CAROLCO PICTURES INC, 10-K405, 1995-04-17

CAROLCO PICTURES INC
10-K405, 1995-04-17
MOTION PICTURE & VIDEO TAPE PRODUCTION

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(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, 1994

/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

COMMISSION FILE NUMBER 1-9264
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CAROLCO PICTURES INC.
(Exact name of Registrant as specified in its charter)

DELAWARE 95-4046437
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

8800 SUNSET BLVD., LOS ANGELES, CA 90069
(Address of principal executive offices) (Zip Code)

Registrant's Telephone Number, Including Area Code: (310) 859-8800

Securities Registered Pursuant To Section 12(b) Of The Act: None

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

TITLE OF EACH CLASS
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Common Stock, par value $.01
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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, 1995, was $1,443,089.

As of March 31, 1995, there were 137,641,353 shares of the Registrant's
Common Stock outstanding, not including 2,373,756 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 or directors 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 Carolco, Carolco has refocused its business efforts to
producing a limited number of major "event" motion pictures for worldwide
theatrical release each year, to the extent that Carolco is able to obtain
sufficient funds to enable it to do so. During the past year, due to limitations
on the amount of funds available for motion picture production, Carolco sold its
interest in one film already in production and has only one film in production
and several projects in various stages of development. There can be no
assurance that sufficient funds will be available to complete development of or
to produce these projects. (See "Recent Developments - Liquidity and Going
Concern Issues - Going Concern Issues".)

Unless otherwise indicated, all references to Carolco or the Company
include Carolco Pictures Inc. and its wholly-owned subsidiaries including
Carolco International Inc. ("CII"), Carolco Television Inc.("CTI"), and The
Vista Organization, Ltd. ("Vista"); The Vista Organization Partnership, L.P (the
"Vista Partnership"); and Carolco Studios Inc. (Delaware). Prior to its
domestication as a Delaware corporation in October 1993, CII was incorporated in
the Netherlands Antilles as Carolco International N.V. ("CINV").

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

RECENT DEVELOPMENTS

LIQUIDITY AND GOING CONCERN ISSUES

Carolco's independent auditors have included an explanatory paragraph in
their report appearing at page F-1 of this Annual Report on Form 10-K stating
that the Company's Consolidated Financial Statements have been prepared assuming
that Carolco will continue as a going concern and that Carolco's financial
condition (as described below and in Note B to the Consolidated Financial
Statements) raises substantial doubts about its ability to continue as a going
concern.

FINANCIAL 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 main components of the
Restructuring, certain actions taken in conjunction therewith and certain of the
agreements entered into in connection therewith.

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(1) CONSUMMATION OF EXCHANGE OFFERS. $22,496,000 in aggregate principal
amount of 11.5%/10% Reducing Rate Senior Notes due 2000 (the "New Senior Notes")
were issued in exchange for a portion of the Company's outstanding 14% Senior
Notes due June 1, 1993 (the "14% Notes"), plus accrued interest. In addition,
$13,431,700 in principal amount of 13%/12% Reducing Rate Senior Subordinated
Notes due 1999 (the "New Senior Subordinated Notes") were issued in exchange for
a portion of the Company's 13% Senior Subordinated Notes due December 1, 1996
(the "13% Notes"), plus accrued interest. The exchanges described above are
collectively referred to herein as the "Exchange Offers." In addition,
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.

(2) CONSUMMATION OF CONSENT SOLICITATION. Concurrently with the Exchange
Offers, the holders of the 13% Notes approved certain amendments (the
"Amendments") to the indenture governing the 13% Notes (the "13% Note
Indenture"). 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 13% Note Indenture and eliminated substantially all of the restrictive
covenants and certain default provisions in the 13% Note Indenture.

(3) PURCHASES OF NEW PREFERRED STOCK AND 5% NOTES FOR CASH. Pioneer
LDCA, Inc. ("Pioneer"), Cinepole Productions B.V. ("Cinepole"), a wholly owned
subsidiary of Le Studio Canal+ S.A. ("Le Studio"), and MGM Holdings Corporation
("MGM Holdings") purchased from the Company 40,000, 12,500 and 30,000 shares,
respectively, of Series A Convertible Preferred Stock, a newly designated series
of the Company's series preferred stock ("New Preferred" or "Series A
Preferred"), in exchange for cash consideration of $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 therefore,
in additional shares of New Preferred. Each share of New Preferred is
convertible at the option of the holder into Common Stock of the Company at $.60
per share.

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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 upon certain defaults under the indenture governing the 5%
Notes). 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.

(4) EXCHANGE OF 10% DEBENTURES AND SERIES D PREFERRED. 8,000 shares of the
Company's Series D Convertible Exchangeable Preferred Stock (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, plus a payment in cash of a portion of accrued
but unpaid dividends. In addition, $14,600,000 in face amount of the Company's
10% Convertible Subordinated Debentures due 2006 (the "10% Debentures"),
representing all of the Company's outstanding 10% Debentures (other than
$35,000,000 in aggregate face amount held by Pioneer and an affiliate of RCS
Video International Services B.V. ("RCS")), was exchanged for 21,900,000 shares
of the Company's Common Stock.

(5) SATISFACTION OF STRATEGIC INVESTOR LOAN. Carolco transferred to Pioneer,
Cinepole and RCS International Communications N.V. ("RCS Communications"), an
affiliate of RCS, 3,885,223, 1,180,030 and 1,180,030, shares, respectively, of
the common stock of LIVE Entertainment Inc. ("LIVE"), representing all of the
shares of LIVE common stock held by Carolco 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, Le Studio and RCS
(collectively including their affiliates, the "Strategic Investors"). 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, respectively, of the Company's Common Stock.

EXCHANGE OF CERTAIN OF THE STRATEGIC INVESTORS' SECURITIES FOR COMMON
STOCK. Each of the Strategic Investors exchanged a portion of Carolco's
outstanding preferred stock and 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, 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 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 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.

(6) NEW DISTRIBUTION AGREEMENT. Carolco entered into a new distribution
agreement (the "MGM Distribution Agreement") with MGM, an affiliate of MGM
Holdings, which became effective on the December 31, 1993 expiration of the
Company's prior distribution agreements with Tri-Star Pictures Inc. ("Tri-
Star"). 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

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effective date of the agreement, or the delivery of 20 qualifying pictures. MGM
is obligated to advance significant amounts for costs related to the initial
domestic theatrical release of each picture covered by the agreement, including
the cost of manufacturing 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 (i.e.
airlines, military, etc.) 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 an 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, 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 committed to purchase up to $27,500,000 in
principal amount of the Company's 7% Convertible Subordinated Notes due 2006
(the "7% Notes") on the later of December 30, 1994 or the date upon which
certain conditions are met. In addition, Le Studio and TCI 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 to be
invested pursuant to the Standby Agreement would not exceed $47,500,000. See "-
Standby Agreement Funding" for a discussion of further developments with respect
to the Standby Agreement.

(8) ACQUISITION OF VISTA. In conjunction with the Restructuring, Carolco
acquired all of the outstanding shares of common stock of Vista (the "Vista
Common Stock"), other than shares owned by Carolco, together with all of the
Carolco Series A Common Stock Put Rights associated therewith (the "Series A
Puts") in a two-step transaction consisting of a tender offer and a subsequent
merger. As a result, $19,025,500 in principal amount of New Senior Notes was
issued and cash of $1,942,000 for interest was paid in exchange for 17,620,290
shares of Vista Common Stock and associated Series A Puts. In addition,
approximately $3,156,000 in cash was paid to the holders (other than Carolco or
its affiliates) of Vista Common Stock and associated Series A Puts, in exchange
for 4,207,816 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.

(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

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the number of shares of Common Stock for which options may be granted by an
additional 27,500,000 shares.

MOTION PICTURE PRODUCTION

As a result of the Restructuring described above, the Company had adequate
cash resources to meet its obligations as they became due and to begin 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 Carolco commenced principal photography
of WAGONS EAST, starring John Candy and Richard Lewis. As a result of the
untimely death of Mr. Candy, Carolco entered into an arrangement with the
insurance carrier on the film and an affiliate of LIVE pursuant to which Carolco
recovered substantially all of the costs incurred by Carolco on the film. In
exchange for certain rights in the film, LIVE agreed to fund completion of the
film and engaged Carolco to complete production and servicing of certain pre-
existing distribution agreements. In April 1994, Carolco received approximately
$13,876,000 representing partial payments under the multi-party arrangement. In
February 1995, an additional $1,532,000 was received.

In mid-May 1994, Carolco determined that the potential costs of the motion
picture CRUSADE, then in active pre-production, were significantly greater than
originally budgeted and that the film would have to perform exceptionally well
in the marketplace to generate a gross margin acceptable for the required level
of investment. As a result, Carolco made the decision to postpone the start of
principal photography (which had been scheduled to begin in August 1994) while
Carolco evaluated alternative approaches to the project. As a result of
Carolco's decision not to make CRUSADE when scheduled, an affiliate of Arnold
Schwarzenegger made a claim for payment of the full fee that would have been
payable for the acting services of Mr. Schwarzenegger. Pursuant to a settlement
agreement with Mr. Schwarzenegger, Carolco has paid certain amounts to the
affiliate of Mr. Schwarzenegger and assigned to an affiliate of Mr.
Schwarzenegger all rights, title and interest in CRUSADE. If, during an
approximately three-year period, Mr. Schwarzenegger obtains a commitment for
production of the film, Carolco will receive reimbursement of a portion of its
pre-production expenditures on the film and will participate in any future net
profits of the film (as defined in the agreement). In the event Mr.
Schwarzenegger's affiliate is unable to obtain a production commitment during
such period, Carolco will have the exclusive right to reacquire all rights,
title and interest in CRUSADE for an amount equal to the sum of (i) all out-of-
pocket costs incurred by such affiliate in acquiring the rights to CRUSADE and
(ii) all actual out-of-pocket development costs incurred by such affiliate.

In 1994, the Company began pre-production of the motion picture SHOWGIRLS.
Through October 1994, the Company incurred pre-production costs of approximately
$9,626,000 in connection with SHOWGIRLS. See "- Interim Financing Arrangements"
for a discussion of the subsequent sale of SHOWGIRLS. Also in 1994, Carolco
began development of the motion picture LOLITA. Prior to December 1, 1994, the
Company had incurred development costs of approximately $3,863,000 in connection
with LOLITA. See "- Other Financing Arrangements" for a discussion of the
subsequent sale of LOLITA.

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Carolco currently has one motion picture in production: CUTTHROAT ISLAND
starring Geena Davis and Matthew Modine and directed by Renny Harlin. CUTTHROAT
ISLAND commenced principal photography in October 1994 and is scheduled to be
completed and available for release in the latter half of 1995; however, there
can be no assurance that the film will be completed or released on schedule or
that it will be completed and released. The direct negative cost of CUTTHROAT
ISLAND is expected to be in excess of $80,000,000. Carolco has completed
certain financing arrangements in connection with CUTTHROAT ISLAND. On February
6, 1995, the limited partnership formed by Carolco to produce and distribute
CUTTHROAT ISLAND ("Cutthroat Island LP") satisfied the conditions necessary for
it to draw funds under a production loan (the "Production Loan") provided by a
group of banks led by Berliner Bank AG (London Branch) and Credit Lyonnais Bank
Nederland N.V. ("CLBN"). The Production Loan provides for financing of up to
$60,238,000 in direct negative costs, including completion bond fees, certain
contingencies and other financing related expenses. In February and March 1995,
Carolco received approximately $25,031,000 in proceeds from the Production Loan,
representing reimbursement of a portion of the approximately $80,007,000,
including capitalized interest and overhead, Carolco had spent in 1994 and 1995
to develop and begin production of CUTTHROAT ISLAND. In addition, through
March 1995, $13,126,000 in proceeds from the Production Loan were provided
directly to Cutthroat Island LP. The Production Loan is collateralized by
certain pre-sales of foreign and domestic licensing rights of CUTTHROAT ISLAND.
Initial proceeds from the distribution of CUTTHROAT ISLAND will be used
exclusively to repay the Production Loan. In addition, pursuant to the Standby
Agreement funding, the Company received $7,500,000. See "- Standby Agreement
Funding." These funds, together with the proceeds of the Production Loan,
reduced Carolco's contribution to the negative cost of the film to approximately
$47,500,000.

As a result of its reduced production schedule, Carolco did not generate
revenues from new production in 1994 and currently anticipates that it will
continue to experience losses through 1995. Moreover, because of the
substantial capital requirements involved in the pre-production of CRUSADE,
LOLITA and SHOWGIRLS and the pre-production and principal photography stages of
CUTTHROAT ISLAND prior to Carolco's ability to borrow funds from the Production
Loan, Carolco experienced significant liquidity constraints throughout the
fourth quarter of 1994.

INTERIM FINANCING ARRANGEMENTS

In order to alleviate the aforementioned liquidity constraints experienced
by the Company in late 1994, in October 1994, Carolco consummated certain
interim financing arrangements which provided Carolco with additional cash of
approximately $18,500,000 (the "Interim Financing Arrangements"). The Interim
Financing Arrangements consisted of the following transactions:

(1) Carolco Production Services Inc., an indirect wholly-owned
subsidiary of Carolco ("CPSI"), and Chargetex 6, S.A., an affiliate of the
French company Chargeurs ("Chargetex"), entered into a Purchase and Sale
Agreement dated as of October 18, 1994 whereby CPSI transferred to Chargetex all
of its rights in the motion picture SHOWGIRLS, which commenced principal
photography on October 23, 1994. The purchase price consisted of (i) the
reimbursement of CPSI's and/or Carolco's direct costs incurred in connection
with the development and production of the motion picture through the date the
rights in the picture were transferred to Chargetex and (ii) the assumption by
Chargetex of all of CPSI's and/or Carolco's obligations relating to the
development and production of the motion picture. Approximately $8,898,000 was
paid to Carolco by Chargetex upon closing of the transaction, and an additional
$439,000 was paid in January 1995. CPSI will be entitled to a percentage of the
adjusted gross receipts from the exploitation of the completed motion picture
after Chargetex has recouped certain costs and expenses incurred in connection
with the motion picture plus an additional $10,000,000.

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(2) Pioneer, Pioneer LDC, Inc., an affiliate of Pioneer, and Carolco
entered into an Agreement dated as of October 14, 1994 pursuant to which Carolco
received a prepayment of approximately $6,700,000 from Pioneer arising from the
video distribution in Japan of TERMINATOR 2: JUDGMENT DAY and theatrical, video
and pay television distribution in Japan of CLIFFHANGER. The amounts from
CLIFFHANGER were paid to Carolco pursuant to an agreement entered into by and
among the co-producers of CLIFFHANGER.

(3) Carolco and RCS entered into a Waiver, Assignment and
Acknowledgment Agreement dated as of October 14, 1994 (the "RCS Waiver
Agreement") whereby RCS waived certain conditions subject to which RCS was
required to purchase 7% Notes on December 30, 1994 under the Standby Agreement.
In exchange for the accommodations by RCS, the parties agreed to reduce the
principal amount of 7% Notes to be purchased by RCS under the Standby Agreement
from $2,500,000 to $1,000,000 and RCS agreed to purchase a portion of Carolco's
interest in the motion picture CUTTHROAT ISLAND for $1,500,000 on terms that are
no less favorable than those applicable to TCI and Le Studio under the Co-
Production Investments.

On October 14, 1994, Carolco received $987,690 representing the principal
amount of a $1,000,000 bank loan from CLBN, discounted to yield an interest
rate of 5.4375% per annum. As security for such loan, Carolco assigned to CLBN
its right to receive RCS' payment for 7% Notes due in December 1994. RCS
delivered a letter of credit to CLBN to secure its obligation to purchase 7%
Notes.

(4) Carolco and Le Studio Canal+ (U.S.) ("Le Studio U.S.") entered
into an Amendment to the Exclusive Agency Agreement dated as of October 14, 1994
whereby Le Studio U.S. prepaid $2,000,000 of sales commissions that were
anticipated to be due to Carolco in late 1994 in connection with Carolco's
serving as the foreign sales agent for the motion picture STARGATE. See "Item
13 - Certain Relationships and Related Transactions - Other Transactions with
the Strategic Investors - Le Studio" for more a complete discussion of the
arrangements with Le Studio U.S. regarding STARGATE.

STANDBY AGREEMENT FUNDING

In December 1994 and January 1995, the Company consummated the following
transactions with the Strategic Investors in accordance with the Standby
Agreement.

On December 12, 1994, Pioneer agreed to purchase in advance $5,000,000 in
aggregate principal amount of 7% Notes. On December 30, 1994, Pioneer purchased
the remaining $5,000,000 of 7% Notes as required under the Standby Agreement.

On December 30, 1994, Cinepole purchased $7,500,000 in aggregate principal
amount of 7% Notes. In addition, on December 30, 1994, LSC+ Investments Inc., a
wholly owned subsidiary of Le Studio (U.S.) ("LSC+") and TCI purchased limited
partnership interests in Cutthroat Island L.P. in exchange for $6,000,000 in
accordance with the terms of the Standby Agreement. Pursuant to the partnership
agreement, LSC+, TCI and an affiliate of Carolco are each entitled to receive a
participation in certain revenues generated from the exploitation of CUTTHROAT
ISLAND, following repayment of the Production Loan and the payment of (or
establishment of reserves for) certain third party obligations, as follows.
First, LSC+, TCI and the Carolco affiliate are entitled to receive approximately
10%, 6% and 84%, respectively, of revenues until LSC+ and TCI recoup their
preferred return (which equals 10% per annum on their initial capital
contributions) plus their initial capital contributions. Second, the Carolco

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affiliate is entitled to receive all revenues until it recoups a distribution
fee equal to 10% of the receipts from the distribution of the film in certain
territories and an overhead reimbursement fee. Third, LSC+, TCI and the Carolco
affiliate are entitled to receive approximately 10%, 6% and 84%, respectively,
of revenues, until LSC+ and TCI have each received an amount equal to their
capital contributions. Thereafter, LSC+, TCI and the Carolco affiliate are
entitled to receive approximately 5%, 3% and 92%, respectively, of remaining
revenues.

On January 19, 1995, RCS purchased a participation interest in CUTTHROAT
ISLAND from an affiliate of Carolco in exchange for payment of $1,500,000, as
contemplated by the Interim Financing Arrangements. Pursuant to its
participation interest, RCS is entitled to receive payments from Carolco's
affiliate when TCI and LSC+ receive distributions. RCS is to receive a
percentage based upon dividing RCS' payment by the aggregate capital
contributions of TCI and LSC+ pursuant to the partnership agreement described
above.

OTHER FINANCING ARRANGEMENTS

CPSI and Alphatex, an affiliate of the French company Chargeurs
("Alphatex"), entered into a Purchase and Sale Agreement dated as of December 1,
1994 whereby CPSI transferred to Alphatex all of its rights in the motion
picture LOLITA. The purchase price consisted of (i) the reimbursement of CPSI's
and/or Carolco's direct costs incurred in connection with the development and
production of the motion picture through the date the rights in the picture were
transferred to Alphatex and (ii) assumption by Alphatex of all of CPSI's and/or
Carolco's obligations relating to the development and production of the motion
picture. On December 2, 1994, approximately $3,826,000 was paid to Carolco by
Alphatex upon closing of the transaction with additional amounts estimated to be
less than $200,000 to be paid as accountings are provided to Alphatex. CPSI
will be entitled to a percentage of adjusted gross receipts from the
exploitation of the completed motion picture after Alphatex has recouped certain
costs and expenses incurred in connection with the motion picture plus an
additional $10,000,000.

Pursuant to certain distribution agreements with Tri-Star, certain payments
were due to the Company or its affiliates from Tri-Star at December 31, 1994.
See "The Business of Carolco - Distribution of Motion Pictures and Other
Products." In February and March of 1995, Tri-Star paid approximately
$14,147,000 pursuant to these distribution agreements.

CURRENT OBLIGATIONS OF THE COMPANY

CII, with Carolco as principal guarantor, has $14,000,000 in principal
amount outstanding under a credit facility with CLBN acting as agent and lender
(the "Existing Carolco Credit Facility") as of the date hereof. The maturity
date of the loan under the Existing Carolco Credit Facility, which is secured by
substantially all of Carolco's assets, is September 30, 1995, provided certain
events of default do not occur. CLBN has agreed to remit to CII all collections
from accounts receivable pledged to CLBN, so long as certain defaults do not
occur. No amounts are available for borrowing under the Existing Carolco Credit
Facility. Repayment of the Existing Carolco Credit Facility, without a
replacement facility, would have a severe adverse effect on the operations and
financial viability of Carolco.

In August 1992, Carolco entered into an agreement with the Screen Actors
Guild, the Director's 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. As of December 31, 1994, the balance due the Guilds pursuant to a
promissory note made

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in favor of the Guilds (the "Guild Note") was $10,025,000, including accrued
interest at 3-month LIBOR, plus 1% per annum. On January 30, 1995, the Company
paid $3,285,000 to the Guilds, representing payment of the October 1994
installment, plus accrued interest thereon. The balance of the Guild Note is
due in two remaining installments of $3,000,000 each, plus interest, on October
1, 1995 and October 1, 1996, with an additional $600,000 due on October 1, 1996.
The Guild Note is secured by a lien on substantially all of the Company's
assets, which lien is subordinated to the Existing Carolco Credit Facility.

In addition to the Guild Note, the Company has on-going obligations to the
Guilds, the American Federation of Musicians ("AFM") and the International
Alliance of Theatrical Stage Employees ("IATSE") for amounts owed under similar
collective bargaining agreements. In February 1995, the Company paid
approximately $3,000,000 to the Guilds, AFM and IATSE representing residual
obligations arising from cash received by the Company in the fourth quarter of
1994. The amount of residual obligations to be paid for each quarter of 1995
will be determined by the amount of cash receipts received by the Company in
1995.

In connection with the production of its motion pictures, the Company
entered into certain contingent compensation agreements with motion picture
talent (actors, directors, producers, writers) and co-production investors
(collectively, the "Participants") whereby the Company is obligated to pay to
the Participants a share of the Company's receipts from the distribution of its
released motion pictures. At December 31, 1994, the Company had recorded
present and future obligations of approximately $22,400,000 in connection with
various Participants' contingent compensation arrangements. Additional
contingent compensation obligations will be recorded in 1995 based on the film
revenues recognized by the Company in 1995.

Semi-annual interest of approximately $3,261,000 on the New Senior Notes
and the New Senior Subordinated Notes is due on April 15 and October 15 of each
year. Semi-annual interest of approximately $224,000 on the 13% Notes is due on
June 1 and December 1 of each year.

