser's
Registrable Securities as are requested to be included by such Purchaser. Any
Purchaser who does not request such Piggyback Registration for at least 50% of
the aggregate amount of Registrable Securities owned by such Purchaser shall not
be permitted to request a registration for a period of nine months from the
effective date of the registration statement for which it was offered the
opportunity to register. If a Purchaser actually includes in a Piggyback
Registration an amount of Registrable Securities which would have entitled it to
request a registration, then the Piggyback Registration shall count as one of
the Purchaser's requested registrations. The registration rights agreement
contains standard indemnity and contribution provisions for indemnification of
the Purchasers by the Company and indemnification of the Company by the
Purchasers. The Company also agreed to keep public information available in
order for Rules 144 and 144A under the Securities Act to be available to the
Purchasers.

LIVE REGISTRATION RIGHTS. In July 1993, LIVE granted to the Strategic
Investors certain rights to have registered the shares of LIVE common stock sold
to the Strategic Investors in June 1992 and the shares of LIVE common stock
exchanged in connection with the Restructuring in satisfaction of the Strategic
Investor Loan. The Company agreed to pay all registration expenses incurred in
connection with the registration of these shares of LIVE common stock.

CANAL+

In March 1991, Canal+ loaned the Company $5,880,000 pursuant to a
participation loan agreement entered into between the Company and Canal+, the
proceeds of which were used to pay a portion of the production costs of
TERMINATOR 2: JUDGMENT DAY. The loan bears interest at 10% per annum on the
unpaid portion. Canal+ will receive 7.64% of receipts from TERMINATOR 2:
JUDGMENT DAY until Canal+ and the Company have recouped their investment.
Thereafter, Canal+ will receive 3.82% of cash receipts. In 1993, the Company
paid $7,930,000 to Canal+, representing its share of the receipts from
TERMINATOR 2: JUDGMENT DAY. At December 31, 1992, the Company had an obligation
of approximately $5,980,000 due to Canal+ representing its share of the revenues
recognized through December 31, 1992 from TERMINATOR 2: JUDGMENT DAY. There were
no corresponding obligations at December 31, 1993 or March 31, 1994.

Also, pursuant to an investment agreement in July 1991, the Company received
$8,343,000 from Canal+ representing a co-financing payment toward the production
costs of the motion picture BASIC INSTINCT. The co-financing payment earns
interest at the rate of 10% per annum. In exchange for the co-financing payment,
Canal+ is to receive 20% of the cash receipts from BASIC INSTINCT until Canal+
has recouped its investment, plus interest. Thereafter Canal+ will receive a 10%
participation interest in any net receipts from BASIC INSTINCT after the Company
recoups its investment plus certain fees and expenses. In addition, Canal+ was
granted an undivided ownership interest with the Company in the film's
copyright, subject to certain conditions. During the years ended December 31,
1992 and 1993 the Company paid $5,315,000 and $4,474,000 respectively to Canal+
under this agreement. At December 31, 1992, December 31, 1993 and March 31,
1994, the Company had recorded a liability of approximately $1,439,000, $995,000
and $1,197,000, respectively, to Canal+ as its share of the revenues recognized
from BASIC INSTINCT after recoupment by the Company of its investment, plus
certain fees and expenses.

In November 1990, the Carolco/Canal+ Partnership entered into a co-financing
agreement whereby each party agreed to be responsible for 50% of the costs of
the motion picture THE DARK WIND. The Company and Canal+ are each entitled to
50% of the net receipts from the film until each have recouped their investments
in the film costs, plus interest. Thereafter, the Company is entitled to 75% of
the net receipts and Canal+ is entitled to 25% of the net receipts. For the
years ended December 31, 1992 and 1993, the Company paid $288,000 and
$1,802,000, respectively, to Canal+ as its share of the net receipts from THE
DARK WIND. At December 31, 1992, the Company owed $2,103,000, to Canal+ under
this agreement based on revenues recognized through December 31, 1992. There
were no corresponding obligations at December 31, 1993 or March 31, 1994.

At December 31, 1992, 1993 and March 31, 1994, the Company had accounts
receivable of $9,725,000, $3,033,000 and $3,032,000, respectively, from Canal+.
These receivables represent minimum guarantees due to the Company pursuant to
distribution agreements entered into, wherein Canal+ obtained certain

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rights to distribute the Company's films for pay and free television in France.
In the years ended December 31, 1992, 1993 and the three months ended March 31,
1994, the Company had received cash payments of approximately $1,738,000,
$420,000 and $250,000, respectively from Canal+, representing advances related
to certain of the Company's motion picture releases.

On September 11, 1992, the Company entered into an agreement with Hexagon to
provide non-exclusive executive producing services for the motion picture
STARGATE, for which the Company will receive $1,000,000, payable ratably over
the production period, plus, at the election of the Company, either (i) 1% of
the cash receipts from the exploitation of the picture provided that Hexagon has
recouped its production costs, related interest expense and distribution costs
plus $2,250,000 or (ii) 10% of Hexagon's adjusted gross receipts commencing
after Hexagon has recouped its production costs, related interest expense and
distribution costs plus a 10% fee to Hexagon. Under the terms of his existing
employment agreement, Mr. Kassar will be entitled to receive, as Turnaround
Incentive Compensation 50% of the amounts received by the Company. During 1993,
Hexagon paid $800,000 to the Company pursuant to the agreement and the Company,
in turn, paid $400,000 to Mr. Kassar. In addition, Hexagon retained the Company
to serve as foreign sales agent for the film in all foreign territories (except
France and certain French-speaking territories). In July 1993, Hexagon was
merged into Le Studio Canal+ (U.S.), a wholly-owned subsidiary of Canal+, which
assumed all rights and obligations under this agreement.

In addition, Canal+ has made co-financing payments for CHAPLIN and
CLIFFHANGER described above in "-- Other Transactions with the Strategic
Investors."

RCS

At December 31, 1992 and 1993 and March 31, 1994, the Company had accounts
receivable of $2,200,000, $880,000 and $0, respectively, from RCS. These
receivables represent minimum guarantees due to the Company pursuant to
distribution agreements entered into, wherein RCS obtained certain rights to
distribute the Company's films in all media in Italy.

On March 17, 1992, CINV sold 50% ownership in one of its principal
development projects to RCS in return for RCS's commitment to pay, subject to
certain conditions, 50% of the costs of development and production of the
project. During 1992 and 1993, RCS advanced $1,936,000 and $1,991,000,
respectively, to the Company representing certain development and production
commitments due to the Company under the March 17, 1992 agreement. Also, on July
20, 1992, CINV sold to Canal+ and Pioneer equal participations in the Company's
remaining 50% interest in the project in return for $2,070,000 from each of
Canal+ and Pioneer. The final participation interest of each of Pioneer and
Canal+ will be equal to a percentage determined by comparing the investment of
each of Pioneer and Canal+ to the final production cost of the project. The
Company has the right to repurchase, before commencement of principal
photography, the participations sold to Canal+ and Pioneer for the original
purchase price plus interest at 6-month LIBOR plus 1 1/2%.

In addition, RCS has agreed to make co-financing payments for CHAPLIN and
CLIFFHANGER described above in "-- Other Transactions with the Strategic
Investors."

PIONEER

In order to fund the Company's June 1, 1992 interest payment on the 13%
Notes and 14% Notes, Pioneer made a $3,500,000 bridge loan to the Company. The
loan bore interest at the Citibank N.A. prime rate plus 1% per annum. On
November 10, 1992, the amounts due under the bridge loan from Pioneer became due
and payable. The Company negotiated an extension of that loan until December 31,
1992. In January 1993, the Company, Pioneer and CLBN completed an agreement with
Pioneer to provide for the effective repayment of the bridge loan ($3,500,000
plus accrued interest of approximately $148,000) by offsetting the bridge loan
against overages owed by Pioneer to CINV for TERMINATOR 2: JUDGMENT DAY and
through the sale to Pioneer of Japanese distribution rights to certain of the
Company's motion pictures.

Pursuant to the distribution arrangements between CINV and Pioneer entered
into in June 1990 for certain of Carolco's motion pictures, CINV and its
affiliates granted to Pioneer and its affiliates certain rights of first refusal
with respect to theatrical, television and video distribution rights in Japan.
In addition, CINV granted Pioneer a right of first refusal on a worldwide basis
with respect to the rights to the manufacture,

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sale, marketing, distribution and exploitation on laser discs of motion pictures
and television programs produced or acquired by the Company or its affiliates.
CINV's affiliates also leased to Pioneer all theatrical, video and television
rights in the territory of Japan to nine specified motion pictures in exchange
for advance rentals. At December 31, 1992, the Company had accounts receivable
of approximately $3,782,000 from Pioneer. For the year ended December 31, 1993
and the three months ended March 31, 1994, there were no corresponding
receivables. These receivables represent minimum guarantees due to the Company
pursuant to these distribution agreements. During the years ended December 31,
1992 and 1993 and the three months ended March 31, 1994, the Company received
cash advances of approximately $145,000, $120,000 and $533,000, respectively,
from Pioneer, representing advances related to certain of the Company's motion
picture releases.

For the years ended December 31, 1992 and 1993, the Company had paid
$200,000 and $117,000, respectively, for consulting services of Pioneer.

In addition, Pioneer has agreed to make co-financing payments for
CLIFFHANGER described above in "-- Other Transactions with the Strategic
Investors."

CERTAIN BUSINESS RELATIONSHIPS AND OTHER TRANSACTIONS WITH MANAGEMENT

Pursuant to Article Eleventh of Carolco's Restated Certificate of
Incorporation, Article V, Section 5.06 of Carolco's Bylaws and Section 10 of
various indemnity agreements entered into between Carolco and its directors upon
the commencement of their terms as directors as permitted by Section 145(c) of
the DGCL, Carolco is paying the expenses of the following directors incurred in
their defense of certain lawsuits described under "The Business of Carolco --
Legal Proceedings." Lynwood Spinks (a member of Carolco's Board of Directors),
and Roger R. Smith, Fred Feitshans, Peter M. Hoffman, Louis Weiss, Robert L.
Turner, Daniel M. Melnick and the late Rocco Viglietta (all former members of
Carolco's Board of Directors) are represented by common legal counsel in
connection with the purported derivative action described under "The Business of
Carolco -- Legal Proceedings -- Settlement of Purported Derivative Action."
During the fiscal years ended December 31, 1992 and 1993, Carolco paid on behalf
of such directors and former directors approximately $22,000 and $18,000,
respectively, in legal expenses in connection with such purported derivative
action. Michael E. Garstin (a member of Carolco's Board of Directors) and Frans
J. Afman, Steven P. Aronoff and Rene Bonnell (former members of Carolco's Board
of Directors) are also represented by common legal counsel in connection with
such action. During the fiscal years ended December 31, 1992 and 1993 Carolco
paid on behalf of such persons approximately $2,000 and $6,000, respectively, in
legal expenses related to such action. In addition, during the fiscal years
ended December 31, 1992 and 1993 Carolco paid approximately $23,000 and $18,000,
respectively, in legal expenses on behalf of Mario F. Kassar, Chairman of the
Board of Directors, who has separate legal counsel in such action.

In connection with the class action litigation described under "The Business
of Carolco -- Legal Proceedings -- Other Litigation," Carolco paid approximately
$29,000 and $6,000 in legal expenses during the fiscal years ended December 31,
1992 and 1993, respectively, on behalf of Mario F. Kassar (Chairman of the Board
of Directors), Ryuichi Noda (a member of Carolco's Board of Directors) and Roger
R. Smith, Frans J. Afman, Satoshi Matsumoto, Peter M. Hoffman, Louis Weiss and
Rene Bonnell (former members of Carolco's Board of Directors), all of whom are
represented by common legal counsel.

At December 1992, the Company had a $450,000 note payable to New CIBV
bearing interest at 12 1/2%, secured by a deed of trust on property purchased by
the Company in 1989. Interest was payable monthly with all outstanding principal
and unpaid interest payable in full on December 30, 1993. For each of the years
ended December 31, 1992 and 1993, the Company recorded interest expense of
$56,000 on the note. On December 22, 1993, the Company repaid the note in full,
including principal and any unpaid interest.

In October 1993, the Company made a loan of $300,000 to Mr. Spinks pursuant
to Mr. Spinks' employment agreement. The loan bears interest at the Company's
periodic borrowing rate and will be forgiven in equal installments of $75,000,
plus accrued interest, on each of March 1, 1994, 1995, 1996 and 1997. Any
remaining principal plus accumulated interest thereon, shall be forgiven by the
Company on the termination of Mr. Spinks' employment for any reason whatsoever
other than termination by the Company for Mr. Spinks' material breach as defined
in the agreement.

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Metronome Productions N.V., an affiliate of Frans Afman, a former director
of the Company, received cash fees of $50,000 in 1992 and $250,000 in 1993 for
services provided as a managing director of CINV pursuant to an agreement which
expires on June 30, 1994.

In August 1992, the Company retained the Financial Advisors to assist in
locating capital sources, to market for sale certain accounts receivable, to
make recommendations with respect to any transactions which may result, and to
consider a possible restructuring of the Company's capital structure. Michael E.
Garstin, a principal in Daniels, is a member of the board of directors of the
Company. Pursuant to the August 1992 Agreement, the Financial advisors will be
entitled to receive (i) 2/3 of 2% of any amounts received as Co-Production
Investments from Canal+, (ii) 2% of any amounts received as Co-Production
Investments from TCI, (iii) 2/3 of 2% of the amount received from the sale of
the 7% Notes and (iv) 1% of any amounts received from TCI for any Pay-Per-View
Pictures.

In addition, in December 1992, the Company also retained the Financial
Advisors in connection with the exchange offers to the holders of the 14% Notes,
the 13% Notes, the Existing 10% Debentures, the Series D Preferred and the Vista
Common Stock and the associated Series A Puts attached thereto in connection
with the Restructuring.

In exchange for their advisory services, the Company agreed to pay certain
fees and expenses to the Financial Advisors. As a result of the services
provided by the Financial Advisors in conjunction with the Restructuring, in
1992 and 1993 the Company paid approximately $979,000 and $4,463,000,
respectively in fees and expenses to the Financial Advisors. Under its
agreements with the Financial Advisors, the Company also agreed to indemnify the
Financial Advisors from certain liabilities in connection with the Restructuring
including liabilities under the Securities Act of 1933 and the Exchange Act of
1934.

On January 20, 1994, the Company retained Daniels to act as its financial
advisor in connection with the Business Combination of the Company and LIVE. In
consideration of the services to be provided by Daniels, the Company agreed to
pay Daniels the following compensation: (i) an initial retainer fee in the
amount of $100,000 which was paid in March 1994, (ii) $450,000 upon execution of
the letter of intent to accomplish the Business Combination and (iii) $450,000
upon closing of the Business Combination. In addition, the Company agreed to pay
all reasonable out-of-pocket expenses (including legal fees and expenses)
incurred by Daniels up to $50,000, whether or not the Business Combination is
consummated.

In connection with the Kassar Agreement, Mr. Kassar will be entitled to
production-related incentive compensation with respect to the motion pictures
CLIFFHANGER, UNIVERSAL SOLDIER, BASIC INSTINCT and CHAPLIN equal to a
"Percentage" of Aggregate Gross Profits (as determined in the Previous Kassar
Agreement) once certain "Thresholds" (as defined in the Previous Kassar
Agreement and described below) are achieved. An obligation of $724,000,
$1,407,000 and $1,436,000 was recorded by the Company at each of December 31,
1992 and 1993 and March 31, 1994, respectively, pursuant to this agreement and
is included in Notes and Amounts Payable, Related Parties. This obligation will
be paid in future periods based on actual receipts of cash and pursuant to the
terms of the agreement. The Kassar Agreement provides a separate formula for
similar producer's fees for motion pictures as to which principal photography
commences from January 1, 1993 through the term of the Kassar Agreement. See
"Item 12. Directors and Executive Officers -- Employment Agreements." Other than
WAGONS EAST, no motion pictures commenced principal photography during 1993.

Pursuant to his employment agreement with the Company, Mr. Kassar was
entitled to receive a bonus of $500,000 in recognition of the achievements of
TERMINATOR 2: JUDGMENT DAY. On April 20, 1993, the Company paid such bonus and
accrued interest to Mr. Kassar.

Other than as described above, at December 31, 1992 and 1993, respectively,
receivables of $19,000 and $107,000 were due from directors, officers and/or
employees of the Company. At December 31, 1992, the total balance of outstanding
officer and employer receivables at LIVE was $524,000.

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CERTAIN BUSINESS RELATIONSHIPS AND OTHER TRANSACTIONS WITH CERTAIN SHAREHOLDERS
OTHER THAN THE STRATEGIC INVESTORS

In 1990, the Company entered into an agreement with Continental Film
Production Holding B.V., ("Continental"), a Netherlands Antilles company which
the Company believes is controlled by Andrew G. Vajna, a former co-chairman and
a founder of the Company. The Company believes that Mr. Vajna is affiliated with
certain companies which beneficially own approximately 2.5% of the Company's
Common Stock. Pursuant to the agreement, Continental acquired the right to
distribute all of the films produced or acquired by the Company in all media in
Hungary and Poland. The agreement further provides that Continental will pay to
the Company 50% of cash receipts from distribution of the Company's films, after
Continental recoups its distribution expenses.

During the years ended December 31, 1992 and December 31, 1993, Continental
paid to the Company approximately $118,000 and $371,000, respectively pursuant
to the agreement. At December 31, 1992 and December 31, 1993, Continental owed
approximately $144,000 and $24,000, respectively, to the Company pursuant to the
agreement.

In December 1989, pursuant to a stock sale agreement, Mr. Vajna divested his
and his affiliates' entire ownership interests (held either directly or
indirectly through a chain of related corporations) in the Company's Common
Stock, other than an option to purchase 500,000 shares of Common Stock. Pursuant
to this agreement, the Company was required to pay certain legal and accounting
fees on behalf of Mr. Vajna and his affiliates. In 1992 and 1993, the Company
paid approximately $173,200 and $416,000, respectively, in legal and accounting
fees pursuant to this agreement. At December 31, 1992 and December 31, 1993, the
Company owed an additional $247,000 and $80,000, respectively, in legal and
accounting fees.

As a result of the consummation of the Restructuring, the companies
affiliated with Mr. Vajna beneficially own less than 5% of the Company's Common
Stock.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)(1) The following consolidated financial statements of Carolco Pictures
Inc. and Subsidiaries are included in Item 8:

Report of Independent Auditors

Consolidated balance sheets -- December 31, 1992 and 1993

Consolidated statements of operations -- Years ended December 31, 1991, 1992
and 1993

Consolidated statements of cash flows -- Years ended December 31, 1991, 1992
and 1993

Consolidated statements of stockholders' equity (deficiency) -- Years ended
December 31, 1991, 1992 and 1993

Notes to consolidated financial statements -- December 31, 1993

(a)(2) The following consolidated financial statement schedules of Carolco
Pictures Inc. and Subsidiaries are included in Item 14(d):

Schedule II -- Amounts receivable from related parties and underwriter,
promoters and employees other than related parties

Schedule IV -- Indebtedness of and to related parties -- not current

Schedule VIII -- Valuation and qualifying accounts

Schedule IX -- Short-term borrowings

Schedule X -- Supplementary income statement information

65
<PAGE>
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.

(a)(3) The exhibits listed on the Exhibit Index are filed as part of this
report.

(b) The following reports on Form 8-K were filed by the registrant during
the last quarter of the period covered by this report:

Current Report on Form 8-K dated October 20, 1993, filed by the Registrant
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 relating
to the Restructuring and Vista Offer to Purchase, Redemption of Preferred Stock
Purchase Rights and Delisting of Common Stock from Toronto Stock Exchange.

66
<PAGE>
SIGNATURES

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

CAROLCO PICTURES INC.

By: /s/ MARIO F. KASSAR

-----------------------------------
Mario F. Kassar
CHAIRMAN OF THE BOARD OF DIRECTORS
AND
CHIEF EXECUTIVE OFFICER

Dated: April 15, 1994

Pursuant to the requirements of the Securities Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------------ --------------------------------------- ----------------
<C> <S> <C>
/s/ MARIO F. KASSAR Chairman of the Board
------------------------------------------- of Directors and April 15, 1994
Mario F. Kassar Chief Executive Officer
Executive Vice President and
/s/ WILLIAM A. SHPALL Chief Financial Officer
------------------------------------------- (Principal Financial and April 15, 1994
William A. Shpall Accounting Officer)
/s/ LYNWOOD SPINKS Executive Vice President/
------------------------------------------- President of Production April 15, 1994
Lynwood Spinks and Director
/s/ HECTOR PATRICK DOWD
------------------------------------------- Director April 15, 1994
Hector Patrick Dowd
------------------------------------------- Director April , 1994
Guy-Etienne Dufour
/s/ MICHAEL E. GARSTIN
------------------------------------------- Director April 15, 1994
Michael E. Garstin
------------------------------------------- Director April , 1994
Paolo Glisenti
</TABLE>

[Signatures continued on next page]

S-1
<PAGE>

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------------ --------------------------------------- ----------------
<C> <S> <C>
------------------------------------------- Director April , 1994
Olivier Granier
/s/ MICHAEL S. HOPE
------------------------------------------- Director April 15, 1994
Michael S. Hope
------------------------------------------- Director April , 1994
Kaneo Ito
------------------------------------------- Director April , 1994
Rene-Claude Jouannet
/s/ TETSURO KUDO
------------------------------------------- Director April 15, 1994
Tetsuro Kudo
------------------------------------------- Director April , 1994
Pierre Lescure
/s/ GORDON C. LUCE
------------------------------------------- Director April 15, 1994
Gordon C. Luce
------------------------------------------- Director April , 1994
Michael Meltzer
/s/ RYUICHI NODA
------------------------------------------- Director April 15, 1994
Ryuichi Noda
/s/ JOSEPH A. SCUDERO
------------------------------------------- Director April 15, 1994
Joseph A. Scudero
/s/ ADAM SINGER
------------------------------------------- Director April 15, 1994
Adam Singer
/s/ MASAAKI SONO
------------------------------------------- Director April 15, 1994
Masaaki Sono
</TABLE>

S-2
<PAGE>
REPORT OF INDEPENDENT AUDITORS

Board of Directors
Carolco Pictures Inc.

We have audited the accompanying consolidated balance sheets of Carolco
Pictures Inc. and subsidiaries as of December 31, 1992 and 1993 and the related
consolidated statements of operations, stockholders equity (deficiency), and
cash flows for each of the three years in the period ended December 31, 1993.
Our audits also included the financial statement schedules listed in the Index
at Item 14(a). These financial statements and schedules are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements and schedules based on our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Carolco Pictures Inc. and subsidiaries at December 31, 1992 and 1993, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1993, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedules, when considered in relation to the basic financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.

ERNST & YOUNG

Century City
Los Angeles, California
March 31, 1994

F-1
<PAGE>
CAROLCO PICTURES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1992 1993
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents............................................. $ 24,202 $ 56,697
Restricted cash....................................................... 7,825 1,255
Accounts receivable, net of allowances of $27,284 (1992) and $1,390
(1993) -- Note O..................................................... 82,258 12,837
Accounts receivable, related parties -- Note I........................ 10,578 4,877
Film costs, less accumulated amortization -- Note H................... 135,395 78,427
Inventories and video rights, less accumulated amortization -- Note
H.................................................................... 123,701 -0-
Property and equipment, at cost, less accumulated depreciation and
amortization -- Note J............................................... 32,925 19,925
Goodwill, net of accumulated amortization of $36,069 (1992)........... 95,749 -0-
Assets held for sale.................................................. 5,911 -0-
Other assets.......................................................... 14,071 14,053
--------- ---------
TOTAL ASSETS...................................................... $ 532,615 $ 188,071
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
LIABILITIES:
Accounts payable...................................................... $ 30,445 $ 11,156
Accrued liabilities................................................... 64,836 9,885
Accrued residuals and participations.................................. 32,573 32,662
Income taxes current and deferred -- Note M........................... 13,582 11,365
Debt -- Notes B and K................................................. 228,616 94,580
Advance collections on contracts...................................... 41,456 20,012
Contractual obligations............................................... 34,494 1,180
Notes and amounts payable, related parties -- Notes B and I........... 100,136 26,306
Other liabilities..................................................... 25,159 1,995
--------- ---------
TOTAL LIABILITIES................................................. 571,297 209,141
COMMITMENTS AND CONTINGENCIES -- Note P
DUE TO MINORITY SHAREHOLDERS -- Note A................................ 62,676 -0-
SERIES D CONVERTIBLE EXCHANGEABLE PREFERRED STOCK -- ($15,400,000
aggregate liquidation preference) Notes B and L...................... 15,400 -0-
STOCKHOLDERS' DEFICIENCY -- Notes A, B, I and L
Preferred stock -- $1.00 par value, 10,000,000 shares authorized:
Series A Convertible Preferred Stock, 83,314 shares authorized and
issued ($83,314,000 aggregate liquidation preference).............. -0- 83
Series B Convertible Preferred Stock, 30,000 shares authorized and
issued ($30,000,000 aggregate liquidation preference).............. 30 -0-
Series C Convertible Exchangeable Preferred Stock, 60,000 shares
authorized and issued ($60,000,000 aggregate liquidation
preference)........................................................ 60 -0-
Series E Convertible Preferred Stock, 12,800 shares authorized and
issued ($12,800,000 aggregate liquidation preference).............. 13 -0-
Common stock -- $.01 par value, 100,000,000 shares authorized,
30,623,569 shares issued and outstanding, including 536,438 shares
in treasury in 1992 and 650,000,000 shares authorized, 140,015,109
shares issued and outstanding, including 2,327,381 shares in
treasury in 1993................................................... 303 1,400
Additional paid-in capital.......................................... 138,528 297,931
Treasury stock...................................................... (5,920) (5,920)
Accumulated deficit................................................. (249,772) (314,564)
--------- ---------
TOTAL STOCKHOLDERS' DEFICIENCY.................................... (116,758) (21,070)
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY.................... $ 532,615 $ 188,071
--------- ---------
--------- ---------
</TABLE>

See notes to consolidated financial statements.

F-2
<PAGE>
CAROLCO PICTURES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1991 1992 1993
----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Revenues:
Feature films (including $24,250 in 1991, $42,016 in 1992 and
$32,846 in 1993 from related parties) -- Note I............. $ 234,529 $ 269,285 $ 103,180
LIVE net sales............................................... 264,418 192,513 --
Interest income from related parties -- Note I............... 607 -- --
Other -- Note N.............................................. 4,612 4,622 5,128
----------- ----------- -----------
TOTAL REVENUES............................................. 504,166 466,420 108,308
Costs and expenses:
Amortization of film, television and video costs, residuals
and participations.......................................... 482,542 458,237 108,620
Costs associated with restructurings -- Note B............... 88,400 2,626 4,744
Costs associated with disposal of portion of line of business
-- Note G................................................... -- -- 2,072
Selling, general and administrative.......................... 60,811 57,751 24,634
Amortization of goodwill and covenants....................... 3,656 4,874 --
Writeoff of excess cost over net assets acquired
(goodwill).................................................. 30,062 -- --
Interest (including $770 in 1991, $5,800 in 1992 and $2,784
in 1993 to related parties) -- Notes B, I and K............. 48,211 40,449 23,505
Other expenses -- Note N..................................... 10,465 7,238 --
----------- ----------- -----------
TOTAL COSTS AND EXPENSES................................... 724,147 571,175 163,575
----------- ----------- -----------
LOSS FROM CONTINUING OPERATIONS BEFORE EQUITY IN LOSS OF
AFFILIATED COMPANIES, PROVISION FOR INCOME TAXES AND
MINORITY INTEREST......................................... (219,981) (104,755) (55,267)
Equity in loss of affiliated companies --Notes A and E......... -- -- (3,832)
----------- ----------- -----------
LOSS FROM CONTINUING OPERATIONS BEFORE PROVISION FOR INCOME
TAXES AND MINORITY INTEREST............................... (219,981) (104,755) (59,099)
(Provision) benefit for income taxes -- Note M................. (5,498) 594 (4,555)
----------- ----------- -----------
LOSS FROM CONTINUING OPERATIONS BEFORE MINORITY INTEREST... (225,479) (104,161) (63,654)
Minority interest in loss from continuing operations........... 8,695 6,713 --
----------- ----------- -----------
LOSS FROM CONTINUING OPERATIONS............................ (216,784) (97,448) (63,654)
DISCONTINUED OPERATIONS (Note F):
Equity in loss from discontinued operations of affiliated
company..................................................... -- -- (730)
Income (loss) from operations, net of income taxes........... (11,854) 1,090 --
Loss on disposal and operating losses during phase out
period, net of income taxes................................. (77,460) -- --
Minority interest in discontinued operations................. 41,043 (542) --
----------- ----------- -----------
INCOME (LOSS) FROM DISCONTINUED OPERATIONS................. (48,271) 548 (730)
----------- ----------- -----------
LOSS BEFORE EXTRAORDINARY ITEM............................. (265,055) (96,900) (64,384)
Extraordinary gain on early extinguishment of debt, including
income tax benefit of $790 in 1992 (See Notes B and D)........ -- 8,883 426
----------- ----------- -----------
NET LOSS................................................... $ (265,055) $ (88,017) $ (63,958)
----------- ----------- -----------
----------- ----------- -----------
Per Common Share:
Loss from continuing operations.............................. $ (7.76) $ (3.38) $ (1.28)
Loss from discontinued operations............................ (1.68) .02 (.01)
Income from extraordinary item............................... -- .30 .01
----------- ----------- -----------
Net loss..................................................... $ (9.44) $ (3.06) $ (1.28)
----------- ----------- -----------
----------- ----------- -----------
Weighted average shares outstanding.......................... 28,666,011 30,087,131 50,497,529
----------- ----------- -----------
----------- ----------- -----------
</TABLE>

See notes to consolidated financial statements.

F-3
<PAGE>
CAROLCO PICTURES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1991 1992 1993
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Net cash flow from operating activities:
Net loss from continuing operations... $ (216,784) $ (97,448) $ (63,654)
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities:
Amortization of film costs.......... 376,727 300,429 75,004
Write-off (recovery) of development
projects........................... 27,052 16,541 (964)
Increase in general inventory
reserve............................ 18,500 -- --
Amortization and writeoff of
goodwill and covenants............. 18,640 4,875 --
Depreciation and amortization....... 5,269 7,788 9,095
Equity in income of affiliate....... -- -- 4,562
Loss on disposal of or write-down of
assets............................. -- 1,303 477
(Increase) decrease in
receivables........................ (67,010) 49,094 29,189
Increase (decrease) in payables,
accrued liabilities, accrued
residuals and participations,
income taxes payable and other
assets............................. 142,587 (31,400) (13,186)
Increase in film costs and rights... (315,125) (7,383) (29,595)
Increase in inventories and video
rights............................. (97,546) (50,282) --
Payments on contractual
obligations........................ (86,619) (87,336) --
Increase in contractual
obligations........................ 95,351 50,837 --
Decrease in advance collections on
contracts.......................... (15,645) (16,935) (15,127)
---------- ---------- ----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES............... (114,603) 140,083 (4,199)
NET CASH PROVIDED BY (USED IN)
DISCONTINUED OPERATIONS............ 77,533 (15,470) (730)
---------- ---------- ----------
NET CASH PROVIDED BY (USED IN)
OPERATIONS......................... (37,070) 124,613 (4,929)
Cash flow from investing activities:
Purchase of property and equipment.... (23) (3,913) (1,383)
Retirement of assets.................. 1,931 3,125 35
Investment in LIVE Entertainment,
Inc.................................. 91,044 -- (1,265)
Increase in net assets, net of cash
acquired, due to increased ownership
in LIVE Entertainment, Inc........... (70,679) -- --
(Increase) decrease in minority
interest............................. 9,779 (7,274) --
Purchase of Vestron................... (34,461) -- --
Sales of assets to Multimedia......... 9,814 -- --
Purchase of minority interest of
Vista................................ 15,062 -- --
Increase in goodwill regarding
acquisition costs.................... (5,900) -- --
---------- ---------- ----------
NET CASH (USED IN) PROVIDED BY
INVESTING ACTIVITIES............... 16,567 (8,062) (2,613)
</TABLE>

See notes to consolidated financial statements.

F-4
<PAGE>
CAROLCO PICTURES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1991 1992 1993
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flow from financing activities:
Payments on debt...................... $ (219,109) $ (372,666) $ (25,995)
Increase in borrowings from banks and
other credit facilities.............. 204,135 166,131 --
Increase in notes payable to related
parties.............................. 1,148 21,833 2,297
(Increase) decrease in receivables
from related parties................. 6,356 (7,148) 328
Repurchase of senior subordinated
notes................................ (9,934) -- --
Extraordinary gain on extinguishment
of debt.............................. -- 4,916 --
Payment of preferred dividends........ (4,500) (3,125) (20)
Payment of debt restructuring
expenses............................. -- (2,533) --
Increase in debt acquisition costs.... (4,649) (3,714) --
Decrease in cash as a result of the
deconsolidation of LIVE.............. -- -- (11,042)
Proceeds from sale of accounts
receivable to Showtime............... -- -- 25,896
Repayment of Pioneer Bridge Loan...... -- -- (3,681)
Repayment of Guild Note............... -- -- (4,873)
Proceeds from Restructuring, net of
payments and costs................... -- -- 58,329
Exercise of stock options/warrants.... 770 10 --
Investment by Technicolor............. 14,000 -- --
Investment by RCS..................... 19,533 -- --
Investment by Neue Constantin......... 2,982 -- --
Issuance of Existing 10% Debentures... 47,500 -- --
(Increase) decrease in restricted
cash................................. (52,728) 44,903 (1,234)
Issuance of Series D Convertible
Exchangeable Preferred Stock......... 16,762 -- --
Repurchase of 14% Senior Notes........ -- (32,949) --
Proceeds from SunAmerica Receivable
Sale................................. -- 23,125 --
Proceeds from Strategic Investor
Loans................................ -- 32,603 --
Strategic Investor Priority
Interest............................. -- 566 --
Strategic Investor Bridge Loan........ -- 3,647 --
Issuance of Series E Preferred
Stock................................ -- 12,801 --
Change in treasury stock as a result
of the settlement of derivative
lawsuit.............................. 3,928 -- --
Other................................. 872 136 32
---------- ---------- ----------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES............... 27,066 (111,464) 40,037
---------- ---------- ----------
INCREASE IN CASH.................... 6,563 5,087 32,495
Cash and cash equivalents at
beginning of period................ 12,552 19,115 24,202
---------- ---------- ----------
Cash and cash equivalents at end of
period............................. $ 19,115 $ 24,202 $ 56,697
---------- ---------- ----------
---------- ---------- ----------
Supplemental disclosure of cash flow
information:
Cash paid during the year for:
Interest (net of amount
capitalized)....................... $ 46,265 $ 21,861 $ 8,345
---------- ---------- ----------
---------- ---------- ----------
Income taxes........................ $ 8,276 $ 1,484 $ 660
---------- ---------- ----------
---------- ---------- ----------
</TABLE>

See notes to consolidated financial statements.