The Company has announced that it will not make the interest payments on
the New Senior Notes and New Senior Subordinated Notes when such payments are
due on April 15, 1995. As noted above, such interest payment is approximately
$3,261,000. If the Company does not make either interest payment prior to the
30-day grace period provided in the indenture governing such issue of
indebtedness, the indebtedness under such indentures could be accelerated. The
Company currently has $41,521,500 and $13,431,700 in principal amount
outstanding under the New Senior Notes and the New Senior Subordinated Notes,
respectively. If either of the New Senior Notes or the New Senior Subordinated
Notes were accelerated, it would cause defaults under other debt obligations of
the Company, subject to any applicable grace periods, permitting such
indebtedness to be accelerated as well. If such obligations were accelerated,
the Company would not have sufficient funds to satisfy the obligations unless it
received additional funds, and would be unable to continue to operate as a going
concern.

GOING CONCERN ISSUES

The Company anticipates that it will continue to experience losses through
1995. During the next 12 months, the Company will not have sufficient cash
resources and financing sources to meet its operating expenses and scheduled
debt service obligations, and to continue to fund its principal business
activity -- the development, production and exploitation of motion pictures.
Therefore, the Company is currently considering a plan which will allow it to
continue to operate as a going concern.

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The plan being considered by the Company includes a combination of the
following: the sale of certain assets; identifying and securing new equity
investments and/or sources of financing; negotiating more advantageous
distribution arrangements which would finance at least 100% of the development,
production and distribution of new films; and restructuring the Company's
outstanding obligations either outside of a Chapter 11 Bankruptcy filing, or
within a Chapter 11 Bankruptcy filing (including a possible prenegotiated
plan).

If the Company is unable to successfully accomplish the aforementioned
plan, or implement other similar strategies, the Company will be unable to
continue as a going concern. In addition, if the obligations described above
under "- Current Obligations of the Company" are accelerated, the Company would
not have sufficient funds to satisfy such obligations. The consolidated
financial statements as of and for the year ended December 31, 1994 do not
include any adjustments to reflect the possible future effects on the
recoverability of assets or amounts of liabilities that may result from the
inability of the Company to continue as a going concern.

PROPOSED BUSINESS COMBINATION WITH LIVE ENTERTAINMENT INC.

Carolco, LIVE and Carolco Acquisition Corp., a wholly owned subsidiary of
LIVE ("CAC"), entered into an Agreement and Plan of Merger dated as of August
10, 1994 (the "Merger Agreement") providing for a business combination of
Carolco and LIVE. The Merger Agreement provided, among other things, that CAC
would be merged with and into Carolco (the "Merger") with Carolco as the
surviving corporation continuing as a wholly-owned subsidiary of LIVE. On
October 13, 1994, LIVE, CAC and Carolco entered into a Termination Agreement
(the "Termination Agreement") providing for the termination of the Merger
Agreement and the abandonment of the proposed Merger contemplated thereby. The
Termination Agreement also provides for the termination of all rights and
obligations of the parties under the Merger Agreement and the mutual release by
the parties of all claims of any kind or nature, by reason of or with respect to
the Merger Agreement. Expenses of $1,767,000 relating to the proposed Merger
were charged to expense during the year ended December 31, 1994.

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THE BUSINESS OF CAROLCO

MOTION PICTURE STRATEGY

Since Carolco's initial public offering of its equity securities in 1986,
Carolco'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. Carolco initially produced from four
to six such major "event" motion pictures per year, but has been forced to
reduce such number in recent years due to increasing financial constraints. Such
major "event" motion pictures typically involve direct negative costs (excluding
capitalized interest and overhead) substantially in excess of $35,000,000 per
motion picture. Management selects these motion pictures, which typically
feature major film stars and/or directors 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.

Carolco 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, Carolco receives advances and guarantees against its share of such
receipts. Carolco'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 Carolco to minimize some of the financial risks
normally associated with motion picture production. Carolco attempts to obtain
such advances and guarantees in an amount equal to a substantial percentage of
the aggregate direct negative cost of each film. In the past, the advances and
guarantees obtained by Carolco prior to the production of its films allowed
Carolco to use commercial bank financing (both under its former revolving credit
facility and single picture production loans) for a significant portion of the
costs of motion picture production. The commercial bank financing has been
secured by such advances. See "- Motion Picture Production - Advances and
Guarantees."

Carolco had no motion pictures theatrically released in 1994. There is
currently only one motion picture, CUTTHROAT ISLAND, in production and several
projects in various stages of development. There can be no assurances that
sufficient funds will be available to complete development or to produce any of
the projects in development. See "Item 7 - Management's Discussion and Analysis
of Financial Condition and Results of Operations - Liquidity and Capital
Resources."

Carolco's arrangements with theatrical distributors - MGM in the United
States, Canada and select international territories, and other distributors in
significant theatrical territories 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
Carolco associated with the failure of any particular picture to perform at the
box office since Carolco does not pay for most of the releasing costs. However,
in the case of the MGM Distribution Agreement, which took effect upon the
expiration of Carolco's former agreement with Tri-Star, MGM is entitled to
recoup these expenditures from box office receipts, from receipts generated by
other media and, under certain circumstances, directly from Carolco. The
distribution arrangements also provide collateral for production financing as
discussed above. These arrangements may however, limit the benefit Carolco can
derive from successful films.

DISTRIBUTION STRATEGY

Since 1992, Carolco has focused its business strategy on motion picture
production. Carolco has theatrically released three motion pictures since the
beginning of 1992, BASIC INSTINCT, theatrically released

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in March 1992, CHAPLIN, theatrically released in December 1992, and CLIFFHANGER,
theatrically released in May 1993. Carolco has no present intention to expand
its distribution capabilities into ancillary media or markets.

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

HOME VIDEOCASSETTE DISTRIBUTION. Since 1987, Carolco has conducted
most of its home videocassette distribution activities through LIVE Home
Video Inc. ("LHV"), a subsidiary of LIVE, pursuant to an exclusive output
agreement which currently covers motion pictures produced or controlled by
Carolco on which principal photography has commenced prior to July 31,
1995, or for which LHV has paid an advance to Carolco prior to such date.
Subsequent to July 31, 1995, the home videocassette distribution of any
motion pictures produced by the Company will be negotiated by the Company
with LHV or other home videocassette distributors on a picture by picture
basis.

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

TELEVISION DISTRIBUTION. Through 1991, Carolco licensed its network
and syndication television rights through its wholly owned subsidiary, CTI.
In 1992, CTI sold its feature film library of United States television
rights to Worldvision Enterprises, Inc. ("Worldvision") and substantially
curtailed its operations. Pursuant to the Restructuring, the domestic and
certain of the foreign television syndication rights to Carolco's future
motion pictures (including CUTTHROAT ISLAND) were granted to MGM under the
MGM Distribution Agreement. Also in connection with the Restructuring,
Carolco entered into a domestic pay television agreement with Encore Media
Corporation ("Encore"), an affiliate of TCI, pursuant to which Carolco has
granted to Encore certain exclusive domestic pay television rights to
Carolco's motion pictures which have their initial domestic theatrical
release from January 1, 1994 through December 31, 1997.

MOTION PICTURE PRODUCTION

1994 RELEASES

Carolco did not theatrically release any motion pictures in 1994.
Production of WAGONS EAST, which commenced principal photography in December
1993, was interrupted in March 1994 due to the untimely death of its starring
actor, John Candy. Carolco subsequently entered into an arrangement with the
insurance carrier on the film pursuant to which Carolco transferred
substantially all of its interest in the film to an affiliate of LIVE and
completed production of the film on behalf of such affiliate. See "Recent
Developments - Liquidity and Going Concern Issues - Motion Picture Production."

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PRODUCTION AND DEVELOPMENT

Carolco currently has only one motion picture, CUTTHROAT ISLAND, in
production which it intends to release in 1995. CUTTHROAT ISLAND, starring
Geena Davis and Matthew Modine and directed by Renny Harlin, began principal
photography in October 1994. The direct negative cost of CUTTHROAT ISLAND is
anticipated to be in excess of $80,000,000. Carolco financed production of
CUTTHROAT ISLAND in part through the Co-production Investments and Production
Loan. See "Recent Developments - Liquidity and Going Concern Issues - Motion
Picture Production." Principal photography of CUTTHROAT ISLAND has been
completed and Carolco believes that the film will be released in the latter
half of 1995, however, there can be no assurance that the film will be completed
or released on schedule or that it will be completed and released.

Carolco has several projects in various stages of development. There can
be no assurances that sufficient funds will be available to complete development
or to produce any of the projects in development. See " Item 7 - Management's
Discussion and Analysis of Financial Condition and Results of Operation --
Liquidity and Capital Resources."

Carolco previously entered into agreements with certain corporations
controlled by Sylvester Stallone, formerly a director of Carolco, which provide,
among other things, that Mr. Stallone will star in four motion pictures for
Carolco, one of which may be RAMBO IV. The first film, CLIFFHANGER, has been
theatrically released. 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 Carolco. There currently exist
certain disputes between Carolco and Mr. Stallone regarding these agreements,
which Carolco believes will be resolved to the mutual satisfaction of the
parties. However, there can be no assurances that such resolution will be
reached.

Carolco does not maintain a substantial staff of creative or technical
personnel. Management believes that, together with properties that Carolco
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 Carolco to produce motion
pictures, at the level of commercial quality Carolco requires.

ADVANCES AND GUARANTEES

Carolco 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, prior to commencement of
production, of its motion pictures. Under these agreements Carolco attempts to
obtain such advances and guarantees in an amount equal to a substantial
percentage of the aggregate direct negative costs of the pictures. See "-
Distribution of Motion Pictures and Other Products - Foreign Leasing
Operations." Pre-sales allow Carolco to minimize some of the financial risks
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 certain of the
Strategic Investors.

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In most cases, Carolco 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 Carolco to obtain more favorable financing
than would otherwise be available. As of December 31, 1994, Carolco had
received approximately $994,000 in deposits on canceled licensing agreements and
on certain films which Carolco may not produce. Carolco will attempt to credit
such advances to other films to be produced by Carolco, but may have to return
these advances.

Pursuant to the financing arrangements with respect to Carolco's motion
pictures, Carolco is generally required to obtain "over-budget" guarantees (also
known as completion bonds) for its films. If Carolco is unable to obtain such
completion bonds or other similar insurance, Carolco 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, Carolco and
Technicolor, Inc. ("Technicolor"), a leading supplier of film processing and
videocassette production services, entered into an agreement pursuant to which
Carolco 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 third party recoupment, (ii) the share of
box office receipts retained by the theaters and (iii) distribution fees,
Carolco's share of the gross box office receipts of any picture are only a
portion of box office receipts.

MGM. In connection with the Restructuring, Carolco entered into the MGM
Distribution Agreement with MGM with respect to certain domestic theatrical and
non-theatrical rights, and specified U.S. television rights. In addition,
Carolco entered into an agreement with respect to specified foreign territories.
The MGM Distribution Agreement took effect in the case of domestic theatrical
and certain other rights, upon the December 31, 1993 expiration of Carolco's
prior distribution agreement with

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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
those Carolco motion pictures which 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
associated with the initial domestic theatrical release of each picture covered
by the agreement, including the cost of manufacturing prints for United States
theatrical release and marketing and advertising costs for such release, unless
Carolco 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 Carolco. Except for the first motion picture distributed by MGM under the
MGM Distribution Agreement, Carolco is required to guarantee its obligation to
pay this shortfall with a letter of credit.

In addition to domestic theatrical and non-theatrical (i.e. airlines,
military, etc.) 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, Carolco has entered into an
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. Carolco 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 costs for, the initial theatrical release of
each picture covered by the agreement. In addition, the Company was 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
were recoupable from amounts due to the Company under the Tri-Star Agreement.
WAGONS EAST, which commenced principal photography in December 1993, was the
last motion picture to be theatrically distributed under the Tri-Star Agreement.

HOME VIDEO MARKETING AND DISTRIBUTION OPERATIONS

Pursuant to a series of agreements (collectively, the "Domestic Video
Output Agreement"), Carolco granted to LHV domestic home video rights to Carolco
feature films (except CLIFFHANGER and IRON EAGLE III) on which principal
photography commenced prior to July 31, 1995 or for which LHV has paid an
advance to Carolco prior to such date. Canadian home video rights were not
granted to LHV in the case of several films produced by Carolco. In
consideration for the rights granted by Carolco, LHV agreed to pay Carolco
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

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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. In 1993, LHV
released the Carolco titles CHAPLIN and DARK WIND. In 1994, no Carolco titles
were released by LHV.

CINV entered into an agreement with an affiliate of LIVE pursuant to which
LIVE's affiliates acquire home video rights in the German-speaking European
markets for most Carolco films for which principal photography has commenced or
for which LHV paid an advance prior to July 31, 1995 (the "German Output
Agreement"). In consideration for the rights granted by Carolco, the LIVE
affiliate agreed to pay CINV certain advances for each picture, which advances
are recoupable from the net receipts from distribution of such films. The LIVE
affiliate is entitled to receive a minimum overall distribution fee on each
film. There is a corresponding upper limit on the total gross distribution fee
that the LIVE affiliate can earn on each film. "Net receipts" generally are the
wholesale receipts of the LIVE affiliate or its designated subsidiaries, less
certain expenses such as marketing and costs of manufacturing.

Upon the expiration of these arrangements, the home video cassette
distribution of any motion picture produced by the Company will be negotiated by
the Company with LHV or other home video-cassette distributors on a picture by
picture basis.

In January 1995, in order to settle disputes between them with respect to
the United States and Canadian video distribution rights to the film CUTTHROAT
ISLAND, LIVE and Carolco agreed that CUTTHROAT ISLAND would not be subject to
the Domestic Video Output Agreement or the German Output Agreement. Pursuant to
a separate agreement, LIVE obtained the video distribution rights to CUTTHROAT
ISLAND in the United States and Canada for a video advance to be paid by LIVE.
In addition, LIVE agreed to certain amendments to the Domestic Video Output
Agreement whereby LIVE would no longer have certain rights of offset between
prior films distributed pursuant to such agreement. In exchange for the
aforementioned arrangements and resolution, Carolco paid $3,500,000 to LIVE.

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. Carolco has entered into a domestic pay television
agreement with Encore, an affiliate of TCI, pursuant to which Carolco has
granted to Encore certain exclusive domestic pay television rights to Carolco'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 Carolco.
Under the agreement, Encore will pay Carolco 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
also been granted, for a designated license fee, certain exclusive domestic
television rights in up to four of Carolco's motion pictures which have been
licensed to TCI for pre-theatrical pay-per-view broadcast.

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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. Carolco has entered into an agreement contemplating
potential pre-theatrical pay-per-view broadcasts by TCI of up to four of
Carolco's future motion pictures, with such pictures subject to mutual approval
by TCI and Carolco (the "Pay-Per-View Agreement"). 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. Because any films that are to be subject to the
Pay-Per-View Agreement are subject to the mutual approval of TCI and Carolco,
there can be no assurance that any films will be delivered to TCI under the Pay-
Per-View Agreement.

NETWORK TELEVISION. The television networks, such as CBS, NBC, ABC and
Fox, 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, Carolco believes that the broad commercial
appeal of certain of its major "event" motion pictures will enable Carolco to
obtain licenses of network television rights to any of these pictures that are
produced. Films that are theatrically distributed by MGM under the MGM
Distribution Agreement will also be distributed by MGM in the network 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 Insurance Company of America. 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. 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

Carolco leases, or arranges for distribution of its own motion pictures in
foreign countries. In the past, foreign distribution was conducted by Carolco
through its subsidiary, CINV, with offices and employees in Curacao, Netherlands
Antilles and in Zurich, Switzerland. As a result of the domestication of CINV
(which now operates as CII), CII no longer has offices or employees outside of
the United States. Carolco licenses its films directly to distributors in
foreign territories. CII continues to market rights to Carolco's previous films
in foreign territories.

Tri-Star was granted certain distribution rights in certain foreign
territories with respect to Carolco's motion pictures which began principal
photography prior to delivery of CLIFFHANGER. 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 Carolco'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. Carolco has entered into an 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

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certain other territories. Carolco has reserved for itself certain significant
territories and rights where it has existing output agreements and other
long-term relationships.

Carolco has also entered into strategic alliances with certain companies
that provide in part for the grant to such companies of rights to distribute
Carolco's films in certain territories. CII has entered into arrangements with
Le Studio and Pioneer which grant them first negotiation rights to certain
distribution rights in France and certain other French-speaking territories and
Japan, respectively. Carolco 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."

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 Carolco and CINV
regarding the purchase of shares of Carolco'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 Carolco, excluding films previously
licensed in that territory.

Carolco's theatrical licensing agreements in a number of foreign
territories provide for the granting 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.

See Note M to Carolco's 1994 Consolidated Financial Statements for certain
geographical information regarding the Company's operations.

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 Wilmington, North Carolina
("Carolco Studios"). Prior to December 30, 1993, Carolco owned approximately 35%
of the common stock and 70% of the total equity of CSI. Carolco 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 Carolco acquired its
interest in CSI, Carolco commenced a call of all of the shares of CSI common
stock not owned by Carolco. Under the DEG Plan of Reorganization, each share of
CSI not owned by Carolco 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 Carolco 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 Carolco for
$0.7652 per CSI share and related DEG Put. Carolco 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. Carolco 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 Carolco funds held by the liquidation
estate created by the order confirming the DEG Plan of Reorganization (the "DEG
Liquidation Estate")

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as security for Carolco's call obligation; approximately $281,300 was paid by
the DEG Liquidation Estate pursuant to a settlement agreement between Carolco
and the DEG Liquidation Estate under which Carolco released certain claims it
had against the DEG Liquidation Estate in return for such payment; and
approximately $90,300 was paid by Carolco. Upon expiration of the call all
untendered DEG Puts expired. As a result of the call and a subsequent purchase
of CSI Stock, as of December 31, 1994 Carolco owned approximately 99.5% of the
outstanding common stock of CSI and 90% of the warrants.

Approximately 18 feature-length motion pictures, three television
mini-series, six television series and 20 motion pictures made for television
have been filmed at Carolco Studios since Carolco acquired its interest in CSI
in 1990. One of the feature-length motion pictures, RAMBLING ROSE, was produced
by a subsidiary of Carolco. All other productions were produced by unaffiliated
third parties which retained the services of Carolco Studios.

MAJOR CUSTOMERS

In 1994, there were three customers which accounted for more than 10% of
Carolco's consolidated film revenues: Pioneer (21% or $11,215,000); ABC/Capital
Cities (15% or $8,250,000) and Tri-Star (12% or $6,500,000). In 1993, there were
three customers which accounted for more than 10% of Carolco's consolidated film
revenues: LHV (10% or $10,331,000); Hermes Synchron (11% or $10,975,000) and
Showtime (18% or $18,975,000). In 1992, there was one customer which accounted
for more than 10% of Carolco's consolidated film revenues: Tri-Star (15% or
$40,336,000). See Note M of Carolco's Notes to the Consolidated Financial
Statements.

EMPLOYEES

At March 31, 1995, Carolco employed a total of 54 full-time employees (not
including 25 employees at Carolco Studios).

Certain subsidiaries of Carolco are subject to the terms in effect from
time to time of collective bargaining agreements with the Guilds, AFM and IATSE.
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. Carolco believes that its current relationship
with its employees is satisfactory. See "Recent Developments - Liquidity and
Going Concern Issues - Current Obligations of the Company" for a description of
certain amounts owed to the Guilds, AFM and IATSE.

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. Carolco believes it takes appropriate and
reasonable measures to secure, protect and maintain or obtain agreements to
secure, protect and maintain copyright protection for Carolco pictures under the
laws of applicable jurisdictions. In addition, Carolco 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

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jurisdictions. Management is aware of reports of extensive unauthorized
misappropriation of video cassette rights to motion pictures, which may include
Carolco pictures. Motion picture piracy is an industry-wide problem. The Motion
Picture Association of America, an industry trade association (the "MPAA"),
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 certain of Carolco'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.

Motion picture piracy is an international as well as a domestic problem.
Motion picture piracy is extensive in many parts of the world, including South
America, Asia (including Korea, China and Taiwan), the countries of the former
Soviet Union and other former Eastern bloc countries. In addition to the MPAA,
the Motion Picture Export Association, the American Film Marketing Association
and the American Film Export Association monitor the progress and efforts made
by various countries to limit or prevent piracy. In the past, these various
trade associations have enacted voluntary embargoes of motion picture exports to
certain countries in order to pressure the governments of those countries to
become more aggressive in preventing motion picture piracy. In addition, the
United States government has publicly considered trade sanctions against
specific countries which do not prevent copyright infringement of United States
produced motion pictures. There can be no assurance that voluntary industry
embargoes or United States government trade sanctions will be enacted or be
effective. If enacted, such actions could impact the amount of revenue that the
Company realizes from the international exploitation of its motion pictures
depending upon the countries subject to such action and the duration of such
action. If not enacted or not successful, the motion picture industry
(including the Company) may continue to lose an indeterminate amount of revenues
as a result of motion picture piracy.

The Code and Ratings Administration of the MPAA assigns ratings for
age-group suitability for theatrical distribution of motion pictures. Carolco
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. There can be no assurance, however, that
current and future restrictions on the content of Carolco's pictures may not
limit or affect Carolco's ability to exhibit certain of its pictures in certain
jurisdictions.

COMPETITION

Motion picture production and distribution are highly competitive
businesses. The competition comes from both companies within the same business
and companies in other entertainment media. Carolco competes with several
"major" film studios, such as 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,
which are dominant in the motion picture industry as well as numerous
independent motion picture and television production companies, television

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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. Carolco's typical costs of
producing a motion picture (its average negative cost) have substantially
exceeded the industry average, as reported by the MPAA, which average has grown
from $23,000,000 in 1989 to over $34,000,000 in 1994, an increase of 48%. Many
of Carolco's competitors have significantly greater financial and other
resources than does Carolco.

The entertainment industry in general, and the motion picture industry in
particular, are undergoing significant changes, primarily due to technological
developments. Although these developments have resulted in the availability of
alternate and competing forms of leisure time entertainment, including pay/cable
television services and home entertainment equipment such as videocassettes,
video discs, video games and computers, such technological developments have
also resulted in the creation of additional revenue sources through the
licensing of rights with respect to such new media, and potentially could lead
to future reductions in the cost of producing and distributing motion pictures.
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 Carolco's films compete with motion
pictures produced by other companies, the success of any of Carolco'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

Prior to March 29, 1995 Carolco owned the building housing its corporate
headquarters in Los Angeles, California. In March 1988, Carolco entered into a
$12,000,000 mortgage loan on its headquarters building with Equitable Life
Assurance Society of the United States ("Equitable"). The mortgage loan had an
interest rate of 10% and was payable in monthly installments beginning March
1990 based upon an assumed 30 year amortization of principal. The mortgage
provided for a balloon payment of the outstanding principal amount
(approximately $11,500,000) on March 1, 1995.

The mortgage loan, which was non-recourse to Carolco, was sold by Equitable
to Dolphinshire, L.P. ("Dolphinshire"), an entity unaffiliated with Carolco, on
March 29, 1995. Immediately thereafter, Carolco transferred the building to
Dolphinshire in full satisfaction of the mortgage loan outstanding. Immediately
following the transfer of ownership to Dolphinshire, Carolco and Dolphinshire
entered into a lease agreement pursuant to which Carolco leased a majority of
the office space in its headquarters building for a term of ten years with two
five year renewal options. Carolco has the right, however, to terminate the
lease after five years without penalty.

Carolco owns a smaller building located near its corporate offices. In
addition, Carolco Studios owns and operates a 32-acre studio facility located
in North Carolina.

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ITEM 3. LEGAL PROCEEDINGS

BUSINESS COMBINATION LITIGATION:

On March 24, 1994, a complaint was filed the same day that Carolco and LIVE
signed a Letter of Intent with respect to the Merger of the two companies. See
" Item 1 - Business - Recent Developments - Proposed Business Combination with
LIVE Entertainment Inc." This 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, Carolco, certain of Carolco's and
LIVE's past and present executive officers and directors, Pioneer and Cinepole.
The complaint alleged, among other things, that the defendants violated their
fiduciary duties owed to LIVE stockholders in connection with the Merger.
Plaintiffs sought a preliminary and permanent injunction enjoining the Merger
under its then current financial terms; an open market auction of LIVE; to the
extent the Merger was consummated prior to the entry of a final judgement in the
action, rescission of the Merger; repayment of profits and benefits obtained as
a result of defendant's alleged conduct; and attorney's fees and expenses.
Since the Merger Agreement between Carolco and LIVE was terminated, this action
was dismissed on October 28, 1994.

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 Carolco originally filed on September 25, 1990 by
Arthur-Magna, Inc., an alleged stockholder of Carolco ("Magna"), in connection
with the October 1990 purchase by a wholly owned subsidiary of Carolco of
3,461,538 shares of Carolco Common Stock for $13.00 per share from Carolco
Investments B.V. ("New CIBV"), a company affiliated with Mario F. Kassar,
Chairman of the Board of Directors of Carolco (the "Stock Purchase
Transaction").

The settlement consisted of three principal elements: (1) a guarantee by
Mario Kassar and New CIBV (the "Guarantee") of an undertaking by Carolco that,
between March 25, 1991 and March 25, 1993, Carolco would have sold Carolco
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 Carolco and the
establishment of certain restrictions on transactions between Mario Kassar or
New CIBV and Carolco 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, Carolco 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 satisfied the Guarantee by tendering
1,490,943 shares of Carolco Common Stock to Carolco, which included 300,769
shares held in trust by Carolco 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 Carolco Board of Directors on February 14, 1994, are the three
new independent directors required under the terms of the settlement.

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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 Carolco, LIVE and certain of Carolco'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 Securities and Exchange Act of
1934 (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 to Handleman Company 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 Le Studio), directors and former directors of Carolco (Messrs.
Frans Afman, Rene Bonnell, Satoshi Matsumoto, and Ryuichi Noda) and a lender to
Carolco. 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 Carolco 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 Carolco's public
debt, against Carolco, LIVE and certain executive officers and directors of
Carolco 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.
Discovery has commenced, including the taking of depositions. See Note L of
Carolco's Notes to the Consolidated Financial Statements.

OTHER LITIGATION:

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

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District of California, against Carolco 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. In connection
with its acquisition of DEG as part of the DEG Plan of Reorganization, Carolco
became a party to the 1990 Asset Purchase Agreement pursuant to which DEG sold
its feature film library to Parafrance. The State Court action was removed to
the Bankruptcy Court and consolidated with the other action. Plaintiffs alleged
damages in excess of $3,000,000. The dispute was settled and the case was
dismissed in December 1994. Pursuant to the terms of the settlement, Carolco
was not required to make any payment to Parafrance or Paravision. Carolco has
been released from liability in connection with the claims asserted in this
litigation, but remains obligated to perform certain obligations under the 1990
Asset Purchase Agreement.

On December 10, 1992, Lang Elliott Entertainment Inc. ("Lang Elliott")
filed a lawsuit in Los Angeles County Superior Court against Carolco, CTI, Vista
and certain affiliates of Carolco 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 alleged 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 arose out of a 1989 distribution
agreement under which the Vista Partnership, of which an affiliate of Carolco is
the general partner, acquired all distribution rights to the picture. The
complaint sought damages of $1,350,000 (which claim included $1,000,000 of
punitive damages) for (i) license fees allegedly due to Lang Elliott under a
rescinded agreement between a Carolco 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. Carolco
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 an arbitration which raised some of the same issues.
Carolco and the other defendants filed an answer denying the allegations in Lang
Elliott's complaint. Carolco entered into a settlement agreement on March 30,
1995 pursuant to which Carolco paid $50,000 and assigned all of its rights in
CAGE back to Lang Elliott in exchange for a general release. Carolco will
account to Lang Elliott and pay any amounts due under the distribution agreement
up to the date of the settlement agreement. Lang Elliott has indemnified
Carolco for any failure by Lang Elliott to perform existing CAGE agreements to
which Carolco is a party.

SPIDERMAN LITIGATION:

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with RCS NV under the Carolco/21st Agreement. Plaintiffs alleged that Carolco
and the other defendants breached the foregoing agreements by denying any
obligation to accord producer credit to Golan, by assigning the Carolco/21st
Agreement to a party other than RCS NV, and by failing to provide plaintiffs
with a written document showing that Carolco and the other defendants have
assumed the obligations of the Carolco/21st Agreement. Finally, plaintiffs
alleged that Carolco 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 $5,000,000, unspecified punitive damages, attorneys' fees,
rescission of the Carolco/21st Agreement, a declaration as to the plaintiffs'
alleged rights and a preliminary and permanent injunction preventing Carolco and
the other defendants from distributing SPIDERMAN upon completion without
according producer screen credit to Golan and 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 Carolco, CII, SPL and RCS NV. On November 19, 1993, all four
defendants filed an answer to the Third Amended Complaint in which they agreed
that the Carolco/21st Agreement had been rescinded, thereby accepting the demand
and offer of rescission contained in the Third Amended Complaint. The
defendants also 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 Carolco 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 Carolco/21st Agreement.

On December 14, 1993, 21st became a debtor under Chapter 7 of the United
States Bankruptcy Code as a result of petitions for involuntary bankruptcy that
were filed by various creditors of 21st (other than the parties to the
above-described litigation). On December 15, 1993, such bankruptcy proceedings
were converted to voluntary reorganization proceedings under Chapter 11 of the
Bankruptcy Code. These bankruptcy filings resulted in an automatic stay of the
Los Angeles Superior Court litigation. On July 21, 1994, the Chapter 11 Trustee
for 21st and the defendants in this action stipulated to relief from the
automatic stay as a result of which the litigation resumed.

On February 3, 1994, Carolco, CII, SPL 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 motion
picture distribution rights in SPIDERMAN. Both Viacom and Columbia Tri-Star
contend that they acquired certain distribution rights from 21st prior to
Carolco's and 21st's entering into the Carolco/21st Agreement, and allegedly
continue to hold such rights.

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obligated to accord to Columbia Tri-Star the home video distribution rights in
SPIDERMAN 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.

On May 18, 1994, Viacom filed an action in the Superior Court of the State
of California for the County of Los Angeles against Carolco, CII, SPL and RCS NV
alleging, among other things, that Viacom is contractually entitled to all
rights to produce and exploit the motion picture SPIDERMAN. Based on this
claim, Viacom is seeking damages for breach of contract, specific performance,
declaratory relief, interference with contractual relations and interference
with prospective economic advantage. The Court has ordered this action
consolidated with the action brought by 21st and Golan and with the actions
brought by Carolco, CII, SPL and RCS NV against Viacom and Columbia Tri-Star.
Carolco is unable to place a monetary value on the rights claimed by Viacom.
Viacom asserts that the distribution rights in SPIDERMAN could potentially
generate distribution fees to Viacom in excess of $2,000,000. Discovery has
commenced in all related cases.

On March 6, 1995, the court granted the motion of Carolco, CII, SPL and RCS
NV for summary adjudication on 21st's and Golan's cause of action for an
injunction, thereby dismissing those parties' claims for an injunction. 21st
and Golan's time to seek review of that order by the Court of Appeal has not yet
expired.

MGM, an indirect subsidiary of MGM Holdings, has filed a declaratory relief
action seeking declarations that certain named defendants do not have rights in
SPIDERMAN. The named defendants do not include Carolco.

CLIFFHANGER LITIGATION:

On October 27, 1993, Gene P. Hines and James R. Zatolokin filed an action
in Los Angeles Superior Court against Michael Anthony France, Jr. ("France"),
one of the writers for the motion picture CLIFFHANGER. The plaintiffs alleged
various causes of action against France based on the theory that the plaintiffs
have legal rights in some of the literary material contributed by France to the
CLIFFHANGER screenplay.

On September 9, 1994, the plaintiffs filed a first amended complaint
whereby they added claims against, among other defendants, Carolco, CII
(erroneously sued as its predecessor, CINV), and Cliffhanger B.V. (collectively,
the "Carolco Entities"). The claims against the Carolco Entities are based upon
the theory that the Carolco Entities breached certain alleged obligations to the
plaintiffs under an agreement whereby the Carolco Entities settled claims by the
plaintiffs arising out of the plaintiffs' contention that the CLIFFHANGER
screenplay contained material in which the plaintiffs had legal rights. The
plaintiffs alleged that under that settlement agreement, the Carolco Entities
were obligated and failed to pay the plaintiffs certain contingent compensation
from the proceeds of CLIFFHANGER, to cooperate with the plaintiffs in attempting
to obtain for plaintiff Hines a screen credit on the picture, to provide the
plaintiffs with certain sequel rights, to cause various assignees of the Carolco
Entities to assume the obligations of the Carolco Entities, to act in the
plaintiffs' best interests, not to enter into agreements with individuals having
interest adverse to the plaintiffs, and to disclose to the plaintiffs the fact
that the Carolco Entities entered into agreements with individuals having
interests adverse to the plaintiffs.

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The plaintiffs do not allege any specific monetary amount by which they
allegedly were damaged, except that they alleged in their cause of action
against France for breach of oral contract that France should have known that
his actions would damage the plaintiffs' reputation, career and future earning
capacity in a sum not less that $1,000,000. The plaintiffs have not alleged any
specific amount of damage against the Carolco Entities. However, the Carolco
Entities have agreed to indemnify France in connection with any judgement that
might be entered against him in the action.

On December 9, 1994, the trial court sustained without leave to amend the
demurrers of France and the Carolco Entities to all of the plaintiffs' causes of
action. On January 19, 1995, the court denied plaintiffs' motion for
reconsideration of that order. The plaintiffs have not appealed from these
rulings but their time to do so has not yet expired.

Other than as described above, there are no material pending legal
proceedings to which Carolco 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 Carolco and its subsidiaries.

Management and counsel to Carolco are unable to predict the ultimate
outcome of the above-described actions at this time. However, Carolco 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
Carolco's consolidated financial statements. In the opinion of management, these
actions, when finally concluded and determined, will not have a material adverse
effect upon Carolco's financial position.

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

None

PART II

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

MARKET PRICES

The Company's Common Stock was listed with, and traded on, the New York
Stock Exchange ("NYSE") under the symbol "CRC" from the Company's initial public
offering in November 1986 until trading was halted on October 5, 1994 and the
Common Stock was subsequently delisted. The Company's Common Stock was also
listed with, and traded on, the Pacific Stock Exchange from February 1987 until
trading was halted on October 5, 1994 and subsequently the Common Stock was
delisted. In addition, the Company's Common Stock was listed with, and traded
on, the Toronto Stock Exchange from January 1988 until it was voluntarily
delisted on November 5, 1993. There was no established trading market for the
Company's Common Stock, and no reported quotations available, for the period
from October 5, 1994 until October 31, 1994. However, since October 31, 1994,
the Company's Common Stock has traded on the non-NASDAQ over-the-counter market
and, since November 21, 1994, prices for the Company's Common Stock have been
quoted on the National Association of Securities Dealers OTC Bulletin Board
service for certain non-NASDAQ over-the-counter securities (the "Bulletin
Board") under the symbol "CRCP" with such prices reported by The Nasdaq Stock
Market, Inc.

The following table sets forth the high and low sales prices for the
Company's Common Stock on the NYSE as reported in the Wall Street Journal for
each quarterly period beginning January 1, 1993 through October 4, 1994.

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 . . . . . . . . . . 1 5/16 9/16
December 31, 1993 . . . . . . . . . . . 1 1/2 1/2

YEAR ENDED
----------
DECEMBER 31, 1994
-----------------
HIGH LOW
---- ---
QUARTER ENDED
March 31, 1994 . . . . . . . . . . . . $ 3/4 $7/16
June 30, 1994 . . . . . . . . . . . . . 1/2 3/8
September 30, 1994 . . . . . . . . . . 13/32 1/4
December 31, 1994 (1) . . . . . . . . . 9/32 7/32

<FN>
______________________
(1) Reflects only NYSE sales prices through October 4, 1994. The
high and low bid prices for the Company's Common Stock for the
period from October 31, 1994 through the remainder of the
quarterly period ended December 31, 1994 were $.125 and $.01,
respectively. The source of these quotations are, with respect to
the period from October 31, 1994 to November 20, 1994, the "pink

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<PAGE>

sheet" reports by the National Quotations Bureau and, with
respect to the period from November 21, 1994 to December 31,
1994, Bulletin Board quotations as reported by The Nasdaq Stock
Market, Inc. The over-the-counter market quotations reflect
inter-dealer prices, without retail markup, markdown or
commissions and may not represent actual purchase and sales
transactions of the Company's Common Stock.
</TABLE>

HOLDERS. As of March 31, 1995, there were approximately 1,040 holders of
record of the Company's Common Stock and there were 137,641,353 shares issued
and outstanding (not including 2,373,756 shares held as treasury stock) of the
650,000,000 shares authorized.

DIVIDENDS. Other than in connection with the redemption of preferred stock
purchase rights as described below, 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. 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. These rights
were redeemed on October 19, 1993, for a redemption price of $.01 per right in
cash.

Pursuant to the Delaware General Corporation Law, 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. Because the Company did not have
surplus or profits which would permit it to pay the accrued dividends on its
Series A Preferred, the terms of the Series A Preferred restrict the payment of
dividends on the Company's Common Stock until such accrued dividends on the
Series A Preferred have been paid. In addition, the indentures governing the New
Senior Notes, the New Senior Subordinated Notes and the 5% Notes each provide
that the Company shall not pay dividends on its Common Stock (other than
dividends payable solely in shares of certain of its capital stock) if there
exists an event of default under such indenture. Furthermore, the declaration
or payment of dividends may require a supermajority vote of the Company's Board
of Directors. See "Item 10 - Directors and Executive Officers of Registrant -
Management Arrangements."

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<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, 1990 through 1994 have been derived
from the Consolidated Financial Statements of Carolco. The following data should
be read in conjunction with the Consolidated Financial Statements and related
notes and with " Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operation" appearing elsewhere in this Form 10-K.

In 1991 and 1992, the Company consolidated its results of operations with
the results of operations of LIVE. The Company accounted for LIVE using the
equity method of accounting in 1990 and 1993. In October 1993, the Company
transferred all of its interest in LIVE to certain of the Company's Strategic
Investors as part of the Restructuring. At December 31, 1993, the Company was in
negotiations with LIVE for a business combination of the two companies.
However, in October 1994, the Company and LIVE terminated negotiations of a
proposed business combination. See "Item 1 - Business - Recent Developments -
Proposed Business Combination with LIVE Entertainment Inc." Accordingly, the
Statement of Operations Data for 1990, 1991, 1992 and 1993 have been restated to
reflect the results of operations of LIVE as a discontinued operation.

YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
1990 1991 1992 1993 1994
---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

STATEMENT OF OPERATIONS DATA:
Total revenues:. . . . . . . . . . . . . . . . . . . . . . $ 269,145 $ 239,748 $ 273,907 $ 108,308 $ 59,279
Total costs and expenses . . . . . . . . . . . . . . . . . 261,364 443,308 359,384 $ 163,575 99,163
Income (loss) from continuing operations . . . . . . . . . 3,958 (207,741) (86,701) (59,822) (43,451)
Income (loss) from discontinued operations . . . . . . . . 13,340 (57,314) (6,232) (4,562) ---
Extraordinary gain on early extinguishment of debt . . . . --- --- 4,916 426 ---
Net income (loss). . . . . . . . . . . . . . . . . . . . . 17,298 (265,055) (88,017) (63,958) (43,451)

Income (loss) per common share (a):
Continuing operations. . . . . . . . . . . . . . . . . . $ 0.04 $ (7.44) $ (3.02) $ (1.20) $ (0.35)
Discontinued operations. . . . . . . . . . . . . . . . . 0.45 (2.00) (.20) (.09) ---
Extraordinary items. . . . . . . . . . . . . . . . . . . --- --- .16 .01 ---
-------- --------- --------- --------- ---------
Net income (loss). . . . . . . . . . . . . . . . . . . . $ .49 $ (9.44) $ (3.06) $ (1.28) $ (0.35)
-------- --------- --------- --------- ---------
-------- --------- --------- --------- ---------

December 31,
---------------------------------------------------------------------
1990 1991 1992 1993 1994
---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . $12,552 $19,115 $24,202 $56,697 $27,336
Restricted cash. . . . . . . . . . . . . . . . . . . . . . --- 52,728 7,825 1,255 ---
Accounts receivable. . . . . . . . . . . . . . . . . . . . 82,196 151,996 82,258 17,052 13,835
Film costs, net of amortization. . . . . . . . . . . . . . 387,845 364,650 135,395 78,427 89,145
Inventories and video rights, net of amortization. . . . . --- 148,564 123,701 --- ---
Total assets . . . . . . . . . . . . . . . . . . . . . . . 631,907 925,172 532,615 188,071 156,857
Bank debt - Carolco. . . . . . . . . . . . . . . . . . . . 181,309 183,429 37,972 14,000 14,000
Bank debt - LIVE . . . . . . . . . . . . . . . . . . . . . --- 76,513 13,684 --- ---
10% Convertible Subordinated Debentures due 2006 . . . . . --- 12,500 14,600 --- ---
14% Senior Notes due 1993. . . . . . . . . . . . . . . . . 76,126 65,794 33,452 --- ---
14.5% Senior Notes due 1999. . . . . . . . . . . . . . . . --- 110,000 --- --- ---
Increasing Rate Senior Subordinated Notes due 1999 . . . . --- --- 64,245 --- ---
11.5%/10% Notes. . . . . . . . . . . . . . . . . . . . . . --- --- --- 41,678 41,521
13% Notes. . . . . . . . . . . . . . . . . . . . . . . . . --- --- --- 3,445 3,445
13%/12% Notes. . . . . . . . . . . . . . . . . . . . . . . --- --- --- 13,432 13,432
Other debt, including notes and amounts payable to related
parties. . . . . . . . . . . . . . . . . . . . . . . . . 40,944 86,353 164,799 53,006 63,424
Stockholders' equity (deficiency). . . . . . . . . . . . . 191,077 (37,827) (116,758) (21,070) (64,521)

<FN>
- ---------------
(a) Income (loss) per common share for the years ended December 31,1990, 1991,
1992, 1993 and 1994 includes preferred dividends of $2,860,000, $5,466,000,
$4,321,103, $833,700 and $4,249,000, respectively.
</TABLE>

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<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 theatrical markets and
for later worldwide release in other media including home video and pay and free
television. In 1993, Carolco released one film, CLIFFHANGER, which was produced
through a joint venture with Carolco's Strategic Investors. In 1994, Carolco had
no theatrical releases. 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. Carolco 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.

In 1992, the results of operations of LIVE were consolidated with those of
the Company. From January 1, 1993 through the date of the Restructuring
(October 20, 1993), the Company accounted for LIVE using the equity method of
accounting. In connection with the Restrucuturing, the Company's interest in
LIVE was transferred to the Company's Strategic Investors. At December 31,
1993, the Company and LIVE were in negotiations for the possible business
combination of the two companies. However, in October 1994, the Company and
LIVE terminated negotiations of the business combination. See "Item 1 -
Business - Recent Developments - Proposed Business Combination with LIVE
Entertainment Inc." Accordingly, amounts for 1992 and 1993 have been restated
to reflect the results of operations of LIVE as a discontinued operation.

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 1994 AS COMPARED TO YEAR ENDED DECEMBER 31, 1993

CONTINUING OPERATIONS

Feature film revenues decreased from $103,180,000 for the year ended
December 31, 1993 to $53,723,000 for the year ended December 31, 1994. This
represents a decrease of $49,457,000, or approximately 47.9%. Carolco had no
theatrical releases during 1993 or 1994. CLIFFHANGER was produced by a joint
venture in which Carolco owned less than 50%. Therefore, the revenues
associated with the May 1993 theatrical release of CLIFFHANGER are not included
in the feature film revenues of Carolco. Revenues for the years ended December
31, 1993 and 1994 represent theatrical overages and license fees from
exploitation in secondary markets (i.e. pay television, video, free television,
etc.) of films released theatrically in prior years. Feature film revenues for
the year ended December 31, 1993 include approximately $6,777,000, $1,250,000,
$1,646,000 and $2,495,000 related to the domestic television, foreign video and
foreign television availabilities and foreign theatrical overages, respectively,
of UNIVERSAL SOLDIER, released theatrically in 1992; approximately $11,105,000,
$1,145,000, $12,168,000 and $6,279,000 from overages from the theatrical release
and foreign video, domestic television, and foreign television availabilities,
respectively, of BASIC INSTINCT, released theatrically in 1992; approximately
$2,143,000 from the foreign pay television availability of IRON EAGLE III,
released theatrically in 1992; approximately $12,927,000 from the foreign pay
television availability and $3,320,000 from domestic video overages of
TERMINATOR 2: JUDGMENT DAY, released theatrically in 1991; $6,039,000 from the

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<PAGE>

domestic network television availability and $1,372,000 of foreign theatrical
overages on TOTAL RECALL, released theatrically in 1990; $4,050,000 from the
foreign pay television availability of OSCAR and HAMLET, for which Carolco had
certain foreign distribution rights; $1,745,000 from the foreign television
availability of JACOB'S LADDER, which was released theatrically in 1990;
$2,227,000 related to the domestic television availability of LA STORY, released
theatrically in 1991; $3,075,000 from the domestic video availability,
$2,000,000 from the domestic pay television availability and $1,504,000 from the
foreign video availability of CHAPLIN, released theatrically in 1992; and
$1,189,000, $2,189,000 and $1,881,000 from the foreign television availability
of RAMBO III, AIR AMERICA, and NARROW MARGIN, respectively, released
theatrically in 1988 and 1990. Feature film revenues for the year ended
December 31, 1994 include approximately $8,250,000 from the domestic network
television availability, $13,030,000 from foreign theatrical and video overages
and $2,400,000 from the foreign pay television availability of TERMINATOR 2:
JUDGMENT DAY; $600,000 and $773,000, respectively, from the foreign pay
television availability and foreign theatrical overages of IRON EAGLE III;
$2,984,000 from the domestic syndication television availability of RAMBO III;
$1,280,000 from the domestic and foreign pay television availability of CHAPLIN;
$872,000 from the foreign free television availability of TOTAL RECALL;
$1,670,000 and $657,000, respectively, from the foreign television availability
and foreign theatrical overages related to the motion picture UNIVERSAL SOLDIER;
$5,139,000 in foreign theatrical and video overages and $401,000 from the
foreign pay television availability of BASIC INSTINCT; approximately $2,165,000
from the domestic theatrical release of WAGONS EAST and approximately $2,845,000
from sales commissions for the foreign release of STARGATE for which Carolco
acted as foreign sales agent on behalf of Le Studio U.S.