F-5
<PAGE>
CAROLCO PICTURES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCIAL ACTIVITIES:

YEAR ENDED DECEMBER 31, 1991:

As of June 25, 1991, the Company exchanged 1,084,000 shares of LIVE
Entertainment Inc. ("LIVE") Series A Common Stock for 1,626,000 shares of LIVE
Common Stock. See Note E of the Company's Notes to Consolidated Financial
Statements. Accordingly, the Company's financial position at December 31, 1991
and the results of operations for the twelve months ended December 31, 1991 have
been consolidated with those of LIVE for the same period.

In July 1991, in connection with the acquisition of Vestron Inc., LIVE
issued 1,050,000 shares of Series A Cumulative Convertible Preferred Stock.

YEAR ENDED DECEMBER 31, 1992:

On May 28, 1992, 42,000 shares of Series D Convertible Exchangeable
Preferred Stock, par value $1.00 per share, (the "Series D Preferred") held by
qualified institutional buyers, were converted into $2,100,000 of the Company's
Existing 10% Subordinated Debentures due 2006 (the "Existing 10% Debentures").

In June 1992, the Company sold to its Strategic Investors, a total of
360,000 shares of common stock of LIVE owned by the Company having an aggregate
market value of $787,500 and cost of $1,906,000. In exchange for the shares of
common stock of LIVE, each Strategic Investor forgave a portion of the Strategic
Investor Loans.

On September 2, 1992, a subsidiary of the Company sold its feature film
library of U.S. television rights and certain receivables to Worldvision
Enterprises, Inc. ("Worldvision"). In connection with this transaction, the
Company recorded income of approximately $730,000 on revenues of approximately
$49,000,000, inclusive of $2,167,000 of expenses and writedowns.

In 1992, the Series D Preferred was increased by $590,000 to its liquidation
value.

Minority interest decreased by $6,000,000 as a result of the Liquidation
Estate of the DEG creditors drawing upon a letter of credit at CLBN. The payment
under the letter of credit was funded by CLBN advancing additional funds
increasing amounts outstanding under the CLBN facility.

LIVE replaced an aggregate of $110,000,000 principal amount of the
outstanding 14.5% Senior Subordinated Notes, plus accrued and unpaid interest,
and 1,050,000 shares of outstanding Series A Cumulative Convertible Preferred
Stock (liquidation preference of $21,000,000), plus accrued and unpaid dividends
for $40,000,000 in principal amount of New Increasing Rate Secured Senior
Subordinated Notes, plus interest, 6,000,000 shares of New Series B Cumulative
Convertible Preferred Stock (liquidation preference of $60,000,000) and
$8,000,000 in cash, resulting in an extraordinary gain on early extinguishment
of debt of $3,967,200 including a tax benefit of $790,000.

At June 30, 1992, the Company reduced the net book value of certain assets
by approximately $1,616,000 to reflect their estimated market value.

In June 1992, the Company sold its rights in a film acquired by the Company.
In exchange for the sale of rights, certain obligations were forgiven, resulting
in a net loss of approximately $1,440,000.

YEAR ENDED DECEMBER 31, 1993:

Pursuant to the Restructuring, the holders of $22,496,000 in principal
amount of the Company's outstanding 14% Notes exchanged such notes which were
past due and received $1,000 in principal amount of New Senior Notes for each
$1000 in principal amount of 14% Notes exchanged. In addition, the holders of
$12,700,000 in principal amount of the Company's outstanding 13% Notes exchanged
such notes and received $1,000 in principal amount of New Senior Notes for each
$1000 in principal amount of 13% Notes exchanged, plus 50% of accrued interest
($732,000) in New Senior Subordinated Notes. (See Note B(1)).

F-6
<PAGE>
CAROLCO PICTURES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

Also pursuant to the Restructuring, 8,000 shares of the Company's Series D
Preferred, representing all of the Company's outstanding Series D Preferred
(other than 300,000 shares held by Cinepole), were exchanged for 600,000 shares
of the Company's Common Stock. In addition, $14,600,000 in face amount of the
Existing 10% Debentures, representing all of the Company's outstanding Existing
10% Debentures (other than $35,000,000 in aggregate face amount held by Pioneer
and an affiliate of RCS), was exchanged for 21,900,000 shares of the Company's
Common Stock. (See Note B(4)).

Pursuant to the terms of a Contribution and Exchange Agreement in
satisfaction of approximately $17,686,000 of a $32,200,000 loan plus accrued
interest previously extended to Carolco by Pioneer, Canal+ and RCS
(collectively, the "Strategic Investors"), Carolco transferred to Pioneer,
Cinepole and an affiliate of RCS, 3,885,223, 1,180,030 and 1,180,030 shares of
the common stock of LIVE, respectively, representing all of the shares of LIVE
common stock held by Carolco. Pursuant to the Contribution and Exchange
Agreement, the remaining portion of the loan was satisfied by the issuance to
Pioneer, Cinepole and RCS Communications, of 8,586,543, 3,051,660 and 3,253,337
shares of Carolco's common stock, $.01 par value per share, respectively. (See
Note B(5)).

Pursuant to the Contribution and Exchange Agreement, each of the Strategic
Investors exchanged a portion of Carolco's outstanding preferred stock and
Existing 10% Debentures held by it for an aggregate of 72,000,000 shares of the
Company's Common Stock. Specifically, Pioneer received 37,824,031 shares of
Common Stock, Cinepole received 22,950,471 shares of Common Stock and RCS
Communications received 11,225,498 shares of Common Stock. (See Note B(5)).

In addition, pursuant to the terms of the Contribution and Exchange
Agreement, each of the Strategic Investors transferred to the Company, as a
capital contribution, the Company's remaining outstanding preferred stock,
certain related options and warrants and any Existing 10% Debentures held by it
after the exchanges described above and all accrued but unpaid dividends and
interest thereon and on the securities exchanged and certain other obligations.
(See Note B(5)).

See notes to consolidated financial statements.

F-7
<PAGE>
CAROLCO PICTURES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
YEARS ENDED DECEMBER 31, 1991, 1992 AND 1993
<TABLE>
<CAPTION>
PREFERRED STOCK NUMBER OF
------------------------------------------- COMMON
SERIES A SERIES B SERIES C SERIES E SHARES
-------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
BALANCE at December 31, 1990....... $ -- $ 30 $ 60 $ -- 30,281
Exercise of stock options........ -- -- -- -- 142
Purchase of treasury stock....... -- -- -- -- --
Consent solicitation............. -- -- -- -- 201
Sale of treasury stock........... -- -- -- -- --
Preferred dividends.............. -- -- -- -- --
Net Loss -- 1991................. -- -- -- -- --
-------- --------- --------- --------- ---------
BALANCE at December 31, 1991....... -- 30 60 -- 30,624
Proceeds from issuance of
preferred stock -- Series E..... -- -- -- 13 --
Increase of Series D to
liquidation value............... -- -- -- -- --
Preferred dividends.............. -- -- -- -- --
Net Loss -- 1992................. -- -- -- -- --
-------- --------- --------- --------- ---------
BALANCE at December 31, 1992....... $ -- $ 30 $ 60 $ 13 30,624
Proceeds from issuance of New
Preferred and 5% Notes, net of
costs........................... 83 -- -- -- --
Exchange of Existing 10%
Debentures and Series D
Preferred for common stock, net
of costs........................ -- -- -- -- 22,500
Exchange and Contribution of
Strategic Investor Securities,
net of costs.................... -- (30) (60) (13) 72,000
Satisfaction of Strategic
Investor Loan, net of costs..... -- -- -- -- 14,891
Other............................ -- -- -- -- --
Preferred Dividends.............. -- -- -- -- --
Net Loss -- 1993................. -- -- -- -- --
-------- --------- --------- --------- ---------
BALANCE at December 31, 1993....... $ 83 $ 0 $ 0 $ 0 140,015
-------- --------- --------- --------- ---------
-------- --------- --------- --------- ---------

<CAPTION>
ADDITIONAL RETAINED
COMMON PAID-IN TREASURY EARNINGS
STOCK CAPITAL STOCK TOTAL TOTAL
------ ----------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>

BALANCE at December 31, 1990....... $ 301 $ 125,146 $(45,385) $ 110,925 $ 191,077
Exercise of stock options........ 2 768 -- -- 770
Purchase of treasury stock....... -- -- (200) -- (200)
Consent solicitation............. -- -- -- -- --
Sale of treasury stock........... -- 416 39,665 -- 40,081
Preferred dividends.............. -- -- -- (4,500) (4,500)
Net Loss -- 1991................. -- -- -- (265,055) (265,055)
------ ----------- --------- ---------- ----------
BALANCE at December 31, 1991....... 303 126,330 (5,920) (158,630) (37,827)
Proceeds from issuance of
preferred stock -- Series E..... -- 12,788 -- -- 12,801
Increase of Series D to
liquidation value............... -- (590) -- -- (590)
Preferred dividends.............. -- -- -- (3,125) (3,125)
Net Loss -- 1992................. -- -- -- (88,017) (88,017)
------ ----------- --------- ---------- ----------
BALANCE at December 31, 1992....... $ 303 $ 138,528 $ (5,920) $ (249,772) $ (116,758)
Proceeds from issuance of New
Preferred and 5% Notes, net of
costs........................... -- 84,903 -- -- 84,986
Exchange of Existing 10%
Debentures and Series D
Preferred for common stock, net
of costs........................ 225 14,059 -- -- 14,284
Exchange and Contribution of
Strategic Investor Securities,
net of costs.................... 720 50,116 -- -- 50,733
Satisfaction of Strategic
Investor Loan, net of costs..... 149 9,481 -- -- 9,630
Other............................ 3 30 -- -- 33
Preferred Dividends.............. -- 814 -- (834) (20)
Net Loss -- 1993................. -- -- -- (63,958) (63,958)
------ ----------- --------- ---------- ----------
BALANCE at December 31, 1993....... $1,400 $ 297,931 $ (5,920) $ (314,564) $ (21,070)
------ ----------- --------- ---------- ----------
------ ----------- --------- ---------- ----------
</TABLE>

F-8
<PAGE>
CAROLCO PICTURES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SIGNIFICANT ACCOUNTING POLICIES

REVENUE RECOGNITION: Minimum guaranteed amounts from theatrical exhibition
and revenues from home video, television and pay television license agreements
are recognized when the license period begins from each motion picture or
television program and such motion pictures or television programs are available
pursuant to the terms of the license agreement. Revenues from theatrical
exhibition in excess of minimum guaranteed amounts are recognized ratably during
the period of exhibition. Cash collected in advance of the time of availability
is recorded as advance collections on contracts.

Once completed, a typical theatrical film will generally be made available
for license as follows:

<TABLE>
<CAPTION>
MONTHS AFTER
INITIAL APPROXIMATE RELEASE
MARKETPLACE RELEASE PERIOD
------------------------------ ------------------ -------------------
<S> <C> <C>
Domestic theatrical..................................................... 6 months
Domestic home video..................................................... 6 months 6 months
Domestic cable/pay television........................................... 12-18 months 12-24 months
Domestic network television............................................. 30-36 months 30-36 months
Domestic syndication television......................................... 30-36 months 36-60 months
Foreign theatrical...................................................... 4-6 months
Foreign video........................................................... 6-12 months 6-18 months
Foreign television...................................................... 18-24 months 18-30 months
</TABLE>

SALES REVENUE AND RETURNS RECOGNITION: Revenue from sales is generally
recognized upon shipment to the customer. However, in accordance with industry
practice, certain sales are made with the right to return unsold items. An
allowance is provided for the gross profit impact of future sales returns, which
reduces sales and cost of goods sold accordingly.

FILM COSTS: Production, print and advertising costs (which benefit future
periods) and interest are capitalized as film costs. Film costs are stated at
the lower of cost or net realizable value. The individual film forecast method
is used to amortize film costs. Costs accumulated in the production and
distribution of a film are amortized in the proportion that gross revenues
realized bear to management's estimate of the total gross revenues expected to
be received. Estimated liabilities for residuals and participations are accrued
and expensed in the same manner as film cost inventories are amortized.

Revenue estimates on a film-by-film basis are reviewed periodically by
management and are revised, if warranted, based upon management's appraisal of
current market conditions. When necessary, unamortized film costs are written
down to net realizable value based on this appraisal.

VIDEO RIGHTS: Video rights attributable to LIVE Entertainment Inc.'s
("LIVE") home video subsidiary, LIVE Home Video Inc. ("LHV"), which include
minimum guaranteed payments, accrued royalties and advertising and promotional
costs associated with unreleased titles, were stated in the aggregate at the
lower of unrecovered cost or estimated net realizable value. Video rights were
amortized in amounts estimated to match such costs with revenues earned to date
in proportion to management's estimate of total anticipated revenues. As revenue
estimates change, amortization was adjusted accordingly. Where video rights were
acquired from producers for a guaranteed minimum payment, and the producer
retained a participation in the video profits, the video profits were allocated
to the Company until the guaranteed minimum payment was recovered, after which
the producer's share was accrued.

INVENTORY VALUATION: The inventory of LHV consisted of duplicated
videocassettes and boxes and was stated at the lower of actual cost or market.
All other inventories, which consist of pre-recorded music, videocassettes and
accessories, were stated at the lower of cost or market determined by using
average costs which approximates the first-in, first-out (FIFO) method.

F-9
<PAGE>
CAROLCO PICTURES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

CONCENTRATION OF CREDIT RISKS: The Company licenses various rights in its
motion pictures to distributors throughout the world. Generally, payment is
received in full or in part, or letters of credit are obtained, prior to the
Company's release of the films to its distributors. LIVE sells pre-recorded
music and videocassettes to wholesalers, retailers and consumers. Credit is
extended to wholesalers and retailers based on an evaluation of the customer's
financial condition, and generally collateral is not required. Credit losses are
provided for in the financial statements and consistently have been within
management's expectations. Credit risk relating to the sale and distribution of
videocassettes by WEA Corp. ("WEA") to LHV's customers was assumed by WEA under
the terms of a three-year distribution agreement (see Note K).

LIVE placed its temporary cash investments with high credit quality
financial institutions and limited the amount of credit exposure to any one
financial institution. Generally, the investments made matured within 30 days
and therefore were subject to little risk. LIVE did not incur any losses related
to these investments.

The Company places its temporary cash investments principally in repurchase
agreements, money markets and government bond funds with its banks, which are
high credit, quality financial institutions. As of December 31, 1993 the Company
had no significant concentration of credit risk.

FINANCIAL INSTRUMENTS: The fair market value of the Company's, and in 1992,
LIVE's financial instruments (debt obligations) has been reflected in the
consolidated financial statements based on the results of the consummation of
their respective financial restructurings as described in Notes B and D.

The financial instruments (assets) of the Company, and in 1992, LIVE are
generally short-term in nature and the fair market value of such financial
instruments are equal to their carrying value.

PROPERTY AND EQUIPMENT: Property and equipment are carried at cost and
depreciated or amortized using the straight-line and accelerated methods over
the following useful lives:

<TABLE>
<S> <C>
5-13
Equipment, furniture and leasehold improvements.................. years
Vehicles......................................................... 5 years
Building......................................................... 30 years
</TABLE>

NET INCOME (LOSS) PER COMMON SHARE: Net income (loss) per share is based on
the weighted average number of common and common equivalent shares outstanding
during the period, after appropriate elimination from net income of a pro rata
amount of preferred dividends. Common equivalent shares, consisting of
outstanding stock options and warrants, the Series A Convertible Preferred
Stock, Series B Convertible Preferred Stock, Series C Convertible Exchangeable
Preferred Stock, Series D Convertible Exchangeable Preferred Stock and Series E
Convertible Preferred Stock, are included in the calculation to the extent they
are dilutive. Other potentially dilutive securities, including the 10%
Convertible Subordinated Debentures due 2006 and the 5% Payment-In-Kind
Convertible Subordinated Notes due 2002, were excluded in 1991, 1992 and 1993
because the effect of their inclusion would be antidilutive.

GOODWILL: Goodwill in 1992 represented both LIVE's excess consideration
paid for companies acquired in purchase transactions over the estimated fair
value of the net assets of such companies and the application of pushdown
accounting associated with the Company's purchase of LHV in 1986. Goodwill was
amortized principally on the straight-line basis over periods ranging from 7 to
30 years. It has been the Company's policy to evaluate goodwill and recognize
impairment if it is probable that the recorded amounts are not recoverable from
future cash flows. Goodwill was eliminated as a result of the sale of the
Company's investment in LIVE.

INCOME TAXES: Effective January 1, 1993, the Company adopted Statement of
Financial Accounting Standard (SFAS) No. 109 "Accounting for Income Taxes".
Previously, the Company used SFAS No. 96 "Accounting for Income Taxes". The
adoption of SFAS No. 109 had no material effect on the Company's financial
position or results of operations for the year ended December 31, 1993. Current
and deferred federal income taxes are provided based on the Company and its U.S.
subsidiaries owned 80% or more, filing

F-10
<PAGE>
CAROLCO PICTURES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
a consolidated tax return and, in 1991 and 1992, LIVE and its U.S. subsidiaries
owned 80% or more, filing a separate consolidated tax return. Deferred taxes
have been determined by applying the current tax rate to the cumulative
temporary differences between the recorded carrying amounts and corresponding
tax basis of assets and liabilities at the respective dates. Income tax expense
or benefit for 1991 and 1992 includes amounts for both the Company and LIVE.
Income tax expense for 1993 represents the sum of taxes currently payable and
the increase or decrease in deferred taxes during the period for the Company
only.

Deferred income taxes principally relate to the differences in accounting
for film and video rights and the related amortization for financial statement
and tax return purposes as well as from financial statement reserves such as
sales returns and allowances and other reserves not currently deductible for tax
purposes. Goodwill was reduced for the tax effect of LIVE's preacquisition net
operating losses utilized to reduce current and deferred federal, state or
foreign income taxes.

FOREIGN CURRENCY TRANSLATION: Most of the Company's foreign subsidiaries
use the U.S. dollar as the functional currency. Other assets and liabilities are
translated into U.S. dollars at current exchange rates. Revenues and expenses
have been translated into U.S. dollars based generally on the average rates
prevailing during the period. Gains and losses resulting from the translation of
foreign currencies into U.S. dollars were not significant for any period.

RECLASSIFICATIONS: Certain reclassifications were made to the 1991 and 1992
financial statements to conform to the 1993 presentation.

RESTATEMENTS: The 1991 and 1992 statements of operations have been restated
to reflect the Specialty Retail Division of LIVE as a discontinued operation
(see Note F).

CASH EQUIVALENTS: Cash equivalents were mainly highly liquid investments of
LIVE which matured in three months or less when purchased.

RESTRICTED CASH: In 1992, restricted cash was mainly LIVE's cash on deposit
with foreign banks, representing collateral for demand loans or funds subject to
certain foreign restrictions, and collateral for domestic letters of credit
relating to video rights obligations. Such restricted cash was expected to be
available to LIVE within 12 months of the balance sheet date. In 1993,
restricted cash of $1,255,000 represented funds on deposit by the Company to
satisfy an obligation of the Company to Mr. Kassar.

NOTE A -- BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Carolco Pictures Inc. and its subsidiaries; The Vista Organization Partnership,
L.P.; The Vista Organization, Ltd. ("Vista"); Carolco Television Inc. (formerly
known as Orbis Communications Inc.) ("CTI") and Carolco Studios Inc. (Delaware)
(formerly known as Carolco Television Inc.) (collectively, the "Company" or
"Carolco"), after elimination of material intercompany accounts and
transactions. Such companies are engaged in the entertainment industry and their
principal activities include the production, acquisition and distribution of
feature films.

As of December 31, 1992 and 1991 and for the years then ended, the Company
had majority voting control over LIVE and its subsidiaries. Subsequent to the
LIVE restructuring, which was completed in March 1993 (see Note D), the Company
owned approximately 35.5% of the voting equity of LIVE and Pioneer, as defined
below, a related party, owned approximately 30% of LIVE's voting equity. Under
the terms of the Company's financial Restructuring, described in Note B(5), the
Company assigned all of the shares of LIVE Common Stock owned by the Company in
discharge of a portion of an obligation. As a result, as of December 31, 1993,
the Company owns no shares of LIVE Common Stock.

F-11
<PAGE>
CAROLCO PICTURES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE A -- BASIS OF PRESENTATION (CONTINUED)
The Company's consolidated financial statements include LIVE on a
consolidated basis for 1991 and 1992 and on an equity accounting basis for 1993
until the Company's investment in LIVE was disposed of (see Note B(5) and Note
E.) The Company's historical results of operations have not been restated to
reflect LIVE as a discontinued operation because the Company and LIVE have
announced their intent to effect a business combination (see Note C.)

The Company's subsidiary, LIVE, was restricted under the terms of its debt
and preferred stock agreements from paying dividends, making loans, or
transferring funds to the Company. At December, 31, 1992, the Company's interest
in the restricted net assets of LIVE approximated $9,000,000 and there were no
undistributed earnings of LIVE included in the Company's accumulated deficit.

The following sets forth the condensed parent company balance sheet for
December 31, 1992 and the condensed parent company statements of operations and
cash flows for the years ended December 31, 1991 and 1992 which reflect
Carolco's investment in LIVE on the equity method of accounting.

CONDENSED BALANCE SHEETS
PARENT COMPANY

<TABLE>
<CAPTION>
DECEMBER 31,
1992
--------------
(IN THOUSANDS)
<S> <C>
ASSETS
Cash and restricted cash of $21............................................. $ 13,180
Accounts receivable, net.................................................... 67,922
Accounts receivable, related parties........................................ 10,054
Film costs, net of accumulated amortization................................. 117,878
Property and equipment, net................................................. 21,977
Investment in LIVE.......................................................... 26,383
Other assets................................................................ 9,920
--------------
TOTAL ASSETS............................................................ $ 267,314
--------------
--------------
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Liabilities:
Accounts payable and accrued liabilities.................................. $ 43,014
Accrued residuals and participations...................................... 32,572
Debt...................................................................... 130,800
Advance collections on contracts.......................................... 30,447
Contractual obligations................................................... 1,180
Notes and amounts payable, related parties................................ 105,500
Other liabilities......................................................... 25,159
--------------
368,672
Series D Convertible Exchangeable Preferred Stock........................... 15,400
Stockholders' Deficiency.................................................... (116,758)
--------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY.............................. $ 267,314
--------------
--------------
</TABLE>

See notes to consolidated financial statements.

F-12
<PAGE>
CAROLCO PICTURES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE A -- BASIS OF PRESENTATION (CONTINUED)
CONDENSED STATEMENTS OF OPERATIONS
PARENT COMPANY

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
--------------------
1991 1992
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Total Revenues........................................................ $ 239,748 $ 273,907
Costs and Expenses:
Amortization of film costs, residual and participations............. 266,743 289,786
Selling, general and administrative expenses........................ 34,378 33,667
Interest expense.................................................... 32,166 26,067
Amortization of goodwill and covenants.............................. 15,062 --
Costs associated with restructure................................... 88,400 2,626
Other expenses...................................................... 6,559 7,238
--------- ---------
Total Costs and Expenses.............................................. 443,308 359,384
--------- ---------
LOSS FROM CONTINUING OPERATIONS BEFORE EQUITY IN LOSS OF AFFILIATED
COMANY AND PROVISION FOR INCOME TAXES................................ (203,560) (85,477)
Equity in loss from continuing operations of affiliated company..... (9,043) (8,762)
--------- ---------
LOSS FROM CONTINUING OPERATIONS BEFORE PROVISION FOR INCOME TAXES..... (212,603) (94,239)
Provision for income taxes.......................................... (4,181) (1,224)
--------- ---------
LOSS FROM CONTINUING OPERATIONS....................................... (216,784) (95,463)
Equity in (loss) income from discontinued operations of affiliated
company............................................................ (48,271) 548
--------- ---------
NET LOSS BEFORE EXTRAORDINARY ITEM.................................... (265,055) (94,915)
Extraordinary item.................................................. -- 4,916
Equity in extraordinary item of affiliated company.................. -- 1,982
--------- ---------
NET LOSS.............................................................. $(265,055) $ (88,017)
--------- ---------
--------- ---------
</TABLE>

See notes to consolidated financial statements.

F-13
<PAGE>
CAROLCO PICTURES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE A -- BASIS OF PRESENTATION (CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
PARENT COMPANY

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
--------------------
1991 1992
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Cash provided by (used in) operating activities....................... $ (80,616) $ 62,202
Investing activities:
Purchase of Vista minority interest................................. 15,062 --
Inventory sold to Multimedia........................................ 9,814 --
Other............................................................... (804) (737)
--------- ---------
24,072 (737)
Financing Activities:
Proceeds from debt facilities....................................... 115,355 --
Payments on debt facilities........................................... (114,705) (152,256)
Proceeds from sale of treasury stock................................ 36,515 --
Proceeds from issuance of 10% convertible debentures................ 47,500 --
Proceeds from issuance of Series D convertible exchangeable preferred
stock................................................................ 16,762 --
Extraordinary gain on extinguishment of debt........................ -- 4,916
(Increase) decrease in restricted cash.............................. (44,354) 44,333
Payment of dividends................................................ (4,500) (3,125)
(Increase) decrease in amounts receivable, related parties.......... 7,446 (9,204)
Proceeds from sale of receivables................................... -- 23,125
Proceeds from issuance of Series E Preferred Stock.................. -- 12,801
Increase in notes and amounts payable, related parties.............. 1,146 61,094
Repurchase 14% Senior Notes......................................... (9,934) (32,949)
Other............................................................... (513) (3,767)
--------- ---------
50,718 (55,032)
--------- ---------
Increase (decrease) in cash........................................... $ (5,826) $ 6,433
--------- ---------
--------- ---------
</TABLE>

NOTE B -- FINANCIAL RESTRUCTURINGS

1993 RESTRUCTURING:

On October 20, 1993, the Company completed a financial restructuring (the
"Restructuring"), which had been proposed in order to reduce or satisfy certain
of the Company's then current and future financial obligations and to provide
the Company with additional capital to permit the continuation of the Company as
a going concern. The following is a description of the consummation of the main
components of the Restructuring, certain actions taken in conjunction therewith
and certain of the agreements entered into in connection therewith.

(1) CONSUMMATION OF EXCHANGE OFFERS. Pursuant to the Restructuring, the
holders of $22,496,000, or 66.6%, in principal amount of the Company's
outstanding 14% Senior Notes due June 1, 1993 (the "14% Notes") exchanged such
notes which were past due and received $1,000 in principal amount of 11.5%/10%
Reducing Rate Senior Notes due 2000 (the "New Senior Notes") plus $102.08 in
accrued interest for each $1,000 in principal amount of 14% Notes exchanged. In
addition, the holders of $12,700,000, or 78.7%, in principal amount of the
Company's outstanding 13% Senior Subordinated Notes due December 1, 1996 (the
"13% Notes") exchanged such notes and received $1,000 in principal amount of
13%/12% Reducing Rate Senior Subordinated Notes due 1999 (the "New Senior
Subordinated Notes") plus $115.40 in accrued

F-14
<PAGE>
CAROLCO PICTURES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE B -- FINANCIAL RESTRUCTURINGS (CONTINUED)
interest for each $1,000 in principal amount of 13% Notes exchanged, 50% of
which was paid in cash and 50% of which was paid in additional New Senior
Subordinated Notes. The exchange of 14% Notes for New Senior Notes and the
exchange of 13% Notes for New Senior Subordinated Notes described above are
collectively referred to herein as the "Exchange Offers." Thus, $22,496,000 in
aggregate principal of New Senior Notes and $13,431,700 in aggregate principal
amount of New Senior Subordinated Notes were issued and approximately $3,030,300
of cash representing accrued interest was paid as part of the Exchange Offers.

As a result of the Exchange Offers, the Company recognized an extraordinary
loss on the extinguishment of debt of $1,323,000.

(2) CONSUMMATION OF CONSENT SOLICITATION. Concurrently with the Exchange
Offers, the Company solicited the consents (the "Consent Solicitation") of
holders of the 13% Notes to certain amendments to the indenture governing the
13% Notes (the "Amendments"). As of September 30, 1993, $11,605,000 in principal
amount of 13% Notes owned by persons other than the Company and its affiliates
(77%) consented to the Amendments and the Amendments were approved. An amendment
and restatement of the Indenture dated as of December 1, 1986 between the
Company and J. Henry Schroder Bank & Trust Company, as trustee, governing the
Company's 13% Notes, as amended by the First Supplemental Indenture dated as of
July 8, 1987 between the Company and IBJ Schroder Bank & Trust Company, as
trustee (the "Amended 13% Note Indenture"), was entered into as of September 30,
1993 and the Amendments became effective October 20, 1993. The Amendments are
binding upon all holders retaining 13% Notes, whether or not such holders
consented to adoption of the Amendments.

(3) PURCHASES OF NEW PREFERRED STOCK AND 5% NOTES FOR CASH. Pursuant to
the terms of a Securities Purchase Agreement (the "Securities Purchase
Agreement") dated as of May 25, 1993, as amended, among the Company, Pioneer
LDCA, Inc. ("Pioneer"), Cinepole Productions B.V. ("Cinepole"), a wholly owned
subsidiary of Le Studio Canal+ S.A. ("Canal+") and MGM Holdings Corporation
("MGM Holdings"), Pioneer, Cinepole and MGM Holdings purchased from the Company
40,000, 12,500 and 30,000 shares of Series A Convertible Preferred Stock, a
newly designated series of the Company's series preferred stock ("New
Preferred"), respectively, in exchange for $40,000,000, $12,500,000 and
$30,000,000, respectively. The New Preferred bears an annual dividend rate of
5%. Dividends are payable when, as and if declared by the Company's Board of
Directors, either (a) out of any funds legally available therefore, or (b) for
the first five years after issuance, to the extent legally available therefor,
in additional shares of New Preferred. Each share of New Preferred will be
convertible at the option of the holder into Common Stock of the Company at $.60
per share.

Pursuant to the Securities Purchase Agreement, MGM Holdings also purchased
from the Company $30,000,000 in aggregate principal amount of 5% Payment-In-Kind
Convertible Subordinated Notes due 2002 (the "5% Notes") in exchange for
$30,000,000. The $30,000,000 in principal amount of 5% Notes will mature in
October 2002 and bears interest at 5% per annum, payable quarterly. Interest
accruing on or prior

F-15
<PAGE>
CAROLCO PICTURES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE B -- FINANCIAL RESTRUCTURINGS (CONTINUED)
to the fifth anniversary of the date of issuance may be paid in cash or by
payment in-kind of additional 5% Notes with a principal amount equal to the
amount of such interest, or a combination thereof, at the election of the
Company. Thereafter, interest shall be paid in cash. The 5% Notes, and any
accrued and unpaid interest thereon, will automatically be converted into Common
Stock of the Company on the 20th business day following the date on which MGM
receives $100,000,000 in distribution fees under the MGM Distribution Agreement.
This conversion rate will be equal to 1,667 shares of Common Stock for each
$1,000 principal amount of 5% Notes and each $1,000 of accrued and unpaid
interest, subject to certain adjustments. Alternatively, a holder of a 5% Note
may elect to convert such 5% Note into Common Stock of the Company at the same
conversion rate (subject to certain adjustments,) effective on the maturity date
(October 2002) or in the event that the Company (i) declares a dividend on its
Common Stock in excess of $.05 per share, (ii) offers to redeem or repurchase
Common Stock, (iii) merges or consolidates, unless the Company is the surviving
corporation, or (iv) undertakes to sell all or substantially all its assets.
Consistent with the treatment of MGM Holdings as a "principal shareholder," the
Company recorded the 5% Notes in Notes and Amounts Payable, Related Parties, at
its present value of $21,361,000 to yield a fair market interest rate of 10%.
The discount of $8,639,000 was recorded as an increase to equity. The Company
will recognize additional interest expense of approximately $960,000 per year
related to the amortization of this discount.

These transactions resulted in an increase to equity of approximately
$84,986,000.

(4) EXCHANGE OF EXISTING 10% DEBENTURES AND SERIES D PREFERRED. 8,000
shares of the Company's Series D Preferred, representing all of the Company's
outstanding Series D Preferred (other than 300,000 shares held by Cinepole),
were exchanged for 600,000 shares of the Company's Common Stock. The holder of
Series D Preferred (other than Cinepole) also received $20,000 in cash
representing a portion of accrued but unpaid dividends thereon. In addition,
$14,600,000 in face amount of the Existing 10% Debentures, representing all of
the Company's outstanding Existing 10% Debentures (other than $35,000,000 in
aggregate face amount held by Pioneer and an affiliate of RCS), was exchanged
for 21,900,000 shares of the Company's Common Stock. These transactions resulted
in an increase to equity of approximately $14,204,000.

(5) SATISFACTION OF STRATEGIC INVESTOR LOAN. Pursuant to the terms of a
Contribution and Exchange Agreement dated as of May 25, 1993, as amended (the
"Contribution and Exchange Agreement") among the Company, Pioneer, Canal+,
Cinepole, RCS Video International Services, B.V. ("RCS"), RCS Video Services
Antilles N.V. and RCS Communications, in satisfaction of approximately
$17,686,000 of a $32,200,000 loan plus accrued interest (the "Strategic Investor
Loan") previously extended to Carolco by Pioneer, Canal+ and RCS (collectively,
the "Strategic Investors"), Carolco transferred to Pioneer, Cinepole and an
affiliate of RCS, 3,885,223, 1,180,030 and 1,180,030 shares of the common stock
of LIVE, respectively, representing all of the shares of LIVE common stock held
by Carolco. Pursuant to the Contribution and Exchange Agreement, the remaining
portion of the Strategic Investor Loan was satisfied by the issuance to Pioneer,
Cinepole and RCS Communications, of 8,586,543, 3,051,660 and 3,253,337 shares of
Carolco's common stock, $.01 par value per share (the "Common Stock"),
respectively.

EXCHANGE OF CERTAIN OF THE STRATEGIC INVESTORS' SECURITIES FOR COMMON
STOCK. Pursuant to the Contribution and Exchange Agreement, each of the
Strategic Investors exchanged a portion of Carolco's outstanding preferred stock
and 10% Convertible Subordinated Debentures due 2006 ("Existing 10% Debentures")
held by it for an aggregate of 72,000,000 shares of the Company's Common Stock.
Specifically, Pioneer received 37,824,031 shares of Common Stock, Cinepole
received 22,950,471 shares of Common Stock and RCS Communications received
11,225,498 shares of Common Stock.

F-16
<PAGE>
CAROLCO PICTURES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE B -- FINANCIAL RESTRUCTURINGS (CONTINUED)
Company, as a capital contribution, the Company's remaining outstanding
preferred stock, certain related options and warrants and any Existing 10%
Debentures held by it after the exchanges described above and all accrued but
unpaid dividends and interest thereon and on the securities exchanged and
certain other obligations. As a result of the various exchanges and
contributions (including the exchange described below), all of the Company's
Existing 10% Debentures, Series B Convertible Preferred Stock (the "Series B
Preferred"), Series C Convertible Exchangeable Preferred Stock (the "Series C
Preferred"), Series D Preferred Stock (the "Series D Preferred"), and Series E
Convertible Preferred Stock (the "Series E Preferred") ceased to be outstanding.

The above transactions resulted in an increase to equity of $60,072,000.