Amortization of film costs, residuals and participations decreased by
$43,676,000 or 40.2%, from $108,620,000 for the year ended December 31, 1993 to
$64,944,000 for the comparable period in 1994. Amortization of film costs, as a
percentage of Carolco's feature film revenues, increased from 105.3% for the
year ended December 31, 1993 to 120.9% for the year ended December 31, 1994.
This increase reflects additional amortization of film costs of approximately
$13,231,000 recorded in connection with terminating the development of the
motion picture CRUSADE. Carolco also recorded additional amortization of film
costs of approximately $3,295,000 as a result of the abandonment of certain
development projects and $5,740,000 resulting from a reduction in the estimated
net realizable value of its film library. In the year ended December 31, 1993,
Carolco recorded additional amortization of film costs of $1,745,000 and
$21,287,000, respectively, related to the abandonment of certain development
projects and a reduction in the estimated net realizable value of its film
library.

Selling, general and administrative ("SG&A") expenses (which caption also
includes production overhead costs), decreased by $3,500,000 or 14.2%, from
$24,634,000 during the year ended December 31, 1993 to $21,134,000 during the
year ended December 31, 1994. In 1993, Carolco had no films in production and
was, therefore, unable to capitalize any production overhead to film costs. In
1994, Carolco capitalized approximately $4,118,000 of production overhead to
film costs. In addition, as a result of reductions in Carolco's work force and
the downsizing of the operations of Carolco, SG&A expenses decreased by
approximately $3,062,000. These savings were offset by $1,767,000 in costs
associated with the Merger and with a $1,913,000 increase in Carolco's allowance
for doubtful accounts receivable. See Note C of the Notes to the Condensed
Consolidated Financial Statements.

Interest expense decreased by $10,453,000 or 44.5%, from $23,505,000 during
the year of 1993 to $13,052,000 during the year of 1994. This decrease is the
result of lower debt levels and reduced interest rates. Additionally, Carolco
capitalized $1,523,000 of its interest costs to film costs in the year

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<PAGE>

ended December 31, 1994. Carolco had no films in production in the year ended
December 31, 1993 and was therefore unable to capitalize any of its interest
costs to film costs.

Other income for 1994 includes interest income of approximately $975,000,
approximately $2,304,000 relating to facility and equipment rentals of Carolco's
motion picture studio, foreign currency exchange gains and losses, which were
not material and property rental income of approximately $717,000.

On February 3, 1994, Carolco sold its airplane for $1,925,000 and the
remaining loan balance of $900,000, including accrued interest, was paid in
full. See Note K of the Notes to Consolidated Financial Statements. Carolco
recognized a gain of $1,275,000 in 1994 as a result of the sale of the airplane.
As a result of the March 1995 sale of the Company's headquarters building the
Company reduced the book value of the building and certain leasehold
improvements to equal the amount of the remaining mortgage obligation. See Note
H of the Notes to the Consolidated Financial Statements. This resulted in a loss
of $1,308,000, which the Company recorded at December 31, 1994. This loss was
combined with the gain on the airplane disposition described above and included
in "Other Expenses."

Carolco incurred a consolidated net loss for the year ended December 31,
1993 of $63,958,000, including $4,562,000 attributable to its ownership interest
in LIVE. Carolco incurred a consolidated net loss for the year ended December
31, 1994 of $43,451,000. At December 31, 1994, Carolco had a deficiency in
assets of $64,521,000.

DISCONTINUED OPERATIONS

From January 1, 1993 through October 20, 1993 (the "Ownership Period"), the
Company accounted for its ownership interest in LIVE using the equity method of
accounting. In October 1993, pursuant to the Restructuring, Carolco disposed of
its ownership interest in LIVE. At December 31, 1993, the Company and LIVE were
in negotiations for the possible business combination of the two companies.
However, in October 1994, the Company and LIVE terminated negotiations of the
business combination. See "Item 1 - Business - Recent Developments - Proposed
Business Combination with LIVE Entertainment Inc." Accordingly, amounts for
1993 have been restated to reflect the results of operations of LIVE as a
discontinued operation. The Company recognized a loss of $3,832,000
representing its equity interest of the continuing operations of LIVE for the
Ownership Period and $730,000 representing its equity interest in the
discontinued operations of LIVE for the Ownership Period. These amounts are
included in Discontinued Operations for the year ended December 31, 1993.

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 Carolco had no theatrical releases in 1993.
CLIFFHANGER was produced by a joint venture in which Carolco 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 Carolco. 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

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<PAGE>

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; and approximately
$11,451,000 from the foreign pay and free television availability of TOTAL
RECALL. Feature film revenues for 1992 also include approximately $21,900,000
in domestic television syndication revenues.

Amortization of film costs, residuals and participations decreased
$181,166,000, or 62.5%, from $289,786,000 for the year ended December 31, 1992
to $108,620,000 for the comparable period in 1993. Amortization of film costs,
as a percentage of Carolco's feature film revenues, decreased by 2.3% from
107.6% in 1992 to 105.3% in 1993. For the years ended December 31, 1992 and
December 31, 1993, Carolco recorded costs of $34,118,000 and $21,287,000,
respectively, related to reductions in the estimated net realizable value of its
film inventory.

SG&A expenses (including production overhead costs), net of amounts
capitalized, decreased by $9,304,000, or 27.4%, from $33,938,000 during the year
ended December 31, 1992 to $24,634,000 during the year ended December 31, 1993.
This decrease represents an overall decrease in Carolco's SG&A expenses
resulting from reductions in the work force and downsizing operations of
Carolco, offset by the fact that Carolco 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, Carolco capitalized $5,240,000, or 13%, of
SG&A expenses to film costs.

Interest expense, net of capitalized interest, decreased by $2,291,000 or
8.9%, from $25,796,000 during the year ended December 31, 1992 to $23,505,000
for the year ended December 31, 1993 as a result of lower debt levels and
reduced interest rates, partially offset by the fact that Carolco 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, Carolco 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 totaling $1,116,000 resulting from
the sale of certain shares of LIVE 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 Carolco no longer owns distribution rights, and a loss of $3,000,000
resulting from the write-down of Carolco's airplane to the estimated net
realizable value. There were no comparable expenses in 1993.

In 1993 Carolco reduced the net realizable value of its film costs by
$4,744,000 as a result of its decision to abandon the business of acquiring and
distributing foreign rights for films produced by other motion picture companies
and as a result of the fact that MGM will license all future motion pictures

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<PAGE>

produced by Carolco in certain territories. In 1992, Carolco 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 restructuring were
recorded in 1991.

As a result of the 1992 sale of Carolco's library to Worldvision and the
MGM Distribution Agreement entered into pursuant to the Restructuring, in
December 1993, CTI ceased its domestic syndication operations and Carolco
recognized a loss of $2,072,000 on the disposal of a portion of a line of
business. This loss consisted 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).

DISCONTINUED OPERATIONS: In 1992, the Company consolidated its results of
operations with those of LIVE. From January 1, 1993, through October 20, 1993,
the Company accounted for its ownership interest in LIVE using the equity method
of accounting. In October 1993, pursuant to the Restructuring, Carolco disposed
of its ownership interest in LIVE. At December 31, 1993, the Company and LIVE
were in negotiations for the possible business combination of the two companies.
However, in October 1994, the Company and LIVE terminated negotiations of the
business combination. See "Item 1 - Business - Recent Developments - Proposed
Business Combination with LIVE Entertainment Inc." Accordingly, amounts for
1992 and 1993 have been restated to reflect the results of operations of LIVE as
a discontinued operation. For the year ended December 31, 1993, Carolco
recognized a loss of $3,832,000 representing its equity interest of the
continuing operations of LIVE and a loss of $730,000 representing its equity
interest of the discontinued operations of LIVE. For the year ended December
31, 1992, the Company recognized a loss of $6,232,000 representing its ownership
interest in the results of operations of LIVE. These amounts are included in
Discontinued Operations for the years ended December 31, 1992 and 1993.

LIQUIDITY AND CAPITAL RESOURCES

FINANCIAL RESTRUCTURING

On October 20, 1993, the Company completed 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. Following is a
description 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. $22,496,000 in aggregate principal
amount of New Senior Notes were issued in exchange for a portion of the
Company's outstanding 14% Notes, plus accrued interest. In addition,
$13,431,700 in principal amount of New Senior Subordinated Notes were issued in
exchange for a portion of the Company's 13% Notes, plus accrued interest. The
exchanges described above are collectively referred to herein as the "Exchange
Offers." In addition, approximately $3,030,300 of cash representing accrued
interest was paid as part of the Exchange Offers.

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<PAGE>

$3,445,000 in prinicpal 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.

(2) CONSUMMATION OF CONSENT SOLICITATION. Concurrently with the Exchange
Offers, the holders of the 13% Notes approved the Amendments to the 13% Note
Indenture. 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 13% Note Indenture and eliminated substantially all of the restrictive
covenants and certain default provisions in the 13% Note Indenture.

(3) PURCHASES OF NEW PREFERRED STOCK AND 5% NOTES FOR CASH. Pioneer, Cinepole
and MGM Holdings purchased from the Company 40,000, 12,500 and 30,000 shares,
respectively, of New Preferred in exchange for cash consideration of
$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 therefore, in additional shares of New Preferred. Each share of New
Preferred is convertible at the option of the holder into Common Stock of the
Company at $.60 per share.

MGM Holdings also purchased from the Company $30,000,000 in aggregate
principal amount of 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 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 upon certain defaults under the indenture governing the 5% Notes) 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.

(4) EXCHANGE OF 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, plus a cash payment for a
portion of accrued but unpaid dividends. In addition, $14,600,000 in face amount
of the Company's 10% Debentures, representing all of the Company's outstanding
10% Debentures (other than

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<PAGE>

$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.

(5) SATISFACTION OF STRATEGIC INVESTOR LOAN. Carolco transferred to Pioneer,
Cinepole and RCS Communications, 3,885,223, 1,180,030 and 1,180,030 shares,
respectively, of the common stock of LIVE representing all of the shares of LIVE
common stock held by Carolco in satisfaction of approximately $17,686,000 of the
Strategic Investor Loan previously extended to Carolco by the Strategic
Investors. 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, respectively, of the Company's Common Stock.

(6) NEW DISTRIBUTION AGREEMENT. Carolco entered into the MGM Distribution
Agreement, which became effective on the December 31, 1993 expiration of the
Company's prior distribution agreements with Tri-Star. 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 related to the initial domestic theatrical release of each
picture covered by the agreement, including the cost of manufacturing 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 (i.e. airlines, military, etc.), 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 an 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, Cinepole, RCS and TCI entered into the Standby Agreement pursuant to
which Pioneer, Cinepole and RCS committed to purchase up to $27,500,000 in
principal amount of the Company's 7% Notes on the later of December 30, 1994 or
the date upon which certain conditions are met. In addition, Le Studio and TCI
committed to invest up to $27,500,000 in Co-Productions Investments. The total
amount to be invested pursuant to the

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<PAGE>

Standby Agreement would not exceed $47,500,000. See "- Standby Agreement
Funding" below for a discussion of further developments with respect to the
Standby Agreement.

(8) ACQUISITION OF VISTA. In conjunction with the Restructuring, Carolco
acquired all of the outstanding shares of Vista Common Stock, other than shares
owned by Carolco, together with all of the Series A Puts in a two-step
transaction consisting of a tender offer and a subsequent merger. As a result,
$19,025,500 in principal amount of New Senior Notes was issued and cash of
$1,942,000 for interest was paid in exchange for 17,620,290 shares of Vista
Common Stock and associated Series A Puts. In addition, approximately $3,156,000
in cash was paid to the holders (other than Carolco or its affiliates) of Vista
Common Stock and associated Series A Puts, in exchange for 4,207,816 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.

MOTION PICTURE PRODUCTION

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<PAGE>

level of investment. As a result, Carolco made the decision to postpone the
start of principal photography (which had been scheduled to begin in August
1994) while Carolco evaluated alternative approaches to the project. As a
result of Carolco's decision not to make CRUSADE when scheduled, an affiliate of
Arnold Schwarzenegger made a claim for payment of the full fee that would have
been payable for the acting services of Mr. Schwarzenegger. Pursuant to a
settlement agreement with Mr. Schwarzenegger, Carolco has paid certain amounts
to the affiliate of Mr. Schwarzenegger and assigned to an affiliate of Mr.
Schwarzenegger all rights, title and interest in CRUSADE. If, during an
approximately three-year period, Mr. Schwarzenegger obtains a commitment for
production of the film, Carolco will receive reimbursement of a portion of its
pre-production expenditures on the film and will participate in any future net
profits of the film (as defined in the agreement). In the event Mr.
Schwarzenegger's affiliate is unable to obtain a production commitment during
such period, Carolco will have the exclusive right to reacquire all rights,
title and interest in CRUSADE for an amount equal to the sum of (i) all out-of-
pocket costs incurred by such affiliate in acquiring the rights to CRUSADE and
(ii) all actual out-of-pocket development costs incurred by such affiliate.

As of December 31, 1994, Carolco paid a total of $13,321,000 in pre-
production expenses for CRUSADE including capitalized interest and production
overhead and amounts paid to the affiliate of Mr. Schwarzenegger. These amounts
were included in Amortization of Film Costs, Participations and Residuals for
the year ended December 31, 1994.

Carolco currently has one motion picture in production: CUTTHROAT ISLAND
starring Geena Davis and Matthew Modine and directed by Renny Harlin. CUTTHROAT
ISLAND commenced principal photography in October 1994 and is scheduled to be
completed and available for release in the latter half of 1995; however, there
can be no assurance that the film will be completed or released on schedule or
that it will be completed and released. The direct negative cost of CUTTHROAT
ISLAND is expected to be in excess of $80,000,000. Carolco has completed
certain financing arrangements in connection with CUTTHROAT ISLAND. On February
6, 1995, Cutthroat Island LP satisfied the conditions necessary for it to draw
funds under the Production Loan. The Production Loan provides for financing of
up to $60,238,000 in direct negative costs, including completion bond fees,
certain contingencies and other financing expenses. In February and March 1995,
Carolco received approximately $25,031,000 in proceeds from the Production Loan,
representing reimbursement of a portion of approximately $80,007,000, including
capitalized interest and overhead, Carolco had spent in 1994 and 1995 to develop
and begin production of CUTTHROAT ISLAND. In addition, through March 1995,
$13,126,000 in proceeds from the Production Loan were provided directly to
Cutthroat Island LP. The Production Loan is collateralized by certain pre-sales
of foreign and domestic licensing rights of CUTTHROAT ISLAND. Initial proceeds
from the distribution of CUTTHROAT ISLAND will be used exclusively to repay the
Production Loan. In addition, pursuant to the Standby Agreement funding the
Company received $7,500,000. (See "- Standby Agreement Funding.") These funds,
together with the proceeds of the Production Loan, reduced Carolco's
contribution to the negative cost of the film to approximately $47,500,000.

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<PAGE>

INTERIM FINANCING ARRANGEMENTS

In order to alleviate the aforementioned liquidity constraints experienced
by the Company in late 1994, in October 1994, Carolco consummated the Interim
Financing Arrangements which provided Carolco with additional cash of
approximately $18,500,000. The Interim Financing Arrangements consisted of the
following transactions:

(1) CPSI and Chargetex, entered into a Purchase and Sale Agreement
dated as of October 18, 1994 whereby CPSI transferred to Chargetex all of its
rights in the motion picture SHOWGIRLS, which commenced principal photography on
October 23, 1994. The purchase price consisted of (i) the reimbursement of
CPSI's and/or Carolco's direct costs incurred in connection with the development
and production of the motion picture through the date the rights in the picture
were transferred to Chargetex and (ii) the assumption by Chargetex of all of
CPSI's and/or Carolco's obligations relating to the development and production
of the motion picture. Approximately $8,898,000 was paid to Carolco by
Chargetex upon closing of the transaction, and an additional $439,000 was paid
in January 1995. CPSI will be entitled to a percentage of the adjusted gross
receipts from the exploitation of the completed motion picture after Chargetex
has recouped certain costs and expenses incurred in connection with the motion
picture plus an additional $10,000,000.

(3) Carolco and RCS entered into the RCS Waiver Agreement, whereby
RCS waived certain conditions subject to which RCS was required to purchase 7%
Notes on December 30, 1994 under Standby Agreement. In exchange for the
accommodations by RCS, the parties agreed to reduce the principal amount of 7%
Notes to be purchased by RCS under the Standby Agreement from $2,500,000 to
$1,000,000 and RCS agreed to purchase a portion of Carolco's interest in the
motion picture CUTTHROAT ISLAND for $1,500,000 on terms that are no less
favorable than those applicable to TCI and Le Studio under the Co-Production
Investments.

On October 14, 1994, Carolco received $987,690 representing the principal
amount of a $1,000,000 bank loan from CLBN, discounted to yield an interest rate
of 5.4375% per annum. As security for such loan, Carolco assigned to CLBN its
right to receive RCS' payment for 7% Notes due in December 1994. RCS delivered
a letter of credit to CLBN to secure its obligation to purchase 7% Notes.

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<PAGE>

(4) Carolco and Le Studio U.S. entered into an Amendment to the
Exclusive Agency Agreement dated as of October 14, 1994 whereby Le Studio U.S.
prepaid $2,000,000 of sales commissions that were anticipated to be due to
Carolco in late 1994 in connection with Carolco serving as the foreign sales
agent for the motion picture STARGATE. See "Item 13 - Certain Relationships and
Related Transactions - Other Transactions with the Strategic Investors" for more
a complete discussion of the arrangements with Le Studio U.S. regarding
STARGATE.

STANDBY AGREEMENT FUNDING

In December 1994 and January 1995, the Company consummated the following
transactions with the Strategic Investors in accordance with the Standby
Agreement.

On December 30, 1994, Cinepole purchased $7,500,000 in aggregate principal
amount of 7% Notes. In addition, on December 30, 1994, LSC+ and TCI purchased
limited partnership interests in Cutthroat Island L.P. in exchange for
$6,000,000 in accordance with the terms of the Standby Agreement. Pursuant to
the partnership agreement, LSC+, TCI and an affiliate of Carolco are each
entitled to receive a participation in certain revenues generated from the
exploitation of CUTTHROAT ISLAND, following repayment of the Production Loan and
the payment of (or establishment of reserves for) certain third party
obligations, as follows: First, LSC+, TCI and the Carolco affiliate are entitled
to receive approximately 10%, 6% and 84%, respectively, of revenues until LSC+
and TCI recoup their preferred return (which equals 10% per annum on their
initial capital contributions) plus their initial capital contributions.
Second, the Carolco affiliate is entitled to receive all revenues until it
recoups a distribution fee equal to 10% of the receipts from the distribution of
the film in certain territories and an overhead reimbursement fee. Third, LSC+,
TCI and the Carolco affiliate are entitled to receive approximately 10%, 6% and
84%, respectively, of revenues, until LSC+ and TCI have each received an amount
equal to their capital contributions. Thereafter, LSC+, TCI and the Carolco
affiliate are entitled to receive approximately 5%, 3% and 92%, respectively, of
remaining revenues.

OTHER FINANCING ARRANGEMENTS

CPSI and Alphatex entered into a Purchase and Sale Agreement dated as of
December 1, 1994 whereby CPSI transferred to Alphatex all of its rights in the
motion picture LOLITA. The purchase price consisted of (i) the reimbursement of
CPSI's and/or Carolco's direct costs incurred in connection with the development
and production of the motion picture through the date the rights in the picture
were transferred to Alphatex and (ii) assumption by Alphatex of all of CPSI's
and/or Carolco's obligations relating to the development and production of the
motion picture. On December 2, 1994, approximately $3,826,000 was

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<PAGE>

paid to Carolco by Alphatex upon closing of the transaction with additional
amounts estimated to be less than $200,000 to be paid as accountings are
provided to Alphatex. CPSI will be entitled to a percentage of adjusted gross
receipts from the exploitation of the completed motion picture after Alphatex
has recouped certain costs and expenses incurred in connection with the motion
picture plus an additional $10,000,000.

Pursuant to certain distribution agreements with Tri-Star, certain payments
were due to the Company or its affiliates from TriStar at December 31, 1994.
See " Item 1 - Business - The Business of Carolco - Distribution of Motion
Pictures and Other Products." In February and March of 1995, Tri-Star paid
approximately $14,147,000 pursuant to these distribution agreements.

CURRENT OBLIGATIONS OF THE COMPANY

CII, with Carolco as principal guarantor, has $14,000,000 in principal
amount outstanding under the Existing Carolco Credit Facility as of the date
hereof. The maturity date of the loan under the Existing Carolco Credit
Facility, which is secured by substantially all of Carolco's assets, is
September 30, 1995, provided certain events of default do not occur. CLBN has
agreed to remit to CII all collections from accounts receivable pledged to CLBN,
so long as certain defaults do not occur. No amounts are available for
borrowing under the Existing Carolco Credit Facility. Repayment of the Existing
Carolco Credit Facility without a replacement facility would have a severe
adverse effect on the operations and financial viability of Carolco.

In August 1992, Carolco entered into an agreement with the Guilds with
respect to amounts owed to the Guilds under certain collective bargaining
agreements. As of December 31, 1994, the balance due the Guilds pursuant to the
Guild Note was $10,025,000, including accrued interest at 3-month LIBOR, plus 1%
per annum. On January 30, 1995, the Company paid $3,285,000 to the Guilds,
representing payment of the October 1994 installment, plus accrued interest
thereon. The balance of the Guild Note is due in two remaining installments of
$3,000,000 each, plus interest, on October 1, 1995 and October 1, 1996, with an
additional $600,000 due on October 1, 1996. The Guild Note is secured by a lien
on substantially all of the Company's assets, which lien is subordinated to the
Existing Carolco Credit Facility.