(6) NEW DISTRIBUTION AGREEMENT. Carolco has entered into a new
distribution agreement (the "MGM Distribution Agreement") with
Metro-Goldywn-Mayer Inc. ("MGM"), an affiliate of MGM Holdings, to take effect
upon the December 31, 1993 expiration of the Company's current agreement with
Tri-Star Pictures Inc. Under the MGM Distribution Agreement, MGM will distribute
theatrically in domestic territories the Company's motion pictures (which are
required to meet certain criteria) until the later of delivery of all qualifying
pictures which commence principal photography prior to sixty months from the
effective date of the agreement, or the delivery of 20 qualifying pictures. MGM
is obligated to advance significant amounts for costs for the initial domestic
theatrical release of each picture covered by the agreement, including the cost
of manufacturing release prints for United States theatrical release and
marketing and advertising costs for such release, unless the Company elects to
fund such costs, in which case, MGM has no obligation to do so for any picture
thereafter. In addition to domestic theatrical and non-theatrical rights, MGM
has also been granted certain domestic television rights, including certain non-
exclusive pay-per-view rights and certain exclusive free television rights. In
addition, the Company has entered into a definitive agreement with MGM with
respect to distribution rights for all media in certain international
territories for motion pictures meeting certain criteria as well as certain
rights in certain other territories. The Company has reserved for itself certain
significant territories and rights where it has existing output agreements and
other long-term relationships.

(7) STANDBY PURCHASE AND INVESTMENT AGREEMENT. The Company, Pioneer, Le
Studio Canal+, Cinepole, RCS and Tele-Communications, Inc. ("TCI") entered into
a standby purchase and investment agreement (the "Standby Agreement") pursuant
to which Pioneer, Cinepole and RCS have committed to purchase up to $27,500,000
principal amount of new 7% Convertible Subordinated Notes due 2006 of the
Company (the "7% Notes") on the later of December 30, 1994 or the date upon
which certain conditions are met, and Le Studio Canal+ and TCI have committed to
invest up to $27,500,000 in co-productions of the Company's motion pictures,
commencing upon the satisfaction of certain conditions, but in no event earlier
than December 30, 1994 (the "Co-Production Investments"). The total amount
invested pursuant to the Standby Agreement will not exceed $47,500,000.

The Standby Agreement provides that Cinepole, Pioneer and RCS have committed
to purchase $7,500,000, $10,000,000 and $2,500,000 in principal amount of 7%
Notes, respectively, which amounts are subject to adjustment. Also, under the
Standby Agreement, Le Studio Canal+ and TCI have committed to make $17,500,000
and $10,000,000, respectively, of Co-Production Investments, which amounts will
be subject to adjustment. Le Studio Canal+ is entitled to reduce its obligation
to make Co-Production Investments by up to $7,500,000 if its subsidiary commits
to purchase additional 7% Notes in the amount of such reduction.

The amount of each investor's commitment to make the Co-Production
Investments will be in the nature of a revolving commitment in that the
commitment will be reduced by the amount of funds actually

F-17
<PAGE>
CAROLCO PICTURES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE B -- FINANCIAL RESTRUCTURINGS (CONTINUED)
contributed by such investor and will be increased by the amount of previous
contributions recovered by such investor from the distribution of film receipts.
Subject to certain limited exceptions, the commitment to make Co-Production
Investments will terminate on December 30, 1997.

(8) ACQUISITION OF VISTA. In conjunction with the Restructuring, Carolco
acquired all of the outstanding shares of common stock (the "Vista Common
Stock") of Vista, other than shares owned by Carolco, together with all of the
Carolco Series A Common Stock Put Rights associated therewith and represented
thereby (the "Series A Puts") in a two-step transaction consisting of a tender
offer and a subsequent merger. As a result thereof, $19,181,800 in principal
amount of New Senior Notes was issued and cash of $1,961,000 for interest was
paid in exchange for 17,765,093 shares of Vista Common Stock and associated
Series A Puts. In addition, approximately $3,465,000 in cash was paid to the
holders of Vista Common Stock and associated Series A Puts, (other than Carolco
or its affiliates) in exchange for 4,618,016 shares of Vista Common Stock and
associated Series A Puts. As a result of the transaction, Vista became a
wholly-owned subsidiary of Carolco and ceased operations.

The Company recognized an extraordinary loss on this transaction of
approximately $50,000.

In connection with the 1989 purchase of 11,000,000 newly-issued shares of
common stock of Vista, the Company in December of 1991 recorded a liability of
approximately $24,400,000 representing the amount owed to the holders of the
Series A Puts as of April 2, 1992, and in connection therewith, recognized a
$15,062,000 charge to operations related to the write-off of goodwill.

(9) OTHER AGREEMENTS. The Company also entered into certain agreements
contemplating potential pre-theatrical pay-per-view broadcasts by TCI of future
Carolco motion pictures and with respect to potential equity investments in the
Company by TCI. The Company, the Strategic Investors and MGM Holdings also
entered into a Registration Rights Agreement dated as of October 20, 1993
pursuant to which the Company granted certain registration rights covering the
New Preferred, the 5% Notes and the Common Stock issuable to the Strategic
Investors and MGM Holdings in connection with the Restructuring and Common Stock
issuable upon conversion of the New Preferred, 5% Notes and 7% Notes and certain
other Common Stock held by RCS and by the other Strategic Investors.

(10) RESULTS OF SPECIAL MEETING OF STOCKHOLDERS. At the Company's Special
Meeting of Stockholders (in lieu of its 1992 and 1993 Annual Meetings) held on
September 30, 1993, adjourned, and eventually concluded on October 18, 1993, the
stockholders approved, among other things, an increase in the authorized number
of shares of Common Stock from 100,000,000 to 650,000,000 and amendments to the
Company's 1989 Stock Option Plan and Stock Appreciation Rights Plan to, among
other things, increase the number of shares of Common Stock for which options
may be granted by an additional 27,500,000 shares.

As a result of the Restructuring described above, the Company has altered
its business strategy to focus on the production and distribution of its "event"
motion pictures. The Company has abandoned the business of acquiring and
distributing foreign rights for films produced by other motion picture
companies. Therefore, the remaining foreign distribution rights owned by the
Company cannot be packaged with newly acquired rights, and the Company's ability
to recoup the value of such foreign rights has been significantly impaired.
Also, as a result of the MGM Distribution Agreement, MGM will license all future
motion pictures produced by the Company in certain territories. The Company
believes this arrangement will impair its ability to license remaining rights to
previous motion pictures in these territories. Accordingly, the Company has
reduced the net realizable value of its film costs by $4,744,000.

1992 RESTRUCTURING:

In December 1991, the Company began discussions with Pioneer, Canal & RCS in
order to alleviate the Company's liquidity problems. In March 1992, the Company
entered into definitive agreements with Pioneer, Canal and RCS to help alleviate
the Company's liquidity problems (the "1992 Restructuring"). In

F-18
<PAGE>
CAROLCO PICTURES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE B -- FINANCIAL RESTRUCTURINGS (CONTINUED)
anticipation of the 1992 Restructuring, in 1991, the Company recorded costs
associated with restructuring of $88,400,000, consisting of provisions for
losses due to the sale of certain film rights and programming ($57,400,000),
writedown of development and term deal costs ($13,500,000) and legal, severance
and other expenses ($17,500,000). In 1992, the Company recorded additional costs
of $2,626,000 associated with this restructuring.

NOTE C -- PROPOSED BUSINESS COMBINATION WITH LIVE
On March 24, 1994, the Company and LIVE announced that they have agreed in
principle to a combination of the two companies (the "Business Combination").
The Business Combination will be structured as a tax free exchange whereby each
Carolco stockholder will receive one share of newly issued LIVE common stock for
each 5.5 shares of Carolco common stock currently held. The exchange ratio will
be adjusted based on the market price of Carolco common stock prior to the
consummation of the Business Combination subject to two limitations designed to
limit the effect of market fluctuations on both Carolco and LIVE stockholders.
The number of Carolco shares to be exchanged for each share of LIVE will be
adjusted upward, if necessary, so that the market value of Carolco shares to be
exchanged for one share of LIVE is at least $3.00, but in no event will more
than 6.5 shares of Carolco be exchanged for each share of LIVE. Likewise, the
number will be adjusted downward, if necessary, so that the market value of
Carolco shares to be exchanged is no more than $4.00, but in no event will fewer
than 4.5 shares of Carolco be exchanged for each share of LIVE. As a result, the
current LIVE stockholders will own between approximately 22% and 29% of the
surviving corporation and the remainder will be owned by the current Carolco
stockholders. Therefore, the Business Combination, if consummated, will be
treated as a reverse merger/ acquisition of LIVE by Carolco for accounting and
financial reporting purposes. The corporation resulting from the Business
Combination will be named Carolco Entertainment Inc.

The Business Combination is subject to a number of conditions, including the
redemption of LIVE's Series B Cumulative Convertible Preferred Stock, certain
amendments to various public and private securities of LIVE and the availability
of financing commitments prior to the combination. The Business Combination is
also subject to the execution of a definitive Business Combination agreement,
the approval of the combination by the non-affiliated common stockholders of
both companies and other customary conditions to closing. The definitive
agreement will be subject to approval by both companies' boards of directors and
the receipt of fairness opinions from independent investment firms for both
companies. On March 17, 1994, The Seidler Companies Incorporated advised the
Carolco Board of Directors that, based on then current conditions, they would be
prepared to deliver their opinion that the financial terms of the Business
Combination are fair to the unaffiliated stockholders of Carolco. Chemical
Securities Inc., an affiliate of Chemical Bank, has delivered their opinion to
the LIVE Board of Directors that, based on the conditions and assumptions
contained therein, the financial terms of the Business Combination are fair to
the unaffiliated stockholders of LIVE. There can be no assurances that the
business combination will be consummated, or, if consummated, will be
consummated on the terms set forth above.

NOTE D -- LIVE RESTRUCTURING
On March 17, 1993, the United States Bankruptcy Court for the Central
District of California (the "Bankruptcy Court") confirmed LIVE's prepackaged
plan of reorganization (the "LIVE Prepackaged Plan") providing for the issuance
of $40,000,000 in principal amount of new Increasing Rate Secured Senior
Subordinated Notes due 1999 (the "Exchange Notes") (see Note K), 6,000,000
shares of LIVE Series B, with a liquidation preference of $60,000,000, par value
$1.00 per share initially bearing a dividend of 5% if paid in cash or 8% if paid
in kind (the "Exchange Preferred Stock") and $8,000,000 in cash, replacing
$110,000,000 principal amount of LIVE's outstanding 14.5% Senior Subordinated
Notes due May 15, 1999 (the "14.5% Notes") plus accrued and unpaid interest of
$12,672,000 through August 31, 1992 (see Note K) and 1,050,000 shares of
outstanding Series A Cumulative Convertible Preferred Stock (with a liquidation
preference of $21,000,000) plus accrued and unpaid dividends of $872,000 as of
August 31, 1992 (the "Outstanding

F-19
<PAGE>
CAROLCO PICTURES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE D -- LIVE RESTRUCTURING (CONTINUED)
Preferred Stock") (the 14.5% Notes and the Outstanding Preferred Stock are
referred to herein collectively as the "Outstanding Securities"). This completed
the financial restructuring of LIVE, begun in 1992 (the "LIVE Restructuring")
that contemplated these transactions. Reorganized LIVE emerged from bankruptcy
on March 23, 1993. As the Exchange Notes and Exchange Preferred Stock began
accruing interest and dividends, respectively, on September 1, 1992 and LIVE
received sufficient votes to assure the success of the LIVE Prepackaged Plan,
the financial impact of the LIVE Restructuring is reflected in LIVE's 1992
consolidated financial statements.

Upon tender of their Outstanding Securities to American Stock Transfer &
Trust Company, the holders of the Outstanding Securities received the following:

$72.727 in cash plus $335.20 principal amount of Exchange Notes plus
50.28 shares of Exchange Preferred Stock, for each $1,000 principal amount
of LIVE Outstanding Notes; and

$2.98 principal amount of Exchange Notes plus 0.447 shares of Exchange
Preferred Stock for each share of Outstanding Preferred Stock.

In 1992, LIVE recognized an extraordinary gain on the LIVE Restructuring of
$3,967,000, including income tax benefit of $790,000.

NOTE E -- ACQUISITIONS

LIVE

LIVE was formed as a Delaware corporation in 1988 and its largest ongoing
businesses are LIVE Home Video Inc. ("LHV") and LEI-IVE Entertainment N.V.
("LIVE NV"), which acquire rights to theatrical motion pictures, children's
films and special interest programs which they market and distribute on
videocassettes to wholesalers, retailers and consumers in the United States and
Canada (LHV) and internationally (LIVE NV). As part of its international
activities, LIVE owns an 81% interest in VCL/Carolco Communications GmbH
("VCL"), a home video distribution and marketing company headquartered in
Munich, Germany. VCL's year-end is November 30. LIVE also operates the
"Specialty Retail Division", consisting of its wholly-owned subsidiary
Strawberries Inc. ("Strawberries"), and Strawberries' wholly-owned subsidiary,
Waxie Maxie Quality Music Co. ("Waxie Maxie"). The Specialty Retail Division
engages in the retail sale of audio records and tapes, compact discs and video
products and consists of 138 stores in the Northeastern United States and the
Baltimore/Washington D.C. metropolitan area. The Specialty Retail Division has a
January 31 year end. In 1991, LIVE sold substantially all of the assets of its
wholly-owned subsidiary, Lieberman Enterprises Incorporated ("Lieberman"),
including Navarre Corporation ("Navarre"), a wholly-owned subsidiary of
Lieberman. Lieberman and Navarre provided specialized merchandise services to
mass merchandisers and retailers throughout the United States. LIVE's continuing
operations are principally in a single business segment, the distribution and
retail sale of a broad variety of entertainment software products.

Prior to June 25, 1991, the Company owned 4,940,555 shares of the Common
Stock of LIVE representing approximately 47% of all of LIVE's issued and
outstanding Common Stock and 1,084,000 shares of LIVE's Series A Common Stock
which were non voting and convertible, under certain circumstances, into one and
one-half shares of LIVE Common Stock. On June 25, 1991, the Company and LIVE
agreed to exchange the 1,084,000 shares of LIVE's Series A Common Stock held by
the Company for 1,626,000 shares of LIVE Common Stock (the "Exchange
Transaction"). Subsequent to the Exchange Transaction, the Company owned
approximately 53% of the Common Stock of LIVE. In June 1992, the Company sold
directly to the Strategic Investors 360,000 shares of Common Stock of LIVE owned
by the Company. As of December 31, 1992 and 1991 and for the years then ended,
the Company had majority voting control over

F-20
<PAGE>
CAROLCO PICTURES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE E -- ACQUISITIONS (CONTINUED)
LIVE. In March 1993, the LIVE Restructuring (see Note D) reduced the Company's
voting interest in LIVE to 35.5%. As a result of the Restructuring (see Note
B(5)), effective October 20, 1993, the Company no longer owns any shares of LIVE
Common Stock.

Prior to the Exchange Transaction described above, the Company accounted for
the results of LIVE's operations on the equity method. Subsequent to the
Exchange Transaction, LIVE's financial position at December 31, 1991 and 1992
and the results of its operations for the years then ended have been
consolidated with those of the Company. Subsequent to the LIVE Restructuring and
the Restructuring, the Company accounted for the results of LIVE's operations on
the equity method.

NOTE F -- DISCONTINUED OPERATIONS
VCL entered into a series of agreements with Rank Video Services GmbH ("Rank
Germany") whereby Rank Germany became the exclusive provider of videocassette
duplication services to VCL. As part of those agreements, Rank Germany paid VCL
2,000,000 Deutschemarks ("DM") and placed an additional DM 3,000,000 in escrow
to be paid to VCL (together with accrued interest on such DM 3,000,000) upon
completion of LIVE's Restructuring (see Note D). The escrow was released to VCL
on April 2, 1993. A portion of the funds advanced to VCL must be repaid to Rank
Germany if certain minimum volume duplication requirements are not met. The DM
5,000,000 paid by Rank Germany to VCL has been recorded as a liability on the
books of LIVE and this amount will be amortized against cost of sales as product
is received from Rank Germany. Prior to the effectiveness of its agreements with
Rank Germany, VCL had been satisfying its duplication requirements through its
in-house duplication facility, which had been recorded as an asset held for sale
since the date LIVE acquired VCL and which has since been disposed of. As of
VCL's 1992 fiscal year end, $642,000 has been amortized against cost of sales
and the remaining balance is classified as deferred revenue. The net loss
associated with VCL's duplication operations and certain other operations
through June 30, 1991 of $810,000 was reserved for at the acquisition date and
has therefore been excluded from the results of operations. Beginning in the
third quarter of 1991, the results of operations related to these activities
have been included in the Consolidated Statements of Operations and are not
material.

In March 1994, LIVE announced its intention to dispose of its interest in
the Specialty Retail Division. Accordingly, for the year ended December 31,
1993, the Company has recorded a loss from Discontinued Operations of $730,000,
representing its equity interest in the results of operations of the Specialty
Retail Division. The Statements of Operations for the years ended December 31,
1991 and 1992 have been restated to reflect the results of operations of the
Specialty Retail Division as Discontinued Operations. The Specialty Retail
Division's revenues for the years ended December 31, 1991 and 1992 were
$96,945,000 and $98,894,000, respectively; (loss) income before income taxes
were ($2,796,000) and $992,000, respectively; and income tax benefits were
$2,571,000 and $98,000, respectively.

On July 26, 1991, Lieberman sold substantially all of its assets (other than
its accounts receivable and its Navarre Independent Music and Navarre One-Stop
businesses) to Handleman Company ("Handleman") for a total of approximately
$74,600,000 in cash plus the assumption by Handleman of approximately $2,000,000
in liabilities. LIVE has sold or liquidated substantially all of the remaining
assets and liabilities of Lieberman. On October 4, 1991 Lieberman sold all of
the stock of Navarre for $750,000 in cash to a group headed by Navarre's Chief
Operating Officer and Navarre agreed to repayment terms for $6,000,000 of funds
previously advanced to it by Lieberman. The full amount was satisfied by
December 31, 1992. The estimated loss on disposal of Lieberman and Navarre is
$77,460,000 (net of an income tax benefit of $2,569,000), including the
write-off of $37,000,000 of goodwill related to the acquisition of Lieberman in
1988 and Navarre in 1990 and $20,711,000 for operating losses during the
phase-out period. In segregating the components of the statement of operations
attributable to Lieberman and Navarre, interest expense has been included in
discontinued operations only to the extent it related to debt directly
attributable to the

F-21
<PAGE>
CAROLCO PICTURES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE F -- DISCONTINUED OPERATIONS (CONTINUED)
discontinued businesses. Corporate general and administrative expenses have not
been allocated to discontinued operations. Between July 26, 1991 and December
31, 1992, operating losses of $20,711,000 had been incurred and charged in full
against the provision originally provided for. Additional reserves remaining on
Lieberman's books are expected to be adequate to cover any future losses.

Lieberman's revenues for the year ended December 31, 1991 were $150,423,000.
The income tax benefit on the loss from operations of Lieberman and Navarre for
the period ended July 25, 1991 was $505,000.

Certain assets and liabilities of Vestron and VCL have been classified as
"Assets held for sale" and "Liabilities related to assets held for sale" as of
December 31, 1992 and have been recorded at their estimated net realizable or
liquidation values.

NOTE G -- CAROLCO TELEVISION
During its years of operations, CTI entered into certain agreements with
third-party television program and motion picture producers to distribute their
programs and motion pictures in the domestic television markets. CTI also
distributed motion pictures produced by the Company in the domestic television
market. In addition, CTI produced certain television programs for distribution
in the domestic syndication market.

On September 2, 1992, CTI sold its feature film library of United States
television rights (subject to certain exclusions) and approximately $39,000,000
in face value of certain related receivables (payable through and including the
year 2003) without recourse to Worldvision Enterprises, Inc. ("Worldvision").
Worldvision is a subsidiary of Spelling Entertainment, Inc. The rights purchased
by Worldvision relate to approximately 150 films and include all of CTI's United
States unlicensed free, pay and pay-per-view television rights upon the
conclusion of certain existing contracts and subject to CTI's right to sell
certain network, pay and pay-per-view rights. In exchange for all such rights,
Worldvision paid $25,640,378 at closing and agreed to pay an additional
$25,000,000 on September 2, 1993 subject to a reduction of $2,600,000 in the
event of certain contingencies (the "Contingencies"). The $25,000,000 payable in
September 1993 was secured by various letters of credit, including letters of
credit totalling $2,600,000 covering the amounts relating to the Contingencies.
The letters of credit representing all but $2,600,000 of the $25,000,000 were
discounted by the Company at a commercial bank in 1992, and the proceeds were
used to pay creditors and operating expenses. Upon satisfaction of the
Contingencies, the Company received the remaining $2,600,000 in September 1993.
In addition to the foregoing payments, as part of the transaction Worldvision
assumed up to approximately $13,800,000 in obligations of CTI. The monies paid
by Worldvision at closing and certain other Company funds were used to eliminate
the outstanding balance of approximately $26,000,000, including accrued
interest, associated fees and costs under the Company's BT/Chemical Facility and
the facility was terminated as of September 2, 1992. As a result, no amounts
were outstanding under such facility at December 31, 1992.

Additionally, on October 20, 1992, CTI sold approximately $28,900,000 in
face value of certain receivables (payable through and including the year 1997)
without recourse to Sun Life Insurance Company of America ("Sun Life"). The
receivables sold arose out of certain network and basic cable television
agreements. In exchange, Sun Life paid $23,124,794 at closing and agreed to pay
an additional $1,200,000 upon the later of (i) the date which occurs 30 days
after the date the latest payment in respect to the purchased receivables is due
and payable under certain agreements or (ii) the date which occurs 30 days after
the day on which all of the motion pictures covered by certain contracts shall
have been broadcast on television on a certain network at least once pursuant to
the contracts. Accordingly, a $1,200,000 receivable was included in Other Assets
on the Consolidated Balance Sheets at December 31, 1992 and 1993. Most of the
proceeds from the sale were used to repay a portion of the Company's
indebtedness under the CLBN Facility and to pay obligations owed to the Guilds
generated by the sale. The Company guaranteed the obligations of CTI under the
Purchase Agreement. The assets sold by CTI to Worldvision and Sun Life
represented substantially all of the United States television distribution
operating assets and receivables of CTI.

F-22
<PAGE>
CAROLCO PICTURES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE G -- CAROLCO TELEVISION (CONTINUED)
In 1993, in connection with the Restructuring, the Company entered into the
MGM Distribution Agreement, whereby MGM was granted all domestic television
distribution rights for all future motion pictures produced by the Company. In
December 1993, CTI ceased its domestic syndication operations and the Company
recognized a loss of $2,072,000 on the disposal of a portion of a line of
business. This loss consists of unrecouped advances paid to third-party
producers for certain distribution rights ($1,475,000), unamortized film costs
of television programs produced by CTI ($397,000) and costs associated with the
closing of CTI's principal offices ($200,000).

NOTE H -- FILM COSTS, VIDEO RIGHTS AND INVENTORIES

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1992 1993
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Film costs are comprised of the following:
Released, less amortization........................... 116,065 $ 57,696
In process and development............................ 19,330 20,731
--------- ---------
Total Film Costs.................................... $ 135,395 $ 78,427
--------- ---------
--------- ---------
</TABLE>

Based on management's estimates of future gross revenues as of December 31,
1993, approximately 53% of unamortized film costs applicable to released films
will be amortized during the three years ending December 31, 1996. The remaining
film costs at December 31, 1993 relate primarily to foreign television revenues,
which, due to restrictions on availability, will not be recognized until 1998
and thereafter. Interest capitalized to film costs during the years ended
December 31, 1991, 1992 and 1993 totaled $9,951,000, $3,315,000 and $-0-,
respectively.

<TABLE>
<CAPTION>
DECEMBER 31,
1992
--------------
(IN THOUSANDS)
<S> <C>
The components of video rights are as follows:
Titles released........................................... $ 419,131
Less amortization......................................... 382,326
--------------
36,805
Titles not released, masters received....................... 29,228
Advances paid, masters not received....................... 7,729
Other..................................................... 978
--------------
Total video rights...................................... 74,740
--------------
Inventories................................................. 48,961
--------------
Total video rights and inventories...................... $ 123,701
--------------
--------------
</TABLE>

At December 31, 1992, LIVE estimated that 76% of its video rights would be
amortized during the three years ending December 31, 1995. As a result of the
Restructuring, the Company no longer has any ownership interest in LIVE after
October 20, 1993. (See Note B(5)).

NOTE I -- RELATED PARTY TRANSACTIONS

CAROLCO:

In connection with the Restructuring described in Note B, the Company and
the Strategic Investors have agreed to various arrangements. Also in connection
with the Restructuring, the Company and MGM reached an agreement with respect to
the purchase of New Preferred and 5% Notes and with respect to certain domestic
theatrical, non-theatrical and free television distribution rights. Also, the
Company and TCI have entered into agreements with respect to a commitment to
purchase 7% Notes and to invest in co-

F-23
<PAGE>
CAROLCO PICTURES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE I -- RELATED PARTY TRANSACTIONS (CONTINUED)
productions of the Company's pictures. See Note B for a more complete
description of these arrangements. In addition to the Restructuring, the Company
has engaged in a number of other transactions with the Strategic Investors which
are summarized below.

In June 1990, the Company, through a nominee of its wholly owned subsidiary,
Carolco International N.V., a Netherland Antilles Corporation ("CINV") and
Canal+, formed a partnership (the "Carolco/ Canal+ Partnership"). After its
formation, Canal+, Pioneer and RCS entered into a series of co-production
agreements with respect to the production of CLIFFHANGER. Pursuant to these
co-production agreements, Canal+, Pioneer and RCS made equity contributions in
the aggregate amount of $16,726,000 bearing interest at 3-month LIBOR plus 1.5%
per annum (4.875% at December 31, 1993) and Canal+, Pioneer and an unrelated
third party made bridge loans totaling $3,192,000 for the production costs of
CLIFFHANGER. The bridge loans bore interest at 3-month LIBOR plus 2% per annum
(5.375% at December 31, 1993). At December 31, 1993, the bridge loans and
accrued interest thereon had been repaid in full and $4,547,000 of the equity
contributions including accrued interest, had been repaid. As of December 31,
1993, the Company had advanced a total of $5,740,000 toward the production costs
of CLIFFHANGER. The balance of the production costs of CLIFFHANGER were obtained
through a production loan provided by a syndicate of banks led by CLBN. The CLBN
production loan earned interest at 3-month LIBOR plus 2% per annum and was
repaid in full on May 25, 1993. Pioneer, Canal+, RCS and the Company are each
entitled to receive a participation in certain net revenues generated from the
exploitation of CLIFFHANGER, following repayment of the CLBN production loans,
the bridge loans, recoupment by Pioneer, Canal+, RCS and the Company of their
investments plus interest, and payment of certain third party obligations.
Participation in such revenues will be approximately as follows: the Company,
42%; RCS, 5%; Pioneer, 24%; and Canal+, 29%. As of December 31, 1993, no such
participations in the net revenues of CLIFFHANGER had yet been made.

In January 1992, the Carolco/Canal+ Partnership entered into a co-financing
arrangement with Canal+ and RCS pursuant to which CINV, Canal+ and RCS have each
made co-financing payments towards the production costs of the motion picture,
CHAPLIN, whereby each party was responsible for one-third of the total
production cost of the movie. The co-financing payments earn interest at 3-month
LIBOR plus 2% per annum (5.375% at December 31, 1993). CINV, Canal+ and RCS each
contributed $13,337,000 to the production costs of CHAPLIN and such
contributions have been offset against Film Costs at December 31, 1992 and 1993.
In exchange for their co-financing payments, Canal+ and RCS are each entitled to
one-third of the net receipts from CHAPLIN, reduced to one-sixth of the net
receipts after they have each recouped their initial co-financing payments, plus
interest. CINV is entitled to one-third of net receipts (less a third party
participation interest), which amount will increase at such time as the shares
of Canal+ and RCS are reduced. In 1993, the Company paid $6,313,000 and
$6,442,000, respectively, to Canal+ and RCS under this agreement. At December
31, 1992 and 1993, respectively, CINV had recorded an obligation of $15,778,000
and $3,521,000, collectively to Canal+ and RCS pursuant to the co-financing
arrangement. The obligation is included in Notes and Amounts Payable, Related
Parties and will be paid in future periods based on actual receipts of cash.

The Company agreed to reimburse each of the Strategic Investors up to a
maximum of $500,000 for their costs and expenses incurred in connection with the
negotiation and preparation of the initial 1992 Restructuring loan
documentation. These amounts may not be paid to the Strategic Investors until
the repayment in full of all obligations of the Company to the CLBN bank group.

F-24
<PAGE>
CAROLCO PICTURES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE I -- RELATED PARTY TRANSACTIONS (CONTINUED)
CANAL+:

In March 1991, Canal+ loaned the Company $5,880,000 pursuant to a
participation loan agreement entered into between the Company and Canal+, the
proceeds of which were used to pay a portion of the production costs of
TERMINATOR 2: JUDGMENT DAY. The loan bears interest at 10% per annum on the
unpaid portion. Canal+ will receive 7.64% of receipts from TERMINATOR 2:
JUDGMENT DAY until Canal+ and the Company have recouped their investment.
Thereafter, Canal+ will receive 3.82% of cash receipts. In 1993 the Company paid
$7,930,000 to Canal+ representing its share of the receipts from TERMINATOR 2:
JUDGMENT DAY. At December 31, 1992, the Company had an obligation to Canal+ of
approximately $5,980,000 due to Canal+ representing its share of the revenues
recognized from TERMINATOR 2: JUDGMENT DAY through December 31, 1992. This
obligation is included in Notes and Amounts Payable, Related Parties and was
paid based on actual receipt of cash. There was no corresponding obligation at
December 31, 1993.

Also pursuant to an investment agreement in July 1991, the Company received
$8,343,000, from Canal+ representing a co-financing payment toward the
production costs of the motion picture, BASIC INSTINCT. The co-financing payment
earns interest at the rate of 10% per annum. In exchange for the co-financing
payment, Canal+ is to receive 20% of the cash receipts from BASIC INSTINCT until
Canal+ has recouped its investment, plus interest. Thereafter, Canal+ will
receive a 10% participation interest in any net receipts from BASIC INSTINCT
after the Company recoups its investments plus certain fees and expenses. In
addition, Canal+ was granted an undivided ownership interest with the Company in
the film's copyright, subject to certain conditions. The principal portion of
the liability is included in Film Costs and reduces the Company's total cost of
BASIC INSTINCT. During the years ended December 31, 1992 and 1993, the Company
paid $5,315,000 and $4,474,000, respectively, to Canal+ under this agreement. At
December 31, 1992 and 1993 the Company had recorded a liability of approximately
$1,439,000 and $995,000 respectively to Canal+ as its share of the revenues
recognized from BASIC INSTINCT after recoupment by the Company of its
investment, plus certain fees and expenses. These obligations are included in
Notes and Amounts Payable, Related Parties and will be paid in future periods
based on actual receipt of cash.

In November 1990, the Carolco/Canal+ Partnership entered into a co-financing
arrangement agreement whereby each party agreed to be responsible for 50% of the
costs of the motion picture THE DARK WIND. The Company and Canal+ are each
entitled to 50% of the net receipts from the film until each have recouped their
investments in the film costs, plus interest. Thereafter, the Company is
entitled to 75% of the net receipts and Canal+ is entitled to 25% of the net
receipts. For the years ended December 31, 1992 and 1993, the Company paid
$228,000 and $1,802,000, respectively, to Canal+ as its share of the net
receipts from THE DARK WIND. At December 31, 1992, the Company owed $2,103,000
to Canal+ under this agreement based on revenues recognized through December 31,
1992, and such amount was included in Notes and Amounts Payable, Related
Parties. There was no corresponding obligation at December 31, 1993.

At December 31, 1992 and 1993, the Company had accounts receivable of
$9,725,000 and $3,033,000, respectively, from Canal+. These receivables
represent minimum guarantees due to the Company pursuant to distribution
agreements entered into, wherein Canal+ obtained certain rights to distribute
the Company's films for pay and free television in France. In the years ended
December 31, 1992 and 1993, the Company had received cash payments of
approximately $1,738,000 and $420,000, respectively, from Canal+, representing
advances related to certain of the Company's motion picture releases.

On September 11, 1992, the Company entered into an agreement with Hexagon
Films (U.S.), an indirect, wholly owned subsidiary of Canal+ ("Hexagon"), to
provide the non-exclusive executive producing services for the motion picture
STARGATE, for which the Company will receive $1,000,000, payable ratably over
the production period, plus, at the election of the Company, either (i) 1% of
the cash receipts from the exploitation of the picture provided that Hexagon has
recouped its production costs, related interest expense and distribution costs
plus $2,250,000 or (ii) 10% of Hexagon's adjusted gross receipts commencing
after

F-25
<PAGE>
CAROLCO PICTURES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE I -- RELATED PARTY TRANSACTIONS (CONTINUED)
Hexagon has recouped its production costs, related interest expense and
distribution costs plus a 10% fee to Hexagon. Under the terms of his existing
employment agreement, Mr. Kassar will be entitled to receive, as turnaround
incentive compensation, 50% of the amounts received by the Company. In 1993,
Hexagon paid the Company $800,000 pursuant to this agreement and, in turn, the
Company paid $400,000 to Mr. Kassar. In addition, Hexagon has retained the
Company to serve as foreign sales agent for the film in all foreign territories
(except France and certain French-speaking territories). In July 1993, Hexagon
was merged into Le Studio Canal+ (U.S.), a wholly-owned subsidiary of Canal+,
which assumed all rights and obligations under this agreement.

In addition, Canal+ has made co-financing payments for CHAPLIN and
CLIFFHANGER as described above.

RCS:

At December 31, 1992 and 1993, the Company had accounts receivable of
$2,200,000 and $880,000, respectively, from RCS. These receivables represent
minimum guarantees due to the Company pursuant to distribution agreements
entered into, wherein RCS obtained certain rights to distribute the Company's
films in all media in Italy.

In November 1991, RCS purchased 370,370 shares of Common Stock of the
Company at a total purchase price of approximately $5,000,000, or $13.50 per
share. In connection with the Company's motion picture BASIC INSTINCT, the
Company and RCS entered into a co-financing agreement under which RCS made a
$5,000,000 co-financing payment. As permitted in the co-financing agreement, RCS
BV elected to credit the co-financing payment against the purchase of the
Company's Common Stock and relinquished its interest in BASIC INSTINCT. The
payment bore interest at 6-month LIBOR plus 2% (5 1/2% at December 31, 1993).
Pursuant to the Restructuring, RCS contributed $783,000 in accrued interest
related to this co-financing payment.

In addition, RCS has made co-financing payments for CHAPLIN and CLIFFHANGER
as described above.

PIONEER:

F-26
<PAGE>
CAROLCO PICTURES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE I -- RELATED PARTY TRANSACTIONS (CONTINUED)
At December 31, 1992, the Company had accounts receivable of approximately
$3,782,000 ($0 in 1993) from Pioneer. These receivables represent minimum
guarantees due to the Company pursuant to distribution agreements wherein
Pioneer obtained certain rights to distribute the Company's films theatrically
in Japan. In 1992 and 1993 the Company received cash advances of approximately
$145,000 and $120,000 respectively from Pioneer, representing advances related
to certain of the Company's motion picture releases.

In December 1991, Pioneer Capital, a subsidiary of Pioneer, advanced CINV
$4,000,000 against overages due to Atlanta Films Japan B.V., an unaffiliated
company, from Pioneer for TERMINATOR 2: JUDGMENT DAY, which advance was
guaranteed by the Company and certain other entities. On March 24, 1992, Pioneer
Capital transferred its right to receive payment of the $4,000,000 to Pioneer.
The advance was payable to Pioneer through offsetting amounts Pioneer owed with
respect to leasing rights to TERMINATOR 2: JUDGMENT DAY. On March 24, 1992, the
Company offset $4,000,000 against amounts owed by Pioneer. On January 24, 1992,
Pioneer Capital loaned the Company $10,000,000 for operations, which loan bore
interest at 3-month LIBOR plus 1% (4 7/16% at December 31, 1992), respectively
and was repaid (except for $62,000 in interest which was paid in connection with
the Restructuring) with the proceeds of the Strategic Investor Loan made on
March 24, 1992.

For the years ended December 31, 1991, 1992 and 1993, the Company paid
$200,000, $200,000 and $117,000 respectively for consulting services to Pioneer.

In addition Pioneer has made co-financing payments for CHAPLIN and
CLIFFHANGER as described above.

MANAGEMENT:

Pursuant to Article Eleventh of Carolco's Restated Certificate of
Incorporation, Article V, Section 5.06 of Carolco's Bylaws and Section 10 of
various indemnity agreements entered into between Carolco and its directors upon
the commencement of their terms as directors as permitted by Section 145(c) of
the Delaware General Corporate Law ("DGCL"), Carolco is paying the expenses of
the following directors incurred in their defense of certain lawsuits described
in Note P. Lynwood Spinks (a member of Carolco's Board of Directors), and Roger
R. Smith, Fred Feitshans, Peter M. Hoffman, Louis Weiss, Robert L. Turner,
Daniel M. Melnick and the late Rocco Viglietta (all former members of Carolco's
Board of Directors) are represented by common legal counsel in connection with
the purported derivative action. During the years ended December 31, 1991, 1992
and 1993, Carolco paid on behalf of such directors and former directors
approximately $639,000, $22,000 and $18,000 in legal expenses in connection with
such purported derivative action. Michael E. Garstin (a member of Carolco's
Board of Directors) and Frans J. Afman, Steven P. Aronoff and Rene Bonnell
(former members of Carolco's Board of Directors) are also represented by common
legal counsel in connection with such action. During the years ended December
31, 1991, 1992 and 1993, Carolco paid on behalf of such persons approximately
$108,000, $2,000 and $6,000, respectively, in legal expenses related to such
action. In addition, during the years ended December 31, 1991, 1992 and 1993
Carolco paid approximately $245,000, $23,000 and $18,000, respectively, in legal
expenses on behalf of Mario F. Kassar, Chairman of the Board of Directors, who
has separate legal counsel in such action.

In connection with a certain class action litigation, Carolco paid
approximately $29,000 and $6,000 in legal expenses during the fiscal years ended
December 31, 1992 and 1993 on behalf of Mario F. Kassar (Chairman of the Board
of Directors), Ryuichi Noda (a member of Carolco's Board of Directors) and Roger
R. Smith, Frans J. Afman, Satoshi Matsumoto, Peter M. Hoffman, Louis Weiss and
Rene Bonnell (former members of Carolco's Board of Directors), all of whom are
represented by common legal counsel.

At December 31, 1992, the Company had a $450,000 note payable to New CIBV
bearing interest at 12 1/2%, secured by a deed of trust on property purchased by
the Company in 1989. Interest was payable monthly with all outstanding principal
and unpaid interest payable in full on December 30, 1993. The

F-27
<PAGE>
CAROLCO PICTURES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE I -- RELATED PARTY TRANSACTIONS (CONTINUED)
Company expensed approximately $56,000 in interest on such note payable for each
of the years ended December 31, 1991, 1992 and 1993. On December 22, 1993, the
Company repaid the note in full, including principal and accrued and unpaid
interest through December 22, 1993. At December 31, 1993, it was the Company's
intention to sell the property. Accordingly, due to the depressed real estate
market in Southern California, the Company estimated that the current market
value of the property was approximately $450,000 at December 31, 1993 and the
Company recognized a loss of $346,000 attributable to the reduced value of the
property. Subsequently, the Company has decided to retain the property for its
own use. Therefore, the property has not been recorded as an Asset Held for
Sale, but has been included at its current estimated market value in Property
and Equipment.

In October 1993, the Company made a loan of $300,000 to Mr. Lynwood Spinks,
a director and officer of the Company pursuant to Mr. Spinks' employment
agreement. The loan bears interest at the Company's periodic borrowing rate and
will be forgiven in equal installments of $75,000, plus accrued interest, on
each of March 1, 1994, 1995, 1996 and 1997. Any remaining principal plus
accumulated interest thereon shall be forgiven by the Company on the termination
of Mr. Spinks' employment for any reason whatsoever other than termination by
the Company for Mr. Spinks' material breach as defined in the agreement.

Metronome Productions N.V., an affiliate of Frans Afman, a former director
of the Company, received cash fees of $150,000 in 1991, $50,000 in 1992 and
$250,000 in 1993, for services provided as a managing director of CINV, pursuant
to an agreement which expires on June 30, 1994.

Michael E. Garstin, a principal in Daniels and Associates ("Daniels"), is a
member of the Company's Board of Directors. In August, 1992, the Company
retained Daniels and Jefferson Capital Group, Ltd. ("Jefferson Capital")
(collectively the "Financial Advisors") to assist in locating capital sources,
to market for sale certain accounts receivable, to make recommendations with
respect to any transactions which may result, and to consider a possible
restructuring of the Company's capital structure. In addition, in December 1992,
the Company also retained the Financial Advisors in connection with the exchange
offers to the holders of the 14% Notes, the 13% Notes, the Existing 10%
Debentures, the Series D Preferred and the Vista Common Stock and the associated
Series A Puts attached thereto in connection with the Restructuring. In exchange
for their advisory services, the Company agreed to pay certain fees and expenses
to the Financial Advisors. As a result of the services provided by the Financial
Advisors in conjunction with the Restructuring, in 1992 and 1993 the Company
paid approximately $979,000 and $4,463,000, respectively, in fees and expenses
to the Financial Advisors. Under its agreements with the Financial Advisors, the
Company also agreed to indemnify the Financial Advisors from certain liabilities
in connection with the Restructuring including liabilities under the Security
Act and the Exchange Act.

Mr. Garstin, was a managing director of Bear, Stearns & Co. Inc. ("Bear
Stearns") until June 1992. The Company or its affiliates, has engaged Bear
Stearns as a financial advisor with respect to a number of transactions. During
the fiscal years ended December 31, 1991, 1992 and 1993, the Company or its
subsidiaries paid fees of $393,000, $0, and $720,000 to Bear Stearns. In 1991,
LIVE paid Bear Stearns $470,000 in fees related to LIVE's acquisition of
Vestron.

F-28
<PAGE>
CAROLCO PICTURES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE I -- RELATED PARTY TRANSACTIONS (CONTINUED)
In connection with Mr. Kassar's current employment agreement, he is entitled
to receive certain production-related incentive compensation with respect to
"Covered Pictures" equal to a "percentage" of aggregate gross profits (as
defined in the agreement) once certain "thresholds" (as defined in the
agreement) for all Covered Pictures in a year, taken together, are achieved.
"Covered Pictures" for 1992 means CLIFFHANGER, UNIVERSAL SOLDIER, BASIC INSTINCT
and CHAPLIN and for 1993 and 1994 means motion pictures as to which principal
photography commences during such years. An obligation of $724,000 and
$1,407,000 was recorded by the Company at each of December 31, 1992 and 1993,
respectively, pursuant to this agreement and is included in Notes and Amounts
Payable, Related Parties. This obligation will be paid in future periods based
on actual receipts of cash and pursuant to the terms of the agreement. The
Kassar Agreement provides a separate formula for similar producer's fees for
motion pictures as to which principal photography commences from January 1, 1993
through the term of the Kassar Agreement. Other than WAGONS EAST, no motion
picture commenced principal photography in 1993.

OTHER:

In 1992 and 1993, the Company received cash advances of approximately
$600,000 and $489,000, respectively, from LHV, representing the net present
value of a portion of LHV's advances related to certain of the Company's motion
picture releases. In addition, at December 31, 1992 and 1993, the Company had a
note payable to LIVE of $5,364,000, and $8,047,000, respectively. (The balance
at December 31, 1992 was eliminated in consolidation.) The note payable bears
interest at LIVE's interest rate for the period (approximately 10% at December
31, 1993). The Company recognized $1,179,000, $1,347,000 and $481,000 of
interest expense related to these and prior advances and the note payable to
LIVE during the years ended December 31, 1991, 1992 and 1993, respectively. The
1991 and 1992 amounts were eliminated in consolidation.

In 1990, the Company entered into an agreement with Continental Film
Productions Holding B.V., ("Continental") a Netherlands Antilles Company which
the Company believes is controlled by Andrew G. Vajna, a former co-chairman and
a founder of the Company. The Company believes that Mr. Vajna is affiliated with
certain companies which beneficially own approximately 2.5% of the Company's
Common Stock. Pursuant to agreement, Continental acquired the right to
distribute all of the films produced or acquired by the Company in all media in
Hungary and Poland. The agreement further provides that Continental will pay to
the Company 50% of cash receipts from distribution of the Company's films, after
Continental recoups its distribution expenses. During the years ended December
31, 1992 and 1993, Continental paid to the Company approximately $118,000 and
$371,000, respectively, pursuant to the agreement. At December 31, 1992 and
1993, Continental owed approximately $144,000, and $24,000, respectively, to the
Company pursuant to the agreement.

In December 1989, pursuant to a stock sale agreement, Mr. Vajna divested his
and his affiliates' entire ownership interests (held either directly or
indirectly through a chain of related corporations) in the Company's Common
Stock, other than an option to purchase 500,000 shares of Common Stock. Pursuant
to this agreement, the Company was required to pay certain legal and accounting
fees on behalf of Mr. Vajna and his affiliates. In 1991, 1992 and 1993, the
Company paid approximately $25,000, $173,200 and $416,000, respectively, in
legal accounting fees pursuant to this agreement. At December 31, 1992 and 1993,
the Company owed an additional $247,000 and $80,000, respectively, in legal and
accounting fees.

F-29
<PAGE>
CAROLCO PICTURES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE I -- RELATED PARTY TRANSACTIONS (CONTINUED)
LIVE:

Pursuant to an agreement dated October 1991, LIVE America, Inc., a
subsidiary of LIVE America, granted Pioneer a license for LIVE's United States
laser videodisc rights for a term ending September 1995. In October 1991 Pioneer
paid LIVE America $5,000,000 under this agreement as a non-returnable advance
recoupable on a cross-collateralized basis from all royalties payable to LIVE
America under the agreement.

On September 14, 1992, Pioneer and a wholly-owned subsidiary of LHV, formed
a film rights acquisition limited partnership (the "Film Rights Partnership") to
acquire video and other film rights and exploit such rights through the
distribution facilities of LHV and its subdistributors. Pioneer contributed
$15,000,000 in cash to the Film Rights Partnership.

As of December 31, 1992, the Film Rights Partnership assets, liabilities and
partner's equity consisted of cash of $10,115,000, video rights of $6,454,000,
receivable from LHV of $193,000, video rights obligations of $1,500,000, payable
to Pioneer of $262,000 and partner's equity of $15,000,000. The assets and
liabilities of the Film Rights Partnership are not reflected in LIVE's or the
Company's 1992 consolidated financial statements.

Upon closing of the LIVE Restructuring, Pioneer exchanged with LIVE all of
its right, title and interest in and to the Film Rights Partnership in return
for 15,000 shares of LIVE's Series C Convertible Preferred Stock, par value
$1.00 per share (the "Pioneer Preferred Stock"). On March 23, 1993, Pioneer also
received $472,500 as the guaranteed return on its investment in the Film Rights
Partnership from September 15, 1992 to March 23, 1993.

The Pioneer Preferred Stock bears a cash dividend rate of 5% ($50 per share)
per annum, payable semi-annually on June 30 and December 31 of each year. The
Pioneer Preferred Stock ranks junior to the Exchange Preferred Stock and senior
to all other classes of stock of LIVE. The Pioneer Preferred Stock is
convertible into 4,926,108 shares of common equity of LIVE (either Common Stock
or Series A Common Stock). The number of shares into which the Pioneer Preferred
Stock is convertible was determined by dividing the $15,000,000 liquidation
preference of the Pioneer Preferred Stock by $3.045, which was 140% of the
average closing price of LIVE's Common Stock on the New York Stock Exchange for
the ten trading days ending March 18, 1993, the date that was three business
days before the closing of the LIVE Restructuring. Holders of the Pioneer
Preferred Stock are entitled to vote with the holders of LIVE Common Stock
generally with each share entitled to as many votes as the number of shares of
LIVE Common Stock into which it may be converted. The Pioneer Preferred Stock in
combination with LIVE's Common Stock owned by Pioneer, represents approximately
30% of the voting equity of LIVE. The Pioneer Preferred Stock may not be
redeemed until March 23, 1995. Thereafter, the Pioneer Preferred Stock may only
be redeemed in certain limited circumstances in the event of increases in the
trading price of LIVE's Common Stock or in the event of a merger of LIVE with
another entity.

Related party transactions between Lieberman and a former director of LIVE
and his affiliates resulted in net payments by Lieberman of $228,000 for the
year ended December 31, 1991. The payments were for rental of office and
warehouse space, reimbursement of operating expenses and fees for support
services, including data processing and administrative services.

Jefferson Capital, an affiliate of a director of LIVE received a cash fee of
$235,000 and a warrant to purchase 14,500 shares of LIVE's Common Stock at
$14.25 per share for services provided in 1990 in connection with the
acquisition of Waxie Maxie and the related financing. In addition, in 1991 the
same affiliate received a $100,000 retainer for investment banking services
provided in connection with the proposed business combination of LIVE and the
Company. During 1992, Jefferson Capital, together with a co-financial advisor,
received $850,000 plus out-of-pocket expenses as payment for financial advisory
services rendered in connection with the LIVE Restructuring. Additionally,
$850,000 was paid in connection

F-30
<PAGE>
CAROLCO PICTURES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE I -- RELATED PARTY TRANSACTIONS (CONTINUED)
with the March 1993 completion of the LIVE Restructuring. During 1993, the same
affiliate and the co-financial advisor each received warrants to purchase 16,667
and 14,706 shares of LIVE's Common Stock at a price of $2.00 and $2.72 per
share, respectively, in connection with each of them providing $250,000 of
credit under the Junior Credit Facility and an additional $250,000 upon purchase
of the 12% Notes.

LIVE's Chairman of the Board, Anthony J. Scotti, is a holder of $250,000 of
the 12% Notes and was issued warrants to purchase 14,706 shares of LIVE's Common
Stock at a price of $2.72 per share in connection therewith. Mr. Scotti has also
been retained by the Company as a consultant (see Note P).

An affiliate of Frans Afman, a director of LIVE, received a cash fee of
$150,000, $75,000 and $79,000 in 1990, 1991 and 1992, respectively, for services
provided to a foreign subsidiary of LIVE.

NOTE J -- PROPERTY AND EQUIPMENT
Property and equipment is comprised of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1992 1993
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Equipment and furniture................................................. $ 22,524 $ 8,217
Leasehold improvements.................................................. 496 496
Vehicles................................................................ 339 141
Building................................................................ 28,833 22,065
Land.................................................................... 3,020 1,851
Aircraft................................................................ 500 500
--------- ---------
55,712 33,270
Less accumulated depreciation and amortization.......................... (22,787) (13,345)
--------- ---------
$ 32,925 $ 19,925
--------- ---------
--------- ---------
</TABLE>

NOTE K -- DEBT
Debt consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1992 1993
---------- ---------
(IN THOUSANDS)
<S> <C> <C>
Carolco:
Senior notes, net of discount of $303 (1).............................. $ 33,452 $ --
Senior subordinated notes, net of discount of $137 in 1992 (2)......... 16,008 3,445
Existing 10% Debentures (3)............................................ 14,600 --
Revolving line of credit -- CLBN (4)................................... 22,587 14,000
Vista bank loan (5).................................................... 15,385 --
New Senior Notes (6)................................................... -- 41,678
New Senior Subordinated Notes (7)...................................... -- 13,432
Loan payable (8)....................................................... 1,978 957
Building mortgage (9).................................................. 11,790 11,701
Note payable -- Guilds (10)............................................ 15,000 9,367
---------- ---------
Total Carolco debt................................................. $ 130,800 $ 94,580
---------- ---------
---------- ---------
</TABLE>

F-31
<PAGE>
CAROLCO PICTURES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE K -- DEBT (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1992 1993
---------- ---------
(IN THOUSANDS)
LIVE:
<S> <C> <C>
Revolving lines of credit and term loans (11).......................... $ 13,684 $ --
Distribution agreement (12)............................................ 19,784 --
Increasing Rate Senior Subordinated Notes due 1999, including
capitalized interest of $24,245 (13).................................. 64,245 --
Other.................................................................. 103 --
---------- ---------
Total LIVE debt:................................................... $ 97,816 $ --
---------- ---------
---------- ---------
Consolidated debt:..................................................... $ 228,616 $ 94,580
---------- ---------
---------- ---------
</TABLE>

DEBT OF THE COMPANY:

(1) On January 29, 1992, the Company successfully completed a tender offer
(the "Tender Offer") pursuant to which the Company agreed to purchase just in
excess of a majority of the then outstanding 14% Notes, for a total $33,757,000
principal balance at a price of $830 per $1,000 principal amount of 14% Notes.
As a result of the Tender Offer, during the three months ended March 31, 1992 an
extraordinary gain of $4,916,000 was recognized representing the difference
between the cash paid for the 14% Notes as part of the Tender Offer and the
carrying value of the debt at January 29, 1992. As part of the Tender Offer, the
Company also received consents from approximately 62% of the holders of the 14%
Notes to delete certain covenants contained in the indenture.

At December 31, 1992, the remaining aggregate principal amount outstanding
of 14% Notes was $33,755,000. This amount was due and payable on June 1, 1993.
Pursuant to the Restructuring described in Note B, the Company exchanged
$22,496,000, or 66.6%, in principal amount of the outstanding 14% Notes for
$22,496,000 in principal amount of New Senior Notes, plus $102.08 in cash for
accrued interest for each $1,000 in principal amount of 14% Notes exchanged. In
addition, the Company paid approximately $12,701,000 in principal and accrued
and unpaid interest to holders of 14% Notes that were not tendered pursuant to
the Exchange Offers.

(2) Pursuant to the terms of the Exchange Offers described in Note B, the
Company exchanged $12,700,000, or 78.7%, in principal amount of the outstanding
13% Notes for $12,700,000 in principal amount of New Senior Subordinated Notes,
plus $115.40 in accrued interest per $1,000 principal amount, 50% of which was
paid in cash and 50% of which was paid in additional New Senior Subordinated
Notes. $3,445,000 in principal amount of the 13% Notes was not tendered pursuant
to the Exchange Offers.

Pursuant to the 13% Notes Indenture, if the Company's consolidated net worth
is less than $33,334,000 on the last day of any fiscal quarter (commencing with
the quarter ended December 31, 1992), the Company is obligated to offer to
purchase $5,000,000 aggregate principal amount of the 13% Notes on last day of
the sixth month thereafter. Since the Company's consolidated net worth was less
than $33,334,000 on each of December 31, 1992, March 31, 1993, June 30, 1993 and
September 30, 1993, the Company was obligated to offer to purchase $5,000,000 in
aggregate principal amount of its 13% Notes on June 30, 1993, September 30,
1993, December 31, 1993 and March 31, 1994. Pursuant to the terms of the 13%
Note Indenture, the Company credited the $12,700,000 in principal amount of 13%
Notes acquired in the Exchange Offers against its June 30, 1993, September 30,
1993, December 31, 1993 and March 31, 1994 obligations to offer to purchase 13%
Notes and as a result of such credits, did not purchase any additional 13%
Notes. As a result of the Amendments to the 13% Note Indenture (see below) the
Company has no further obligation to offer to purchase the remaining 13% Notes.

F-32
<PAGE>
CAROLCO PICTURES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE K -- DEBT (CONTINUED)
Concurrently with the Exchange Offers, the Company solicited the consents of
holders of the 13% Notes to certain amendments to the indenture governing the
13% Notes. Holders of 13% Notes who consented to the Amendments also waived
certain events of default under the 13% Notes Indenture and eliminated
substantially all of the restrictive covenants and certain default provisions in
the 13% Note Indenture. Among other things, the Amendments also amended the 13%
Note Indenture to delete the requirement to maintain the Minimum Consolidated
Net Worth.

(3) Subsequent to the issuance of the Series D Preferred (see Note L),
292,000 shares of the Series D Preferred were converted into $14,600,000 face
value of Existing 10% Debentures. Pursuant to the Restructuring described in
Note B, $14,600,000 in face amount of Existing 10% Debentures was exchanged for
21,900,000 shares of the Company's Common Stock.

(4) As of December 31, 1993, the Company has outstanding borrowings of
$14,000,000 under a revolving credit agreement provided by a syndicate of banks
with Credit Lyonnais Bank Nederland N.V. ("CLBN") acting as lender and agent
(the "CLBN Facility"). The CLBN Facility bears interest at 3-month LIBOR plus 2%
(5.375% at December 31, 1993) which interest is payable quarterly. The CLBN
Facility was originally scheduled to mature November 29, 1992. The maturity date
of the loans under the CLBN Facility has been extended to September 30, 1994,
provided certain events of default do not occur. CLBN has also agreed to remit
to CII all collections from accounts receivable pledged to CLBN, so long as
certain defaults do not occur. The CLBN Facility is secured by substantially all
of the Company's assets.

At December 31, 1992 and 1993, and March 31, 1994, the Company was not in
compliance with several covenants and restrictions under the CLBN Facility,
including a covenant that requires the Company to maintain a minimum net worth
of $40,000,000. Such items of noncompliance have been waived by CLBN.

(5) In May 1990, Vista entered into a loan agreement with CLBN (the "Vista
Loan"). The interest accruing on this loan at 3-month LIBOR plus 2% (5 5/16% at
December 31, 1992) was being added to the loan balance. At December 31, 1992,
the total amount owed of $15,385,000 included approximately $1,385,000 of
accrued interest. The loan was renegotiated to provide for the Vista Loan to be
repaid on or before June 30, 1993. In order to facilitate the repayment of the
Vista Loan, CLBN extended loans in the aggregate amount of $15,000,000 to CINV
under the CLBN Facility (see item (4) above). Pursuant to an arrangement among
the Company, Vista and CINV, CINV paid such amount to the Company and Vista, and
the Company and Vista used such amount to repay in full the balance of the Vista
Loan.

(6) Pursuant to the Restructuring described in Note B, the Company issued
$22,496,000 in principal amount of New Senior Notes in exchange for $22,496,000
in principal amount of 14% Notes (See Item (1) above). In addition, pursuant to
the Vista Offer to Purchase (see Note E), the Company issued $19,181,800 in
principal amount of New Senior Notes in exchange for approximately 17,765,100
shares, or 78.5%, of Vista Common Stock not owned by the Company. Interest on
the New Senior Notes is payable semiannually on April 15 and October 15.

(7) Pursuant to the terms of the Exchange Offers described in Note B, the
Company issued $13,431,700 in principal amount of New Senior Subordinated Notes
in exchange for $12,700,000 aggregate principal amount of 13% Notes, plus
accrued interest of $115.40 per $1,000 principal amount of 13% Notes, 50% of
which was paid in cash and 50% in New Senior Subordinated Notes. Interest on the
New Senior Subordinated Notes is payable semi-annually on April 15 and October
15. (See Item (2) above).

(8) In September 1988, the Company entered into a 10.75% term loan agreement
with John Hancock Leasing. The purpose of the loan was for the purchase of an
aircraft and its refurbishment and was secured by the aircraft. Interest and
principal of approximately $141,000 were payable monthly over a period of five
years. In 1993, the Company negotiated a reduction of the monthly payment,
pending the sale of the aircraft.

F-33
<PAGE>
CAROLCO PICTURES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE K -- DEBT (CONTINUED)
On February 3, 1994, the Company sold the aircraft for $1,925,000 and the
remaining loan balance of $900,000, including accrued interest, was paid in
full. The Company recognized a gain of $1,275,000 in 1994 related to the sale of
the aircraft.

(9) In March 1988, the Company entered into a $12,000,000 mortgage on its
headquarters building in Los Angeles. The mortgage has an interest rate of 10%
and is payable in monthly installments beginning March 1990 based upon an
assumed 30 year amortization of principal. The mortgage provides for a balloon
payment of the outstanding principal amount at the end of seven years.

(10) In August 1992, the Company reached an agreement with the Screen Actors
Guild, the Directors' Guild of America, the Writers' Guild of America and the
Motion Picture Industry Pension and Health Plan (collectively, the "Guilds")
with respect to amounts owed to the Guilds under certain collective bargaining
agreements. Pursuant to the agreement, the Company issued a note payable to the
Guilds in the amount of $15,000,000 (the "Guild Note"), which was reduced by
$3,000,000 on February 24, 1993. The balance of the Guild Note is due in four
equal annual installments on October 1 of each year commencing in 1993 and bears
interest at 3-month LIBOR, plus 1% per year (4.375% at December 31, 1993),
payable in cash or additional notes payable. A provision of the note allows the
Company to prepay all or a portion of the note prior to October 1, 1993 at a
redemption price of 60% of the then outstanding balance, plus accrued interest,
or between October 1, 1993 and October 1, 1994 at a redemption price of 70% of
the then outstanding balance, plus accrued interest. On September 29, 1993, the
Company redeemed $3,000,000 of the Guild Note, including accrued interest. As a
result, the Company recorded an extraordinary gain on early extinguishment of
debt of $1,249,000. At December 31, 1993, $9,367,000 is still outstanding under
the Guild Note, including accrued interest. The note payable to the Guilds is
secured by a lien on substantially all of the Company's assets, which lien is
subordinated to the CLBN Facility (see Item (4) above).

Assuming that none of the Company's debt is accelerated, future expected
annual payments as of December 31, 1993 are as follows:

<TABLE>
<CAPTION>
(IN THOUSANDS)
---------------
<S> <C>
1994......................................................................... $ 18,164
1995......................................................................... 3,218
1996......................................................................... 6,676
1997......................................................................... 11,412
1998......................................................................... 0
Thereafter................................................................... $ 55,110
-------
$ 94,580
-------
-------
</TABLE>

DEBT OF LIVE

(11) At December 31, 1992 there was $5,370,000 outstanding under LIVE's bank
credit facility with a group of banks headed by Chemical Bank and CLBN (the
"LIVE Credit Facility"). On February 5, 1993, the LIVE Credit Facility was
amended and extended. On March 26, 1993, the LIVE Credit Facility was further
amended to permit LIVE to issue $37,000,000 in principal amount of 12% Notes, as
herein defined. Loans under the LIVE Credit Facility are senior to the Exchange
Notes and the 12% Notes. The LIVE Credit Facility has covenants that include a
limitation on overhead expenses, maintenance of minimum net worth, compliance
with other financial ratio covenants and limitations on interest payments on the
Exchange Notes and on dividend payments on the Exchange Preferred Stock and
Pioneer Preferred Stock if LIVE is not then in compliance with certain
provisions of the LIVE Credit Facility. Borrowings under the LIVE Credit
Facility are secured by substantially all of the assets of LIVE. The
contribution of LHV is limited to 95% of LIVE's interest payments on the
Exchange Notes and 90% of LIVE's cash dividend payments on the Exchange
Preferred Stock and Pioneer Preferred Stock. The LIVE Credit Facility was
further amended in

F-34
<PAGE>
CAROLCO PICTURES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE K -- DEBT (CONTINUED)
January 1994 and provides that if the group of banks headed by Chemical Bank and
CLBN choose to terminate their lending commitment thereunder without
accelerating the loans thereunder prior to July 29, 1994, LIVE must apply all
its cash receipts (except net proceeds of equity sales) to the repayment of the
amounts outstanding under the LIVE Credit Facility for up to six months after
termination, at which time any amounts remaining unpaid are due. The LIVE Credit
Facility also provides for reductions in credit availability if LHV's cash flow
exceeds certain levels. The maximum credit available under the LIVE Credit
Facility was reduced to $20,000,000 in January 1994. On April 1, 1994, the
maximum credit amount under the LIVE Credit Facility was further reduced to
$15,916,000 resulting from cash dividends paid on the Pioneer Preferred Stock
and on the Exchange Preferred Stock. The term of the LIVE Credit Facility ends
July 29, 1994 and earlier in the event of a default.

The interest rate on the LIVE Credit Facility equals either the Alternate
Base Rate (as defined in the LIVE Credit Facility) plus 3% per annum or LIBOR
plus 4 1/4% per annum (7 9/16% at December 31, 1992) and increases by an
additional 1/4% per annum every three months commencing March 1, 1993. Fees
payable by LIVE to members of the LIVE Bank Group in connection with the
February 5, 1993 amendment to the LIVE Credit Facility totalled $1,250,000, of
which $1,050,000 was paid as of March 23, 1993.

On February 5, 1993, LIVE, LHV and certain of their subsidiaries entered
into a new $20,000,000 credit facility (the "Junior Credit Facility") with
Pioneer North America, Inc. ("PNA"), the parent of Pioneer, and a group of other
participants for a total of $20,000,000 in revolving credit availability. PNA
committed to fund $15,000,000 of the Junior Credit Facility conditioned upon
completion of the LIVE Restructuring, and a group of participants (the "Junior
Credit Facility Participants") funded $5,000,000 of the Junior Credit Facility
prior to completion of the LIVE Restructuring. Borrowings under the Junior
Credit Facility bore interest at the Chemical Bank prime rate plus six
percentage points, resulting in an interest rate of 12% per annum.

On March 26, 1993, the Junior Credit Facility was refinanced by an Indenture
for 12% Subordinated Secured Notes due 1994 (the "12% Indenture") governing
promissory notes in total principal amount of $37,000,000 issued by LIVE in
connection therewith in a private placement transaction (the "12% Notes").
Repayment of the 12% Notes has been guaranteed by the same subsidiaries of LIVE
that are borrowers under the LIVE Bank Credit Facility. Neither Pioneer nor PNA
is a holder of any 12% Notes. The 12% Notes bear interest at the rate of 12% per
annum, with interest payable monthly, and are due and payable on September 15,
1994. The 12% Indenture includes warranties, financial ratios, covenants and
restrictions which generally mirror the terms of the LIVE Credit Facility.
Repayment of the 12% Notes is subordinated to repayment of the LIVE Credit
Facility, and, until payment in full of the LIVE Bank Credit Facility, the
rights of holders of the 12% Notes to accelerate payment thereunder are limited
to payment defaults and/or acceleration of the LIVE Credit Facility.
Furthermore, consents, and waivers of defaults, under the LIVE Credit Facility
act as consents and waivers under the 12% Indenture. Repayment of the 12% Notes
is secured by a lien on all of the assets of LIVE and LHV, subordinate to the
lien under the LIVE Credit Facility and other pre-existing liens.

The Specialty Retail Division's corporate offices and warehouse facility are
encumbered by a loan with an original balance of $4,000,000. The loan provides
for annual principal payments of $40,000 commencing in September 1989, with the
balance payable in September 1993. At December 31, 1992, there was $3,840,000
outstanding under the loan. Interest on the loan at December 31, 1992 was 6.5%.

On June 11, 1992, the Specialty Retail Division entered into a two-year
$10,000,000 line of credit with Foothill Capital Corporation (the "Strawberries
Credit Facility") to provide working capital as well as funds for expansion for
the Specialty Retail Division. Borrowings under the Strawberries Credit Facility
are secured by substantially all of the assets of the Specialty Retail Division.
Outstanding borrowings under the Strawberries Credit Facility bear interest at
the rate of 3.5% per annum above the higher of the Bank of

F-35
<PAGE>
CAROLCO PICTURES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE K -- DEBT (CONTINUED)
America reference rate or the greater of the Citibank or Mellon Bank prime rate
(approximately 9.5% at December 31, 1992). In no event will interest under the
loan be less than 9% per annum or $25,000 per month. As of the Specialty Retail
Division's 1992 fiscal year end, $912,000 was outstanding under the Strawberries
Credit Facility.

In December 1989, VCL entered into an agreement with a former shareholder to
acquire certain stock and film rights for $2,155,000, of which $1,333,000
accrued interest at 2 1/2% above LIBOR and was paid in 1991. The balance accrues
interest at 8% per annum and has required principal payments of 48 equal monthly
installments. At December 31, 1992 there was $348,000 outstanding under this
obligation. In addition, as of December 31, 1992, VCL owed $984,000 to another
former shareholder, of which $199,000 bears interest at 7% per annum and is
payable in eight quarterly installments beginning in April 1991. The balance is
non-interest bearing and is payable in four equal annual installments commencing
in April 1994.

In 1992, VCL had a demand note with a bank which bore interest at 11.5%. As
of December 31, 1992 there was $2,230,000 outstanding under this note which was
secured by cash collateral provided by LIVE.
(12) LHV has an agreement with MCA Canada Ltd. ("MCA Canada") under which
MCA Canada is the exclusive distributor of LHV's videocassette product in Canada
through August 31, 1994. MCA Canada advanced $10,000,000 to LHV in October 1991;
$5,000,000 is recoupable from 100% of the proceeds on sales commencing September
1, 1991 and $5,000,000 is recoupable in 31 equal monthly installments commencing
March 1, 1992, plus interest at LIBOR plus 0.2%, not to exceed the prime rate.
At December 31, 1992 there was $3,117,000 outstanding. Interest on the advance
at December 31, 1992 was 3.4%.

On May 11, 1992, LHV entered into a three year distribution agreement with
WEA Corp. ("WEA") that became effective immediately upon the May 31, 1992
expiration of LHV's former agreement with Uni. Under the terms of the agreement,
WEA advanced $20,000,000 to LHV, recoupable from distribution revenues during
the three year term of the agreement at the rate of $555,555 per month plus
interest at LIBOR plus 0.2%, not to exceed the prime rate. In order to obtain
the advance, LHV granted WEA a first priority security interest in most of LHV's
Family Home Entertainment catalog titles. LHV received an additional $4,900,000
advance from WEA, which was repaid in full in September 1992. At December 31,
1992 there was $16,667,000 outstanding. Interest on the advance at December 31,
1992 was 3.4%.

(13) On March 17, 1993, the Bankruptcy Court confirmed the LIVE Prepackaged
Plan for LIVE, providing for the issuance of the Exchange Notes. The Exchange
Notes mature on March 23, 1999. Interest accrues on the Exchange Notes from
September 1, 1992 at 10% per annum and increases to 12% on March 23, 1996.
Payment of the Exchange Notes is secured only by a lien on the common stock of
LHV, subject and subordinated to liens under the LIVE Credit Facility and the
12% Indenture and is subordinated to all of LIVE's present and future senior
debt. The Exchange Notes are subject to mandatory redemption of $20,000,000 of
the principal amount on March 23, 1998 and are redeemable at any time at par
plus accrued interest.