In addition to the Guild Note, the Company has on-going obligations to the
Guilds, AFM and IATSE for amounts owed under similiar collective bargaining
agreements. In February 1995, the Company paid approximately $3,000,000 to the
Guilds, AFM and IATSE representing residual obligations arising from cash
received by the Company in the fourth quarter of 1994. The amount of residual
obligations to be paid for each quarter of 1995 will be determined by the amount
of cash receipts received by the Company in 1995.

In connection with the production of its motion pictures, the Company
entered into certain contingent compensation agreements with motion picture
Participants whereby the Company is obligated to pay to the Participants a share
of the Company's receipts from the distribution of its released motion pictures.
At December 31, 1994, the Company had recorded present and future obligations of
approximately $22,400,000 in connection with various Participants' contingent
compensation arrangements. Additional contingent compensation obligations will
be recorded in 1995 based on the film revenues recorded by the Company in 1995.

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<PAGE>

GOING CONCERN ISSUES

TAX MATTERS

Carolco and CINV 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, 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 CII, a wholly owned
subsidiary of Carolco incorporated under the laws of Delaware. Carolco does not
believe that such reorganization resulted in any United States or California
income tax liability to Carolco. See Note J to the Notes to Consolidated

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<PAGE>

Financial Statements. However, as a result of the reorganization of CINV,
foreign source income of Carolco in future periods will be subject to United
States income taxation, which could result in a significant increase in
Carolco's effective tax rate.

The Internal Revenue Service ("IRS") is currently conducting an audit of
Carolco's 1988 through 1993 federal income tax returns. In addition, the
California Franchise Tax Board ("FTB") is conducting an examination of Carolco's
1988 and 1989 state income tax returns. Carolco has received notices from the
IRS regarding proposed adjustments ("Proposed Adjustments") to Carolco's income
tax returns for the 1988, 1989 and 1990 taxable years. As of March 15, 1995,
Carolco has responded or is in the process of preparing responses to all of the
Proposed Adjustments by supplying the IRS with additional facts and technical
analysis which will be considered by the IRS before it makes a decision whether
to propose to assess deficiencies attributable to the Proposed Adjustments. It
is anticipated that the IRS will issue additional proposed adjustments.

Several of the Proposed Adjustments would disallow deductions or increase
income for certain of Carolco's taxable years. Many of these Proposed
Adjustments affect the timing of income and deductions, i.e., Carolco would be
required to include income in an earlier taxable year than originally reported
or take deductions in a later taxable year than originally reported. Other
Proposed Adjustments would reallocate various items of income and deductions
between Carolco and CINV (which Carolco believes is not subject to federal
income taxation), and would include in Carolco's income certain deemed dividends
from CINV (the "Carolco/CINV Adjustments").

One of the Proposed Adjustments would subject CINV's income to United
States federal income taxation on the basis that Carolco and CINV were engaged
in a partnership for income tax purposes and CINV's share of the "partnership"
income was foreign source income that was effectively connected with a trade or
business conducted in the United States and therefore subject to United States
federal income taxation. If the IRS were successful in asserting this theory,
most of the Proposed Adjustments relating to the Carolco/CINV Adjustments would
be duplicative, and therefore could not be asserted.

Carolco believes that certain of the Proposed Adjustments are without
merit. Because the examination is at an early stage, and because many of the
issues dealt with in the Proposed Adjustments are highly complex and unresolved
under the current state of the law, Carolco cannot predict with any reasonable
degree of accuracy the actual tax liabilities that may result from the IRS and
FTB examinations. Carolco believes its current and non-current deferred income
tax liability as of December 31, 1994 is adequate to cover any potential tax
liability from such examinations. However, the ultimate tax liability may be
substantially higher or lower.

Carolco's federal income tax returns reflect available net operating loss
carryovers of approximately $206,000,000 and $173,000,000, respectively, for
federal regular tax and alternative minimum tax purposes as of December 31,
1994, all or a significant portion of which may be utilized as a result of
possible adjustments to prior years' taxable income and losses that may arise
from the federal income tax audit described above. Any net operating loss
carryovers that are not utilized as a result of such possible audit adjustments
will be, pursuant to Section 382 of the Code, substantially subject to severe
restrictions on the amount of such net operating loss carryover that can be
utilized in any taxable year as a result of various Carolco ownership changes
that have occurred.

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<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Report of Independent Auditors, Consolidated Finanical Statements
and Notes to the Company's Consolidated Financial Statements appear in
a separate section of this Report (beginning on page F-1) following
Part IV. 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 of March 31, 1995.

CURRENT DIRECTORS AND EXECUTIVE OFFICERS

Period with
Name Position Age Carolco
---- -------- --- ------------
<S> <C> <C> <C>
Mario F. Kassar Chairman of the Board of Directors and Chief 43 Since 1975 (1)
Executive Officer

Lynwood Spinks Executive Vice President/President of Production 42 Since 1986
and Director

Karen A. Taylor Senior Vice President/Finance, Acting Chief 40 Since 1988
Financial Officer

Patrizio Casalini Director 45 Since 1995

Hector Patrick Dowd Director 59 Since 1994

Guy-Etienne Dufour Director 57 Since 1993

Michael E. Garstin Director 46 Since 1986

Michael S. Hope Director 52 Since 1993

Kaneo Ito Director 58 Since 1993

Rene-Claude Jouannet Director 53 Since 1993

Gordon C. Luce Director 69 Since 1994

Ryuichi Noda Director 60 Since 1990

Gregory R. Pierson Director 36 Since 1994

Joseph A. Scudero Director 64 Since 1994

Adam Singer Director 43 Since 1993

Masaaki Sono Director 62 Since 1992

Robert W. Goldsmith Senior Vice President, General Counsel and
Corporate Secretary 42 Since 1990

Lewis Weakland Senior Vice President, Business and Production
Affairs of Carolco Service Inc. 36 Since 1987

<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. See "--
Management Arrangements -- Arrangements Pursuant to Which Certain Directors Have
Been Elected" below. Certain of the Company's directors are defendants in the
stockholder litigation described above under "Item 3. -- Legal Proceedings."

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<PAGE>

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.

CURRENT DIRECTORS AND EXECUTIVE OFFICERS

MARIO F. KASSAR has been Chairman of the Board of Directors of Carolco
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 worldwide. Mr. Kassar is executive producer or co-executive
producer of a number of motion pictures including the RAMBO trilogy, TOTAL
RECALL, TERMINATOR 2: JUDGMENT DAY, BASIC INSTINCT, CHAPLIN, CLIFFHANGER and
STARGATE.

LYNWOOD SPINKS became Executive Vice President/President of Production
of Carolco in July 1993. Prior to that date, he served as Executive Vice
President for Business and Production Affairs of Carolco since March 1990. Mr.
Spinks received the additional title of President of Production in March 1993.
He became a Director of Carolco in March 1990. From September 1988 until
March 1990, he was Senior Vice President of Carolco. From June 1986 until
September 1988, he was Vice President of Carolco.

PATRIZIO CASALINI became a Director of the Carolco in January 1995.
Mr. Casalini has been General Manager, Head of Films & TV Business of RCS
Editori S.p.A. since March 1995. From January 1993 until March 1995, Mr.
Casalini was Special Project Business Development - Director of RCS. From
January 1991 to January 1993, Mr. Casalini was Planning Marketing and Sales
Director for Telefilms. From January 1990 to January 1991, Mr. Casalini was
Corporate Development - Director for Finivest S.p.A.

HECTOR PATRICK DOWD became a Director of Carolco 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 Carolco 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 MGM
and its predecessor since January 1992. Mr. Dufour also is a Director of Banque
de La Reunion and Commercial-Bank Credit Lyonnais Nigeria.

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<PAGE>

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 since April 30, 1992.

MICHAEL E. GARSTIN became a Director of Carolco 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.

MICHAEL S. HOPE became a Director of Carolco in October 1993. Mr. Hope
is Executive Vice President of MGM. 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 Carolco in October 1993. Mr. Ito has
been Senior Managing Director, Representative Director and General Manager of
the International Business Group of Pioneer Electronic Corporation since June
1991. From December 1988 until June 1991, Mr. Ito was Managing Director of
Pioneer Electronic Corporation. He was also General Manager of the
International Division of Pioneer Electronic Corporation from April 1984 until
June 1991, and has been a Director of Pioneer Electronic Corporation since
December 1982.

RENE-CLAUDE JOUANNET became a Director of Carolco 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 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.

GORDON C. LUCE became a Director of Carolco 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 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

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<PAGE>

La Jolla, California and he is currently a member of the Board of Trustees of
the University of Southern California.

RYUICHI NODA became a Director of Carolco in June 1990. Mr. Noda
became President of Pioneer LDC, Inc., a subsidiary of Pioneer Electronic
Corporation, in April 1991 and has been a Director of Pioneer Electronic
Corporation since December 1988. From October 1988 to April 1991, he was Deputy
General Manager of the International Division of Pioneer Electronic Corporation.
From January 1986 until October 1988, he was President and Chief Executive
Officer of Pioneer Electronics (USA) 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 Corporation.

GREGORY PIERSON became a Director of Carolco in September 1994. Mr.
Pierson has been the General Counsel of Pioneer North America, Inc. since 1991.
From 1985 to 1991, Mr. Pierson was an attorney with the law firm of Adams, Duque
& Hazeltine in Los Angeles.

JOSEPH A. SCUDERO became a Director of Carolco 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 Carolco in October 1993. Mr. Singer
has been President and Chief Operating Officer of TCI International Holdings,
Inc. since October 1994. From June 1992 to October 1994, Mr. Singer was Vice
President -- International for TCI. 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 Carolco in March 1992. Mr. Sono has
been a member of the Board of Directors of Pioneer Electronic Corporation since
December 1977, and became Managing Director of Pioneer Electronic Corporation in
June 1989 and Senior Managing Director of Pioneer Electronic Corporation in
June 1993. Since November 1975, he has also served as General Manager of the
Finance and Accounting Division of Pioneer Electronic Corporation.

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.

-50-

<PAGE>

KAREN A. TAYLOR has been Senior Vice President/Finance of Carolco
since March 1991 and Acting Chief Financial Officer of Carolco since January
1995. From June 1990 until March 1991 she was Vice President/Finance of Carolco
and from January 1988 until June 1990 she was the Controller of Carolco. From
July 1984 until December 1987, she was Assistant Controller for Columbia
Pictures Entertainment Inc. (Motion Picture Division).

LEWIS WEAKLAND has been Senior Vice President, Business and Production
Affairs of Carolco Service Inc. since July 1994. Prior to that date, he served
as Senior Vice President, Business Affairs for Carolco Service Inc. since
November 1990. From July 1989 until November 1990, he was Vice President, Legal
and Business Affairs of Carolco Service Inc. For the two years preceding his
employment with Carolco Service Inc., Mr. Weakland was employed as an attorney
by Warner Bros., Inc.

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 Stockholders Agreement dated as
of October 20, 1993, among Pioneer, Cinepole, RCS, MGM Holdings and New CIBV
(the "Stockholders Agreement"). As described in further detail below, the
Stockholders Agreement includes an agreement to vote in the election of
directors for the directors nominated by the other parties to this agreement. Of
the 15 current members of the Board of Directors, four members were nominated by
Pioneer, three members were nominated by MGM Holdings, and one member was
nominated by RCS. 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 (as defined in the
Stockholders Agreement). Nominees of the Strategic Investors and MGM Holdings,
if considered together, constitute in excess of a majority of the members
(currently approximately 53%) 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 "Item 3 - Legal
Proceedings -- Settlement of Purported Derivative Action."

ARRANGEMENTS PURSUANT TO WHICH CERTAIN DIRECTORS HAVE BEEN ELECTED

Pursuant to the 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
Cinepole 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 Cinepole,
respectively, were appointed to the Board as their replacements. Tetsuro Kudo
and Paolo Glisenti resigned from the Board in September and October 1994,
respectively, and Gregory R. Pierson and Patrizio Casalini, as designees of
Pioneer and RCS, respectively, were appointed to the Board as their
replacements. Olivier Granier, a designee of Cinepole, resigned in November
1994 and Richard Garzilli was subsequently appointed to the Board as his
replacement. In March 1995, Richard Garzilli, Pierre Lescure and Michael
Meltzer, the three designees of Cinepole, resigned from the Board. Although
Cinepole is entitled to do so under the Stockholders Agreement, Cinepole has
advised the Company that no director designees will be proposed by Cinepole to
replace Messrs. Garzilli, Lescure and Meltzer.

-51-

<PAGE>

BYLAW PROVISIONS

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"). In February 1994, the Board of Directors amended the Bylaws to
establish the number of members of the Board of Directors at 18. There are
currently three vacancies on the Board of Directors.

STOCKHOLDERS' AGREEMENT

The 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 Cinepole nominees, one RCS nominee,
two independent nominees and two nominees of the Chairman of the Board of the
Company.

The Stockholders Agreement also includes an agreement with respect to the
composition of a 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 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. Richard
Garzilli resigned as the Cinepole designee to the Supervisory Committee in March
1995. Cinepole has advised the Company that no director designee will be
proposed by Cinepole to replace Mr. Garzilli on the Supervisory Committee. As a
result, the Supervisory Committee is currently unable to take any actions.

In accordance with the Stockholders Agreement, certain operating
resolutions were adopted by the Board of Directors. The resolutions provide
that certain actions will not be taken unless approved by at least 85% of the
Board of Directors voting on such actions 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
Certificate of Incorporation 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 has adopted the Operating Resolutions.

-52-

<PAGE>

Pursuant to the 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. See "Item 12 - Security Ownership of Certain Beneficial Owners and
Management."

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 Securities and Exchange Commission, initial reports of ownership
and reports of changes in ownership of Common Stock and other equity securities
of the Company. Officers, directors and 10% Stockholders are required by
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, 1994,
all Section 16(a) filing requirements applicable to the Company's officers,
directors and 10% Stockholders were complied with, except that (1) Mr. Gregory
R. Pierson, a Director of the Company failed to file with the Commission on a
timely basis his initial Form 3 report, which report was subsequently filed, and
(2) Mr. Richard Garzilli, a former Director of the Company, failed to file with
the Commission on a timely basis, his initial Form 3 report, which report was
subsequently filed.

-53-

<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 Carolco during Carolco's fiscal year ended December 31,
1994 (Mario F. Kassar) and each of the four other most highly compensated
executive officers of Carolco during the fiscal year ended December 31, 1994 (i)
whose total salary and bonus compensation during fiscal 1994 was in excess of
$100,000, and (ii) who was serving as an executive officer at the end of fiscal
1994 (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 Carolco and
its subsidiaries during the fiscal years ended December 31, 1994, 1993 and 1992.

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 1994
(ii) a Fiscal Year End Option Table that indicates whether any of the Named
Executives exercised options in fiscal 1994 and includes the number and value of
unexercised options held by the Named Executives at December 31, 1994 and (iii)
a Long-Term Incentive Plans ("LTIP") Table that includes information on LTIP
Awards granted during the 1994 fiscal year to the Named Executives.

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<PAGE>

SUMMARY COMPENSATION TABLE

LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION AWARDS
------------------------------------------------- ------------
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND SALARY BONUS COMPENSATION OPTIONS/SARS COMPENSATION
PRINCIPAL POSITION YEAR ($)(1) ($) ($) (#) ($)
------------------ ---- ------ --- --- --- ---
<S> <C> <C> <C> <C> <C> <C>
Mario F. Kassar 1994 2,431,731 1,263,450 352,864(2) 15,075,000(3) 1,588,244(4)(16)
Chairman of the Board and Chief 1993 2,161,538 597,383 159,480(5) 16,720,000(6) 960,907
Executive Officer 1992 1,586,538 -0- 1,159,073(7) 750,000 918

Lynwood Spinks 1994 423,333 -0- -- 50,000(8) 137,982(9)(16)
Executive Vice President/President of 1993 479,037 -0- -- 125,000(10) 28,207
Production 1992 327,917 200,000 -- -0- 4,659

William A. Shpall(11) 1994 394,679 -0- -- -0- 6,300(12)
Executive Vice President and Chief 1993 355,591 200,000 -- 25,000(13) 3,207
Financial Officer 1992 196,731 100,000 -- 25,000 612

Robert W. Goldsmith 1994 246,922 132,500 -- -0- 6,222(14)
Senior Vice President, General Counsel 1993 229,681 100,000 -- 30,000(13) 3,105
and Corporate Secretary 1992 205,419 87,000 -- -0- 32,714

Karen A. Taylor 1994 229,426 120,000 -- -0- 6,068(15)
Senior Vice President of Finance 1993 186,362 105,000 -- 19,000(13) 2,631
1992 159,346 50,000 -- -0- 2,344
<FN>
_______________

(1) Amounts include annual salary paid pursuant to each respective employment
agreement and pay in lieu of vacation.

(2) Includes unaccountable travel and entertainment costs of $90,000 and legal
and accounting fees of $179,523. Such amounts were paid pursuant to Mr.
Kassar's prior employment agreement dated as of May 3, 1993, ("the 1993
Kassar Agreement") and Mr. Kassar's current employment agreement dated as
of August 10, 1994 ("the 1994 Kassar Agreement").

(3) Represents 15,000,000 options granted in 1993 pursuant to the 1993 Kassar
Agreement which were canceled in 1994 and regranted pursuant to the 1994
Kassar Agreement and 75,000 options granted to Mr. Kassar as a director of
Carolco and as a member of the Supervisory Committee of the Board of
Directors.

(4) Includes $1,680 for Company paid term life insurance, $4,620 representing
Carolco's 1994 contribution on behalf of Mr. Kassar pursuant to the profit
sharing plan, $100,000 paid by Carolco as an executive producing fee for
the motion picture STARGATE in connection with an agreement whereby Mr.
Kassar's services were being provided to Le Studio U.S., $500,000 paid
upon completion of principal photography and theatrical release of WAGONS
EAST (subsequently sold to LIVE) pursuant to the 1993 Kassar Agreement and
1994 Kassar Agreement, together with accrued interest thereon, $481,944
paid by Carolco as an executive producing fee for the motion picture LAST
OF THE DOGMEN in connection with an agreement whereby Mr. Kassar's
services were being provided to Last of the Dogmen Inc. and $500,000 paid
upon the start of principal photography of CUTTHROAT ISLAND pursuant to
the 1994 Kassar Agreement. Does not include $500,000 paid to Mr. Kassar by
the production entity established to produce the motion picture SHOWGIRLS
which was sold by Carolco to Chargetex prior to such payment.

-55-

<PAGE>

(5) Includes auto allowances of $46,177 and unaccountable travel and
entertainments costs of $90,000, paid pursuant to the terms of the 1993
Kassar Agreement.

(6) Includes 15,000,000 options granted in 1993 pursuant to the 1993 Kassar
Agreement which were canceled in 1994 and regranted pursuant to the 1994
Kassar Agreement and 75,000 options granted to Mr. Kassar as a director of
Carolco and as a member of the Supervisory Committee of the Board of
Directors. Also includes 1,645,000 options which were granted in exchange
for the cancellation of an equal number of options pursuant to the
Company's stock option cancellation and reissuance program in 1993.

(7) Includes legal and accounting fees in the amount of $550,000 incurred by
Mr. Kassar in connection with the financial restructuring of Carolco in
1992 (the "1992 Restructuring") and paid by Carolco pursuant to the terms
of Mr. Kassar's employment agareement dated as of March 23, 1992 and
covering the period March 23, 1992 through December 31, 1992, which was in
effect prior to the 1993 Kassar Agreement (the "1992 Kassar Agreement").
Also includes $90,000 in unaccountable travel and entertainment costs and
$175,000 in legal and accounting fees paid pursuant to the 1992 Kassar
Agreement.

(8) Represents options which were granted to Mr. Spinks as a director of
Carolco.

(9) Includes $1,680 for term life insurance paid by Carolco in 1994 and $4,620
representing Carolco's 1994 contribution on behalf of Mr. Spinks pursuant
to the profit sharing plan. Also includes $25,000 paid upon completion of
principal photography of WAGONS EAST and $25,000 paid upon commencement of
principal photography of CUTTHROAT ISLAND, each pursuant to Mr. Spink's
employment agreement. Also includes $81,682 representing forgiveness of a
portion of a loan, made to Mr. Spinks in 1993 in connection with the
Restructuring plus accrued interest thereon. Does not include $25,000 paid
to Mr. Spinks by the production entity established to produce the motion
picture SHOWGIRLS which was sold by Carolco to Chargetex prior to such
payment.

(10) Includes 75,000 options which were granted in exchange for the
cancellation of an equal number of options pursuant to the Company's stock
option cancellation and reissuance program in 1993 and 50,000 options
granted to Mr. Spinks as a director of Carolco.

(11) Mr. Shpall became Executive Vice President of Carolco on May 6, 1992 and
Chief Financial Officer of Carolco on June 4, 1992. Mr. Shpall resigned
from his position as Chief Financial Officer of Carolco on December 31,
1994.

(12) Includes $1,680 for term life insurance paid by Carolco in 1994 and $4,620
representing Carolco's 1994 contribution on behalf of Mr. Shpall pursuant
to the profit sharing plan.

(13) Represents options which were granted in exchange for the cancellation of
an equal number of options pursuant to the Company's stock option
cancellation and reissuance program in 1993.

(14) Includes $1,602 for term life insurance paid by Carolco in 1994 and $4,620
representing Carolco's 1994 contribution on behalf of Mr. Goldsmith
pursuant to the profit sharing plan.

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<PAGE>

(15) Includes $1,448 for term life insurance paid by Carolco in 1994 and $4,620
representing Carolco's 1994 contribution on behalf of Ms. Taylor pursuant
to the profit sharing plan.

(16) 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 of the DGCL, Carolco has paid the
expenses of such directors incurred in the director's defense of certain
lawsuits as described under "Item 13 - Certain Relationships and Related
Transactions - Certain Business Relationships and Other Transactions With
Carolco Entertainment Management" below. Such amounts, which are set forth
under such section, are not included herein.