The Exchange Notes are governed by the terms of the Indenture dated as of
September 1, 1992, between LIVE and American Stock Transfer & Trust Company, as
Trustee. The Indenture restricts the ability of LIVE and its Restricted
Subsidiaries to incur additional senior debt and subsidiary senior debt, to make
restricted payments and restricted investments, to merge, consolidate or sell
assets of the Company or its Restricted Subsidiaries, to create liens other than
to secure senior debt, subsidiary senior debt and certain other permitted debt,
or to enter into certain transactions with affiliates of LIVE, including
Carolco.

Interest to maturity on $36,872,000 of the Exchange Notes ($24,245,000 at
December 31, 1992) has been included in the carrying value of the Exchange
Notes, in accordance with Financial Accounting Standards Board Statement No. 15,
"Accounting by Debtors and Creditors for Troubled Debt Restructurings," and will
not be recognized as interest expense in current and future years.

F-36
<PAGE>
CAROLCO PICTURES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE K -- DEBT (CONTINUED)
Carolco has not guaranteed, nor is it liable for any of LIVE's debt
instruments.

NOTE L -- STOCKHOLDER'S EQUITY

CAROLCO:

On June 15, 1990, in exchange for $30,000,000, Canal+ purchased 30,000
shares of the Company's Series B Preferred, and an unregistered warrant to
purchase 150,000 shares of the Company's Common Stock at an exercise price of
$18.50 (subject to adjustment) per share of Common Stock. The Series B Preferred
earned cumulative dividends at $50.00 per share per annum, subject to
adjustment, and each share was convertible, at the option of the holder, into
the number of shares of Common Stock of the Company obtained by dividing the
per-share liquidation value of $1,000 (the "Series B Liquidation Value") by the
conversion price of $18.50, subject to adjustment. With respect to the right to
receive dividends and distributions upon liquidation, dissolution or winding-up
of the Company, the Series B Preferred was ranked PARI PASSU with the Series C
Preferred and the Series E Preferred and was ranked junior to the Series D
Preferred. The holders of the Series B Preferred were entitled to vote for and
elect one director of the Company by a vote of a majority of such holders
casting ballots. A holder of Series B Preferred had the same voting rights as
such holder would have been entitled to if he had converted his Series B
Preferred to Common Stock. From and after the second anniversary of the issuance
of the Series B Preferred and only during such time as all dividends on the
Series B Preferred had been paid, the Company had the right to redeem the
outstanding shares of Series B Preferred upon the occurrence of certain events.
In connection with the issuance of the Series D Preferred (the "Preferred Stock
Offering") described below, the Company granted Canal+ an option to purchase
447,344 shares of Common Stock at $.01 per share exercisable upon conversion of
the Series B Preferred at $18.50 per share and reduced the exercise price of the
warrant to purchase 150,000 shares of Common Stock from $18.50 to $14.50 per
share. Pursuant to the Contribution and Exchange Agreement, Canal+ exchanged a
portion of the Series B Preferred for shares for Common Stock of the Company and
transferred the balance of the Series B Preferred and related options and
warrants to the Company. (See Note B(5)).

On July 3, 1990, in exchange for $60,000,000, Pioneer purchased 60,000
shares of the Company's Series C Preferred, and an unregistered warrant to
purchase 300,000 shares of the Company's Common Stock at an exercise price of
$18.50 per share, subject to adjustment. The Series C Preferred earned
cumulative dividends at $50.00 per share per annum, subject to adjustment, and
was convertible, at the option of the holder, into the number of shares of
Common Stock of the Company obtained by dividing the per-share liquidation value
of $1,000 (the "Series C Liquidation Value") by the conversion price of $18.50,
subject to adjustment. In addition, up to 15,000 shares of Series C Preferred
were exchangeable, at the option of the holder, into the number of shares of
Common Stock of LIVE held by the Company obtained by dividing the Series C
Liquidation Value by the exchange price of $28.215, subject to adjustment. Prior
to the Restructuring, Pioneer, the sole holder of the Series C Preferred, waived
its right to exchange the Series C Preferred for LIVE Common Stock. With respect
to the right to receive dividends and distribution upon liquidation, dissolution
or winding-up of the Company, the Series C Preferred was ranked PARI PASSU with
the Series B Preferred and the Series E Preferred and was ranked junior to the
Series D Preferred. The holders of the Series C Preferred were entitled to vote
for and elect two directors of the Company by a vote of a majority of such
holders casting ballots. A holder of Series C Preferred had the same voting
rights as such holder would have been entitled to if he had converted his Series
C Preferred to Common Stock. From and after the second anniversary of the
issuance of the Series C Preferred and only during such time as all dividends on
the Series C Preferred had been paid, the Company had the right to redeem the
outstanding shares of Series C Preferred upon the occurrence of certain events.
In connection with the Preferred Stock Offering, the Company granted Pioneer (i)
options to purchase 894,688 shares of common stock at $.01 per share on a pro
rata basis exercisable upon conversion of the Series C Preferred at $18.50 per
share and (ii) options to purchase up to 82,759 shares of common stock at $.01
per share on a pro rata basis exercisable

F-37
<PAGE>
CAROLCO PICTURES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE L -- STOCKHOLDER'S EQUITY (CONTINUED)
upon exercise of Pioneer's warrant to purchase common stock at $18.50 per share.
Pursuant to the Contribution and Exchange Agreement, Pioneer exchanged a portion
of the Series C Preferred for Common Stock of the Company and transferred the
balance of the Series C Preferred related options and warrants to the Company.
(See Note B(5)).

On March 27, 1991, Technicolor purchased 1,037,038 shares of Common Stock of
the Company, subject to possible future adjustment, at a purchase price of
$13.50 per share for a total purchase price of $14,000,000 and received certain
rights to have such Common Stock registered by the Company under the Securities
Act of 1933, as amended. In addition, the Company and Technicolor entered into a
Laboratory Services Agreement pursuant to which the Company and its affiliates
agreed to use Technicolor's film processing services for a term of at least
seven years beginning in March 1991. Technicolor and the Company believe that
the prices charged to the Company for such services are competitive.

On June 3, 1991, RCS Video International Services B.V. ("RCS BV"), an
affiliate of RCS, purchased 1,111,111 shares of Company Common Stock at a
purchase price of $13.50 per share for a total purchase price of approximately
$15,000,000. RCS entered into a long-term strategic relationship with the
Company upon the purchase of the Common Stock.

On October 11, 1991, Neue Constantin Film GmbH & Co. Verleih KG ("Neue
Constantin"), purchased 222,223 shares of the Company's Common Stock at a
purchase price of approximately $3,000,000, or $13.50 per share. Neue
Constantin, a leading theatrical distribution company in Germany, has also
entered into an Output Agreement with CINV, commencing in September 1991 whereby
Neue Constantin will acquire the German language and German territory theatrical
rights to 20 pictures produced or acquired by the Company, excluding films
previously licensed in that territory.

On November 1, 1991, the Company issued 600,000 shares of Series D Preferred
Stock, and $35,000,000 aggregate principal amount of Existing 10% Debentures.
The Series D Preferred included annual cumulative dividends of $5 per share,
payable quarterly and was: (i) convertible at the option of the holder at any
time into 8.3333 shares of the Company's Common Stock (a conversion price of
$6.00 per share of Common Stock), subject to adjustment upon certain events
affecting the Common Stock and (ii) exchangeable at the price of $50 per share
at the option of the holder into the Existing 10% Debentures at anytime, or at
the option of the Company on any dividend date which occurs (a) on or after
October 15, 1994 and (b) after a quarterly dividend period during which the
closing sale price of the Company's Common Stock for ten consecutive trading
days was at least $9.00 per share, subject to adjustment and certain conditions.
Of the 600,000 shares of the Series D Preferred, the Company issued and sold
300,000 shares to Bear Stearns & Co. Inc. and Salomon Brothers Inc (the
"Managers"), who resold the Series D Preferred Stock to qualified institutional
buyers (as defined in Rule 144A promulgated under the Securities Act of 1933, as
amended (the "Securities Act")) and to accredited investors (as defined in Rule
501 promulgated under the Securities Act). The Managers paid $14,250,000 to the
Company for the Series D Preferred. Subsequently, in accordance with the
provisions of the Series D Preferred, all but 8,000 shares of other Series D
Preferred was converted to Existing 10% Debentures (see Note K). Pursuant to the
Restructuring, the remaining 8,000 shares of Series D Preferred were exchanged
for 600,000 shares of the Company's Common Stock. The holder of the 8,000 shares
of Series D Preferred also received $20,000 in cash representing accrued but
unpaid dividends thereon. (See Note B(4)). In a separate, but contemporaneous
sale, Canal+ purchased 300,000 shares of the Series D Preferred Stock from the
Company for $15,000,000.

Contemporaneous with the sale of Series D Preferred, RCS purchased
$20,000,000 principal amount of Existing 10% Debentures and Pioneer Electronics,
an affiliate of Pioneer, purchased $15,000,000 principal amount of Existing 10%
Debentures. RCS also purchased 370,370 shares of Common Stock of the Company at
a total purchase price of approximately $5,000,000, or $13.50 per share.
Pursuant to the Contribution and

F-38
<PAGE>
CAROLCO PICTURES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE L -- STOCKHOLDER'S EQUITY (CONTINUED)
Exchange Agreement, Canal+, RCS, and Pioneer Electronics exchanged a portion of
the Series D Preferred Stock and Existing 10% Debentures for Common Stock of the
Company and transferred to the Company the balance of the Series D Preferred
Stock and Existing 10% Debentures. (See Note B(5)).

In connection with the Company's motion picture BASIC INSTINCT, RCS made a
$5,000,000 co-financing payment. As permitted in the co-financing agreement in
199 , RCS elected to credit the $5,000,000 co-financing payment against the
purchase of Common Stock and relinquish its interest in BASIC INSTINCT. In
connection with the co-financing agreement, the Company agreed to pay to RCS
interest on the $5,000,000 at a rate of 6-month LIBOR plus two percentage points
(5 1/2% at December 31, 1993). At December 31, 1992, such accrued interest
totalled approximately $566,000. At October 20, 1993, such accrued interest
totalled approximately $783,000. Pursuant to the Contribution and Exchange
Agreement, described in Note B(5), RCS transferred its interest in this
obligation to the Company.

In 1992, the Strategic Investors agreed to purchase an aggregate of 12,800
shares of Series E Preferred at $1,000 per share for an aggregate purchase price
of $12,800,000. On April 3, 1992, Pioneer purchased 5,271 shares of Series E
Preferred, on April 13, 1992, RCS purchased 3,823 shares of Series E Preferred
and on April 14, 1992, Canal+ purchased 3,706 shares of Series E Preferred. Each
holder of Series E Preferred was entitled to receive cumulative dividends in an
amount equal to $100 per share per annum and each share was convertible at the
option of the holder into that number of shares of Common Stock of the Company
obtained by dividing the per share liquidation value of $1,000 (the "Series E
Liquidation Value") by the conversion price of $2.15, subject to adjustment.
With respect to the right to receive dividends and distributions upon
liquidation, dissolution or winding-up of the Company, the Series E Preferred
was ranked (i) junior to the Series D Preferred, (ii) PARI PASSU with the Series
B Preferred and the Series C Preferred, (iii) senior to the Series R Junior
Participating Cumulative Preferred Stock of the Company, par value $1.00 per
share, and (iv) prior to the Common Stock and any other equity securities of the
Company unless the terms of such securities provide otherwise. A holder of
Series E Preferred had the same voting rights as such holder would have been
entitled to if he had converted his Series E Preferred to Common Stock. Further,
certain corporate actions required the affirmative vote or consent of the
holders of at least three-quarters of the outstanding Series E Preferred shares
for a period of two years following the initial issuance of the Series E
Preferred, and thereafter required the affirmative vote or consent of the
holders of at least two-thirds of the outstanding Series E Preferred. From and
after the second anniversary of the issuance of the Series E Preferred and only
at such time as all dividends on the Series E Preferred had been paid, the
Company had the right to redeem the outstanding shares of Series E Preferred
upon the occurrence of certain events. Pursuant to the Contribution and Exchange
Agreement, Canal+, RCS and Pioneer each exchanged a portion of the Series E
Preferred for Common Stock of the Company and transferred to the Company the
balance of the Series E Preferred. (See Note B(5)).

As a result of the Contribution and Exchange Agreement, effective October
20, 1993, all of the Company's Existing 10% Debentures, Series B Preferred,
Series C Preferred, Series D Preferred and Series E Preferred ceased to be
outstanding.

On October 17, 1990, CINV purchased 3,461,538 shares of Common Stock of the
Company, from New Carolco Investments B.V. ("New CIBV") under terms previously
negotiated by the Independent Committee of the Company's Board of Directors and
recommended by the Independent Committee and approved by the Company's Board of
Directors (the "Stock Purchase"). Prior to consummation of the Stock Purchase,
New CIBV owned 18,581,040 shares of the Company's Common Stock (exclusive of
540,000 shares underlying immediately exercisable options in favor of an
affiliate of Mr. Kassar), constituting approximately 62% of the issued and
outstanding Common Stock of the Company at that time. Immediately after the
stock purchase, New CIBV held 15,119,502 shares of the Company's Common Stock
(exclusive of shares underlying the options referenced above and the warrants
granted to New CIBV discussed below) constituting at

F-39
<PAGE>
CAROLCO PICTURES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE L -- STOCKHOLDER'S EQUITY (CONTINUED)
that time approximately 57% of the issued and outstanding Common Stock of the
Company. Mr. Kassar may be deemed to own beneficially the shares of the
Company's Common Stock held by New CIBV. In exchange for the 3,461,538 shares of
the Company's Common Stock, New CIBV received consideration consisting of (i)
$13 per share (totaling an aggregate $44,999,994), and (ii) a warrant of the
Company to acquire an aggregate 1,000,000 shares of the Company's Common Stock
at an exercise price of $18.50 per share for a term of seven years (the
"Warrant"). Payment of $41,050,675 was made to New CIBV as follows: (i) CINV
assumed the obligations of New CIBV under the New CIBV Note pursuant to which
New CIBV then owed the Company $25,050,675, (ii) CINV paid $8,000,000 to CLBN in
partial satisfaction of certain preexisting debts of New CIBV to CLBN, and (iii)
CINV executed a promissory note in favor of New CIBV, in the amount of
$8,000,000 (the "Promissory Note"). Subsequently, the $8,000,000 Promissory Note
was paid by CINV to CLBN. On November 22, 1991, the United States District Court
for the Southern District of California approved a settlement agreement executed
by the parties to the purported derivative actions against certain directors and
former directors of the Company originally filed on September 25, 1990 by
Arthur-Magna Inc., an alleged stockholder of the Company, in connection with the
Stock Purchase. In August 1993, the settlement was affirmed on appeal by the
Court of Appeals for the Ninth Circuit. As part of the settlement, New CIBV
agreed that between March 25, 1991 and March 25, 1993, the Company would sell
common stock or comparable securities in the aggregate of $41,090,000 at prices
no less than the prices involved in the Stock Purchase. As a result of the
settlement, the Company was not required to pay to New CIBV the balance of
$3,910,000 which had not been paid in connection with the Stock Purchase and
retained 300,769 shares of Common Stock which had been held in trust for New
CIBV pending the payment of such amount. As of March 25, 1993, the Company had
sold shares of Common Stock or comparable securities in an aggregate of
$37,000,016 at prices at least equal to $13.00 per share. Mr. Kassar and New
CIBV satisfied the New CIBV obligation under the settlement by tendering
1,490,943 shares of Common Stock to the Company. Such shares were valued at
$1.175 per share (the average closing price of the Common Stock on the NYSE
during the 10 business day period preceding March 25, 1993).

On July 2, 1990, the Company paid a dividend to holders of record of the
Company's Common Stock on July 2, 1990 of one preferred stock purchase right (a
"Right") for each share of Common Stock outstanding as of such date, pursuant to
the Rights Agreement dated as of June 18, 1990 as amended (the "Rights
Agreement"). At a meeting held on October 17, 1993, the Company's Board of
Directors approved the redemption of all the outstanding Rights issued under the
Rights Agreement. The record date and effective date of the redemption was
October 19, 1993. Holders of Rights on the record date were entitled to receive
the redemption price of $.01 per Right in cash. The aggregate redemption price
for all outstanding Rights totalled $285,962 and was paid in November 1993.

STOCK OPTION PLANS

In 1986, the Company adopted two stock option plans (the "1986 Plans"); one
for its officer, directors and key employees (the "Employee Plan") and one for
its key consultants (the "Non-Employee Plan"). The Employee Plan provides for
the grant of both "incentive stock options" and "nonqualified stock options" to
acquire common stock of the Company. The Non-Employee Plan provides for the
grant of only "nonqualified stock options." The maximum number of shares subject
to the 1986 Plans are 1,450,000 shares. Options expire 10 years subsequent to
date of grant.

F-40
<PAGE>
CAROLCO PICTURES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE L -- STOCKHOLDER'S EQUITY (CONTINUED)
Information relating to options under the 1986 Plan is as follows:

<TABLE>
<CAPTION>
NUMBER OF
UNDERLYING AVERAGE
SHARES PRICE
---------- -----------
<S> <C> <C>
Balance at December 31, 1990 (including 978,369 options
exercisable at an average price of $7.32 per share).............................. 1,018,369 $ 7.32
Granted........................................................................... -- --
Exercised......................................................................... (135,480) 5.49
Cancelled......................................................................... (309,799) 7.45
----------
Balance at December 31, 1991 (all outstanding options exercisable)................ 573,090 7.67
Granted........................................................................... -- --
Exercised......................................................................... -- --
Cancelled......................................................................... (71,500) 7.96
----------
Balance at December 31, 1992 (all outstanding options are exercisable)............ 501,590 7.67
Granted........................................................................... 390,500 1.25
Exercised......................................................................... -- --
Cancelled......................................................................... (438,599) 7.86
----------
Balance at December 31, 1993 (all outstanding options are exercisable)............ 453,491 $ 1.95
----------
----------
</TABLE>

As of December 31, 1992 and 1993, 512,301 shares and 560,400 shares,
respectively, were available under the 1986 Plans for future grants of options.

The Company has also adopted the 1989 Stock Option and Stock Appreciation
Rights Plan (the "1989 Plan") including "incentive stock options" for employees
of the Company and its subsidiaries as well as "nonqualified stock options" and
stock appreciation rights ("SAR's") for employees, directors and consultants of
the Company or its subsidiaries and other persons, to acquire Common Stock of
the Company or stock appreciation rights related to such Common Stock. All
options and stock appreciation rights expire 10 years from the date of grant.

At the time the 1989 Plan was adopted, options for a maximum of 1,500,000
shares of the Company's Common Stock and a maximum of 250,000 SARs could be
granted under the 1989 Plan. At the annual meeting of stockholders of the
Company held on August 23, 1991, the 1989 Plan was amended to provide that the
250,000 SAR's previously authorized may be granted as stock appreciation rights
or options and increased the number of shares of Common Stock that may be
granted under the 1989 Plan by 750,000 shares. At a special meeting of
stockholders of the Company held on September 30, 1993, which was adjourned and
concluded on October 18, 1993, the 1989 Plan was further amended to increase the
number of options which may be granted under the 1989 Plan by 27,500,200 shares
plus the 250,000 shares if all SAR's that may be granted under the 1989 Plan are
issued as stock options, for a total of 30,000,000 shares. Among other
amendments, the 1989 Plan was further amended to (i) provide for a formula of
grants of options to directors and certain committee members each year, and (ii)
provide for certain general provisions applicable to participants subject to
Section 16 of the Securities and Exchange Act of 1934, as amended.

F-41
<PAGE>
CAROLCO PICTURES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE L -- STOCKHOLDER'S EQUITY (CONTINUED)
Information relating to options under the 1989 Plan is as follows:

<TABLE>
<CAPTION>
NUMBER OF
UNDERLYING AVERAGE
SHARES PRICE
------------ -----------
<S> <C> <C>
Balance at December 31, 1990 (including 788,735 options
exercisable at an average price of $9.66 per share)............................ 1,606,201 $ 9.32
Granted......................................................................... 259,000 7.27
Exercised....................................................................... (6,000) 6.25
Cancelled....................................................................... (333,201) 9.46
------------
Balance at December 31, 1991 (including 1,009,576 options
exercisable at an average price of $9.58 per share)............................ 1,526,000 8.95
Granted......................................................................... 785,000 2.58
Exercised....................................................................... -- --
Cancelled....................................................................... (297,500) 8.90
------------
Balance at December 31, 1992 (including 1,409,746 options
exercisable at an average price of $7.86 per share)............................ 2,013,500 6.50
Granted......................................................................... 17,454,000 1.22
Exercised....................................................................... -- --
Cancelled....................................................................... (1,967,000) 6.37
------------
Balance at December 31, 1993 (including 1,852,351 options
exercisable at an average price of $1.19 per share)............................ 17,500,500 $ 1.25
------------
------------
</TABLE>

As of December 31, 1992 and 1993, 458,500 shares and 12,471,500 shares,
respectively, were available under the 1989 Plan for future grants of options.
As of December 31, 1993, no stock appreciation rights have been granted.

At December 31, 1993, the Company has reserved approximately 30,986,000
shares of its unissued common stock for stock option plans.

At December 31, 1993, the Company had reserved approximately 189,349,000
shares of its unissued common stock for convertible debt and preferred stock.

In April 1993 the Board of Directors of the Company, acting as the Stock
Option Committee pursuant to the 1986 Plan and the 1989 Plan of the Company
(collectively, the "Plans"), approved a voluntary program for the cancellation
and reissuance of outstanding stock options granted under the Plans prior to
such date by granting to current employees and directors of the Company the
right to agree to cancel such options ("Cancelled Options") and to receive in
return therefor new options ("New Options") for an equal number of shares
pursuant to the Plans, on certain terms and conditions, including, among others:
(i) the exercise price for the New Options would equal $1.250, the closing price
of Common Stock on the NYSE on April 20, 1993; (ii) fifty percent (50%) of the
New Options would vest on April 20, 1994, the remainder would vest on April 20,
1995 provided that no New Options would vest earlier than the scheduled vesting
date for the corresponding Cancelled Options and (iii) all New Options would
expire on April 20, 2003, unless the recipient's employment terminates causing
the New Options to expire prior to such date. In connection with this
arrangement, options to purchase 2,109,500 shares were exchanged for New
Options.

F-42
<PAGE>
CAROLCO PICTURES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE L -- STOCKHOLDER'S EQUITY (CONTINUED)
LIVE:

On March 23, 1993, pursuant to the LIVE Prepackaged Plan, LIVE's Outstanding
Preferred Stock was exchanged for a combination of Exchange Notes and Exchange
Preferred Stock. Effective upon the completion of the LIVE Restructuring,
6,000,000 shares of Exchange Preferred Stock were outstanding. Each share of
Exchange Preferred Stock has a liquidation value of $10.00 per share. Holders of
the Exchange Preferred Stock are entitled to an annual dividend, payable
quarterly, which accrues from September 1, 1992 at 5% ($.50 per share) if paid
in cash or 8% if paid in kind ("PIK") and increases on May 1, 1996 to 10% ($1.00
per share) if paid in cash and 12% if PIK. Dividends of $1,000,000 ($.17 per
share) were accrued in 1992 on the Exchange Preferred Stock and were paid in
March 1993. The Exchange Preferred Stock is subject to mandatory redemption with
the net proceeds of any sale of the Specialty Retail Division. LIVE may redeem
the Exchange Preferred Stock at any time, initially at 80% of the liquidation
value until March 31, 1994, increasing 1% per month to 100% of the liquidation
value after October 31, 1995.

Holders of the Exchange Preferred Stock are entitled to elect two directors,
and in certain circumstances, up to four directors, or under certain other
circumstances, a majority of LIVE's Board of Directors. In addition, commencing
May 1, 1996, or earlier if LIVE has elected to pay PIK dividends for a total of
four quarters, holders can convert the Exchange Preferred Stock into LIVE Common
Stock. The conversion price per share is obtained by dividing the liquidation
value by either the market price of the LIVE Common Stock or the "Floor Price."
The Floor Price is initially $4.00 per share of LIVE Common Stock, decreasing
$0.25 per share at the end of each three month period thereafter. On September
1, 1998, the conversion price will be reset to the lower of the market price or
$1.00 per share, resulting in the potential issuance of a minimum of 60,000,000
shares of LIVE's Common Stock.

In connection with LIVE's restructuring, Pioneer exchanged its interest in a
limited partnership with LIVE for 15,000 shares of Pioneer Preferred Stock (see
Note I). These shares are convertible into 4,926,108 shares of common equity of
LIVE and are entitled to as many votes as the number of shares of Common Stock
into which it may be converted. The Pioneer Preferred Stock bears a cash
dividend rate of 5% and a liquidation preference of $15,000,000.

NOTE M -- INCOME TAXES
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standard (SFAS) No. 109 "Accounting for Income Taxes." The adoption
of SFAS No. 109 has no material effect on the Company's financial position or
results of operations for the year ended December 31, 1993. Under SFAS No. 109,
the liability method is used in accounting for income taxes. Under this method,
deferred tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse. Prior to the adoption of SFAS No. 109, income tax
expense was determined using the liability method prescribed by SFAS No. 96
"Accounting for Income Taxes," which is superceded by SFAS No. 109. Among other
changes, SFAS No. 109 changes the recognition and measurement criteria for
deferred tax assets from that provided in SFAS No. 96.

F-43
<PAGE>
CAROLCO PICTURES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE M -- INCOME TAXES (CONTINUED)
The components of pretax income for the Company and LIVE (1991 and 1992) and
for the Company (1993) are as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1991 1992 1993
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Domestic......................................................... $ (159,981) $ (105,409) $ (39,899)
Foreign.......................................................... (60,000) 654 (15,368)
----------- ----------- -----------
$ (219,981) $ (104,755) $ (55,267)
----------- ----------- -----------
----------- ----------- -----------
</TABLE>

The provision (benefit) for income taxes for the Company and LIVE (1991 and
1992) and for the Company (1993) consists of the following:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1991 1992 1993
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal............................................................... $ (7,613) $ 239 $ --
State................................................................. 101 455 38
Foreign............................................................... 878 1,373 489
--------- --------- ---------
(6,634) 2,067 527
Deferred:
Federal............................................................... 4,517 (1,022) 4,028
State................................................................. 6,646 (2,639) --
--------- --------- ---------
11,163 (3,661) 4,028
--------- --------- ---------
Expense in lieu of income taxes resulting from utilization of
preacquisition net operating losses: Foreign........................... 969 1,000 --
--------- --------- ---------
Provision (benefit) for income taxes.................................... $ 5,498 $ (594) $ 4,555
--------- --------- ---------
--------- --------- ---------
</TABLE>

Components of deferred income taxes for the Company and LIVE (1991 and 1992)
and the Company (1993) are as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1991 1992 1993
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Film rights and other.................................................... $ 3,337 $ -- $ 4,028
Video rights............................................................. 5,274 (3,280) --
Sales returns and other allowances....................................... 887 286 --
Accelerated depreciation and basis reduction............................. (441) (20) --
Accruals not currently deductible for tax purposes....................... 1,337 (684) --
Other.................................................................... 769 37 --
--------- --------- ---------
$ 11,163 $ (3,661) $ 4,028
--------- --------- ---------
--------- --------- ---------
</TABLE>

F-44
<PAGE>
CAROLCO PICTURES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE M -- INCOME TAXES (CONTINUED)
A reconciliation of the total effective tax rate to the statutory federal
income tax rate for the Company and LIVE (1991 and 1992) and for the Company
(1993) is as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1991 1992 1993
------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Statutory income tax rate.......... 34.0% 34.0% 35.0%
Foreign operations subject to
varying income tax rates
and exemptions.................... (13.8) 3.8 .3
Nonutilization of net operating
loss.............................. (18.6) (20.7) (34.9)
State income taxes, net of federal
tax benefit....................... (2.0) 3.3 (.1)
Foreign withholding tax............ (.8) (2.3) (.8)
Dividend exclusion................. .2 .2 --
Alternative minimum tax............ (1.1) (14.3) (7.3)
Foreign deemed dividend............ (.9) (2.2) --
Worthless stock deduction.......... 3.3 -- --
Goodwill amortization.............. (2.7) (1.3) --
Other.............................. (.1) .1 (.4)
------- ------ ------
(2.5)% .6% (8.2)%
------- ------ ------
------- ------ ------
</TABLE>

Current and non-current deferred income taxes generally reflect the net tax
effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax
purposes. Significant components of the Company's current and non-current
deferred tax liabilities and assets as of December 31, 1993 are as follows (in
thousands):

<TABLE>
<S> <C>
Current and Non-current Deferred Tax Liability:
Film Rights and Other....................................... $ 11,365,000
Deferred Tax Assets:
Bad Debt and Other Reserves................................. 768,770
Film Revenue Recognition.................................... 6,880,710
Other Net................................................... 101,412
Net Operating Tax Carryforward.............................. 46,920,000
-------------
Total Deferred Tax Assets............................. 54,670,892
Valuation Allowance........................................... (54,670,892)
-------------
Net Deferred Tax Assets............................... 0
-------------
Total Current and Non-current Deferred Tax Asset
(Liability)................................................... $ (11,365,000)
-------------
-------------
</TABLE>

The provision for income taxes includes foreign taxes withheld at source on
certain revenues. Such amounts were $850,000, $1,111,000 and $489,000 in 1991,
1992 and 1993, respectively. In addition, the Company has available U.S. federal
net operating loss carryovers of approximately $138,000,000 and $106,000,000,
respectively, for regular tax and Alternative Minimum Tax return purposes. Such
carryovers will expire between the years 1996 and 2008, if not otherwise used to
reduce future taxable income. The Company also has available state net operating
loss carryforwards of approximately $31,000,000 which will expire in 1998. In
addition, the Company has approximately $950,000 of investment tax credit
carryforwards which expire in 2002. Such net operating loss carryovers are
subject to certain limitations discussed below.

Section 382 of the Internal Revenue Code ("IRC") provides rules limiting the
utilization of a corporation's net operating loss carryovers following a
specified change in the ownership of a corporation's equity (an "Ownership
Change"). Following an Ownership Change, the amount of taxable income of a
corporation

F-45
<PAGE>
CAROLCO PICTURES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE M -- INCOME TAXES (CONTINUED)
that can be offset by pre-Ownership Change net operating loss carryovers
generally cannot exceed an amount equal to the fair market value of the
corporation's stock immediately before the Ownership Change (subject to certain
adjustments) multiplied by the federal long-term tax-exempt rate in effect on
the date of the Ownership Change (the "Annual Limitation") as adjusted for
certain built-in gain items. If the Annual Limitation for a taxable year exceeds
the taxable income for such year, the Annual Limitation for the next taxable
year is increased by the amount of such excess.

An Ownership Change occurred with respect to the Company on December 30,
1989. As a result, the utilization of the Company's approximately $64,000,000 of
net operating loss carryovers attributable to periods prior to the Ownership
Change were limited to approximately $25,000,000 in 1990 and was cumulatively
limited to $50,000,000 in 1991, since none of the Annual Limitation applicable
to 1990 was utilized in that year. A second Ownership Change has occurred with
respect to the Company on November 1, 1991. Consequently, the utilization of the
Company's approximately $79,000,000 of net operating loss carryovers
attributable to periods prior to November 1, 1991, was limited in utilization
for periods after the second Ownership Change. The amount of such Annual
Limitation is approximately $10,000,000 per year.

Concurrent with the restructuring described in Note B, a third ownership
change occurred with respect to the Company on October 20, 1993. As a result,
the utilization of the Company's approximately $138,000,000 of net operating
loss carryovers attributable to periods prior to the ownership change is limited
in utilization for periods after the third ownership change. The amount of such
annual limitation is approximately $2,500,000 per year.

Concurrent with the restructuring and as described in Note B, Vista became a
wholly owned subsidiary of Carolco. Vista filed a separate U.S. consolidated and
California combined income tax return for the periods prior to its acquisition
by Carolco.

At October 20, 1993 Vista had approximately $20,480,000 of net operating
carryforwards now subject to separate return limitations ("SRLY") for regular
federal tax return purposes expiring between the years 1998 and 2007.

An ownership change occurred with respect to Vista on October 20, 1993. As a
result, the utilization of Vista's approximately $20,480,000 of net operating
loss carryovers attributable to periods prior to the ownership change are
limited to an amount less than $500,000 per year.

As of December 20, 1993, CSI became a greater than 80% owned subsidiary of
Carolco and joined the U.S. consolidated tax return group of Carolco. At
December 20, 1993, CSI had federal net operating carryovers subject to SRLY
limitations in the amount of $52,377,159, expiring between the years 2001 and
2008.

At December 31, 1992 LIVE had approximately $81,000,000 of net operating
loss carryforwards available for regular federal tax return purposes expiring
between the years 1996 and 2006. In accordance with Section 108 of the I.R.C.
LIVE was required to reduce its "tax attributes" due to the confirmation of the
LIVE Prepackaged Plan. This resulted in the reduction of net operating loss
carryforwards by approximately $35,000,000. State net operating loss
carryforwards were $13,000,000 prior to the reduction in "tax attributes." This
amount was fully absorbed after the reduction in "tax attributes," resulting in
the elimination of all net operating loss carryforwards for state tax purposes.
For federal Alternative Minimum Tax ("AMT") return purposes, $58,000,000 of net
operating loss carryforwards were available before the reduction in "tax
attributes" and $23,000,000 after the reduction in "tax attributes." AMT net
operating loss carryforwards will expire between 1996 and 2006. AMT credits of
$1,634,000 are available to offset future regular federal income tax
liabilities, however, these will also be subject to the "change in ownership"
limitations.

F-46
<PAGE>
CAROLCO PICTURES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE M -- INCOME TAXES (CONTINUED)
On March 17, 1993, the Bankruptcy Court confirmed the LIVE Prepackaged Plan.
In accordance with the I.R.C., this reorganization has caused a "change in
ownership" which resulted in a limitation on the future utilization of LIVE's
net operating loss carryforwards beginning with the year ending December 31,
1993. The annual limitation is approximately $1,600,000 per year, subject to
certain increases for built-in gain items. The income tax effect of the
confirmation of the LIVE Prepackaged Plan has been reflected in LIVE's Statement
of Operations for the year ended December 31, 1992.

The Internal Revenue Service and the California Franchise Tax Board are
currently conducting examinations of certain of LIVE's tax returns.