</TABLE>

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<PAGE>

OPTION/SAR GRANTS IN LAST FISCAL YEAR (1)
<TABLE>
<CAPTION>

Individual Grants
---------------------------------------------------------------
Number of % of Total Potential Realizable Value at
Securities Options/ Assumed Annual Rates of
Underlying SARs Stock Price Appreciation for
Options/SARs Granted Exercise or Option Term (2)
Granted to Employees Base Price -----------------------------
Name (#) in Fiscal Year ($/sh) Expiration Date 5%($) 10%($)
- ------------------- ------------- -------------- ------------- --------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
Mario F. Kassar 15,000,000(3) 94% $.406(6) 10/20/03 $3,447,680 $8,538,614
75,000(4) * .05 (7) 12/01/04 2,358 5,976
Lynwood Spinks 50,000(5) * .05(7) 12/01/04 1,572 3,984

________________
<FN>
*Less than 1%.

(1) Although Carolco's 1989 Stock Option and Stock Appreciation Rights Plan
provides for the granting of stock appreciation rights, no grant of such
rights has been made by Carolco. No options were granted in 1994 to Mr.
Shpall, Mr. Goldsmith or Ms. Taylor.

(2) These values were determined using 5% and 10% annual growth projections
over the full-term of the options (until expiration) beginning December
31, 1994.

(3) Options which were granted to Mr. Kassar in exchange for the cancellation
of an equal number of options pursuant to the 1994 Kassar Agreement. See
"Employment Agreements - Mario F. Kassar."

(4) Options which were granted to Mr. Kassar as a director of Carolco and as a
member of the Supervisory Committee of the Board of Directors. Such
options vested immediately.

(5) Options which were granted to Mr. Spinks as a director of Carolco and
which vested immediately.

(6) Pursuant to the 1994 Kassar Agreement, the exercise price was the market
price of Carolco Common Stock on August 10, 1994, the effective date of
the 1994 Kassar Agreement.

(7) Market price of Carolco Common Stock on the date of grant (December 1,
1994).

</TABLE>

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<PAGE>

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

NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
SHARES OPTIONS/SARS AT OPTIONS/SARS AT
ACQUIRED DECEMBER 31,1994 DECEMBER 31,1994(3)
ON VALUE EXERCISABLE/ EXERCISABLE/
EXERCISE(2) REALIZED(2) UNEXERCISABLE UNEXERCISABLE
NAME (#) ($) (#) ($)
---- ----------- ----------- --------------------- --------------------
<S> <C> <C> <C> <C>
Mario F. Kassar 0 $0 5,384,255/11,410,745 $0
Lynwood Spinks 0 $0 137,500/37,500 $0
William A. Shpall 0 $0 12,500/12,500 $0
Karen A. Taylor 0 $0 9,500/9,500 $0
Robert W. Goldsmith 0 $0 15,000/15,000 $0

- ---------------
<FN>

(1) Although Carolco's 1989 Plan provides for the granting of stock
appreciation rights, no grant of such rights has been made by Carolco.

(2) None of the Named Executives exercised options during the fiscal year
ended December 31, 1994.

(3) None of the Named Executives held options at December 31, 1994 for which
the market price at such date exceeded the exercise price.

</TABLE>

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<PAGE>

LONG-TERM INCENTIVE PLAN AWARDS IN FISCAL 1994
<TABLE>
<CAPTION>

ESTIMATED FUTURE PAYOUTS
UNDER NON-STOCK PRICE-BASED PLANS
---------------------------------
Number of Performance or
Shares, Other
Units or Other Period Until
Rights 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 1993 Kassar Agreement and the 1994 Kassar Agreement provide 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 the 1992 Kassar
Agreement) once certain "Thresholds" (as defined in the 1992 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
will 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 1993 Kassar
Agreement and the 1994 Kassar Agreement provide a separate formula for
similar producer's fees for motion pictures as to which principal
photography commences from January 1, 1993 through December 31, 1997 as
described under "--Employment Agreements" below. Other than WAGONS EAST,
which has been sold to LIVE (along with all future producer fee
obligations), no motion pictures commenced principal photography during
1993. CUTTHROAT ISLAND commenced principal photography during 1994.

(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 1994 Kassar
Agreement, Mr. Kassar was paid a $500,000 non-refundable advance against
his producer's fee for CUTTHROAT ISLAND which has been reflected in the
"Summary Compensation Table" above.

(3) Not applicable.

</TABLE>

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<PAGE>

COMPENSATION OF DIRECTORS

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 non-qualified options to acquire 50,000 shares of 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.
Such options vest immediately and have a term of 10 years.

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

Carolco does not have a standing Compensation Committee. Instead, the
functions of the Compensation Committee are handled by the Board of Directors as
a whole and by its existing committees, including the Stock Option Committee and
the Supervisory Committee. Messrs. Kassar and Spinks are both directors and
executive officers of Carolco, but do not participate in deliberations
concerning their own respective compensation as executive officers. Each of
Messrs. Kassar and Spinks are also directors and executive officers of certain
subsidiaries of Carolco, but do not receive separate compensation for such
service. In addition to Messrs. Kassar and Spinks, the following Carolco
directors or their affiliates, have certain business relationships with Carolco.
Patrizio Casalini is the General Manager, Head of Films & TV Business of RCS
Editori S.p.A., an affiliate of a shareholder of Carolco and which has entered
into several distribution agreements with Carolco. Guy-Etienne Dufour and Rene-
Claude Jouannet are officers of affiliates of CLBN. Michael E. Garstin is
Executive Vice President and Senior Managing Director of Daniels & Associates,
which acts as a financial advisor to Carolco. Michael E. Hope is Executive Vice
President of MGM, which has entered into a distribution agreement with Carolco
and which is an affiliate of a shareholder of Carolco. Kaneo Ito is Senior
Managing Director, Representative Director and General Manager of the
International Business Group of Pioneer Electronic Corporation, which is an
affiliate of a shareholder of Carolco which has entered into various
distribution agreements with Carolco. Ryuichi Noda is President of Pioneer LDC,
Inc., an affiliate of a shareholder of Carolco which has entered into various
distribution agreements with Carolco. Gregory Pierson is General Counsel of
Pioneer North America, Inc., an affiliate of a shareholder of Carolco which has
entered into various distribution agreements with Carolco. Adam Singer is
President and Chief Operating Officer of TCI International Holdings, Inc., an
affiliate of a corporation which has invested co-production funds into CUTTHROAT
ISLAND. Masaaki Sono is Senior Managing Director of Pioneer Electronic
Corporation. See "Item 13 - Certain Relationships and Related Transactions."

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<PAGE>

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 the 1994 Kassar Agreement for the period that
commenced as of August 10, 1994 (the "Agreement Effective Date") and ends
December 31, 1997 (the "Term"). The 1994 Kassar Agreement amends and restates
the 1993 Kassar Agreement which became effective upon consummation of the
Carolco Restructuring and which terminated upon the effectiveness of the 1994
Kassar Agreement. Mr. Kassar will, however, be entitled to receive any
Production-related Incentive Compensation (as defined in the 1992 Kassar
Agreement), Turnaround Incentive Compensation (as defined in the 1992 Kassar
Agreement), Producer's Fees (as defined in the 1993 Kassar Agreement) and
Turnaround Compensation (as defined in the 1993 Kassar Agreement) to which Mr.
Kassar became entitled prior to the Agreement Effective Date.

Pursuant to the 1994 Kassar Agreement, Mr. Kassar will serve as Chairman
of the Board of Directors, a member of the Supervisory (or comparable)
Committee, as Chief Executive Officer of Carolco (which for purposes of the 1994
Kassar Agreement means Carolco and any other person controlled by, controlling
or under common control with, directly or indirectly Carolco, excluding the
Strategic Investors and MGM Holdings) and is the executive producer or producer
of all films produced by Carolco during the Term. In addition, Mr. Kassar has
the right to approve the selection of any Chief Operating Officer and Chief
Financial Officer of Carolco (which approval will not be unreasonably
withheld). The Chief Operating Officer, if any, and Chief Financial Officer of
Carolco will report to Mr. Kassar. Pursuant to the 1994 Kassar Agreement, Mr.
Kassar has the sole and exclusive right and authority to cause Carolco to
develop, produce and distribute any motion picture produced by Carolco or its
affiliates once certain budgetary and approval thresholds have been met.

As compensation for his services, pursuant to the 1993 Kassar Agreement
and the 1994 Kassar Agreement, Mr. Kassar received an annual fixed compensation
of $2,250,000 in 1994. The 1993 Kassar Agreement and the 1994 Kassar Agreement
both provide that such amount will increase by $250,000 in each year of the Term
thereafter. Both the 1993 Kassar Agreement and the 1994 Kassar Agreement
entitle Mr. Kassar to receive producer's fees ("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 Carolco'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 Carolco'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 Carolco or an affiliate, or
if Carolco does not directly distribute a Covered Picture, then all amounts
received by or credited to the account of Carolco'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

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<PAGE>

or licensed to such entity. "Ancillary Gross Revenues" are all amounts received
by Carolco 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) Carolco's and its affiliates' actual production costs, (ii)
certain related interest, financing fees and costs, (iii) a fixed 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 Carolco Common
Stock valued at the Market Price (as defined in the 1994 Kassar Agreement) on
the date of such election. Until such time as the repayment in full of the
Second Amended Notes (as defined below) has occurred, Mr. Kassar is required to
receive the Three Percent Fee in cash and has directed Carolco 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 Second Amended Notes in
accordance with the terms of the Second Amended Notes. Additional information
with respect to the Second Amended Notes is set forth herein under "Item 12 -
Security Ownership of Certain Beneficial Owners and Mangement - CLBN Loan
Agreement - New CIBV."

The 1994 Kassar Agreement also provides that if, during any year of the
Term, Carolco, because of its financial condition, is not expected to commence
principal photography on at least two pictures in that year of the Term and
Carolco 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 Carolco for Mr. Kassar's services after Carolco
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 Carolco Common
Stock valued at the Market Price on the date of such election. Until such time
as the repayment of the Second Amended Notes has occurred in full, Mr. Kassar is
required to receive the Turnaround Compensation in cash and has directed Carolco
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 Second Amended Notes in accordance with the terms of the Second
Amended Notes. The 1994 Kassar Agreement also provides that Mr. Kassar is
entitled to such additional incentive compensation as may be approved by
Carolco's Board of Directors.

The 1994 Kassar Agreement also provides that Mr. Kassar receives $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 1993 Kassar
Agreement, the 1994 Kassar Agreement, the Restructuring and the proposed Merger
with LIVE which has been abandoned, not to exceed $500,000. Carolco 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. The 1994 Kassar Agreement further
provides that all stock options to purchase Carolco Common Stock granted to Mr.
Kassar under the 1993 Kassar Agreement prior to the Agreement Effective Date are
terminated. Pursuant to and simultaneous with the execution and delivery of the
1994 Kassar Agreement, Carolco and Mr. Kassar executed and delivered a stock
option

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agreement pursuant to which Carolco granted to Mr. Kassar stock options under
the 1989 Plan, as amended pursuant to the terms of the Restructuring, reflecting
a discretionary option grant by a committee of the Carolco Board, all of whose
members are "disinterested persons" as that term is defined in Rule 16b-
3(c)(2)(i) of the Exchange Act, pursuant to which Mr. Kassar was granted options
to purchase 15,000,000 shares of Carolco Common Stock at $0.40625 per share, of
which 5,294,106 (through March 31, 1995) are immediately exercisable and the
remainder vest pro rata on a monthly basis during the Term. Pursuant to the
1994 Kassar Agreement, Carolco also agreed to use its best efforts to register
under the Securities Act, upon Mr. Kassar's demand, the unregistered shares of
Carolco Common Stock presently held by or to be issued to Mr. Kassar or his
affiliates. Mr. Kassar has informed Carolco that he has no current intention to
demand such registration rights. Pursuant to the 1994 Kassar agreement, Mr.
Kassar is also entitled to receive and will continue to receive such fringe
benefits as he now enjoys and as shall become available in the future to those
with similar positions in the motion picture industry, including without
limitation those fringe benefits specified in the 1994 Kassar Agreement.

If the 1994 Kassar Agreement is terminated (1) by Mr. Kassar for "Good
Reason" or (2) by Carolco 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, the Company will arrange
to provide Mr. Kassar with life, disability, accident and health insurance and
all other benefits substantially similar to those which Mr. Kassar is then
receiving, and all stock options granted under the 1994 Kassar Agreement will
become immediately exercisable. Pursuant to the 1994 Kassar Agreement, should
any payment thereunder or contemplated thereby be subject to excise tax pursuant
to Section 4999 of the Code (or comparable state or local tax laws), Mr. Kassar
is entitled to receive from Carolco such additional compensation as is necessary
(after taking into account all Federal, state and local income taxes payable by
Mr. Kassar as a result of such compensation) to place Mr. Kassar in the same
after-tax position that he would have been in had no such excise tax (or any
interest or penalties thereon) been paid or incurred. "Good Reason" includes a
"Change in Control" defined as (i) the acquisition by any person, excluding each
of the Strategic Investors, MGM Holdings and their respective affiliates as of
May 3, 1993, of 40% or more of the Full Voting Power of Carolco (as defined in
the 1994 Kassar Agreement) or (ii) the acquisition by any Strategic Investor,
MGM Holdings or any of their respective affiliates of an additional 20% of the
Full Voting Power of Carolco in excess of the amount of the Full Voting Power of
such Strategic Investor, MGM Holdings or any of their respective affiliates as
of October 20, 1993, excluding from what is deemed to be acquired (a) any
securities issued pursuant to the Standby Agreement, (b) any securities obtained
by Le Studio under the put/call arrangement between MGM Holdings and Le Studio
regarding the Carolco 5% Notes entered into by MGM Holdings in connection with
the Restructuring and (c) the realization of Carolco Common Stock pledged by
New CIBV to each of the Strategic Investors pursuant to the Amended Pledge
Agreements (as defined in "Item 12 - Security Ownership of Certain Beneficial
Owners and Management - Certain Loan Agreement - New CIBV." "Good Reason" also
includes, among other things, (x) the failure of Carolco, other than for reasons
solely within Mr. Kassar's control, to commence principal photography on at
least one picture for six consecutive quarters for any time period commencing
after October 20, 1993, if the financial condition of Carolco does not prevent
Carolco from undertaking such activity, and (y) any fundamental change to the
principal business of Carolco so that Carolco is no longer principally involved
in motion picture production. In addition, if the 1994 Kassar Agreement is
terminated by Mr. Kassar for "Good Reason," or by Carolco other than for
"Cause," "Retirement," "Death" or "Disability," Carolco will retain Mr. Kassar
as a consultant for a period of three years commencing on the date of such
termination at an annual

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compensation rate equal to fifty percent of Mr. Kassar's annual fixed
compensation under the 1994 Kassar Agreement. In the event the 1994 Kassar
Agreement is terminated as set forth in the preceding sentence, Mr. Kassar will
be entitled to continue to develop certain projects in development by Carolco at
the time of such termination. Mr. Kassar is entitled to the protection of
directors' and officers' insurance policies maintained by Carolco, and Carolco
has agreed to use its best efforts to maintain in effect for not less than six
years after a Change in Control policies of directors' and officers' liability
insurance of at least the same coverage as those maintained by Carolco as of
January 1, 1992. Furthermore, if the 1994 Kassar Agreement expires by its terms
on December 31, 1997 and Mr. Kassar and Carolco do not enter into a new
employment agreement and Carolco produces a remake, sequel or prequel (a
"Subsequent Production") of any motion picture produced by Carolco prior to the
commencement of or during the Term, then, with regard to Subsequent Productions
intended for initial theatrical release, Mr. Kassar will be entitled, in certain
circumstances, to the first opportunity to render services and receive
compensation as a producer or executive producer thereof. Mr. Kassar will also
be entitled to certain "passive" compensation (with no obligation to render any
services whatsoever), (i) with regard to Subsequent Productions intended for
initial theatrical release, if no agreement is reached between Mr. Kassar and
Carolco with respect to Mr. Kassar's services in connection with such motion
pictures, and (ii) with regard to Subsequent Productions intended for initial
release on television (excluding theatrical motion pictures released initially
to pay-for-view prior to theatrical release).

Section 162(m) of the Code, which applies to taxable years beginning on or
after January 1, 1994, provides that no "publicly held corporation" shall be
allowed a deduction for "applicable employee remuneration" to any "covered
employee" in excess of $1 million in any taxable year. Because Mr. Kassar would
be considered a "covered employee" under Section 162(m), the deductibility
limits of this section will apply to the compensation paid to him pursuant to
the 1994 Kassar Agreement.

LYNWOOD SPINKS and Carolco have entered into an agreement for the services
of Mr. Spinks as Executive Vice President/President of Production of Carolco
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 which bears
interest at Carolco'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 is
entitled to a bonus of $50,000 for each motion picture produced by Carolco
during the term of the agreement. In addition, Mr. Spinks' Agreement requires
that he be granted 1,250,000 stock options when Carolco granted options to
certain of its employees promptly following the closing of the Carolco
Restructuring. Because no options were granted in connection with the
Restructuring, these options had not been granted as of the date hereof.
One-third of such options were to become exercisable on June 1, 1994 and one-
half of the remaining options would become exercisable on each of 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. Carolco 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 Carolco for other than a
"Material Breach," "Death," "Retirement" or "Disability" (physical or mental
incapacity for over 120 consecutive days, or for shorter

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periods aggregating 20 weeks within one year), or by Mr. Spinks for (i) the
failure by Carolco to substantially perform a material condition or covenant of
the agreement, or (ii) a "Change in Control" of Carolco, 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 Carolco by any person other than Le Studio, MGM Holdings,
Pioneer or RCS. With respect to Le Studio, MGM Holdings, 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 Carolco 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 Carolco
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 Carolco, 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.

WILLIAM A. SHPALL and Carolco entered into an employment agreement for the
services of Mr. Shpall from May 6, 1992 to May 5, 1995, which terminated upon
his resignation on December 31, 1994. Pursuant to the agreement, Mr. Shpall
served as an Executive Vice President and Chief Financial Officer of Carolco.
Mr. Shpall was 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 have been determined from
time to time by Carolco'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 Carolco Common Stock at an
exercise price of $2.875 per share. During the term of the agreement, Mr. Shpall
was provided with health and disability insurance.

ROBERT W. GOLDSMITH and Carolco have entered into an employment agreement
for the services of Mr. Goldsmith from April 1, 1991 through September 30, 1996.
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,
$245,000 for the fourth year, $265,000 for the fifth year and at an annual rate
of $285,000 for the last 6 months. In addition, under the terms of the
agreement, Mr. Goldsmith received 25,000 stock options for Carolco Common Stock
at an exercise 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, Carolco repurchased such
CSI stock from Mr. Goldsmith for $30,000. If Mr. Goldsmith's employment is
terminated by Carolco 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 and October 1994, Mr. Goldsmith received signing bonuses
of $87,000 and $132,500, respectively, from Carolco upon execution of
amendments to his employment agreement which extended the term to its current
expiration date.

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KAREN A. TAYLOR and Carolco have entered into an employment agreement for
the services of Ms. Taylor as Senior Vice President of Finance from March 20,
1991 through September 30, 1996 as amended on November 1, 1993 and October 1994.
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, $225,000 for the
fourth year, $240,000 for the fifth year and at an annal rate of $255,000 for
the last six months. Pursuant to the agreement, on May 1, 1991, Carolco granted
to Ms. Taylor options to purchase 12,000 shares of Carolco 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 and October 1994, Ms. Taylor received signing bonuses of $50,000 and
$120,000, respectively, from Carolco upon execution of amendments to this
employment agreement which extended the term to its current expiration date. If
Ms. Taylor's employment is terminated by Carolco 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.

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

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

INTRODUCTION

The following table sets forth as of March 31, 1995, certain information
concerning the ownership of shares of Carolco's voting securities: Carolco
Common Stock and Carolco Series A Preferred. The Carolco Series A Preferred
votes on an as converted basis on all matters which may come before the holders
of Common Stock voting together on such matters with the Carolco Common Stock.
Information is provided concerning the ownership of Carolco's voting securities
by (i) the holders known to Carolco of more than 5% of any class of Carolco's
voting securities, (ii) each executive officer and director of Carolco and
(iii) all executive officers and directors of Carolco as a group.

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, 1995. 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
Carolco, the footnotes to the table indicate when shares

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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 Carolco
Common Stock") includes only shares of Carolco Common Stock actually issued and
outstanding as of March 31, 1995. Column 7 ("Shares of Carolco Common Stock in
Which Person Has Right to Acquire Beneficial Ownership Within 60 Days")
provides information with respect to shares of Carolco Common Stock that are not
held by a person as of March 31, 1995, 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 Carolco 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, 1995, regardless of whether the exercise, conversion or other
acquisition price is above or below the current market price for Carolco Common
Stock.

The final two columns of the table show each of the person's, entity's and
group's beneficial ownership of Carolco Common Stock calculated in accordance
with Rule 13d-3(d) (1) under the Exchange Act, and includes shares of Carolco
Common Stock issued and outstanding as of March 31, 1995, 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 Carolco Common Stock by Carolco) exercisable within 60
days of March 31, 1995, 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 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 Carolco's voting
securities (a "5% Owner"). In certain circumstances, a 5% Owner may be deemed to
beneficially own Carolco'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.

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BENEFICIAL OWNERSHIP OF CAROLCO
<TABLE>
<CAPTION>

Number of
Shares of
Issued and
Percent of Number Outstanding
Votes that of Shares Percent Carolco Percent
Beneficial Owners of More than 5% of any may be of New of Common of
of Carolco's Voting Securities Votes Entitled to Cast Cast(2) Preferred Class Stock Class
- ---------------------------------------- --------------------------- ---------- --------- ------- ----------- -------
<S> <C> <C> <C> <C> <C>
New CIBV(3). . . . . . . . . . . . . . . 7,929,328 2.8% 7,929,328 5.8%
Le Studio. . . . . . . . . . . . . . . . 48,490,093(5) 17.0% 12,500 15.2% 26,100,031 19.0%
LDC Films, Inc. ("LDC"). . . . . . . . . 118,068,772(8) 41.4% 40,000 48.5% 46,420,574 33.7%
RCS Communications . . . . . . . . . . . 15,960,316(11) 5.6% 15,960,316 11.6%
MGM Holdings . . . . . . . . . . . . . . 53,736,148(14) 18.8% 30,000 36.3% 0 *
New CIBV, Le Studio, LDC, RCS
Communications and MGM Holdings as
a group (16). . . . . . . . . . . . . 244,184,657(4)(5)(8)(11)(14) 85.6% 82,500 100% 96,410,249 70.1%

MANAGEMENT
Mario F. Kassar (3)(17). . . . . . . . . 7,929,328 2.8% 7,929,328 5.8%
Lynwood Spinks (18). . . . . . . . . . . 0 * 0 *
Karen A. Taylor (19) . . . . . . . . . . 0 * 0 *
Patrizio Casalini (20) . . . . . . . . . 0 * 0 *
Hector P. Dowd (21). . . . . . . . . . . 0 * 0 *
Guy-Etienne Dufour (22). . . . . . . . . 0 * 0 *
Michael E. Garstin (23). . . . . . . . . 5,000 * 5,000 *
Michael S. Hope (24) . . . . . . . . . . 0 * 0 *
Kaneo Ito (25) . . . . . . . . . . . . . 0 * 0 *
Rene-Claude Jouannet (26). . . . . . . . 0 * 0 *
Gordon C. Luce (27). . . . . . . . . . . 0 * 0 *
Ryuichi Noda (28). . . . . . . . . . . . 0 * 0 *
Gregory Pierson (29) . . . . . . . . . . 0 * 0 *
Joseph A. Scudero (30) . . . . . . . . . 0 * 0 *
Adam Singer (31) . . . . . . . . . . . . 0 * 0 *
Masaaki Sono (32) . . . . . . . . . . . 0 * 0 *
Robert W. Goldsmith (33) . . . . . . . . 0 * 0 *
Lewis Weakland (34). . . . . . . . . . . 0 * 0 *
All officers and directors as a group**(35) 7,934,328 2.8% 7,934,328 5.8%

Shares of
Carolco Common
Stock in Which
Person Has Right Amount of Beneficial Ownership of Carolco
to Acquire Common Stock as of March 31, 1995 (1)
Beneficial --------------------------------------------------
Beneficial Owners of More than 5% of any Ownership Number of
of Carolco's Voting Securities Within 60 Days shares Percent
- -------------------------------------------------- ---------------- --------------------------------------------------
<S> <C> <C> <C>
New CIBV(3). . . . . . . . . . . . . . . . . . . . 0 7,929,328(4) 5.8%
Le Studio. . . . . . . . . . . . . . . . . . . . . 35,783,146 61,883,177(6)(7) 36.3%
LDC Films, Inc. ("LDC"). . . . . . . . . . . . . . 88,529,608 134,950,182(9)(10) 60.5%
RCS Communications . . . . . . . . . . . . . . . . 4,476,439 20,436,755(12)(13) 14.7%
MGM Holdings . . . . . . . . . . . . . . . . . . . 53,736,148 53,736,148(15) 28.1%
New CIBV, Le Studio, LDC, RCS
Communications and MGM Holdings as
a group (16). . . . . . . . . . . . . . . . . . 182,525,341 271,006,262(4)(6)(7)(9)(10)(12)(13)(15) 87.2%

MANAGEMENT
Mario F. Kassar (3)(17). . . . . . . . . . . . . . 7,383,223 15,312,551 10.6%
Lynwood Spinks (18). . . . . . . . . . . . . . . . 175,000 175,000 *
Karen A. Taylor (19) . . . . . . . . . . . . . . . 19,000 19,000 *
Patrizio Casalini (20) . . . . . . . . . . . . . . 0 0 *
Hector P. Dowd (21). . . . . . . . . . . . . . . . 100,000 100,000 *
Guy-Etienne Dufour (22). . . . . . . . . . . . . . 0 0 *
Michael E. Garstin (23) . . . . . . . . . . . . . 265,000 265,000 *
Michael S. Hope (24) . . . . . . . . . . . . . . . 0 0 *
Kaneo Ito (25) . . . . . . . . . . . . . . . . . . 100,000 100,000 *
Rene-Claude Jouannet (26). . . . . . . . . . . . . 0 0 *
Gordon C. Luce (27). . . . . . . . . . . . . . . . 100,000 100,000 *
Ryuichi Noda (28). . . . . . . . . . . . . . . . . 155,000 155,000 *
Gregory Pierson (29) . . . . . . . . . . . . . . . 50,000 50,000 *
Joseph A. Scudero (30) . . . . . . . . . . . . . . 100,000 100,000 *
Adam Singer (31) . . . . . . . . . . . . . . . . . 0 0 *
Masaaki Sono (32) . . . . . . . . . . . . . . . . 100,000 100,000 *
Robert W. Goldsmith (33) . . . . . . . . . . . . . 30,000 30,000 *
Lewis Weakland (34). . . . . . . . . . . . . . . . 11,000 11,000 *
All officers and directors as a group**(35). . . . 8,583,223 16,517,551 11.3%

- ----------------
<FN>
* Less than 1%
** 18 persons comprised of all those named above.
</TABLE>

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.

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<PAGE>

(1) The number of shares and percentages are based upon 137,641,353 shares of
Carolco Common Stock outstanding, excluding 2,373,756 shares of treasury stock,
as of March 31, 1995. The shares of Carolco Common Stock underlying immediately
exercisable options, warrants or rights, immediately convertible securities, or
options, warrants, rights or convertible securities that become exercisable or
convertible within 60 days of March 31, 1995 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 285,415,762 possible votes (comprised of (i) the 137,641,353
votes which may be cast by all holders of outstanding Carolco Common Stock and
(ii) the 147,774,409 votes which may be cast by the holders of the Carolco
Series A Preferred (22,390,062 votes by Le Studio, 71,648,198 votes by Pioneer
and 53,736,149 votes by MGM Holdings) as of March 31, 1995. The holders of the
Carolco Series A 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 Carolco 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, JB48YE Channel Islands.

(4) Includes 7,929,327 shares of Carolco Common Stock held by New CIBV which
are pledged to Le Studio, 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 Carolco Common Stock indirectly owned by Le
Studio through its wholly owned subsidiary Cinepole, and 22,390,062 shares of
Carolco Common Stock issuable upon conversion of the 12,500 shares of Carolco
Series A Preferred (plus accrued but unpaid dividends through March 31, 1995)
held by Le Studio through Cinepole.

(6) Le Studio owns 100% of the outstanding stock of Cinepole. Includes
22,390,062 shares of Carolco Common Stock issuable upon conversion of the 12,500
shares of Carolco Series A Preferred (plus accrued but unpaid dividends through
March 31, 1995) held by Le Studio through Cinepole. The Carolco Series A
Preferred is entitled to vote together with the Carolco Common Stock on all
matters coming before the holders of the Carolco Common Stock as if its holder
had converted the Carolco Series A Preferred into Carolco Common Stock. On that
basis, Le Studio is entitled to cast 22,390,062 votes on matters coming before
the holders of Carolco Common Stock pursuant to its ownership of the Carolco
Series A Preferred. In addition, the Carolco Series A Preferred is entitled to
vote separately as a class in certain limited circumstances. Also includes
9,999,975 shares of Carolco Common Stock issuable upon conversion of $7,500,000
in aggregate principal amount of Carolco 7% Notes (outstanding as of March 31,
1995) held by Le Studio through Cinepole, which are convertible. Cinepole has
informed Carolco that it has shared voting power and shared investment power
over all of its currently held securities with Le Studio and Le Studio's
corporate parent, Canal+ S.A. The address of Cinepole is Surinameweg 2, NL- 2035
VA Haarlem, The Netherlands. The address of Le Studio is 17, rue Dumont
d'Urville, 75116 Paris, France. The address of Canal+ S.A. is 85-89, Quai Andre
Citroen, 75015 Paris, France.

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<PAGE>

(7) Includes 2,643,109 shares of Carolco Common Stock, pursuant to Rule
13-3(d) (3) (i) of the Exchange Act, over which Le Studio has a first priority
security interest and over which Le Studio does not exercise voting or
dispositive power. Also includes 500,000 shares of Carolco Common Stock over
which Le Studio does not exercise voting or dispositive power which are issuable
upon exercise of a call right. See "- Certain Transactions Involving New CIBV
and the Strategic Investors" below. Includes options to purchase 250,000 shares
of Carolco Common Stock held by former directors of the Company who are
affiliated with Le Studio.

(8) Includes 46,420,574 shares of Carolco Common Stock directly owned by LDC
and 71,648,198 shares of Carolco Common Stock issuable upon conversion of the
40,000 shares of Carolco Series A Preferred (plus accrued but unpaid dividends
through March 31, 1995) held by LDC.

(9) Includes 71,648,198 shares of Carolco Common Stock issuable upon
conversion of the 40,000 shares of Carolco Series A Preferred (plus accrued but
unpaid dividends through March 31, 1995) held by LDC. The Carolco Series A
Preferred is entitled to vote together with the Carolco Common Stock on all
matters coming before the holders of the Carolco Common Stock as if its holder
had converted the Carolco Series A Preferred into Carolco Common Stock. On that
basis, LDC is entitled to cast 71,648,198 votes on matters coming before the
holders of Carolco Common Stock pursuant to its ownership of the Carolco Series
A Preferred. In addition, the Carolco Series A Preferred is entitled to vote
separately as a class in certain limited circumstances. Also includes
13,333,300 shares of Carolco Common Stock issuable upon conversion of
$10,000,000 in aggregate principal amount of Carolco 7% Notes (outstanding as of
March 31, 1995) held by LDC which are convertible. Pioneer Electronic
Corporation owns all of the outstanding capital stock of Pioneer LDC, Inc.,
which in turn owns all of the outstanding shares of capital stock of LDC. In
their most recent Schedule 13D filed with the Commission, Pioneer Electronic
Corporation also claimed beneficial ownership over all of the securities of
Carolco held by LDC. The address of Pioneer Electronic Corporation, LDC and
Pioneer LDC, Inc. is 4-1 Meguro, 1 Chome, Meguro-ku, Tokyo 153, Japan.

(10) Includes 2,643,109 shares of Carolco Common Stock, pursuant to Rule
13d-3(d) (3) (i) of the Exchange Act, over which Pioneer Entertainment (USA)
L.P. ("Pioneer Entertainment") has a first priority security interest and over
which Pioneer Entertainment does not exercise voting or dispositive power. Also
includes 500,000 shares of Carolco Common Stock over which Pioneer Entertainment
does not exercise voting or dispositive power which are issuable upon exercise
of a call right. See "-- Certain Transactions Involving New CIBV and the
Strategic Investors" below. Pioneer Electronic Corporation owns all the
outstanding capital stock of Pioneer LDC, Inc., which in turn owns all of the
outstanding capital stock of LDC Films (USA), Inc. which is the general partner
of Pioneer Entertainment. Includes options to purchase 405,000 shares of Carolco
Common Stock held by Pioneer Electronic Corporation affiliated or nominated
directors.

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

(12) Includes 1,333,330 shares of Carolco Common Stock issuable upon
conversion of $1,000,000 in aggregate principal amount of Carolco 7% Notes
(outstanding as of March 31, 1995) held by RCS Communications, which are
convertible. 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

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<PAGE>

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
Carolco 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 Carolco 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 500,000 shares of Carolco Common
Stock over which RCS and RCS Editori S.p.A. do not exercise voting or
dispositive power which are issuable upon exercise of a call right. See "--
Certain Transactions Involving New CIBV and the Strategic Investors" below.

(14) Includes 53,736,148 shares of Carolco Common Stock issuable upon
conversion of the 30,000 shares of Carolco Series A Preferred (plus accrued but
unpaid dividends through March 31, 1995) held by MGM Holdings.

(15) MGM Holdings is 100% owned by Credit Lyonnais International Services
S.A., which is 100% owned by Credit Lyonnais S.A. Includes 53,736,148 shares of
Carolco Common Stock issuable upon conversion of the 30,000 shares of Carolco
Series A Preferred (plus accrued but unpaid dividends through March 31, 1995)
held by MGM Holdings. The Carolco Series A Preferred is entitled to vote
together with the Carolco Common Stock on all matters coming before the holders
of the Carolco Common Stock as if its holder had converted the Carolco Series A
Preferred into Carolco Common Stock. On that basis, MGM Holdings is entitled to
cast 53,736,148 votes on matters coming before the holders of Carolco Common
Stock pursuant to its ownership of the Carolco Series A Preferred. In addition,
the Carolco Series A Preferred is entitled to vote separately as a class in
certain limited circumstances. Does not include 53,167,627 shares of Carolco
Common Stock issuable upon conversion of $31,900,570 in aggregate principal
amount of Carolco 5% Notes (outstanding as of March 31, 1995) which are
convertible under certain circumstances, but are not presently convertible
within 60 days of March 31, 1995. In their Schedule 13D dated October 13, 1994,
MGM Holdings, Credit Lyonnais International Services S.A. and Credit Lyonnais
S.A. claimed shared voting power and shared investment power over 104,928,758
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.

(16) The information regarding such a group is given for illustrative purposes
only, and is not to be considered an admission by Carolco 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 and Canal+ S.A. filed an Amendment No.9 to Schedule 13D with the
Commission stating that RCS, Pioneer, MGM Holdings, New CIBV and Le Studio 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 Holdings, New CIBV and Le Studio 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

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<PAGE>

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+ 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 Carolco Restructuring. Although the
Strategic Investors, MGM Holdings and New CIBV have only a limited agreement
amongst themselves as to certain voting agreements set forth in the stockholders
agreement described under "Item 10 - Directors and Executive Officers of
Registrant -- Management Arrangements -- Stockholders Agreement," and although
the Strategic Investors have different interests as to Carolco, information has
been included in the table above as if a change in control of Carolco has
occurred. Information in Amount of Beneficial Ownership of Carolco Common Stock
does not include 7,929,327 shares of Carolco Common Stock over which Le Studio,
Pioneer Entertainment and RCS have a first priority security interest and over
which they do not exercise voting or dispositive power.

(17) Mr. Kassar is the Chairman of the Board of Directors and Chief Executive
Officer of Carolco. Mr. Kassar may be deemed to own beneficially the securities
owned by New CIBV. Includes 7,383,223 shares of Carolco Common Stock which are
issuable to Mr. Kassar upon exercise of presently exercisable options (or
options exercisable within 60 days of March 31, 1995), 6,838,223 of which were
granted pursuant to Mr. Kassar's prior and current employment agreements.

(18) Includes 175,000 shares of Carolco Common Stock which are issuable upon
exercise of presently exercisable options (or options exercisable within 60 days
of March 31, 1995), 25,000 of which were granted pursuant to Mr. Spinks' prior
employment agreement.

(19) Includes 19,000 shares of Carolco Common Stock which are issuable upon
exercise of presently exercisable options (or options exercisable within 60 days
of March 31, 1995), 12,000 of which were granted pursuant to Ms. Taylor's
employment agreement.

(20) Mr. Casalini is General Manager, Head of Films & TV Business of RCS
Editori S.p.A. and a director of Carolco. Mr. Casalini owns no shares.

(21) Includes 100,000 shares of Carolco Common Stock which are issuable to Mr.
Dowd upon exercise of presently exercisable options (or options exercisable
within 60 days of March 31, 1995).

(22) 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 MGM, Secretary of MGM Holdings, and a director of
Carolco. Although Mr. Dufour may 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 100,000 shares of
Carolco Common Stock which he was entitled to receive on December 1, 1993 and
December 1, 1994 for his service as a director of Carolco.

(23) Includes 260,000 shares of Carolco Common Stock which are issuable to Mr.
Garstin upon exercise of presently exercisable options (or options exercisable
within 60 days of March 31, 1995).

(24) Mr. Hope is Executive Vice President of MGM, and a director of Carolco.
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 150,000 shares of Carolco Common
Stock which he was entitled to receive on December 1, 1993 and December 1, 1994

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<PAGE>

for his service as a member of the Supervisory Committee of the Board of
Directors and as a director of Carolco.

(25) Mr. Ito is the Senior Managing Director, Representative Director and
General Manager of the International Business Group of Pioneer Electronic
Corporation, and a director of Carolco. Although Mr. Ito may be deemed to own
beneficially the securities owned by LDC and Pioneer, Mr. Ito has disclaimed
beneficial ownership of such securities. Includes 100,000 shares of Carolco
Common Stock which are issuable to Mr. Ito upon exercise of presently
exercisable options (or options exercisable within 60 days of March 31, 1995).

(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 Carolco. 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 100,000 shares of Carolco Common Stock which he was
entitled to receive on December 1, 1993 and December 1, 1994 for his service as
a director of Carolco.

(27) Includes 100,000 shares of Carolco Common Stock which are issuable to Mr.
Luce upon exercise of presently exercisable options (or options exercisable
within 60 days of March 31, 1995).

(28) Mr. Noda is the President of Pioneer LDC, Inc., a director of Pioneer
Electronic Corporation, and a director of Carolco. Although Mr. Noda may be
deemed to own beneficially the securities owned by LDC and Pioneer, Mr. Noda has
disclaimed beneficial ownership of such securities. Includes 155,000 shares of
Carolco Common Stock which are issuable to Mr. Noda upon exercise of presently
exercisable options (or options exercisable within 60 days of March 31, 1995).

(29) Mr. Pierson is General Counsel of Pioneer North America, Inc. and a
director of Carolco. Although Mr. Pierson may be deemed to own beneficially the
securities owned by LDC and Pioneer, Mr. Pierson has disclaimed beneficial
ownership of such securities. Includes 50,000 shares of Carolco Common Stock
which are issuable to Mr. Pierson upon exercise of presently exercisable options
(or options exercisable within 60 days of March 31, 1995).

(30) Includes 100,000 shares of Carolco Common Stock which are issuable to
Mr. Scudero upon exercise of presently exercisable options (or options
exercisable within 60 days of March 31, 1995).

(31) Mr. Singer is the President and Chief Operating Officer of TCI
International Holdings, Inc. and a director of Carolco. Mr. Singer declined to
accept options to acquire 100,000 shares of Carolco Common Stock which he was
entitled to receive on December 1, 1993 and December 1, 1994 for his service as
a director of Carolco.

(32) Mr. Sono is the Senior Managing Director of Pioneer Electronic
Corporation, a director of Pioneer Electronic Corporation, and a director of
Carolco. Although Mr. Sono may be deemed to own beneficially the securities
owned by LDC and Pioneer, Mr. Sono has disclaimed beneficial ownership of such
securities. Includes 100,000 shares of Carolco Common Stock which are issuable
to Mr. Sono upon exercise of presently exercisable options (or options
exercisable within 60 days of March 31, 1995).

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<PAGE>

(33) Includes 30,000 shares of Carolco Common Stock which are issuable upon
exercise of presently exercisable options (or options exercisable within 60 days
of March 31, 1995), 25,000 of which were granted pursuant to Mr. Goldsmith's
employment agreement.

(34) Includes 11,000 shares of Carolco Common Stock which are issuable upon
exercise of presently exercisable options (or options exercisable within 60 days
of March 31, 1995), 9,000 of which were granted pursuant to Mr. Weakland's
employment agreement.

(35) Includes shares of Carolco Common Stock which are issuable (a) upon
exercise of presently exercisable options and (b) upon exercise of options that
become exercisable within 60 days of March 31, 1995.

CERTAIN TRANSACTIONS INVOLVING NEW CIBV AND THE STRATEGIC INVESTORS

Valdina Corporation N.V. ("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 Le Studio, 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 were due March 31, 1995, was 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 (the "Pledged Shares")
pursuant to security and pledge agreements dated as of March 23, 1992.

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, but the put is not exercisable if the Market Price is less than
$2,00 a share. This put right generally (subject to certain limitations) is for
1,500,000 of the Valdina Shares in the final Put Year (as defined in the Note
Purchase Agreements). 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
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 and the
associated registration rights for a

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<PAGE>

purchase price of $5.50 per share during the period from April 1, 1993 through
March 31, 1996. This call right generally (subject to certain limitations) is
for 1,500,000 of the Valdina Shares in the final call year (as defined in the
Note Purchase Agreements). In addition during the final 60 days of each call
year, each Strategic Investor may purchase Valdina Shares subject to unexercised
call rights. 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 Report, 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 was evidenced by separate non-interest bearing
non-recourse secured promissory notes of New CIBV (the "New CIBV Notes"). New
CIBV agreed to repay the New CIBV Notes from 100% of the Production-related
Incentive Compensation (as such term is defined in the 1992 Kassar Agreement)
and 75% of the Turnaround Incentive Compensation (as such term is defined in the
1992 Kassar Agreement) which may be payable to Mr. Kassar under the terms of the
1992 Kassar 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 provided that New CIBV would amend the Strategic Investor Notes
(as amended, the "Amended Notes") to contain the following modifications:
(i) the principal amount of each Amended Note equaled 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 was fixed at 6.25% per annum, (iii) interest was cumulative
(compounded quarterly) from April 30, 1993 through and including December 31,
1994 and (except as otherwise provided in the First Amendment) was not due and
payable

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until December 31, 1997; from January 1, 1995 through and including December 31,
1997, interest would have been 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 was December 31, 1997.

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. In the event that New CIBV defaults
on its obligations under the Amended 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 terms of the First Amendment 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
1993 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 1993 Kassar Agreement) paid to Mr. Kassar in cash by the
Company and (ii) 75% of the Turnaround Compensation (as defined in the 1993
Kassar Agreement and in the 1994 Kassar Agreement) payable to Mr. Kassar under
the terms of the 1993 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 the 1992 Kassar
Agreement.

New CIBV, the Strategic Investors and certain other parties listed
therein entered into a Second Amendment to the Inducement Agreement, dated as of
August 10, 1994, pursuant to which the Amended Notes were amended (as amended,
the "Second Amended Notes"). The Second Amended Notes contain the following
modifications: (i) the principal amount of each Second Amended Note is the
outstanding principal amount of the Amended Notes together with all accrued and
unpaid interest through July 31, 1994 on the Amended Notes and (ii) interest is
not due and payable until December 31, 1997. The First Amendment remains
applicable with respect to the Three Percent Fee and Turnaround Compensation
paid to Mr. Kassar under the 1993 Kassar Agreement or the 1994 Kassar Agreement.

See "Item 11. - Executive Compensation - Employment Agreements" for a
description of the 1994 Kassar Agreement.

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CERTAIN TRANSACTIONS INVOLVING THE STRATEGIC INVESTORS

Pioneer, Cinepole, RCS, RCS Communications and MGM Holdings entered into
an agreement with respect to certain subordination arrangements pursuant to
which, upon any liquidation, dissolution or winding up of Carolco (other than in
connection with a merger or consolidation in which Carolco is the surviving
entity), the securities representing the investment in Carolco by the Strategic
Investors prior to the Restructuring are contractually subordinated in right of
payment to any Carolco Common Stock resulting from the conversion of any Carolco
Series A Preferred or Carolco 5% Notes.