The domestic entities of the Company and its predecessors have paid minimal
federal or state income taxes in prior years as a result of significant revenues
being received by CINV, a wholly-owned Netherlands Antilles subsidiary of the
Company. CINV's earnings through October 18, 1993 were generally not subject to
current taxation in the United States. Through such date, CINV was subject to
substantially lower tax rates in the Netherlands Antilles. In October 1993, CINV
was reorganized into a wholly-owned subsidiary of the Company incorporated under
the laws of Delaware. Such reorganization should not have resulted in United
States or California income tax liability to the Company. As a result of the
reorganization of CINV, foreign source income of the Company in future periods
will be subject to United States income taxation, which could result in a
significant increase in the Company's effective tax rate. At December 31, 1992,
CINV had approximately $30,000,000 of untaxed and unrepatriated earnings. There
were no material restrictions on the Company's ability to repatriate its foreign
earnings. These earnings would have been subject to certain income taxes and
appropriate provision would have to be made in the Company's financial
statements if such earnings were remitted as cash dividends or deemed to be
remitted in accordance with certain provisions of the IRC.

The Company's effective tax rate for prior years could be adversely affected
by the following:

1. The allocation of income and deductions between the Company and
CINV, may be subject to challenge by the Internal Revenue Service since the
Company and CINV are related parties. Management believes that its
allocations of income and deductions is fair and equivalent to those which
would result from an arm's length transaction.

2. The Company and its subsidiaries may be deemed personal holding
companies and the Company's foreign subsidiary may be deemed a foreign
personal holding company due to the substantial stock ownership potentially
attributable to Mr. Kassar and other persons. As a result, the Company may
be required to pay current dividends or a penalty tax if its income from
motion picture distribution is not classified as "rents" or "produced film
rents" under certain provisions of the Internal Revenue Code. Management
believes this income should be so classified and that the Company and its
subsidiaries should not be taxed as personal holding companies or foreign
personal holding companies.

3. CINV earns only foreign source income and, prior to December 31,
1987, none of its foreign income should have been directly subject to U.S.
taxation because of specific provisions in the U.S.-Netherlands Antilles Tax
Treaty. With the expiration of this treaty as of December 31, 1987, it is
possible, under certain theories which apply to foreign corporations engaged
in activities in the United States, for the Internal Revenue Service to
contend that some of CINV's income is directly subject to U.S. tax.
Management does not believe that CINV has engaged in such activities in the
United States and believes that none of these theories would apply.

F-47
<PAGE>
CAROLCO PICTURES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE M -- INCOME TAXES (CONTINUED)
for the taxable years under audit. The proposed adjustment format being used by
the IRS allows for a period of discussion of the issues and the submission of
more data before an actual adjustment is made. The Company is continuing
discussions with the IRS regarding the issues raised by these proposed
adjustments and the IRS has not yet indicated the nature and amount of any
additional adjustments. As a result, the tax liabilities, if any, that may
ultimately result from the IRS and FTB examinations cannot be determined at this
time. The Company believes that its current and non-current deferred income tax
liability as of December 31, 1993 is adequate to cover any potential tax
liability arising from such examinations.

NOTE N -- OTHER INCOME AND OTHER EXPENSES
Other income includes interest income of approximately $2,307,000,
$1,398,000 and $507,000 in 1991, 1992 and 1993, respectively. In addition, other
income for the years ended December 31, 1991, 1992 and 1993 includes $1,027,000,
$2,419,000 and $3,649,000 respectively, relating to facility and equipment
rentals at Carolco's motion picture studio. Other income also includes property
rental income for the years ended December 31, 1991, 1992 and 1993 of $288,000,
$399,000 and $435,000 respectively. Foreign currency exchange gains and losses,
which were not material, have also been included in other income for each of the
years presented.

Other expenses in 1992 include losses totalling $1,116,000 resulting from
the sale to the Strategic Investors of the LIVE shares in June 1992, a loss of
$3,080,000 relating to the write-off of costs associated with films in which the
Company no longer owns distribution rights, and a loss of $3,000,000 resulting
from the write-down of the Company's aircraft to the estimated net realizable
value. Other expenses in 1991 include $4,706,000 resulting from the Company's
settlement of a derivative lawsuit and $3,905,000 of expenses of LIVE associated
with the 1991 proposed business combination with Carolco and LIVE's related
corporate restructuring.

NOTE O -- PREPAYMENT OF ACCOUNTS RECEIVABLE
On January 8, 1993, the Company entered into a prepayment agreement with
Showtime Networks Inc. ("Showtime") whereby Showtime prepaid certain license
fees due to the Company for the domestic pay television exploitation of certain
of the Company's motion pictures. Pursuant to the prepayment agreement, Showtime
paid approximately $25,900,000 to the Company, representing the present value of
future license fees (with face amount of approximately $28,000,000) due from
Showtime at various times through March 1994, net of a deferred prepayment
amount of $1,450,000, of which $1,000,000 was paid upon the theatrical release
of CHAPLIN in December 1992. The balance of $450,000 is due upon completion of
an audit by Showtime. Proceeds from the prepayment were used to reduce bank
debt, to pay associated Guild obligations, and for general working capital
purposes.

NOTE P -- COMMITMENTS AND CONTINGENCIES

CAROLCO

The Company has employment contracts with 8 of its key officers, with
contract terms to 1997, requiring annual compensation of $4,045,000.

The Company has received approximately $1,716,000 at December 31, 1993,
representing deposits on certain films which the Company may not produce. This
amount is included in Accrued Liabilities at December 31, 1993. Traditionally,
the Company has been able to allocate advances of this nature to other pictures
being produced by the Company which contain elements similar to the original
film. However as a result of reduced production commitments, the Company may be
required to return these deposits.

In December 1988, CTI entered into three distribution agreements pursuant to
which CTI acquired certain domestic free television syndication rights in 40
motion pictures and U.S. network rights in three of these pictures owned or
controlled by Hemdale Film Corporation and other related entities (collectively,
"Hemdale") and a 10% equity interest in a related Hemdale company for payments
aggregating

F-48
<PAGE>
CAROLCO PICTURES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE P -- COMMITMENTS AND CONTINGENCIES (CONTINUED)
$50,000,000. Under the terms of the agreements, CTI was entitled to exploit
syndication rights in Hemdale titles over an aggregate term of seven and
one-half years per picture with exception of one motion picture and was entitled
to license network rights for a period of three years. At December 31, 1993,
$1,000,000 was outstanding under these agreements and is included in Contractual
Obligations. The Company has not paid this amount to Hemdale because it believes
it has certain claims against Hemdale which are in excess of the amount due to
Hemdale under these agreements. The domestic free television rights acquired
from Hemdale were subsequently sold to Worldvision (see Note G).

In September 1992, the Company retained Anthony J. Scotti as a consultant to
the Company and the Financial Advisors in locating capital sources, to market
for sale certain accounts receivable, to make recommendations with respect to
any transactions which may result, and to consider a possible restructuring of
the Company's capital structure. Anthony J. Scotti is the Chairman of LIVE's
Board of Directors, and was also familiar with the Company. In addition, Mr.
Scotti is the Chairman of the Board of Directors and the Chief Executive Officer
of All American Communications, Inc. In exchange for his services, the Company
agreed to pay certain fees and expenses to Mr. Scotti. As a result of the
services provided by Mr. Scotti in connection with the Restructuring, the
Company paid approximately $207,000 and $912,000, respectively, in fees and
expenses to Mr. Scotti in 1992 and 1993.

On December 29, 1992, certain unsecured trade creditors of the Company
agreed not to file a petition against the Company or its subsidiaries under
Chapter 7 or 11 of the Bankruptcy Code. In consideration for such agreement, a
subsidiary of the Company agreed to pay approximately $2,300,000, subject to
certain audits. $550,000 of the total obligation was paid on December 23, 1992.
The balance of the obligation was payable in 7 equal monthly installments of
$250,000 each, beginning on January 23, 1993. The final payment of $250,000 was
made on July 23, 1993. Upon completion of certain audits of the residual
obligations, the Company may be obligated to pay an additional amount of up to
$678,798.

The Company has adopted a qualified profit sharing plan for all of its
eligible employees effective as of January 1, 1989 (the "Profit Sharing Plan").
Under the plan, each employee who had attained the age of 20 1/2 is eligible to
become a participant upon the first January 1 or July 1 next following such
employee's completion of six months of service with the Company. Under the
Profit Sharing Plan, each participant is permitted to make tax deferred
voluntary contributions of an amount not to exceed the lesser of 10% of his or
her respective compensation and the applicable statutory limitation. The Company
will match all such contributions in an amount equal to 50% thereof, subject to
a per-participant matching contribution cap of 3% of such employee's
compensation. In addition, the Company, at the discretion of the Board of
Directors,

F-49
<PAGE>
CAROLCO PICTURES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE P -- COMMITMENTS AND CONTINGENCIES (CONTINUED)
may make an annual contribution to the Profit Sharing Plan of up to the maximum
amount permitted by law. The Company's expense related to matching contributions
in 1991, 1992 and 1993 totalled $93,000, $80,000 and $109,000 respectively.

SPIDERMAN LITIGATION:

On April 20, 1993, 21st-Century Film Corporation ("21st") and Menahem Golan
("Golan") filed an action against the Company, CINV and Spiderman Productions,
Ltd. in Los Angeles County Superior Court purporting to allege claims for breach
of contract, anticipatory breach of contract and fraud relating to the motion
picture project SPIDERMAN. Plaintiffs allege that on or about May 19, 1990, 21st
entered into an agreement with the Company whereby 21st transferred to the
Company literary rights relating to SPIDERMAN, and the Company agreed, among
other things, to accord credit to Golan as a producer of the picture both on
screen and in paid advertisements, with the obligations to 21st to be guaranteed
by the Company and by CINV. Plaintiffs further allege that on or about June 19,
1992, the parties entered into a second agreement settling certain other
litigation and wherein it was agreed that the Company and CINV could assign the
May 19, 1990 agreement to RCS NV, provided that RCS NV assume in writing the
obligations thereunder and provided that the Company and CINV remain jointly and
severally liable with RCS NV under the May 19, 1990 agreement. Plaintiffs allege
that the Company and the other defendants breached the foregoing agreements by
denying any obligation to accord producer credit to Golan, by assigning the May
19, 1990 agreement to a party other than RCS NV, and by failing to provide
plaintiffs with a writing showing that the Company and the other defendants have
assumed the obligations of the May 19, 1990 agreement. Finally, plaintiffs
allege that the Company and the other defendants entered into the foregoing
agreements fraudulently in that they did not intend to perform their alleged
promises at the time they entered into the agreements.

Based on the foregoing allegations, plaintiffs sought compensatory damages
in excess of $5 million, unspecified punitive damages, attorneys' fees,
rescission of the May 19, 1990 agreement, a declaration as to the plaintiffs'
alleged rights, and a preliminary and permanent injunction preventing the
Company and the other defendants from distributing SPIDERMAN without according
producer screen credit to Golan and from issuing press releases or other
information to the media without according producer credit to Golan.

F-50
<PAGE>
CAROLCO PICTURES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE P -- COMMITMENTS AND CONTINGENCIES (CONTINUED)
jointly doing business as Columbia Tri-Star Home Video, and various Doe
defendants (collectively "Columbia Tri-Star"), seeking declarations that such
defendants do not have certain distribution rights in SPIDERMAN. Both Viacom and
Columbia Tri-Star contend that they acquired certain distribution rights from
21st prior to the Company's and 21st's entering into the May 19, 1990 agreement,
and allegedly continue to hold such rights after the May 19, 1990 agreement was
entered into and after it was rescinded on November 19, 1993 as described above.

Although the Company and others are plaintiffs and neither defendants nor
cross-defendants in the declaratory relief action against Viacom, a ruling in
favor of Viacom could significantly encumber certain of the rights the Company
and its co-plaintiffs contend they have. The Company is unable to place a
monetary value on these rights. Viacom asserts that it paid 21st $2,000,000 for
the domestic television distribution rights that it contends it still holds.

OTHER LITIGATION:

On July 13, 1992, 20th Century Fox ("Fox") filed a lawsuit in Los Angeles
County Superior Court, against the Company and CINV a wholly-owned subsidiary of
the Company, for breach of contract and an accounting relating to amounts
allegedly owed by the Company and CINV with respect to the motion picture DICE
RULES. Fox claimed that a total of $1,750,000 was due under an agreement in
which Fox licensed all rights to the film to the Company and CINV. Pursuant to a
settlement agreement between a subsidiary of the Company, CINV and Fox, the
Company agreed to pay Fox $1,200,000, payable (i) $200,000 on December 18, 1992;
(ii) $300,000 on January 21, 1993; and (iii) $700,000 in nine monthly
installments of $77,778 each beginning on February 21, 1993. The final payment
of $550,000 would be waived by Fox if all payments are made on the dates
specified. On October 21, 1993, the Company made the final monthly installment
scheduled to be made under the settlement Agreement. Therefore, the final
payment of $550,000 was waived pursuant to the Agreement and such amount was
included as an extraordinary gain on extinguishment of debt.

On December 1, 1992, Parafrance Communication, S.A. and Paravision
International S.A. filed identical lawsuits in Los Angeles County Superior Court
and the United States Bankruptcy Court, Central District of California, against
the Company and certain of its affiliates for (i) breach of contract, (ii) fraud
and (iii) unjust enrichment with respect to the motion pictures THE PRODUCERS,
DARLING and BILL AND TED'S EXCELLENT ADVENTURE as a result of the alleged
failure by DEG to deliver certain rights in such pictures to the plaintiffs
under a 1990 Asset Purchase Agreement. The State Court action was removed to the
Bankruptcy Court and consolidated with the other action. Plaintiffs allege
damages in excess of $3,000,000. The Company believes that any judgment against
it in this action will be satisfied from a reserve fund of the DEG Liquidation
Estate set aside for such claims, which is also named as a defendant in this
action.

F-51
<PAGE>
CAROLCO PICTURES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE P -- COMMITMENTS AND CONTINGENCIES (CONTINUED)
advantage, unfair competition and anti-trust violations. In addition to monetary
damages, the suit also seeks rescission and restitution. The suit arises out of
a 1989 distribution agreement under which the Vista Partnership, of which an
affiliate of the Company is the general partner, acquired all distribution
rights to the picture. The complaint seeks damages of $1,350,000 (which claim
includes $1,000,000 of punitive damages) for (i) license fees allegedly due to
Lang Elliott under a rescinded agreement between a Company affiliate and CTI and
(ii) alleged damage to the home video and free television value of CAGE due to a
nine month extension by the Vista Partnership of the pay television rights of
HBO and Showtime to the film for which the Vista Partnership received no fee.
The Company has successfully demurred to parts of Lang Elliott's complaint
resulting in dismissal of the antitrust and breach of covenant of good faith and
fair dealing causes of action. The Vista Partnership previously defended itself
successfully against Lang Elliott in a recent arbitration which raised some of
the same issues. The Company and the other defendants have filed an answer
denying the allegations in Lang Elliott's complaint and both sides are engaging
in discovery.

LIVE:

At December 31, 1992, LIVE had outstanding letters of credit of $1,385,000
relating to certain video rights obligations, which is secured by restricted
cash.

In addition, at December 31, 1992 LIVE had separation agreements with two
former executive officers, requiring payments aggregating $327,000 in 1993.
These separation payments are included in other expenses for the year ended
December 31, 1991.

LIVE has established the LIVE Incentive Savings Plan, a profit sharing and
401(k) savings plan, in which eligible employees of LIVE, LHV and the Specialty
Retail Division may participate. LIVE contributions to the Savings Plan were
$33,000 and $53,000 for the years ended December 31, 1991 and 1992,
respectively.

Certain agreements of LIVE permit a reduction in the amount of video right
payments when stipulated conditions have not been met. Many agreements also
contain an obligation for the payment of royalties above the minimum guarantee
if sales exceed a stipulated amount. At December 31, 1992, $18,549,000 of
royalties payable to unrelated parties are included in contractual obligations.

LIVE's rent expense under all operating leases aggregated $8,524,000 and
$7,505,000 for the years ended December 31, 1991 and 1992, respectively.

CLASS ACTION LITIGATION:

On January 9, 1992, a purported class action lawsuit was filed in the U.S.
District Court, Central District of California, by alleged stockholders of LIVE
against the Company, LIVE and certain of the Company's and LIVE's past and
present executive directors. The complaint alleges, among other things, that the
defendants violated Section 10(b) of the Exchange Act and Rule 10b-5 promulgated
thereunder (i) by concealing the true value of certain of Carolco's and LIVE's
assets, and overstating goodwill, stockholders' equity, operating profits and
net income in Carolco's and LIVE's Forms 10-K for the year ended December 31,
1990, in their 1990 Annual Reports and in their Forms 10-Q for the quarters
ended March 31, 1991 and June 30, 1991, and (ii) by materially understating the
true extent of the write-off of goodwill in connection with the sale of
Lieberman to Handleman in July 1991. In addition, the complaint alleges that
certain of the defendants are liable as controlling persons under Section 20 of
the Securities Exchange Act of 1934 (the "Exchange Act") and alleges that
certain other defendants are liable for aiding and abetting the primary
violations. Subsequently, two additional lawsuits were filed in the U.S.
District Court, Central District of California, by alleged stockholders of LIVE
against the same persons and entities who were defendants in the original
action, making substantially the same allegations as were made in the first
lawsuit. On March 30, 1992, these lawsuits were consolidated. Further in April
1992, an amended complaint was filed in the consolidated action, (the "Amended
Complaint"). The Amended Complaint contains substantially the

F-52
<PAGE>
CAROLCO PICTURES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE P -- COMMITMENTS AND CONTINGENCIES (CONTINUED)
same allegations as the three original complaints. In addition, the Amended
Complaint lengthened the alleged class period and added as defendants certain
substantial shareholders (New CIBV, Pioneer and Canal+), directors of Carolco
(Messrs. Afman, Bonnell, Matsumoto, and Noda) and a lender to the Company. In
addition to the claims asserted in the individual actions, a claim for
respondeat superior liability was added. On June 17, 1992, the U.S. District
Court, Central District of California, entered an order conditionally certifying
the class, subject to possible decertification after discovery is completed. On
or about January 27, 1993, a second amended complaint was filed in the
consolidated action expanding the allegations against certain directors, a
lender to the Company and Pioneer. On April 19, 1993, the Court granted
Pioneer's Motion to Dismiss the second amended complaint as against Pioneer.

PURPORTED CLASS ACTION LITIGATION:

On March 24, 1994, the same day the Business Combination was announced, a
purported class action lawsuit was filed in the Court of Chancery of the State
of Delaware in and for New Castle County, by an alleged stockholder of LIVE
against the Company, LIVE, certain of the Company's and LIVE's past and present
executive officers and directors, Pioneer and Cinepole. The complaint alleges,
among other things, that the defendants have violated their fiduciary duties
owed to LIVE stockholders in connection with the Business Combination. Plaintiff
seeks a preliminary and permanent injunction enjoining the Business Combination
under its current financial terms, an open market auction of LIVE, to the extent
the Business Combination is consummated prior to the entry of a final judgment
in the action, rescission of the Business Combination, repayment of profits and
benefits obtained as a result of defendant's alleged conduct and attorney's fees
and expenses.

Management and counsel to the Company are unable to predict the ultimate
outcome of the above-described actions at this time. However, the Company and
the other defendants believe that all these lawsuits are without merit and
intend to defend them vigorously. Accordingly, no provision for any liability
which may result has been made in the Company's consolidated financial
statements. In the opinion of management, these actions, when finally concluded
and determined, will not have a material adverse effect upon the Company's
financial position or results of operations.

Other than as described above, there are no material legal proceedings to
which the Company or any of its subsidiaries are a party other than ordinary
routine litigation in the normal course of business. In the opinion of
management (which is based in part on the advice of outside counsel), resolution
of these other matters will not have a material adverse impact on the Company's
financial position or results of operations.

NOTE Q -- GEOGRAPHICAL INFORMATION
The Company's operations are principally motion picture production and
leasing and syndication of television programming, and in 1991 and 1992 include
the operations of LIVE. In 1993, the Company had two customers accounting, for
10% or more of the Company's consolidated revenues: Pioneer (14% or

F-53
<PAGE>
CAROLCO PICTURES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE Q -- GEOGRAPHICAL INFORMATION (CONTINUED)
$14,858,000) and LHV (10% or $10,331,000). In 1992, the Company had no customers
accounting for 10% or more of the Company's consolidated revenues. In 1991, the
Company had one customer, TriStar Pictures, Inc. (13% or $77,143,000),
accounting for 10% or more of its consolidated revenues.

Geographic information concerning the Company's operations is as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1991 1992 1993
----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
Domestic:
Sales to affiliated customers................................ $ -- $ -- $ 10,331
Sales to unaffiliated customers.............................. 452,900 382,263 38,006
Foreign:
Europe (2)................................................... 105,735 121,721 40,663
Asia (2)..................................................... 33,625 38,365 15,211
Other........................................................ 8,850 22,965 4,097
----------- ----------- ----------
TOTAL REVENUES............................................. $ 601,110 $ 565,314 $ 108,308
----------- ----------- ----------
----------- ----------- ----------
Operating profit (loss) (1)
Domestic....................................................... $ 67,429 $ 40,431 $ 5,567
Foreign:
Europe....................................................... (8,871) (12,966) (3,191)
Asia......................................................... 4,932 19,048 1,905
Other........................................................ (7,845) (4,316) (4,593)
----------- ----------- ----------
TOTAL OPERATING PROFIT (LOSS).............................. 55,645 42,197 (312)
Selling, general and administrative expenses..................... 91,209 88,948 24,634
Interest and other expense....................................... 60,308 48,514 23,505
Amortization and write-off of goodwill........................... 35,709 6,864 --
Costs associated with restructurings and disposal of a portion of
a line of business.............................................. 88,400 2,626 6,816
----------- ----------- ----------
LOSS FROM CONTINUING OPERATIONS BEFORE EQUITY IN INCOME OF
AFFILIATED COMPANIES, PROVISION FOR INCOME TAXES, AND MINORITY
INTEREST...................................................... $ (219,981) $ (104,755) $ (55,267)
----------- ----------- ----------
----------- ----------- ----------
Domestic....................................................... $ (159,981) $ (105,409) $ (39,899)
Foreign........................................................ (60,000) 654 (15,368)
----------- ----------- ----------
LOSS FROM CONTINUING OPERATIONS BEFORE EQUITY IN INCOME OF
AFFILIATED COMPANIES, PROVISION FOR INCOME TAXES AND MINORITY
INTEREST...................................................... $ (219,981) $ (104,755) $ (55,267)
----------- ----------- ----------
----------- ----------- ----------
Identifiable assets:
Domestic....................................................... $ 660,676 $ 362,180 $ 180,224
Foreign:
Europe....................................................... 252,562 155,413 275
Asia......................................................... 3,499 6,220 2,765
South America................................................ 3,649 3,749 1,210
Other........................................................ 4,786 5,053 3,597
----------- ----------- ----------
TOTAL...................................................... $ 925,172 $ 532,615 $ 188,071
----------- ----------- ----------
----------- ----------- ----------
<FN>
- ------------------------
(1) Operating profit (loss) is total revenues less amortization of film and
television costs, video rights, and expenses associated with residuals and
profit participations.
</TABLE>

F-54
<PAGE>
CAROLCO PICTURES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE Q -- GEOGRAPHICAL INFORMATION (CONTINUED)
<TABLE>
<S> <C>
(2) In 1991, sales to affiliated customers in Europe and Asia were $7,600,000
and $16,650,000, respectively. In 1992, sales to affiliated customers in
Europe and Asia were $15,092,000 and $26,924,000, respectively. In 1993,
sales to affiliated customers in Europe and Asia were $7,657,000 and
$14,858,000, respectively.
</TABLE>

NOTE R -- SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

Certain quarterly financial information is presented below:

<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER YEAR
---------- ---------- ---------- ---------- -----------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
1993:
Total revenue....................................... $ 35,612 $ 28,091 $ 26,133 $ 18,472 $ 108,308
Gross profit (loss)................................. 7,989 332 1,377 (10,010) (312)
Loss from continuing operations before provision for
income taxes....................................... (6,781) (13,277) (12,794) (26,247) (59,099)
Loss from continuing operations..................... (6,781) (13,457) (12,988) (30,428) (63,654)
Gain (loss) from extraordinary items................ -- -- 1,799 (1,373) 426
Net loss............................................ (7,124) (13,654) (11,379) (31,801) (63,958)
Preferred dividends paid or accrued................. -- -- -- (834) (834)
Net loss attributable to Common Stock............... (7,124) (13,654) (11,379) (32,635) (64,792)
Net loss per common share:
Continuing operations............................. (.23) (.47) (.45) (.27) (1.28)
Net loss.......................................... (.23) (.47) (.39) (.28) (1.28)
</TABLE>

<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER YEAR
---------- ---------- ---------- ---------- -----------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
1992:
Total Revenue....................................... $ 115,549 $ 61,932 $ 157,217 $ 131,722 $ 466,420
Gross Profit........................................ 22,326 13,369 7,715 (35,227) 8,183
Loss before income taxes and minority interest...... (8,830) (21,403) (32,017) (42,505) (104,755)
Loss from continuing operations..................... (8,769) (14,460) (32,866) (41,353) (97,448)
Gain from extraordinary items....................... 4,877 -- -- 4,006 8,883
Net loss............................................ (4,306) (14,508) (33,129) (36,074) (88,017)
Preferred dividends paid or declared................ (2,950) (700) (262) (409) (4,321)
Net loss attributable to Common Stock............... (7,256) (15,208) (33,391) (36,483) (92,338)
Net loss per common share:
Before extraordinary item......................... (.36) (.54) (1.16) (1.35) (3.38)
Net loss.......................................... (.20) (.54) (1.16) (1.21) (3.06)
</TABLE>

F-55
<PAGE>
CAROLCO PICTURES INC. AND SUBSIDIARIES
SCHEDULE II -- AMOUNTS RECEIVABLE FROM RELATED PARTIES
AND UNDERWRITERS, PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES

<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
----------- ----------- ----------- ----------- -----------
DEDUCTIONS
BALANCE ------------------------ BALANCE
BEGINNING AMOUNTS OTHER AT END
NAME OF DEBTOR OF PERIOD ADDITIONS COLLECTED DEDUCTIONS OF PERIOD
- ------------------------------------------- ----------- ----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1991:
Neil Russell (a)......................... $ 222 $ -- $ 222 $ -- $ --
Robert Turner (b)........................ 180 -- 30 -- 150
James Gianopulos (c)..................... -- 150 -- 75 75
Estate of Jose E. Menendez (d)........... -- 3,426 3,426 -- --
Melvin A. Wilmore (e).................... -- 248 -- -- 248
David A. Mount (f)....................... -- 150 -- -- 150
Devendra Mishra (g)...................... -- 347 59 -- 288
Erik H. Paulson (h)...................... -- 314 -- 314 --
Other (i)................................ 75 456 279 -- 252
----------- ----------- ----------- ----- -----------
$ 477 $ 5,091 $ 4,016 $ 389 $ 1,163
----------- ----------- ----------- ----- -----------
----------- ----------- ----------- ----- -----------
Year ended December 31, 1992:
Robert Turner (b)........................ $ 150 $ -- $ -- $ 150 $ --
Melvin A. Wilmore (e).................... 248 -- -- 248 --
David A. Mount (f)....................... 150 -- -- 50 100
Devendra Mishra (g)...................... 288 -- -- 12 276
Canal Plus (j)........................... -- 129 -- -- 129
Other (i)................................ 252 276 205 304 19
----------- ----------- ----------- ----- -----------
$ 1,088 $ 405 $ 205 $ 764 $ 524
----------- ----------- ----------- ----- -----------
----------- ----------- ----------- ----- -----------
Year ended December 31, 1993:
David A. Mount (f)(l).................... $ 100 $ -- $ -- $ 100 $ --
Devendra Mishra (g)(l)................... 276 -- -- 276 --
Canal Plus (j)........................... 129 24 -- -- 153
Lynwood Spinks (k)....................... -- 300 -- -- 300
----------- ----------- ----------- ----- -----------
$ 505 $ 324 $ 0 $ 376 $ 453
----------- ----------- ----------- ----- -----------
----------- ----------- ----------- ----- -----------
<FN>
- ------------------------
(a) Note receivable, interest rate 8.13%, due November 1991.
(b) Note receivable, interest rate 7.57%, due October 1991. Mr. Turner is no
longer employed by the Company.
(c) Advance receivable, non-interest bearing. Mr. Gianapulos is no longer
employed by the Company.
(d) Amount consists of a $2,285,000 demand loan including interest at the
greater of 1 1/2% above prime or 3% above LIBOR and a non-interest bearing
loan with an original balance of $170,000 under an employment agreement.
The amount payable under a deferred compensation arrangement was less than
this balance by $106,000 at December 31, 1990.
(e) Amount represents loan ($130,000) secured by a second deed of trust on Mr.
Wilmore's residence and an unsecured loan ($100,000) and accrued interest
at 10%.
(f) Amount represents a non-interest bearing, unsecured loan which will be
forgiven if Mr. Mount remains employed by the Company through the term of
his employment agreement. The principal amount is being written off over a
three-year period ending January 1, 1995.
</TABLE>

F-56
<PAGE>
<TABLE>
<S> <C>
(g) Amount represents loan ($300,000) secured by a second deed of trust on Mr.
Mishra's residence and accrued interest at 5%.
(h) Amount represents a loan of $300,000 plus accrued interest at 10%, which
was written off in connection with the sale of Navarre.
(i) Advance receivable, non-interest bearing, due on demand.
(j) Receivable, non-interest bearing, due on demand.
(k) Amount represents an unsecured loan paid to Mr. Spinks pursuant to his
employment agreement. The loan bears interest at the Company's borrowing
rate (LIBOR plus 2%) and will be forgiven over four years if Mr. Spinks
remains employed by the Company through the term of his employment
agreement. The principal and interest amount is being charged to salary
expense over the four-year period ending March 1, 1997. Any remaining
principal plus accumulated interest thereon shall be forgiven by the
Company on the termination of Mr. Spinks' employment for any reason
whatsoever other than termination by the Company for Mr. Spinks' Material
Breach as defined in the agreement.
(l) Amounts relate to related parties of LIVE, which was disposed of in
connection with the Company's Restructuring.
</TABLE>

F-57
<PAGE>
CAROLCO PICTURES INC. AND SUBSIDIARIES
SCHEDULE IV -- INDEBTEDNESS OF AND TO RELATED PARTIES -- NOT CURRENT
(IN THOUSANDS)
<TABLE>
<CAPTION>
INDEBTEDNESS OF
----------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ------------------------------ ---------- ---------- ---------- ----------
BALANCE AT BALANCE AT
BEGINNING ADDITIONS DEDUCTIONS END
NAME OF PERSON/ENTITY OF PERIOD (1) (2) OF PERIOD
- ------------------------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Year Ended December 31, 1991:
New CIBV.................... $ -- $ -- $ -- $ --
New CIBV.................... -- -- -- --
LIVE Home Video............. -- -- -- --
White Eagle Enterprises
Inc........................ 5,366 -- 5,366 --
Pioneer..................... -- -- -- --
RCS......................... -- -- -- --
Other....................... 75 -- 75 --
---------- ---------- ---------- ----------
$ 5,441 $ -- $ 5,441 $ --
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Year Ended December 31, 1992:
New CIBV.................... $ -- $ -- $ -- $ --
Pioneer..................... -- -- -- --
RCS......................... -- -- -- --
---------- ---------- ---------- ----------
$ -- $ -- $ -- $ --
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Year Ended December 31, 1993:
New CIBV.................... $ -- $ -- $ -- $ --
Pioneer..................... -- -- -- --
RCS......................... -- -- -- --
MGM......................... -- -- -- --
---------- ---------- ---------- ----------
$ -- $ -- $ -- $ --
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------

<CAPTION>
INDEBTEDNESS
-----------------------------------------------------
COLUMN A COLUMN F COLUMN G COLUMN H COLUMN I
- ------------------------------ ---------- ---------- ------------- ----------
BALANCE AT BALANCE
BEGINNING AT END
NAME OF PERSON/ENTITY OF PERIOD ADDITIONS DEDUCTIONS OF PERIOD
- ------------------------------ ---------- ---------- ------------- ----------
<S> <C> <C> <C> <C>
Year Ended December 31, 1991:
New CIBV.................... $ 450 $ -- $ -- $ 450
New CIBV.................... 3,910 -- 3,910(3) --
LIVE Home Video............. 1,344 11,642 12,986 --
White Eagle Enterprises
Inc........................ -- -- -- --
Pioneer..................... -- 15,000 -- 15,000
RCS......................... -- 20,000 -- 20,000
Other....................... -- -- -- --
---------- ---------- ------------- ----------
$ 5,704 $ 46,642 $ 16,896 $ 35,450
---------- ---------- ------------- ----------
---------- ---------- ------------- ----------
Year Ended December 31, 1992:
New CIBV.................... $ 450 $ -- $ -- $ 450
Pioneer..................... 15,000 -- -- 15,000
RCS......................... 20,000 -- -- 20,000
---------- ---------- ------------- ----------
$ 35,450 $ -- $ -- $ 35,450
---------- ---------- ------------- ----------
---------- ---------- ------------- ----------
Year Ended December 31, 1993:
New CIBV.................... $ 450 $ -- $ 450(4) $ --
Pioneer..................... 15,000 -- 15,000(5) --
RCS......................... 20,000 -- 20,000(6) --
MGM......................... -- 21,361 -- 21,361
---------- ---------- ------------- ----------
$ 35,450 $ 21,361 $ 35,450 $ 21,361
---------- ---------- ------------- ----------
---------- ---------- ------------- ----------
<FN>
- ------------------------
(1) Advances made to or on behalf of related parties and companies under their
control and/or interest incurred on such advances.
(2) Repayments made by related parties and companies under their control.
(3) Reduction is due to the derivative lawsuit settlement. See Note L of Notes
to Consolidated Financial Statements.
(4) This note was paid in full on December 22, 1993. See Note I of Notes to
Consolidated Financial Statements.
(5) Represents the aggregate principal amount of Existing 10% Debentures held
by Pioneer prior to the Restructuring. Pursuant to the Restructuring, a
portion of the Existing 10% Debentures were exchanged for common stock of
the Company and the remaining Existing 10% Debentures held by Pioneer were
contributed to the Company. See Note B(5) of Notes to the Consolidated
Financial Statements.
(6) Represents the aggregate principal amount of Existing 10% Debentures held
by RCS prior to the Restructuring. Pursuant to the Restructuring, a
portion of the Existing 10% Debentures were exchanged for common stock of
the Company and the remaining Existing 10% Debentures held by RCS were
contributed to the Company. See Note B(5) of Notes to the Consolidated
Financial Statements.
</TABLE>

F-58
<PAGE>
CAROLCO PICTURES INC. AND SUBSIDIARIES
SCHEDULE VIII VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C -- ADDITIONS COLUMN D COLUMN E
- -------------------------------------------------------- ---------- ------------------------------ ------------- ---------
BALANCE AT CHARGED TO CHARGED BALANCE
BEGINNING COSTS AND TO OTHER AT END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
- -------------------------------------------------------- ---------- ------------- -------------- ------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1991
Reserves and allowances deducted from asset accounts:
Allowance for uncollectible accounts................ $ 2,161 $ 878 $ 9,018(1) $ 8,132(2) $ 3,925
Allowance for ratings collections................... 3,660 -- -- 3,660 --
Allowance for future sales returns.................. -- 42,337(7) 31,292(1) 59,124(3) 14,505
Allowance for advertising........................... -- 19,563 3,647(1) 18,123(4) 5,087
Allowance for overstock inventory................... -- 4,824 2,274(1) 2,045(5) 5,053
Allowance for video rights in excess of net
realizable value................................... -- -- 4,732(1) 1,096(7) 3,636
Allowance for film costs in excess of net realizable
value.............................................. -- 20,489 -- -- 20,489
---------- ------------- ------- ------------- ---------
$ 5,821 $ 88,091 $ 50,963 $ 92,180 $ 52,695
---------- ------------- ------- ------------- ---------
---------- ------------- ------- ------------- ---------
Year Ended December 31, 1992
Reserves and allowance deducted from asset accounts:
Allowance for uncollectible accounts................ $ 3,925 $ 1,029 $ -- $ 363(2) $ 4,591
Allowance for future sales returns.................. 14,505 33,206(6) -- 29,647(3) 18,064
Allowance for advertising........................... 5,087 13,166 -- 13,624(4) 4,629
Allowance for overstock inventory................... 5,053 3,735 -- 1,544 7,244
Allowance for video rights in excess of net
realizable value................................... 3,636 1,912 -- 12(7) 5,536
Allowance for film costs in excess of net realizable
value.............................................. 20,489 391 -- 2,397(8) 18,483
---------- ------------- ------- ------------- ---------
$ 52,695 $ 53,439 $ -- $ 47,587 $ 58,547
---------- ------------- ------- ------------- ---------
---------- ------------- ------- ------------- ---------
Year Ended December 31, 1993
Reserves and allowance deducted from asset accounts:
Allowance for uncollectible accounts................ 4,591 -- -- 3,201(9) 1,390
Allowance for future sales returns.................. 18,064 -- -- 18,064(9) --
Allowance for advertising........................... 4,629 -- -- 4,629(9) --
Allowance for overstock inventory................... 7,244 -- -- 7,244(9) --
Allowance for video rights in excess of net
realizable value................................... 5,536 -- -- 5,536(9) --
Allowance for film costs in excess of net realizable
value.............................................. 18,483 2,429 -- 528(8) 20,384
---------- ------------- ------- ------------- ---------
$ 58,547 $ 2,429 $ -- $ 39,202 $ 21,774
---------- ------------- ------- ------------- ---------
---------- ------------- ------- ------------- ---------
<FN>
- ------------------------
(1) This amount represents the allowance account of LIVE and was recorded during
1991 as a result of the consolidation of LIVE. See Note E of Notes to
Consolidated Financial Statements.
(2) Net amount of accounts written-off and recoveries during the year.
(3) LIVE returns credited to customer accounts during the year.
(4) LIVE reimbursements for co-ok advertising.
(5) LIVE disposal of overstock inventory.
(6) Amount represents the gross profit impact to LIVE of anticipated sales
returns.
(7) LIVE's write off of video rights.
(8) Write off of film costs.
(9) Reductions due to disposal of LIVE in 1993. See Note B(5) of Notes to
Consolidated Financial Statements.
</TABLE>

F-59
<PAGE>
CAROLCO PICTURES INC. AND SUBSIDIARIES
SCHEDULE IX -- SHORT TERM BORROWINGS

<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
- ------------------------------------------ ----------- ------------- --------------- --------------- -----------------
MAXIMUM AMOUNT AVERAGE AMOUNT WEIGHTED
BALANCE WEIGHTED OUTSTANDING OUTSTANDING AVERAGE INTEREST
CATEGORY OF AGGREGATE AT END AVERAGE DURING THE DURING RATE DURING
SHORT TERM BORROWINGS OF PERIOD INTEREST RATE PERIOD THE PERIOD(1) THE PERIOD(2)
- ------------------------------------------ ----------- ------------- --------------- --------------- -----------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1991:
Note Payable to Bank (3)................ $ 0 9.79% $ 10,000 $ 10,000 9.79%
Note Payable to Bank (4)................ 2,190 13.00% 2,190 2,190 13.00%
Note Payable to Bank (6)................ 0 10.25% 1,966 1,148 10.25%
Note Payable to Bank (5)................ 68,420 9.45% 75,783 55,035 8.83%
Note Payable to Bank (6)................ 0 10.60% 15,700 12,400 10.63%
Year ended December 31, 1992:
Note Payable to Bank (4)................ 2,230 11.52% 2,230 2,230 11.52%
Note Payable to Bank (7)................ 0 7.65% 69,963 36,858 8.50%
Note Payable to Bank (8)................ 15,831 7.29% 97,455 62,805 7.29%
Note Payable to Bank (9)................ 6,756 12.50% 6,756 6,378 12.50%
Note Payable to Bank (8)................ 15,385 8.19% 15,385 14,930 8.19%
Strategic Investor Loan (10)............ 32,603 4.40% 32,603 32,242 4.40%
Strategic Investor Loan (11)............ 3,648 7.30% 3,648 3,585 7.30%
Year ended December 31, 1993:
Note Payable to Bank (8)................ 14,000 5.71% 31,216 16,567 5.71%
<FN>
- ------------------------
(1) The average amount outstanding during the period was computed by dividing
the total of month-end outstanding principal balances by 12.
(2) The weighted average interest rate during the period was computed by
dividing the actual interest expense by average short-term debt outstanding.
(3) Line of credit with interest at 1% above prime.
(4) Demand notes payable to foreign banks.
(5) Line of credit with interest at the greater of 1 1/4% above the Alternate
Base Rate (as defined in the respective credit agreement) or 2 1/2% above
LIBOR.
(6) Line of credit with interest at the higher of the banks' reference rate, or
1/2 of 1% above the Federal Funds rate payable quarterly.
(7) Line of credit with interest through November 1992 at the greater of 1 1/4%
above Alternate Base Rate or 2 1/2% above LIBOR and in December 1992 at the
greater of 3% above Alternate Base Rate or 4 1/4% above LIBOR. Effective
with the February 5, 1993 amendment to the line of credit, the term was
extended to July 29, 1994 and earlier in the event of default, provided that
on January 29, 1994 any lender under the line of credit may choose to
terminate the obligation to lend funds. Due to the extension of the term, as
of December 31, 1992, the outstanding balance of $5,370,000 under the line
of credit was reclassified from current to long-term.
(8) Loan payable with interest at LIBOR plus 2%.
(9) Prior to April 1993, line of credit bearing interest at 12.5% per annum. In
April 1993, transferred to Note Payable to Bank at LIBOR plus 2%.
(10) Note payable with interest at 3-month LIBOR plus 1%.
(11) Note payable with interest at prime plus 1%.
</TABLE>

F-60
<PAGE>
CAROLCO PICTURES INC. AND SUBSIDIARIES
SCHEDULE X -- SUPPLEMENTARY INCOME STATEMENT INFORMATION

<TABLE>
<CAPTION>
COLUMN A COLUMN B
- -------------------------------------------------------- ----------------------------------
CHARGED TO COSTS AND EXPENSES
----------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER DECEMBER DECEMBER
ITEM 31, 1991 31, 1992 31, 1993
- -------------------------------------------------------- ---------- ---------- ----------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Maintenance and Repairs................................. (1) (1) (1)
Depreciation and Amortization of Intangible Assets,
Preoperating Costs, and Similar Deferrals.............. $ 35,709 $ 6,864 (1)
Taxes, Other Than Payroll and Income Taxes.............. (1) (1) (1)
Royalties............................................... (1) $ 11,004 (1)
Advertising Costs....................................... $ 33,700 $ 24,831 (1)
<FN>
- ------------------------
(1) Amounts are not presented as such amounts are less than 1% of total
revenues.
</TABLE>

F-61
<PAGE>
EXHIBIT INDEX

<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ----------- ------------------------------------------------------------------------------------------- -------------
<C> <S> <C>
2.1 Agreement and Plan of Merger dated as of June 30, 1993 among Carolco Pictures Inc., Vista
Acquisition Corporation and The Vista Organization, Ltd. Incorporated by reference to
Exhibit (c)(1) to Carolco's Schedule 13E-3, Amendment No. 3, filed with the Commission on
July 6, 1993..............................................................................
2.2 Form of Commitment Letter dated June 4, 1993 with each holder of Existing 10% Debentures
and Series D Preferred (other than the Strategic Investors). Incorporated by reference to
Exhibit 2.2 to Carolco's Registration Statement on Form S-1, Amendment No. 2, filed with
the Commission on July 6, 1993 (File No. 33-56380)........................................
3.1 Restated Certificate of Incorporation of Carolco Pictures Inc. effective October 20, 1993.
Incorporated by reference to Exhibit 3.5 to Carolco's Current Report on Form 8-K dated
October 20, 1993 filed with the Commission on November 4, 1993............................
3.2 Certificate of Designation, Preferences and Rights of Series A Convertible Preferred Stock
(Exhibit A to Exhibit 3.1 hereto). Incorporated by reference to Exhibit A to Exhibit 3.5
to Carolco's Current Report on Form 8-K dated October 20, 1993 filed with the Commission
on November 4, 1993.......................................................................
3.3 Amended and Restated Bylaws of Carolco Pictures Inc. Incorporated by reference to Exhibit
3.6 to Carolco's Current Report on Form 8-K dated October 20, 1993 filed with the
Commission on November 4, 1993............................................................
4.1 Indenture dated as of October 20, 1993 between Carolco Pictures Inc. and American Stock
Transfer & Trust Company, as Trustee, relating to the Company's 11.5%/10% Reducing Rate
Senior Notes due 2000 (including form of Note). Incorporated by reference to Exhibit 4.1
to Carolco's Current Report on Form 8-K dated October 20, 1993 filed with the Commission
on November 4, 1993.......................................................................
4.2 Indenture dated as of October 20, 1993 between Carolco Pictures Inc. and American Stock
Transfer & Trust Company, as Trustee, relating to the Company's 13%/12% Reducing Rate
Senior Subordinated Notes due 1999 (including form of Note). Incorporated by reference to
Exhibit 4.2 to Carolco's Current Report on Form 8-K dated October 20, 1993 filed with the
Commission on November 4, 1993............................................................
4.3 Amended and Restated Indenture dated as of September 30, 1993 between Carolco Pictures Inc.
and IBJ Schroder Bank & Trust Company, as Trustee, relating to the Company's 13% Senior
Subordinated Notes due December 1, 1996. Incorporated by reference to Exhibit 4.3 to
Carolco's Current Report on Form 8-K dated October 20, 1993 filed with the Commission on
November 4, 1993..........................................................................
4.4 Indenture dated as of October 20, 1993 between Carolco Pictures Inc. and First Trust of
California, as Trustee, relating to the Company's 5% Payment-In-Kind Convertible
Subordinated Notes due 2002 (including form of Note). Incorporated by reference to Exhibit
4.4 to Carolco's Current Report on Form 8-K dated October 20, 1993 filed with the
Commission on November 4, 1993............................................................
4.5 Form of Indenture for 7% Convertible Subordinated Notes Due 2006 (including Form of Note).
Incorporated by reference to Exhibit 4.13 to Carolco's Registration Statement on Form S-1,
Amendment No. 3, filed with the Commission on August 2, 1993 (File No. 33-56380)..........
10.1 Stock Purchase Agreement by and between Carolco Pictures Inc. and Technicolor, Inc. dated
as of March 25, 1991. Incorporated by reference to Exhibit 4.9 to Carolco's Annual Report
on Form 10-K for the fiscal year ended December 31, 1990..................................
</TABLE>

E-1
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ----------- ------------------------------------------------------------------------------------------- -------------
<C> <S> <C>
10.2 Registration Rights Agreement dated as of March 25, 1991 by and between Carolco Pictures
Inc. and Technicolor, Inc. (Exhibit A to Exhibit 10.1 hereto). Incorporated by reference
to Exhibit 10.75 to Carolco's Annual Report on Form 10-K for the fiscal year ended
December 31, 1990.........................................................................
10.3 Laboratory Services Agreement dated as of March 25, 1991 by and between Carolco Pictures
Inc. and Technicolor, Inc. dated as of March 25, 1991. Incorporated by reference to
Exhibit 10.76 to Carolco's Annual Report on Form 10-K for the fiscal year ended December
31, 1990+.................................................................................
10.4 Stock Purchase Agreement dated as of September 13, 1991 by and between Carolco Pictures
Inc. and Neue Constantin Film GmbH & Co. Verleih KG for 222,223 Shares of Carolco's Common
Stock. Incorporated by reference to Exhibit 19.1 to Carolco's Quarterly Report on Form
10-Q for the quarter ended March 31, 1992.................................................
10.5 Registration Rights Agreement for Carolco Pictures Inc. Common Stock dated as of September
13, 1991 by and between Carolco Pictures Inc. and Neue Constantin Film GmbH & Co. Verleih
KG. Incorporated by reference to Exhibit 19.2 to Carolco's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1992......................................................
10.6 Output Agreement dated as of September 13, 1991 by and between Carolco International N.V.
and Constantin International B.V. Incorporated by reference to Exhibit 19.3 to Carolco's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1992+.......................
10.7 Neue Constantin GmbH & Co. Verleih KG Guaranty dated as of September 13, 1991 to Carolco
International N.V. Incorporated by reference to Exhibit 19.4 to Carolco's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1992.........................................
10.8 Carolco Pictures Inc. Guaranty dated as of September 13, 1991 to Constantin International
B.V. Incorporated by reference to Exhibit 19.5 to Carolco's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1992......................................................
10.9 Tag Along and Voting Rights Agreement dated as of September 13, 1991 by and between New
Carolco Investments B.V. and Neue Constantin Film GmbH & Co. Verleih KG. Incorporated by
reference to Exhibit 10.176 to Carolco's Registration Statement on Form S-1 filed with the
Commission on December 24, 1992. (File No. 33-56380)......................................
10.10 Securities Purchase Agreement dated as of May 8, 1991 between Carolco Pictures Inc. and RCS
Video International Services B.V., or any designated Affiliate. Incorporated by reference
to Exhibit 28.1 to Carolco's Current Report on Form 8-K dated May 8, 1991.................
10.11 Output Agreement dated May 8, 1991 between Carolco International N.V. and RCS Video
Services Antilles N.V. Incorporated by reference to Exhibit 28.4 to Carolco's Form 8
Amendment dated November 8, 1991 to Carolco's Current Report on Form 8-K dated May 8,
1991+.....................................................................................
10.12 Co-Production Agreement made and entered into as of May 8, 1991 by and between RCS Video
Services Antilles N.V., Carolco Pictures Inc. and its wholly-owned subsidiary Carolco
International N.V. Incorporated by reference to Exhibit 28.5 to Carolco's Form 8 Amendment
dated November 8, 1991 to Carolco's Current Report on Form 8-K dated May 8, 1991+.........
10.13 Inducement Letter dated May 8, 1991 to RCS Editori S.p.A., RCS Video Services Antilles N.V.
and RCS Video International Services B.V. Incorporated by reference to Exhibit 28.7 to
Carolco's Form 8 Amendment dated November 8, 1991 to Carolco's Current Report on Form 8-K
dated May 8, 1991+........................................................................
</TABLE>

E-2
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ----------- ------------------------------------------------------------------------------------------- -------------
<C> <S> <C>
10.14 RCS Editori S.p.A. Guaranty dated as of May 8, 1991 to Carolco Pictures Inc. and Carolco
International N.V. Incorporated by reference to Exhibit 28.8 to Carolco's Current Report
on Form 8-K dated May 8, 1991 to Carolco's Current Report on Form 8-K dated May 8, 1991...
10.15 Carolco Picture Inc. Guaranty dated as of May 8, 1991 to RCS Video Services Antilles N.V.
Incorporated by reference to Exhibit 28.9 to Carolco's Form 8 Amendment dated November 8,
1991 to Carolco's Current Report on Form 8-K dated May 8, 1991............................
10.16 Amendment and Limited Waiver Agreement dated as of November 1, 1991 between RCS Video
International Services B.V. and Carolco Pictures Inc. Incorporated by reference to Exhibit
28.12 to Carolco's Quarterly Report on Form 10-Q for the quarter ended September 30,
1991......................................................................................
10.17 Co-Production Venture Agreement by and between Carolco International N.V. and Canal+
Productions, S.N.C. Incorporated by reference to Carolco's Current Report on Form 8-K
dated May 15, 1990+.......................................................................
10.18 Agreement of General Partnership dated as of June 15, 1990 by and between Carolco
International N.V. and Canal+ Productions S.N.C. Incorporated by reference to Exhibit 19
to Carolco's Quarterly Report on Form 10-Q for the quarter ended March 13, 1991...........
10.19 Ancillary Agreement concerning Japan and Laser Disc Rights of Pioneer dated as of July 3,
1990 by and between Carolco Pictures Inc. and Pioneer LDCA, Inc. Incorporated by reference
to Carolco's Current Report on Form 8-K dated May 15, 1990+...............................
10.20 Registration Rights Agreement for LIVE Entertainment Inc. Common Stock dated as of July 3,
1990 by and between LIVE Entertainment Inc. and Pioneer LDCA, Inc. Incorporated by
reference to Carolco's Current Report on Form 8-K dated May 15, 1990......................
10.21 Stipulation and Agreement of Compromise and Settlement and Consent to Magistrate Judge
McCue's Jurisdiction. Incorporated by reference to Exhibit 28.1 to Carolco's Current
Report on Form 8-K dated October 18, 1991.................................................
10.22 Revolving Credit Loan Agreement and Security Assignment dated as of June 18, 1987 among
Credit Lyonnais Bank Nederland N.V., Carolco International N.V., Carolco Pictures Inc.,
and certain of its affiliates. Incorporated by reference to Exhibit 10.26 to Carolco's
Registration Statement on Form S-1 (File No. 33-20956)....................................
10.23 Supplemental Agreement dated as of November 17, 1989 to Revolving Credit Loan Agreement
with Credit Lyonnais Bank Nederland N.V. Incorporated by reference to Exhibit 10.27
Carolco's Registration Statement on Form S-1, Amendment No. 1, filed with the Commission
on December 11, 1989 (File No. 33-31192)..................................................
10.24 Second Amendment, Consent and Waiver to Revolving Credit Loan Agreement and Security
Assignment between Carolco International N.V., Carolco Pictures Inc., certain other
affiliated corporations, and Credit Lyonnais Bank Nederland N.V. dated as of March 17,
1992. Incorporated by reference to Exhibit 28.9 to Carolco's Current Report on Form 8-K
dated March 24, 1992......................................................................
</TABLE>

E-3
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ----------- ------------------------------------------------------------------------------------------- -------------
<C> <S> <C>
10.25 Amendment to Revolving Credit Loan Agreement and Security Assignment between Carolco
International N.V., Carolco Pictures Inc., and certain other affiliated corporations, and
Credit Lyonnais Bank Nederland N.V. dated as of January 4, 1993. Incorporated by reference
to Exhibit 10.69 to Carolco's Registration Statement on Form S-1, Amendment No. 1, filed
with the Commission on May 7, 1993 (File No. 33-56380)....................................
10.26 Agreement by Credit Lyonnais Bank Nederland N.V. for the benefit of RCS Video Services
Antilles N.V. and Le Studio Canal+ dated March 24, 1992. Incorporated by reference to
Exhibit 28.15 to Carolco's Current Report on Form 8-K dated March 24, 1992................
10.27 Employment Agreements for the services of Mario F. Kassar dated as of March 23, 1992.
Incorporated by reference to Exhibit 28.19 to Carolco's Current Report on Form 8-K dated
March 24, 1992............................................................................
10.28 Stock Option Agreement of Mario F. Kassar dated March 26, 1992. Incorporated by reference
to Exhibit 28.24 to Carolco's Current Report on Form 8-K dated March 24, 1992.............
10.29 Multiple Picture License Agreement between Le Studio Canal+ and Atalanta Films
International B.V. dated as of March 20, 1992. Incorporated by reference to Exhibit W to
Canal+ S.A.'s Schedule 13D under the Securities Exchange Act of 1934 (Amendment No. 4)
dated March 24, 1992......................................................................
10.30 Intercreditor and Standstill Agreement between Pioneer LDCA, Inc., RCS Video International
Services B.V. and Le Studio Canal+ dated as of March 23, 1992. Incorporated by reference
to Exhibit AA to Canal+ S.A.'s Schedule 13D under the Securities Exchange Act of 1934
(Amendment No. 4) dated March 24, 1992....................................................
10.31 Stock Transfer and Settlement Agreement between New Carolco Investments B.V. and Valdina
Corporation N.V. dated as of March 23, 1992. Incorporated by reference to Exhibit A to
Valdina Corporation N.V.'s Schedule 13D under the Securities Exchange Act of 1934 dated
March 23, 1992............................................................................
10.32 Note Purchase Agreement between Valdina Corporation N.V. and Le Studio Canal+ dated as of
March 23, 1992. Incorporated by reference to Exhibit D to Valdina Corporation N.V.'s
Schedule 13D under the Securities Exchange Act of 1934 dated March 23, 1992...............
10.33 Note Purchase Agreement between Valdina Corporation N.V. and Pioneer LDCA, Inc. dated as of
March 23, 1992. Incorporated by reference to Exhibit C to Valdina Corporation N.V.'s
Schedule 13D under the Securities Exchange Act of 1934 dated March 23, 1992...............
10.34 Note Purchase Agreement between Valdina Corporation N.V. and RCS Video International
Services B.V. dated as of March 23, 1992. Incorporated by reference to Exhibit B to
Valdina Corporation N.V.'s Schedule 13D under the Securities Exchange Act of 1934 dated
March 23, 1992............................................................................
10.35 Security and Pledge Agreement between New Carolco Investments B.V. and Le Studio Canal+
dated as of March 23, 1992. Incorporated by reference to Exhibit M to Canal+ S.A.'s
Schedule 13D under the Securities Exchange Act of 1934 (Amendment No. 4) dated March 24,
1992......................................................................................
10.36 Security and Pledge Agreement between New Carolco Investments B.V. and Pioneer LDCA, Inc.
dated as of March 23, 1992. Incorporated by reference to Exhibit 23 to New Carolco
Investments B.V.'s Schedule 13D under the Securities Exchange Act of 1934 (Amendment No.
8) dated March 24, 1992...................................................................
</TABLE>

E-4
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
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10.37 Security and Pledge Agreement between New Carolco Investments B.V. and RCS Video
International Services B.V. dated as of March 23, 1992. Incorporated by reference to
Exhibit 24 to New Carolco Investments B.V.'s Schedule 13D under the Securities Exchange
Act of 1934 (Amendment No. 8) dated March 24, 1992........................................
10.38 Letter Agreement between Mario F. Kassar and Valdina Corporation N.V. regarding Assignment
of Registration Rights dated March 23, 1992. Incorporated by reference to Exhibit E to
Valdina Corporation N.V.'s Schedule 13D under the Securities Exchange Act of 1934 dated
March 23, 1992............................................................................
10.39 Letter Agreement between Carolco Pictures Inc. and Valdina Corporation N.V. regarding
Transfer of Registration Rights dated March 23, 1992. Incorporated by reference to Exhibit
F to Valdina Corporation N.V.'s Schedule 13D under the Securities Exchange Act of 1934
dated March 23, 1992......................................................................
10.40 Letter Agreement, dated March 23, 1992, between Carolco Pictures Inc. and Valdina
Corporation N.V. regarding Removal of Legend on Stock Certificate. Incorporated by
reference to Exhibit 28.42 to Carolco's Current Report on Form 8-K dated March 24, 1992...
10.41 Inducement Agreement between New Carolco Investments B.V., Clorenda Corporation A.V.V.,
Mario F. Kassar, Pioneer LDCA, Inc., Le Studio Canal+ and RCS Video International Services
B.V. dated as of March 23, 1992. Incorporated by reference to Exhibit X to Canal+ S.A.'s
Schedule 13D under the Securities Exchange Act of 1934 (Amendment No. 4) dated March 24,
1992......................................................................................
10.42 Employee Stock Option Plan of Carolco Pictures Inc., as amended as of June 15, 1987.
Incorporated by reference to Exhibit 10.17 to Carolco's Registration Statement on Form S-1
(File No.33-20956)........................................................................
10.43 Non-Employee Stock Option Plan of Carolco Pictures Inc. Incorporated by reference to
Exhibit 10.12 to Carolco's Registration Statement on Form S-1 (File No. 33-8734)..........
10.44 1989 Stock Option and Stock Appreciation Rights Plan of Carolco Pictures Inc., as amended.
Incorporated by reference to Exhibit 99.10 to Carolco's Current Report on Form 8-K dated
October 20, 1993 filed with the Commission on November 4, 1994............................
10.45 Deferred Compensation Plan of Carolco Pictures Inc. Incorporated by reference to Exhibit
10.19 to Carolco's Registration Statement on Form S-1, Amendment No. 1, filed with the
Commission on November 13, 1986 (File No. 33-8734)........................................
10.46 Employment Agreement for the services of William Shpall dated as of May 6, 1992.
Incorporated by reference to Exhibit 28.1 to Carolco's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1992..........................................................
10.47 Stock Option Agreement of William Shpall dated as of May 6, 1992. Incorporated by reference
to Exhibit 28.2 to Carolco's Quarterly Report on Form 10-Q for the quarter ended March 31,
1992......................................................................................
10.48 Letter Agreement dated as of March 17, 1988 between White Eagle Enterprises, Inc. and
Carolco Pictures Inc. relating to the production of "Rambo IV." Incorporated by reference
to Exhibit 10.48 to Carolco's Registration Statement on Form S-1, Amendment No. 2, filed
with the Commission on May 23, 1988 (File No. 33-20956)+..................................
10.49 Agreement dated as of October 18, 1988 among Carolco Pictures Inc., White Eagle Enterprises
Inc., and White Eagle N.V. and Exhibit B thereto. Incorporated by reference to Exhibit
10.54 to Carolco's Annual Report on Form 10-K for the fiscal year ended December 31,
1988+.....................................................................................
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10.50 Promissory Note Secured by Deed of Trust and Deed of Trust dated February 22, 1988 issued
by Carolco Pictures Inc. to The Equitable Life Assurance Society of the United States.
Incorporated by reference to Exhibit 10.31 to Carolco's Registration Statement on Form S-1
(File No. 33-20956).......................................................................
10.51 Video Rights License Agreement between Carolco Pictures Inc. and International Video
Entertainment Inc. dated July 27, 1987, as amended as of October 15, 1987. Incorporated by
reference to Exhibit 10.47 to Carolco's Registration Statement on Form S-1 (File No.
33-20956).................................................................................
10.52 Amendment to Video Rights License Agreement between LIVE Home Video and Carolco Pictures
Inc. included as Exhibit 10.51 hereto dated April 12, 1990. Incorporated by reference to
Exhibit 10.22 to Carolco's Annual Report on Form 10-K for the fiscal year ended December
31, 1990..................................................................................
10.53 Syndication Distribution Agreement dated as of October 19, 1988 between Hemdale
Communications, Inc., Hemdale Holdings, Ltd., Hemdale Film Corporation, Hemdale Film Sales
Corporation and Orbis Communications Inc. Incorporated by reference to Exhibit 10.49 to
Carolco's Annual Report on Form 10-K for the fiscal year ended December 31, 1988+.........
10.54 Network Distribution Agreement dated as of October 19, 1988 between Hemdale Communications,
Inc., Hemdale Holdings, Inc., Hemdale Film Corporation, Hemdale Film Sales Corporation and
Orbis Communications Inc. Incorporated by reference to Exhibit 10.50 to Carolco's Annual
Report on Form 10-K for the fiscal year ended December 31, 1988+..........................
10.55 "Platoon" Distribution Agreement dated as of October 19, 1988 between Hemdale Holdings,
Ltd., Hemdale Film Corporation, Hemdale Film Sales Corporation and Orbis Communications
Inc. Incorporated by reference to Exhibit 10.51 to Carolco's Annual Report on Form 10-K
for the fiscal year ended December 31, 1988+..............................................
10.56 Revised Domestic Theatrical Distribution Agreement dated as of December 26, 1990 between
Tri-Star Pictures, Inc. and Carolco Pictures Inc. Incorporated by reference to Exhibit
10.26 to Carolco's Annual Report on Form 10-K for the fiscal year ended December 31, 1990,
as amended and restated by a Form 8 Amendment to Application or Report dated April 15,
1991+.....................................................................................
10.57 Exclusive Output Agreement dated as of May 4, 1988 between Showtime/The Movie Channel Inc.
and Carolco Pictures Inc. Incorporated by reference to Exhibit 10.53 to Carolco's Annual
Report on Form 10-K for the fiscal year ended December 31, 1988+..........................
10.58 Agreement for the Subscription, Purchase and Sale of Shares between The Vista Organization,
Ltd., TVO Motion Picture Management Co., Inc. and Carolco Pictures Inc. dated as of
September 20 1989. Incorporated by reference to Exhibit 10.58 to Carolco's Registration
Statement on Form S-1 (File No. 33-31192).................................................
10.59 Amendment to Agreement for Subscription, Purchase and Sale of Shares among The Vista
Organization, Ltd., TVO Motion Picture Management Co., Inc. and Carolco Pictures Inc.
dated as of January 22, 1990. Incorporated by reference to Exhibit 10.89 to Carolco's
Registration Statement on Form S-1, Amendment No. 3, filed with the Commission on January
31, 1990 (File No. 33-31192)..............................................................
10.60 Indemnity Agreement between Carolco Pictures Inc. and the individual Directors and Officers
of The Vista Organization, Ltd. dated as of September 20, 1989. Incorporated by reference
to Exhibit 10.60 to Carolco's Registration Statement on Form S-1 (File No. 33-31192)......
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10.61 Amended and Restated Acquisition Agreement by and among Carolco Pictures Inc., DEG
Acquisition Corporation, De Laurentiis Entertainment Group Inc. and certain subsidiaries
and the Official Committee of Creditors dated December 22, 1989. Incorporated by reference
to Exhibit 10.78 to Carolco's Annual Report on Form 10-K for the fiscal year ended
December 31, 1989.........................................................................
10.62 Amendment dated March 29, 1990 to Amended and Restated Acquisition Agreement by and among
Carolco Pictures Inc., DEG Acquisition Corporation, De Laurentiis Entertainment Group Inc.
and certain subsidiaries and the Official Committee of Creditors included as Exhibit 10.73
hereto. Incorporated by reference to Exhibit 10.89 to Carolco's Annual Report on Form 10-K
for the fiscal year ended December 31, 1989...............................................
10.63 Purchase and Sale Agreement, dated August 14, 1992, by and between Worldvision Enterprises,
Inc. and Carolco Television Inc. Incorporated by reference to Exhibit 28.1 to Carolco's
Current Report on Form 8-K dated September 2, 1992........................................
10.64 First Amendment to Purchase and Sale Agreement, dated as of September 2, 1992, by and
between Worldvision Enterprises, Inc. and Carolco Television Inc. Incorporated by
reference to Exhibit 28.2 to Carolco's Current Report on Form 8-K dated September 2,
1992......................................................................................
10.65 Confirmation and Guaranty dated as of August 14, 1992, by and between Carolco Pictures Inc.
and Worldvision Enterprises, Inc. Incorporated by reference to Exhibit 10.137 to Carolco's
Registration Statement on Form S-1, Amendment No. 3, filed with the Commission on August
2, 1993 (File No. 33-56380)...............................................................
10.66 Accounts Receivable Purchase and Sale Agreement, dated as of October 16, 1992, between
Carolco Television Inc. and Sun Life Insurance Company of America. Incorporated by
reference to Exhibit 28.3 to Carolco's Current Report on Form 8-K dated October 20,
1992......................................................................................
10.67 Guaranty dated October 19, 1992 by Carolco Pictures Inc. in favor of Sun Life Insurance
Company of America. Incorporated by reference to Exhibit 10.139 to Carolco's Registration
Statement on Form S-1, Amendment No. 3, filed with the Commission on August 2, 1993 (File
No. 33-56380).............................................................................
10.68 Retainer Letter with Daniels & Associates and Jefferson Capital Group, Ltd. dated as of
August 13, 1992. Incorporated by reference to Exhibit 10.177 to Carolco's Registration
Statement on Form S-1 filed with the Commission on December 24, 1992 (File No.
33-56380).................................................................................
10.69 Retainer Letter with Daniels & Associates and Jefferson Capital Group, Ltd. dated as of
December 22, 1992. Incorporated by reference to Exhibit 10.178 to Carolco's Registration
Statement on Form S-1 filed with the Commission on December 24, 1992 (File No.
33-56380).................................................................................
10.70 Retainer Letter with Anthony J. Scotti dated as of September 1, 1992. Incorporated by
reference to Exhibit 10.179 to Carolco's Registration Statement on Form S-1 filed with the
Commission on December 24, 1992 (File No. 33-56380).......................................
10.71 Letter Agreement between Carolco Pictures Inc. and Robert W. Goldsmith for the services of
Robert W. Goldsmith dated as of November 2, 1992. Incorporated by reference to Exhibit
10.143 to Carolco's Registration Statement on Form S-1, Amendment No. 1, filed with the
Commission on May 7, 1993 (File No. 33-56380).............................................
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10.72 Prepayment Agreement dated as of January 8, 1993, between Carolco Pictures Inc. and
Showtime Networks Inc. Incorporated by reference to Exhibit 10.148 to Carolco's
Registration Statement on Form S-1, Amendment No. 1, filed with the Commission on May 7,
1993 (File No. 33-56380)..................................................................
10.73 Letter Agreement dated February 11, 1993, between Carolco Pictures Inc. and Showtime
Networks Inc. amending Showtime Prepayment Agreement. Incorporated by reference to Exhibit
10.149 to Carolco's Registration Statement on Form S-1, Amendment No. 1, filed with the
Commission on May 7, 1993 (File No. 33-56380).............................................
10.74 $15 Million Secured Promissory Note dated December 17, 1992 by Carolco Pictures Inc.,
Carolco International N.V. and Carolco Television Inc. in favor of The Screen Actors
Guild, The Directors Guild of America, The Writers Guild of America West, and The Motion
Picture Industry Pension and Health Plans. Incorporated by reference to Exhibit 10.150 to
Carolco's Registration Statement on Form S-1, Amendment No. 1, filed with the Commission
on May 7, 1993 (File No. 33-56380)........................................................
10.75 Security Agreement dated December 17, 1992 by Carolco Pictures Inc., Carolco International
N.V. and Carolco Television Inc. in favor of The Screen Actors Guild, The Directors Guild
of America, the Writers Guild of America West, and the Motion Picture Industry Pension and
Health Plans. Incorporated by reference to Exhibit 10.151 to Carolco's Registration
Statement on Form S-1, Amendment No. 1, filed with the Commission on May 7, 1993 (File No.
33-56380).................................................................................
10.76 Subordination Agreement dated December 17, 1992 by and among Credit Lyonnais Bank Nederland
N.V. and The Screen Actors Guild, The Directors Guild of America, The Writers Guild of
America West, and The Motion Picture Industry Pension and Health Plans. Incorporated by
reference to Exhibit 10.152 to Carolco's Registration Statement on Form S-1, Amendment No.
1, filed with the Commission on May 7, 1993 (File No. 33-56380)...........................
10.77 Commitment Letter and Co-Production Agreement dated as of April 3, 1992 by and among
Cliffhanger B.V., Carolco International N.V., Carolco Nominee B.V., Pioneer LDCA, Inc.,
Cinepole Productions B.V. and RCS Video Services Antilles N.V. Incorporated by reference
to Exhibit 10.153 to Carolco's Registration Statement on Form S-1, Amendment No. 1, filed
with the Commission on May 7, 1993 (File No. 33-56380)+...................................
10.78 Amendment to Commitment Letter and Co-Production Agreement dated as of April 27, 1992 by
and among Cliffhanger B.V., Carolco International N.V., Carolco Nominee B.V., Pioneer LDC,
Inc., Cinepole Productions B.V., RCS Video Services Antilles N.V., Carolco Pictures Inc.,
Credit Lyonnais Bank Nederland N.V. and Le Studio Canal+ S.A. Incorporated by reference to
Exhibit 10.154 to Carolco's Registration Statement on Form S-1, Amendment No. 1, filed
with the Commission on May 7, 1993 (File No. 33-56380)+...................................
10.79 Second Amendment to Commitment Letter and Co-Production Agreement dated as of April 23,
1993 to be effective as of April 3, 1992 by and among Cliffhanger B.V., Carolco
International N.V., Carolco Nominee B.V., Pioneer LDCA, Inc., Cinepole Productions B.V.,
RCS Video Services Antilles N.V. and Cliffhanger Investments Holding Inc. Incorporated by
reference to Exhibit 10.155 to Carolco's Registration Statement on Form S-1, Amendment No.
1, filed with the Commission on May 7, 1993 (File No. 33-56380)+..........................
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10.80 Participation and Assumption Agreement dated as of January 8, 1992 by and between
Carolco/Le Studio Canal+ Productions V.O.F. and Japan Satellite Broadcasting, Inc.
Incorporated by reference to Exhibit 10.156 to Carolco's Registration Statement on Form
S-1, Amendment No. 1, filed with the Commission on May 7, 1993 (File No. 33-56380)+.......
10.81 Investment Agreement dated as of July 15, 1991 by and among Carolco International N.V.,
Carolco Pictures Inc. and Le Studio Canal+ S.A. with respect to "Basic Instinct."
Incorporated by reference to Exhibit 10.157 to Carolco's Registration Statement on Form
S-1, Amendment No. 1, filed with the Commission on May 7, 1993 (File No. 33-56380)+.......
10.82 Securities Purchase Agreement dated as of May 25, 1993, by and between Carolco Pictures
Inc. and Pioneer LDCA, Inc., Cinepole Productions B.V. and MGM Holdings Corporation.
Incorporated by reference to Exhibit 10.164 to Carolco's Registration Statement on Form
S-1, Amendment No. 2, filed with the Commission on July 6, 1993 (File No. 33-56380).......
10.83 Contribution and Exchange Agreement dated as of May 25, 1993, by and between Carolco
Pictures Inc. and Pioneer LDCA, Inc., Cinepole Productions B.V., Le Studio Canal+ S.A.,
RCS Video International Services B.V., RCS Video Services Antilles N.V. and RCS
International Communications N.V. Incorporated by reference to Exhibit 10.166 to Carolco's
Registration Statement on Form S-1, Amendment No. 2, filed with the Commission on July 6,
1993 (File No. 33-56380)..................................................................
10.84 Confidential Draft Term Sheet for Proposed MGM/Carolco Distribution Agreement by and
between Carolco Pictures Inc. and Metro-Goldwyn-Mayer, Inc., dated as of April 23, 1993.
Incorporated by reference to Exhibit 10.168 to Carolco's Registration Statement on Form
S-1, Amendment No. 2, filed with the Commission on July 6, 1993 (File No. 33-56380)+......
10.85 Domestic Output Agreement by and between Carolco Pictures Inc. and Metro-Goldwyn-Mayer,
Inc., dated as of May 1, 1993. Incorporated by reference to Exhibit 10.12 to Carolco's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1993+...................
10.86 Employment Agreement between Carolco Pictures Inc. and Mario F. Kassar for the services of
Mario F. Kassar, dated as of May 3, 1993. Incorporated by reference to Exhibit 28 to New
Carolco Investments B.V.'s Schedule 13D under the Securities Exchange Act of 1934
(Amendment No. 10) dated May 6, 1993......................................................
10.87 Stock Option Agreement of Mario F. Kassar dated as of May 3, 1993. Incorporated by
reference to Exhibit 29 to New Carolco Investments B.V.'s Schedule 13D under the
Securities Exchange Act of 1934 (Amendment No. 10) dated May 6, 1993......................
10.88 First Amendment to Inducement Agreement dated as of April 30, 1993, by and among New
Carolco Investments B.V., Clorenda Corporation A.V.V., Mario F. Kassar, Pioneer LDCA,
Inc., Le Studio Canal+ and RCS Video International Services B.V. Incorporated by reference
to Exhibit 30 to New Carolco Investments B.V.'s Schedule 13D under the Securities Exchange
Act of 1934 (Amendment No. 10) dated May 6, 1993..........................................
10.89 Amended and Restated Security and Pledge Agreement between New Carolco Investments B.V. and
Le Studio Canal+ dated as of April 30, 1993. Incorporated by reference to Exhibit 34 to
New Carolco Investments B.V.'s Schedule 13D under the Securities Exchange Act of 1934
(Amendment No. 10) dated May 6, 1993......................................................
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10.90 Amended and Restated Security and Pledge Agreement between New Carolco Investments B.V. and
Pioneer LDCA, Inc. dated as of April 30, 1993. Incorporated by reference to Exhibit 35 to
New Carolco Investments B.V.'s Schedule 13D under the Securities Exchange Act of 1934
(Amendment No. 10) dated May 6, 1993......................................................
10.91 Amended and Restated Security and Pledge Agreement between New Carolco Investments B.V. and
RCS Video International Services B.V. dated as of April 30, 1993. Incorporated by
reference to Exhibit 36 to New Carolco Investments B.V.'s Schedule 13D under the
Securities Exchange Act of 1934 (Amendment No. 10) dated May 6, 1993......................
10.92 Letter Agreement dated May 25, 1993 by and between Carolco Pictures Inc. and New Carolco
Investments B.V. relating to delivery of shares. Incorporated by reference to Exhibit 38
to New Carolco Investments B.V.'s Schedule 13D under the Securities Exchange Act of 1934
(Amendment No. 11) dated May 25, 1993.....................................................
10.93 Letter Agreement dated as of May 25, 1993 by and between Carolco Pictures Inc., Daniels &
Associates and Jefferson Capital Group, Ltd., amending Retainer Letter dated as of August
13, 1992. Incorporated by reference to Exhibit 10.177 to Carolco's Registration Statement
on Form S-1, Amendment No. 2, filed with the Commission on July 6, 1993 (File No.
33-56380).................................................................................
10.94 Letter Agreement dated as of May 25, 1993 by and between Carolco Pictures Inc., Daniels &
Associates and Jefferson Capital Group, Ltd., amending Retainer Letter dated as of
December 22, 1992. Incorporated by reference to Exhibit 10.178 to Carolco's Registration
Statement on Form S-1, Amendment No. 2, filed with the Commission of July 6, 1993 (File
No. 33-56380).............................................................................
10.95 Letter Agreement dated as of May 25, 1993 by and between Carolco Pictures Inc. and Anthony
J. Scotti, Amending Retainer Letter dated as of September 1, 1992. Incorporated by
reference to Exhibit 10.179 to Carolco's Registration Statement on Form S-1, Amendment No.
2, filed with the Commission on July 6, 1993 (File No. 33-56380)..........................
10.96 Letter Agreement between Carolco Pictures Inc., Carolco Television Inc. and Robert W.
Goldsmith for the services of Robert W. Goldsmith dated as of April 1, 1991. Incorporated
by reference to Exhibit 10.180 to Carolco's Registration Statement on Form S-1, Amendment
No. 2, filed with the Commission on July 6, 1993 (File No. 33-56380)......................
10.97 Letter Agreement between Carolco Pictures Inc. and Karen A. Taylor for the services of
Karen A. Taylor dated as of March 20, 1991. Incorporated by reference to Exhibit 10.181 to
Carolco's Registration Statement on Form S-1, Amendment No. 2, filed with the Commission
on July 6, 1993 (File No. 33-56380).......................................................
10.98 Letter Agreement between Carolco Pictures Inc. and Karen A. Taylor for the services of
Karen A. Taylor dated as of May 20 1992. Incorporated by reference to Exhibit 10.182 to
Carolco's Registration Statement on Form S-1, Amendment No. 2, filed with the Commission
on July 6, 1993 (File No. 33-56380).......................................................
10.99 Consulting Agreement dated as of June 7, 1993 by and between Carolco Pictures Inc. and
Anthony J. Scotti. Incorporated by reference to Exhibit 10.183 to Carolco's Registration
Statement on Form S-1, Amendment No. 2, filed with the Commission on July 6, 1993 (File
No. 33-56380).............................................................................
10.100 Statement of Release of Collateral Shares by Pioneer LDCA, Inc. (acting as collateral agent
for Le Studio Canal+ and RCS Video International Services B.V.) dated as of May 20, 1993.
Incorporated by reference to Exhibit AK to Canal's Schedule 13D under the Securities
Exchange Act of 1934 (Amendment No. 8) dated June 1, 1993.................................
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10.101 First Amendment to Securities Purchase Agreement dated as of July 29, 1993, by and between
Carolco Pictures Inc. and Pioneer LDCA, Inc., Cinepole Productions B.V. and MGM Holdings
Corporation. Incorporated by reference to Exhibit 10.192 to Carolco's Registration
Statement on Form S-1, Amendment No. 3, filed with the Commission on August 2, 1993 (File
No. 33-56380).............................................................................
10.102 First Amendment to Contribution and Exchange Agreement dated as of July 29, 1993, by and
between Carolco Pictures Inc. and Pioneer LDCA, Inc., Cinepole Productions B.V., Le Studio
Canal+ S.A., RCS Video International Services B.V., RCS Video Services Antilles N.V. and
RCS International Communications N.V. Incorporated by reference to Exhibit 10.193 to
Carolco's Registration Statement on Form S-1, Amendment No. 3, filed with the Commission
on August 2, 1993 (File No. 33-56380).....................................................
10.103 Letter Agreement dated May 4, 1993 by and between Carolco Pictures Inc., Carolco
International N.V., RCS Editori S.p.A., RCS Video Services Antilles N.V. and RCS
International Communications N.V., amending Inducement Letter and Output Agreement, each
dated May 8, 1991. Incorporated by reference to Exhibit 10.194 to Carolco's Registration
Statement on Form S-1, Amendment No. 3, filed with the Commission on August 2, 1993 (File
No. 33-56380).............................................................................
10.104 Letter Agreement dated as of September 11, 1992 among Hexagon Films (U.S.), Carolco
Pictures Inc. and Carolco International N.V., relating to Stargate. Incorporated by
reference to Exhibit 10.195 to Carolco's Registration Statement on Form S-1, Amendment No.
3, filed with the Commission on August 2, 1993 (File No. 33-56380)+.......................
10.105 Letter Agreement dated as of September 11, 1992 among Hexagon Films (U.S.), Carolco
Pictures Inc. and Carolco International N.V., amending Letter Agreement dated September
11, 1992 with respect to Stargate. Incorporated by reference to Exhibit 10.196 to
Carolco's Registration Statement on Form S-1, Amendment No. 3, filed with the Commission
on August 2, 1993 (File No. 33-56380)+....................................................
10.106 Letter Agreement dated as of November 13, 1992 among Hexagon Films (U.S.), Carolco Pictures
Inc. and Carolco International N.V., amending Letter Agreement dated September 11, 1992
with respect to Stargate. Incorporated by reference to Exhibit 10.197 to Carolco's
Registration Statement on Form S-1, Amendment No. 3, filed with the Commission on August
2, 1993 (File No. 33-56380)...............................................................
10.107 Standby Purchase and Investment Agreement dated as of July 29, 1993, by and between Carolco
Pictures Inc., Cinepole Productions B.V., Le Studio Canal+, Pioneer LDCA, Inc., RCS Video
International Services B.V. and Tele-Communications, Inc. Incorporated by reference to
Exhibit 10.198 to Carolco's Registration Statement on Form S-1, Amendment No. 3, filed
with the Commission on August 2, 1993 (File No. 33-563)...................................
10.108 Second Amendment to Securities Purchase Agreement dated as of August 19, 1993 by and
between Carolco Pictures Inc. and Pioneer LDCA, Inc., Cinepole Productions B.V. and MGM
Holdings Corporation. Incorporated by reference to Exhibit 10.199 to Carolco's
Registration Statement on Form S-1, Amendment No. 4, filed with the Commission on August
23, 1993 (File No. 33-56380)..............................................................
10.109 Employment Agreement between Carolco Pictures Inc. and Lynwood Spinks for the services of
Lynwood Spinks, dated as of August 9, 1993 and entered into as of March 1, 1992.
Incorporated by reference to Exhibit 10.200 to Carolco's Registration Statement on Form
S-1, Amendment No. 4, filed with the Commission on August 23, 1993 (File No. 33-56380)+...
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10.110 Agreement by and between Carolco Pictures Inc. and Tele-Communications, Inc., dated as of
August 19, 1993 relating to certain pre-theatrical pay-per-view rights. Incorporated by
reference to Exhibit 10.201 to Carolco's Registration Statement on Form S-1, Amendment No.
4, filed with the Commission on August 23, 1993 (File No. 33-56380)+......................
10.111 Co-Production Financing Agreement by and among Carolco Pictures Inc., Le Studio Canal+ and
Tele-Communications, Inc., dated as of August 19, 1993. Incorporated by reference to
Exhibit 10.202 to Carolco's Registration Statement on Form S-1, Amendment No. 4, filed
with the Commission on August 23, 1993 (File No. 33-56380)+...............................
10.112 License Agreement by and between Carolco Pictures Inc. and Encore Media Corporation, dated
as of August 17, 1993. Incorporated by reference to Exhibit 10.203 to Carolco's
Registration Statement on Form S-1, Amendment No. 4, filed with the Commission on August
23, 1993 (File No. 33-56380)+.............................................................
10.113 Stock Purchase Agreement by and between Carolco Pictures Inc. and Tele-Communications,
Inc., dated as of August 19, 1993. Incorporated by reference to Exhibit 10.204 to Carolco
Registration Statement on Form S-1, Amendment No. 4, filed with the Commission on August
23, 1993 (File No. 33-56380)..............................................................
10.114 Third Amendment to Securities Purchase Agreement dated October 7, 1993 by and between
Carolco Pictures Inc. and Pioneer LDCA, Inc., Cinepole Production B.V. and MGM Holdings
Corporation. Incorporated by reference to Exhibit DD to Pioneer Electronic Corporation's
Schedule 13D under the Securities Exchange Act of 1934, Amendment No. 4, filed with the
Commission on November 2, 1993............................................................
10.115 Second Amendment to Contribution and Exchange Agreement dated as of October 15, 1993 by and
between Carolco Pictures Inc. and Pioneer LDCA, Inc., Cinepole Productions B.V., Le Studio
Canal+ S.A., RCS Video International Service B.V., RCS Video Services Antilles N.V. and
RCS International Communications N.V. Incorporated by reference to Exhibit EE to Pioneer
Electronic Corporation's Schedule 13D under the Securities Exchange Act of 1934, Amendment
No. 4, filed with the Commission on November 2, 1993......................................
10.116 Stockholders Agreement dated as of October 20, 1993 by and between New Carolco Investments
B.V., Pioneer LDCA, Inc., Cinepole Productions B.V., RCS Video International Services B.V.
and MGM Holdings Corporation. Incorporated by reference to Exhibit BB to Pioneer
Electronic Corporation's Schedule 13D under the Securities Exchange Act of 1934, Amendment
No. 4, filed with the Commission on November 2, 1993......................................
10.117 Registration Rights Agreement dated as of October 20, 1993 by and between Carolco Pictures
Inc. and Pioneer LDCA, Inc., Cinepole Productions B.V., RCS Video International Services
B.V. and MGM Holdings Corporation. Incorporated by reference to Exhibit AA to Pioneer
Electronic Corporation's Schedule 13D under the Securities Exchange Act of 1934, Amendment
No. 4 filed with the Commission on November 2, 1993.......................................
10.118 Put and Call Agreement dated October 20, 1993 by and among MGM Holdings Corporation, Credit
Lyonnais S.A. and Cinepole Productions B.V. Incorporated by reference to Exhibit E to MGM
Holdings Corporation's Schedule 13D under the Securities Exchange Act of 1934, Amendment
No. 1, filed with the Commission on November 1, 1993......................................
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10.119 Subordination Agreement dated October 20, 1993 by and among Pioneer LDCA, Inc., Cinepole
Productions B.V., RCS Video International Services B.V., RCS International Communications
N.V. and MGM Holdings Corporation. Incorporated by reference to Exhibit CC to Pioneer
Electronic Corporation's Schedule 13D under the Securities Exchange Act of 1934, Amendment
No. 4, filed with the Commission on November 2, 1993......................................
10.120 Registration Rights Agreement for LIVE Entertainment Inc. Common Stock dated as of July 20,
1993, by and among LIVE Entertainment Inc., Carolco Pictures Inc., Pioneer LDCA, Inc., RCS
Video International Services B.V., RCS Video Services Antilles N.V., and Le Studio Canal+
S.A. Incorporated by reference to Exhibit 10.84 to LIVE Entertainment Inc.'s Annual Report
on Form 10-K for the fiscal year ended December 31, 1993..................................
10.121 Letter Agreement between Carolco Pictures Inc. and Karen A. Taylor for the services of
Karen A. Taylor effective November 1, 1993. Filed herewith................................
10.122 Retainer Letter with Daniels & Associates dated as of January 20, 1994. Filed herewith.....
11.1 Statement of Computation of Per Share Earnings. Filed herewith.............................
21.1 Subsidiaries of Carolco Pictures Inc. Filed herewith.......................................
23.1 Consent of Ernst & Young. Filed herewith...................................................
<FN>
- ------------------------
+ Confidential treatment requested
</TABLE>

E-13

<PAGE>

Exhibit 10.121

CAROLCO PICTURES INC.
8800 SUNSET BOULEVARD
LOS ANGELES, CALIFORNIA 90069

EFFECTIVE DATE: November 1, 1993

Ms. Karen A. Taylor
1251 East Avenue K4
Lancaster, California 93535

RE: EMPLOYMENT AGREEMENT
--------------------

Dear Ms. Taylor:

Reference is made to that certain employment agreement dated as March 20,
1991, between you as "Employee", and Carolco Pictures Inc, as "Employer" as
amended by the letter agreement with an effective date of May 20, 1992, (the
"Agreement"). Capitalized terms not otherwise defined herein shall have the
meaning ascribed to them in the Agreement. Employee and Employee agree to amend
the Agreement as follows:

Notwithstanding the provisions of Paragraph 2 of the Agreement, Employees
fixed salary be increased as of the date hereof to an annual rate of Two Hundred
Thousand Dollars ($200,000) for the remainder of the third year of the Term and
to Two Hundred Twenty-Five Thousand Dollars ($225,000) during the fourth year of
the Term.

Except as otherwise set forth above, all of the terms and conditions of
the Agreement shall remain in full force and effect.

Please confirm your agreement to the foregoing by signing below where
indicated.

Very truly yours,

CAROLCO PICTURES INC.

By: William Shpall
--------------

Its: Executive Vice President
------------------------
AGREED AND ACCEPTED

Karen A. Taylor
- ---------------
KAREN A. TAYLOR

<PAGE>

[DANIELS & ASSOCIATES letterhead]

Exhibit 10.122

January 20, 1994

Carolco Pictures Inc.
8800 Sunset Blvd.
Los Angeles, CA 90069

Attention: William A. Shpall
Executive Vice President

Gentlemen:

This letter confirms our understanding that Carolco Pictures Inc.
(which together with any of its subsidiaries is hereinafter referred to as the
"Company") has engaged Daniels & Associates ("Daniels") to act as its
financial advisor commencing upon the Company's acceptance of this agreement,
with respect to the possible combination of the Company with LIVE
Entertainment Inc. (the "Target", and together with the Company, the
"Constituent Companies"), in one or a series of transactions, by (a) merger,
consolidation, reorganization or other transaction pursuant to which the
Company is acquired by, acquires or is combined with the Target, or (b) an
acquisition involving all or a substantial amount of the business, stock or
assets of the Company, or otherwise (the "Transaction").

In connection with our engagement, we propose to undertake
certain services on the Company's behalf including but not limited to advising
and assisting the Company with respect to (i) evaluating the Target, (ii) the
financial terms of the Transaction, (iii) the form of consideration, (iv) any
negotiations relating to the Transaction and (v) structuring the Transaction.

As compensation for the services to be provided by Daniels
hereunder, the Company agrees to pay Daniels: (i) a retainer fee of $100,000,
payable promptly upon the effectiveness of this agreement; (ii) additional
cash compensation as set forth below; and, (iii) upon request from Daniels
from time to time, to reimburse Daniels promptly for its reasonable
out-of-pocket expenses (including the reasonable fees and expenses of counsel)
incurred by Daniels pursuant to its engagement hereunder, whether or not the
Transaction is consummated but in no event more than $50,000. As Daniels will
be acting on the Company's behalf, the

<PAGE>

Carolco Pictures Inc.
January 20, 1994
Page 2

Company agrees to indemnify Daniels as set forth in Schedule I hereto which
schedule is incorporated herein and made a part hereof.

The additional cash compensation referred to in clause (ii) above
shall be Nine Hundred Thousand Dollars ($900,000). Such fee shall by payable
as follows:

(a) $450,000 upon the execution of a binding commitment
letter to accomplish the Transaction; and
(b) $450,000 upon the closing of the Transaction.

The Company shall make available to Daniels all information
concerning its business and operations which Daniels reasonably requests and
any other information relating to the Transaction prepared by the Company or
any of its other advisors (collectively the "Information"). Daniels shall be
entitled to rely upon all information supplied to it by the Company or its
advisors and shall not in any respect be responsible for the same or to
conduct any appraisal of any of the Company's assets.

In consideration for the Company's agreement to provide the
Information Daniels hereby agrees as follows:

Daniels shall not disclose to any other party, (other than its
employees, in their capacity as such, or Daniels' attorneys or accountants for
the sole purpose of evaluating the Company), any Information provided by or
obtained from the Company except to the extent necessary to comply with
applicable law, subpoena, or valid order of a court of competent jurisdiction
, in which even Daniels shall so notify the Company to enable the Company, at
its expense, to seek confidential treatment of such information.

The obligations imposed on Daniels under this paragraph shall not
apply to any confidential information: (i) which is or becomes generally
available to the public other than as a result of its disclosure or other
dissemination or communication by Daniels or its employees; or (ii) which
becomes available to Daniels on a non-confidential basis from a source other
than the Company or its representatives or affiliates, provided that such
source is not then bound by a confidentiality agreement with the Company or
otherwise prohibited from transmitting confidential information to Daniels by
contractual or legal obligation, in either case, of which Daniels knew, or had
reason to know or (iii) which was known to Daniels prior to the disclosure by
the Company to Daniels.

Daniels acknowledges that any breach of the terms of this
confidentiality provision would result in irreparable injury and damage to the
Company for which the Company would have no adequate remedy at law. Daniels
therefore agrees that in the event of a breach of the terms hereof or any
threat of breach, the Company shall be entitled to an immediate

<PAGE>

Carolco Pictures Inc.
January 20, 1994
Page 3

injunction and restraining order to prevent such breach and/or threatened
breach and/or continued breach by Daniels or its employees, without having to
prove damages and to all costs and expenses, including reasonable attorneys'
fees and costs, in addition to any other remedies to which the Company may be
entitled at law or in equity. The terms of this paragraph shall not prevent
the Company from pursuing any other available remedies for any breach or
threatened breach hereof, including, but not limited to, the recovery of
damages from Daniels.

The Company represents and warrants that to the best of its
knowledge all Information (a) made available to Daniels by the Company, (b)
contained in any filing by the Company with the Securities and Exchange
Commission and any other filing with any court or governmental or regulatory
agency (each, and "Agency") with respect to the Transaction or (c) contained
in any memorandum or offering document prepared by the Company with respect to
the Transaction will, at all times during the period of the engagement of
Daniels hereunder, be complete and correct in all material respects and will
not contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein not misleading
in the light of the circumstances under which they are made. The Company
further represents and warrants that any projections provided by it to Daniels
will have been prepared in good faith and will be based upon assumptions
which, in light of the circumstances under which they are made, are in the
Company's sole judgement reasonable. The Company acknowledges and agrees that
in rendering its services hereunder, Daniels will be using and relying on the
Information (and information available from public sources and other sources
deemed reliable by Daniels) without independent verification thereof by
Daniels or independent appraisal by Daniels of any of the Company's assets.
Daniels does not assume responsibility for the accuracy or completeness of the
Information.

This agreement may be terminated by either the Company or Daniels
upon receipt of written notice to that effect by the other party. If at any
time prior to the expiration of twelve (12) months after the termination or
expiration of this agreement a Transaction is consummated with the Target,
Daniels will be entitled to payment in full of the fees described in the third
and fourth paragraphs of this letter. Upon any termination of this agreement,
Daniels will be entitled to prompt reimbursement of its out-of-pocket expenses
as described above. The indemnity provisions contained in Schedule I hereto
will also remain operative and in full force and effect regardless of any such
termination.

Daniels Acknowledges that the relationship created pursuant to
this agreement between the Company and Daniels will constitute a related party
transaction required to be publicly disclosed by the Company in accordance
with federal securities laws. Daniels further acknowledges that this
agreement shall be of no force or effect unless and until it shall have been
approved by the Board of Directors of the Company.

<PAGE>

Carolco Pictures Inc.
January 20, 1994
Page 4

The validity and interpretation of this agreement shall be
governed by the laws of the State of California applicable to agreements to be
made and to be fully performed therein.

The benefits of this agreement shall inure to the respective
successors and assigns of the Company and the obligations and liabilities
assumed in this agreement by the parties hereto shall be binding upon their
respective successors and assigns. Notwithstanding the foregoing, Daniels may
not assign this agreement without the prior written consent of the Company.

After reviewing this letter, please confirm that the foregoing is
in accordance with your understanding by signing and returning to me the
duplicate of this letter attached hereto, whereupon it shall be our binding
agreement.

Sincerely,

DANIELS & ASSOCIATES
By: DP Two, Ltd.
By: DNA, Inc.

By: /s/ Michael E. Garstin
---------------------------
Michael E. Garstin
Executive Vice President

ACCEPTED AND AGREED TO BY THE COMPANY THIS 15TH DAY OF FEBRUARY, 1994:

CAROLCO PICTURES INC.

By: /s/ William A. Shpall
------------------------------------
Name: William A. Shpall
Title: Executive Vice President

<PAGE>

SCHEDULE I

Carolco Pictures Inc. (the "Company") will indemnify and hold
harmless Daniels & Associates ("Daniels"), and its affiliates, the respective
directors, officers, agents and employees of Daniels, and its affiliates
(collectively, the "Daniels Group") from and against any claims, actions,
proceedings, investigations, demands, liabilities, damages, judgements,
assessments, losses and costs, including fees and expenses, arising out of or
in connection with the services rendered by Daniels under this agreement, and
will reimburse Daniels Group for all such fees and expenses including the
reasonable fees of counsel as they are incurred by Daniels Group in connection
with pending or threatened litigation whether or not Daniels Group is a party.
The Company will not, however, be responsible for any claims, liabilities,
losses, damages or expenses that are determined by final judgement of a court
of competent jurisdiction to result primarily from Daniels Group's gross
negligence, wilful misconduct or bad faith. The Company also agrees that
Daniels Group shall have no liability for claims, liabilities, damages, losses
or expenses, including legal fees, incurred by the Company unless they are
determined by final judgement of a court of competent jurisdiction to result
primarily from Daniels Group's gross negligence, wilful misconduct or bad
faith.

In order to provide for just and equitable contribution, if a
claim for indemnification pursuant to these Indemnification Provisions is made
but is found in a final judgement by a court of competent jurisdiction (not
subject to further appeal) that such indemnification may not be enforced in
such case, even though the express provisions hereof provide for
indemnification in such case, then the Company, on the one hand, and Daniels,
on the other hand, shall contribute to the losses, claims, damages,
obligations, penalties, judgement, awards, liabilities, costs, expenses and
disbursements to which the indemnified persons may be subject in accordance
with the relative benefits received by the Company, on the one hand, and
Daniels, on the other hand, and also the relative fault of the Company on the
one hand, and Daniels, on the other hand, in connection with the statements,
acts or omissions which resulted in such losses, claims, damages, obligations,
penalties, judgements, awards, liabilities, costs, expenses and disbursements
and the relevant equitable considerations shall also be considered. No person
found liable for a fraudulent misrepresentation shall be entitled to
contribution from any person who is not also found liable for such fraudulent
misrepresentation. Notwithstanding the foregoing, Daniels shall not be
obligated to contribute any amount hereunder that exceeds the amount of fees
previously received by Daniels pursuant to the Agreement.

In case any action shall be brought against Daniels Group with
respect to which indemnity may be sought against the Company under this
agreement, Daniels Group shall promptly notify the Company in writing and the
Company shall, if requested by Daniels Group, assume the defense thereof,
including the employment of counsel and payment of all fees and expenses
related thereto. Daniels Group shall have the right to employ separate
counsel in such action and participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of Daniels Group, unless:
(i) the Company has failed to assume the defense and employ counsel, or (ii)
the named parties to any such action (including any impleaded parties) include
Daniels Group and the Company, and Daniels Group shall have been advised by
such counsel that there may be one or more legal defenses available to it
which are different from or additional to those available to the Company;
provided, however, that the Company shall not

<PAGE>

in such event be responsible hereunder for the fees and expenses of more than
one such firm of separate counsel, in addition to any local counsel. The
Company shall not be liable for any settlement of any such action effected
without the written consent of the Company, and the Company agrees to
indemnify and hold harmless Daniels Group from and against any loss or
liability by reason of settlement of any action effected with the consent of
the Company.

Neither termination nor completion of the engagement of Daniels
referred to above shall affect these indemnification provisions which shall
then remain operative and in full force and effect.

<PAGE>
EXHIBIT 11.1

CAROLCO PICTURES INC.
COMPUTATION OF EARNINGS PER COMMON SHARE

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------- QTR. ENDED
1991 1992 1993 12/31/93
---------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Weighted average shares
outstanding............................. 30,470,134 30,623,569 52,202,174 116,234,339
Less Treasury shares..................... (1,804,123) (536,438) (1,704,645) (2,227,381)
---------------- ---------------- ---------------- ---------------
Total.................................. 28,666,011 30,087,131 50,497,529 114,006,958
---------------- ---------------- ---------------- ---------------
---------------- ---------------- ---------------- ---------------
Loss from continuing operations.......... $ (216,784,000) $ (97,448,000) $ (63,654,000) $ (30,428,000)
Preferred Dividends...................... (5,466,000) (4,321,103) (833,700) (833,700)
---------------- ---------------- ---------------- ---------------
Loss from continuing operations
attributable to common shares......... $ (222,250,000) $ (101,769,103) $ (64,487,700) $ (31,261,700)
---------------- ---------------- ---------------- ---------------
---------------- ---------------- ---------------- ---------------
Loss from continuing operations per
common share.......................... $ (7.76) $ (3.38) $ (1.28) $ (0.27)
---------------- ---------------- ---------------- ---------------
---------------- ---------------- ---------------- ---------------
Income (loss) from discontinued
operations.............................. $ (48,271,000) $ 548,000 $ (730,000) $ 0
---------------- ---------------- ---------------- ---------------
---------------- ---------------- ---------------- ---------------
Income (loss) from discontinued
operations per common share............. $(1.68) $0.02 $(.01) $0.00
---------------- ---------------- ---------------- ---------------
---------------- ---------------- ---------------- ---------------
Income (loss) from extraordinary items... $ 0 $ 8,883,000 $ 426,000 $ (1,373,000)
---------------- ---------------- ---------------- ---------------
---------------- ---------------- ---------------- ---------------
Income (loss) per common share from
extraordinary items..................... $0.00 $0.30 $0.01 $(0.01)
---------------- ---------------- ---------------- ---------------
---------------- ---------------- ---------------- ---------------
Net loss................................. $ (265,055,000) $ (88,017,000) $ (63,958,000) $ (31,801,000)
Preferred dividends...................... (5,466,000) (4,321,103) (833,700) (833,700)
---------------- ---------------- ---------------- ---------------
Net loss attributable to common shares... $ (270,521,000) $ (92,338,103) $ (64,791,700) $ (32,634,700)
---------------- ---------------- ---------------- ---------------
---------------- ---------------- ---------------- ---------------
Net loss per common share................ $ (9.44) $ (3.06) $ (1.28) $ (0.28)
---------------- ---------------- ---------------- ---------------
---------------- ---------------- ---------------- ---------------
</TABLE>

<PAGE>
EXHIBIT 21.1

CAROLCO PICTURES INC.
LIST OF SUBSIDIARIES

Carolco International Inc., a Netherlands Antilles corporation
Carolco Films International Limited, a United Kingdom corporation
Carolco Service Inc., a Delaware corporation
International Production Services Inc., a Delaware corporation
Carolco Production Services Inc., a California corporation
Executive Air Leasing Inc., a Nevada corporation
Complete Film Corporation Inc., a Delaware corporation
The Vista Organization, Ltd., a Delaware corporation
TVO Management Resources, Inc., a Delaware corporation
Carolco Television Inc., a Delaware corporation
Carolco Studios Inc. (Delaware), a Delaware corporation
Carolco Studios Inc., a North Carolina corporation
Anabasis B.V., a Netherlands corporation
Carolco do Brasil Ltda., a Brazil corporation
Carolco Nominee B.V., a Netherlands corporation
Anabasis Investments N.V., a Netherlands Antilles corporation
Cliffhanger B.V., a Netherlands corporation
Cliffhanger Productions Inc., a Delaware corporation
Cliffhanger Investment Holdings Inc., a California corporation
Cliffhanger Management B.V., a Netherlands corporation
Period Films Inc., a California corporation
Medieval Films Inc., a California corporation
Cutthroat Productions Inc., a California corporation
Wagons East Productions Inc., a California corporation
Crusade Productions N.V., a Netherlands Antilles corporation
Wagons East N.V., a Netherlands Antilles corporation
Cutthroat Productions N.V., a Netherlands Antilles corporation
Spiderman Productions Ltd., a British Virgin Islands corporation
TVO Motion Pictures Management Co., Inc., a Delaware corporation
The Vista Organization Distribution Co., Inc., a Delaware corporation
Vista Partnership Songs, Inc., a Delaware corporation
The Vopic Corporation, a Delaware corporation

<PAGE>
EXHIBIT 23.1

CONSENT OF INDEPENDENT AUDITORS

We consent to the incorporation by reference in the Registration Statement
on Form S-8 (No. 33-20039) pertaining to the Employee Stock Option Plan of
Carolco Pictures Inc. and the Registration Statement on Form S-8 (No. 33-72116)
pertaining to the 1989 Stock Option and Stock Appreciation Rights Plan, as
amended, of our report dated March 31, 1993 with respect to the consolidated
financial statements and schedules included in the Annual Report (Form 10-K) of
Carolco Pictures Inc. for the year ended December 31, 1993.

ERNST & YOUNG

Los Angeles, California
April 11, 1994