MGM Holdings and Cinepole have entered into an agreement with respect to
certain put and call arrangements in connection with the 5% Notes pursuant to
which MGM Holdings would have the right to put, and Cinepole would have the
right to call, a number of shares of Common Stock equal to 50% of the original
aggregate principal amount of 5% Notes held by MGM Holdings plus 50% of the
principal amount of any 5% Notes issued to MGM Holdings in lieu of cash interest
on such 5% Notes, multiplied by the conversion rate in effect at such time,
subject to certain adjustments. Cinepole would have the right, at the time of
an exercise of the aforementioned put, to satisfy its obligations thereunder in
whole or in part with 7% Notes.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

TRANSACTIONS WITH STRATEGIC INVESTORS

Each of the Strategic Investors and MGM Holdings is a beneficial owner of
more than 5% of the Company's Common Stock. See "Item 12 - Security Ownership
of Certain Beneficial Owners and Management" for a description of the beneficial
ownership of the Company's voting securities by the Strategic Investors and MGM
Holdings. 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. In addition, Kaneo Ito,
a director of the Company, is also the Senior Managing Director, Representative
Director and General Manager of the International Business Group of Pioneer
Electronic. Patrizio Casalini, a director and member of the Supervisory
Committee of the Company, is also General Manager, Head of Films & TV Business
of RCS Editori S.p.A. 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 addition, from 1993
until his resignation in November 1994, Olivier Granier (Executive Vice
President Finance and Administration of Le Studio) served as a director and a
member of the Supervisory Committee of the Company. From 1993 until his
resignation in March 1995, Michael Meltzer (director, Executive Vice President
and Chief Financial Officer of Le Studio U.S.) served as a director of the
Company. From 1993 until his resignation in March 1995, Pierre Lescure (Chief
Executive Officer and director of Canal+ S.A. and Chairman of the Board and
Chief Executive Officer of Le Studio) served as a director of the Company.

On January 15, April 15, July 15 and October 15, 1994, an additional
$354,167, $379,427, $384,170 and $388,972, respectively, in aggregate principal
amount of 5% Notes were issued to MGM

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Holdings, representing the in-kind quarterly interest payment due on the
$30,000,000 aggregate principal amount of 5% Notes outstanding. The in-kind
quarterly dividends due on the Series A Preferred Stock owned by MGM Holdings,
Pioneer and Cinepole have not been paid since January 1, 1994 due to
insufficient surplus. As a result, at March 31, 1995, $6,157,000 has been
accrued to the Series A Preferred Stock.

INTERIM FINANCING ARRANGEMENTS

In October 1994, Carolco consummated the Interim Financing Arrangements
which provided Carolco with additional cash of approximately $18,500,000. The
Interim Financing Arrangements, which involved the Strategic Investors,
consisted of the following transactions:

Pioneer, Pioneer LDC, Inc., an affiliate of Pioneer, and Carolco entered
into an Agreement dated as of October 14, 1994 pursuant to which Carolco
received a prepayment of approximately $6,700,000 from Pioneer in distribution
fees arising from the video distribution in Japan of TERMINATOR 2: JUDGMENT DAY
and theatrical, video and pay television distribution in Japan of CLIFFHANGER.
The amounts from CLIFFHANGER were paid to Carolco pursuant to an agreement
entered into by and among the co-producers of CLIFFHANGER.

Carolco and RCS entered into the RCS Waiver Agreement whereby RCS waived
certain conditions subject to which RCS was required to purchase 7% Notes on
December 30, 1994 under the Standby Agreement. In exchange for the
accommodations by RCS, the parties agreed to reduce the principal amount of 7%
Notes to be purchased by RCS under the Standby Agreement from $2,500,000 to
$1,000,000 and RCS agreed to purchase on December 30, 1994, a portion of
Carolco's interest in the motion picture CUTTHROAT ISLAND for $1,500,000 on
terms that are no less favorable than those applicable to TCI and Le Studio
under the Co-Production Investments.

Carolco and Le Studio U.S. entered into an Amendment to the Exclusive
Agency Agreement dated as of October 14, 1994 whereby Le Studio U.S. prepaid
$2,000,000 of sales commissions to Carolco for serving as the foreign sales
agent for the motion picture STARGATE. See "- Other Transactions with the
Strategic Investors - Le Studio" for more a complete discussion of the
arrangements with Le Studio U.S. regarding STARGATE.

STANDBY AGREEMENT FUNDING

In December 1994 and January 1995, the Company consummated the following
transactions with the Strategic Investors in accordance with the Standby
Agreement:

On December 12, 1994, Pioneer agreed to purchase in advance $5 million in
aggregate principal amount of 7% Notes. On December 30, 1994, Pioneer purchased
the remaining $5 million of 7% Notes as required under the Standby Agreement.

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On December 30, 1994, Cinepole Productions B.V. purchased $7,500,000 in
aggregate principal amount of 7% Notes. In addition, on December 30, 1994,
LSC+and TCI purchased limited partnership interests in Cutthroat Island L.P. in
exchange for $6 million in accordance with the terms of the Standby Agreement.
Adam Singer, a member of the Board of Directors of the Company, is also the Vice
President - International for TCI. Pursuant to the partnership agreement, LSC+,
TCI and an affiliate of Carolco are each entitled to receive a participation in
certain revenues generated from the exploitation of CUTTHROAT ISLAND, following
repayment of the Production Loan and the payment of (or establishment of
reserves for) certain third party obligations, as follows: First, LSC+, TCI and
the Carolco affiliate are entitled to receive approximately 10%, 6%, and 84%,
respectively, of revenues until LSC+ and TCI recoup their preferred return
(which equals 10% per annum on their initial capital contributions) plus their
initial capital contributions. Second, the Carolco affiliate is entitled to
receive all revenues until it recoups a distribution fee equal to 10% of the
receipts from the distribution of the film in certain territories and an
overhead reimbursement fee. Third, LSC+, TCI and the Carolco affiliate are
entitled to receive approximately 10%, 6%, and 84%, respectively, of revenues
until LSC+ and TCI have each received an amount equal to their capital
contributions. Thereafter, LSC+, TCI and the Carolco affiliate are entitled to
receive approximately 5%, 3%, and 92%, respectively, of remaining revenues.

On January 19, 1995, RCS purchased a participation interest in CUTTHROAT
ISLAND from an affiliate of Carolco in exchange for payment of $1,500,000, as
contemplated by the Interim Financing Arrangements. Pursuant to its
participation interest, RCS is entitled to receive payments from Carolco's
affiliate when TCI and LSC+ receive distributions. RCS is to receive a
percentage determined by dividing RCS' payment by the aggregate capital
contributions of TCI and LSC+ pursuant to the partnership agreement described
above.

OTHER TRANSACTIONS WITH THE STRATEGIC INVESTORS

In addition to the transactions discussed above, Carolco has engaged in a
number of other transactions with the Strategic Investors and MGM Holdings which
are summarized below.

Le Studio, Pioneer and RCS entered into a series of co-production
agreements with respect to the production of CLIFFHANGER. Pursuant to these
co-production agreements, Le Studio, Pioneer and RCS made equity contributions
in the aggregate amount of $16,579,000 bearing interest at 3-month LIBOR plus
1.5% per annum. As of March 31, 1995, such equity contributions, including
accrued interest, had been repaid in full to each Le Studio, Pioneer and RCS.
As of March 31, 1995, Carolco had advanced a total of $5,704,000 toward the
production costs of CLIFFHANGER. Pioneer, Le Studio, RCS and Carolco are each
entitled to receive a participation in certain net revenues generated from the
exploitation of CLIFFHANGER, following recoupment by Pioneer, Le Studio, RCS and
Carolco of their investments plus interest, and payment of certain third party
obligations and CINV's deferred distribution fees. Participation in such
revenues will be approximately as follows: Carolco, 42%; RCS, 5%; Pioneer, 24%;
and Le Studio, 29%. As of March 31, 1995, no such participation in the net
revenues of CLIFFHANGER had yet been paid. During the year ended December 31,
1994, and pursuant to the Interim Financing Arrangements, CINV had received
approximately $3,419,000 of its deferred distribution fees.

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CINV sold to Le Studio and Pioneer equal participations in Carolco's remaining
50% interest in the project in return for $2,070,000 from each of Le Studio and
Pioneer. The final participation interest of each of Pioneer and Le Studio will
be equal to a percentage determined by comparing the investment of each of
Pioneer and Le Studio to the final production cost of the project. Carolco has
the right to repurchase, before commencement of principal photography, the
participations sold to Le Studio and Pioneer for the original purchase price
plus interest at 6-month LIBOR plus 1 1/2%. As discussed below, RCS has agreed
to transfer all of its interest in this project back to Carolco.

In June 1990, Carolco, through a nominee of CINV, and Le Studio formed a
partnership (the "Carolco/Le Studio Partnership"). In January 1992, the
Carolco/Le Studio Partnership entered into a co-financing arrangement with Le
Studio and RCS pursuant to which CINV, Le Studio and RCS each made co-financing
payments equal to one-third of the total production cost of the motion picture
CHAPLIN. The co-financing payments earn interest at 3-month LIBOR plus 2% per
annum. CINV, Le Studio and RCS each contributed $13,337,000 to the production
costs of CHAPLIN. In exchange for their co-financing payments, Le Studio 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 Le Studio and RCS are reduced. As of March 31,
1995, Carolco had paid $6,442,000 to each of Le Studio and RCS, representing
their share of the net receipts of CHAPLIN. At December 31, 1994 and March 31,
1995, respectively, CINV had recorded an obligation of $5,445,000 and $5,459,000
collectively to Le Studio and RCS.

RCS has asserted a claim of approximately $4,700,000 against Carolco
alleging that Carolco guaranteed certain levels of performance and agreed to
reimburse a portion of RCS's unrecouped investment in the motion picture
CHAPLIN. Carolco believes that the alleged guarantees have been relinquished.
Carolco and RCS have reached an agreement in principle as to the settlement of
RCS' claim pursuant to which, subject to execution of definitive documentation,
Carolco will pay RCS $4,000,000 and RCS will waive all claims relating to
CHAPLIN and quitclaim to Carolco all of its ownership and other interest in the
motion picture development project sold to RCS in March 1992 and discussed
above.

MGM

In connection with the production of CUTTHROAT ISLAND, CLBN, an affiliate
of MGM, was one of the lead lenders providing the Production Loan. See "Item 7
- - Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources." In addition, MGM has agreed to
distribute CUTTHROAT ISLAND domestically and internationally pursuant to the
distribution agreement described above under "Item 1 - Business - The Business
of Carolco - Distribution of Motion Pictures and Other Products."

LE STUDIO

Le Studio has asserted a claim against Carolco alleging that Carolco
guaranteed certain levels of performance and agreed to reimburse a portion of Le
Studio's unrecouped investment in the motion picture CHAPLIN. Le Studio has not
specified the amount of its claim. Le Studio has also claimed that Carolco is
obligated to pay $500,000 as reimbursement for expenses incurred by Le Studio in
connection with certain restructuring transactions consummated in 1992. Carolco
believes that Le Studio relinquished its claim

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for reimbursement as part of the Restructuring. Although Carolco and Le Studio
are discussing these claims, Carolco is unable to predict the outcome of these
disputes.

In March 1991, Le Studio loaned Carolco $5,880,000 pursuant to a
participation loan agreement entered into between Carolco and Le Studio, 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. Le Studio will receive 7.64% of Carolco's gross receipts from
TERMINATOR 2: JUDGMENT DAY until Le Studio and Carolco have recouped their
investment. Thereafter, Le Studio will receive 3.82% of Carolco's gross
receipts. Le Studio recouped its investment in 1993. During the year ended
December 31, 1994 and the three months ended March 31, 1995, Carolco made no
payments to Le Studio under this agreement. At March 31, 1995, Carolco had an
obligation of approximately $9,000 due to Le Studio representing its share of
the revenues recognized through March 31, 1995 from TERMINATOR 2: JUDGMENT DAY.
There was no corresponding obligation at December 31, 1994.

Also, pursuant to an investment agreement entered into in July 1991,
Carolco received $8,343,000 from Le Studio 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, Le Studio is to receive 20% of Carolco's gross
receipts from BASIC INSTINCT until Le Studio has recouped its investment, plus
interest. As of December 31, 1993, Le Studio had recouped its investment, plus
interest. Thereafter, Le Studio is entitled to receive a 10% participation
interest in any net receipts from BASIC INSTINCT after Carolco recoups its
investment plus certain fees and expenses. In addition, Le Studio was granted an
undivided ownership interest with Carolco in the film's copyright, subject to
certain conditions. During the year ended December 31, 1994 and the three months
ended March 31, 1995, Carolco made no payments to Le Studio under this
agreement. At December 31, 1994 and March 31, 1995, Carolco had recorded a
liability of approximately $1,097,000 and $1,272,000, respectively, to Le Studio
as its share of the revenues recognized from BASIC INSTINCT after recoupment by
Carolco of its investment, plus certain fees and expenses.

In November 1990, the Carolco/Le Studio Partnership entered into a
co-financing agreement whereby each party agreed to be responsible for 50% of
the costs of the motion picture DARK WIND. Carolco and Le Studio are each
entitled to 50% of the net receipts from the film until each has recouped its
investment in the film costs, plus interest. Thereafter, Carolco is entitled to
75% of the net receipts and Le Studio is entitled to 25% of the net receipts.
During the year ended December 31, 1994 and the three months ended March 31,
1995, Carolco made no payments to Le Studio under this agreement. At March 31,
1995, Carolco owed $251,000 to Le Studio under this agreement based on revenues
recognized through March 31, 1995.

At December 31, 1994 and March 31, 1995, Carolco had accounts receivable
of $4,172,000 and $4,523,000, respectively, from Le Studio. The largest amount
owed to Carolco by Le Studio since the beginning of 1994 was $4,523,000. These
receivables represent minimum guarantees due to Carolco pursuant to distribution
agreements, pursuant to which Le Studio obtained certain rights to distribute
Carolco's films for pay and free television in France. In the year ended
December 31, 1994, Carolco received cash payments of approximately $250,000 from
Le Studio, representing advances related to certain of Carolco's motion picture
releases. No such advances were received by Carolco for the three months ended
March 31, 1995.

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On September 11, 1992, Carolco entered into an agreement with Hexagon
Films (U.S.), a former indirect subsidiary of Le Studio ("Hexagon") to provide
non-exclusive executive producing services for the motion picture STARGATE, for
which Carolco received $1,000,000, paid ratably over the production period,
plus, at the election of Carolco, either (i) 1% of the cash receipts from the
exploitation of the picture (provided that Hexagon shall have 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. On December 12, 1994, the Company
elected to receive its contingent compensation participation interest using
option (i). Under the terms of his employment agreements, Mr. Kassar is
entitled to receive, as Turnaround Compensation, 50% of the amounts received by
Carolco under the agreement with Hexagon. $800,000 of the $1,000,000 due to
Carolco under the agreement was paid in 1993 and $200,000 was paid in 1994.
Carolco, in turn, paid $400,000 in 1993 and $100,000 in 1994 to Mr. Kassar. In
addition, Hexagon retained Carolco to serve as foreign sales agent for the film
in all foreign territories (except France and certain French-speaking
territories). For its services, Carolco is entitled to a sales commission on all
amounts received as a result of the Company's sales agency services. As of
December 31, 1994, Le Studio had paid the Company $2,000,000 in sales
commissions. In addition, at December 31, 1994 and March 31, 1995, the Company
had additional sales commissions receivable of $736,000. In July 1993, Hexagon
was merged into Le Studio U.S., which assumed all rights and obligations of
Hexagon under this agreement.

In July 1994, Carolco and an affiliate of Le Studio reached an agreement
whereby the Le Studio affiliate will receive the rights in most of French-
speaking Europe to the motion picture WAGONS EAST. Pursuant to the agreements
described in "Item 1 - Business - The Business of Carolco - Motion Picture
Strategy" above, in July 1994, Carolco assigned this agreement to an affiliate
of LIVE.

RCS

The largest amount owed to Carolco by RCS since the beginning of 1994 was
$880,000. These receivables represent minimum guarantees due to Carolco pursuant
to distribution agreements wherein RCS obtained certain rights to distribute
Carolco's films in all media in Italy.

PIONEER

At December 31, 1994 and March 31, 1995, Carolco had accounts receivable
of approximately $2,000 and $58,000, respectively, from Pioneer. The largest
amount owed to Carolco by Pioneer since the beginning of 1994 was $58,000. These
receivables represent minimum guarantees due to Carolco pursuant to distribution
agreements with Pioneer.

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 of the
DGCL, Carolco is paying the expenses of certain directors incurred in their
defense of certain lawsuits described under "Item 3 - Legal Proceedings - Class
Action Litigation." During the fiscal year ended December 31, 1994, legal
expenses paid on behalf of such directors and former directors and on behalf of
Mario F. Kassar, Chairman of the Board of Directors, were insignificant.

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In October 1993, Carolco made a loan of $300,000 to Mr. Spinks pursuant
to Mr. Spinks' employment agreement. The loan bears interest at Carolco'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
Carolco on the termination of Mr. Spinks' employment for any reason whatsoever
other than termination by Carolco for Mr. Spinks'
material breach as defined in the agreement. The largest amount of all
indebtedness owed to Carolco by Mr. Spinks since the beginning of 1994 was
$306,000, and at March 31, 1995, $164,000 was outstanding.

On January 20, 1994, Carolco retained Daniels to act as its financial
advisor in connection with the proposed business combination of Carolco and
LIVE. See "Item 1 - Business - Recent Developments - Proposed Business
Combination with LIVE Entertainment Inc." Michael E. Garstin, a principal in
Daniels, is a member of the Company's Board of Directors and the Supervisory
Committee. In consideration of the services to be provided by Daniels, Carolco
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, which
was paid in September 1994, and (iii) $450,000 upon closing of the business
combination. Due to the termination of the Merger Agreement, the final payment
was not made. In addition, Carolco 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 was consummated. The Merger Agreement
with respect to the business combination was terminated in October 1994.

On January 1, 1995, the Company retained Daniels and Jefferson Capital
Group ("Jefferson") to act as the Company's non-exclusive financial advisors and
agents of the Company and assist the Company in locating capital sources, to
market for sale substantially all of the Company's film library rights, to make
recommendations with respect to any transactions which may result and to
consider a possible restructuring of the Company's capital structure. In
consideration of the services to be provided by Daniels and Jefferson, Carolco
agreed to pay $1,800,000, payable over twelve months at the rate of $150,000 per
month. Carolco is required to make a minimum of six monthly payments under the
agreement with 60% of all fees paid to Daniels and 40% paid to Jefferson. In
addition, Carolco agreed to pay all reasonable out-of-pocket expenses incurred
by Daniels and Jefferson up to $100,000. Pursuant to this arrangement, as of
March 31, 1995, the Company had paid $270,000 to Daniels and $180,000 to
Jefferson.

New CIBV, a company controlled by affiliates of Mr. Kassar, is the maker
of the Second Amended Notes in favor of each of the Strategic Investors. As of
March 31, 1995, the principal and accrued interest on each of the Second Amended
Notes totaled approximately $3,809,806. See "Item 2 - Security Ownership of
Certain Beneficial Owners and Management - CLBN Loan Agreement - New CIBV."

In connection with the 1994 Kassar Agreement, Mr. Kassar 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 $1,572,000 and
$1,603,000 was recorded by the Company at each of December 31, 1994 and March
31, 1995, 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
1993 Kassar Agreement and the 1994 Kassar Agreement provide a separate formula
for similar producer's fees for motion pictures as to which principal
photography commences from

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January 1, 1993 through the term of the 1994 Kassar Agreement. Other than WAGONS
EAST, no motion picture commenced principal photography in 1993. CUTTHROAT
ISLAND commenced principal photography during 1994.

Other than as described above, at December 31, 1994 and March 31, 1995,
receivables of $81,000 and $99,000, respectively, were due to Carolco from
directors, officers and/or employees of Carolco.

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PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENTS 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, 1993 and 1994

Consolidated statements of operations - Years ended December 31, 1992,
1993 and 1994

Consolidated statements of cash flows - Years ended December 31, 1992,
1993 and 1994

Consolidated statements of stockholders' deficiency - Years ended
December 31, 1992, 1993 and 1994

Notes to consolidated financial statements

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

Schedule II - Valuation and qualifying accounts

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 13, 1994, filed by the
Registrant pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 and reporting under Item 5 and 7 with respect to the Termination of the
Proposed Merger with LIVE Entertainment Inc. and Consummation of Interim
Financing Arrangements.

-86-

<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 13, 1995

Pursuant to the requirements of the Securities Exchange 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.

SIGNATURE TITLE DATE
--------- ----- ----

<S> <C> <C>
/s/ Mario F. Kassar Chairman of the Board of Directors and April 13, 1995
- ----------------------------
Mario F. Kassar Chief Executive Officer

/s/ Lynwood Spinks Executive Vice President/ April 13, 1995
- ----------------------------
Lynwood Spinks President of Production and Director

Senior Vice President and April 13, 1995
/s/ Karen A. Taylor Acting Chief Financial Officer
- ----------------------------
Karen A. Taylor (Principal Financial and Accounting Officer)

Director April , 1995
- ----------------------------
Patrizio Casalini

/s/ Hector Patrick Dowd Director April 13, 1995
- ----------------------------
Hector Patrick Dowd

S-1

<PAGE>

/s/ Guy-Etienne Dufour Director April , 1995
- ----------------------------
Guy-Etienne Dufour

/s/ Michal E. Garstin Director April 13, 1995
- ----------------------------
Michael E. Garstin

/s/ Michael S. Hope Director April 13, 1995
- ----------------------------
Michael S. Hope

/s/ Kaneo Ito Director April 13, 1995
- ----------------------------
Kaneo Ito

/s/ Rene-Claude Jouannet Director April , 1995
- ----------------------------
Rene-Claude Jouannet

/s/ Gordon C. Luce Director April , 1995
- ----------------------------
Gordon C. Luce

/s/ Ryuichi Noda Director April 13, 1995
- ----------------------------
Ryuichi Noda

/s/ Gregory Pierson Director April 13, 1995
- ----------------------------
Gregory Pierson

/s/ Joseph A. Scudero Director April 13, 1995
- ----------------------------
Joseph A. Scudero

Director April , 1995
- ----------------------------
Adam Singer

/s/ Masaaki Sono Director April 13, 1995
- ----------------------------
Masaki 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, 1993 and 1994 and the related
consolidated statements of operations, stockholders' deficiency, and cash flows
for each of the three years in the period ended December 31, 1994. Our audits
also included the financial statement schedule listed in the Index at Item
14(a). These financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedule 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, 1993 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1994, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.

The accompanying consolidated financial statements have been prepared
assuming Carolco Pictures Inc. and subsidiaries will continue as a going
concern. As more fully described in Note B, the Company has incurred continuing
significant losses and has a deficiency in assets $64,521,000 at December 31,
1994. Further, the Company has experienced significant cash flow difficulties
and does not have sufficient cash resources and financing sources to meet its
operating expenses and scheduled debt service obligations, and continue to fund
its principal business activity. These conditions raise substantial doubts about
the Company's ability to continue as a going concern. (Management's plans in
regard to these matters are also described in Note B). The 1994 consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.

ERNST & YOUNG LLP

Century City
Los Angeles, California
April 10, 1995

F-1

<PAGE>

CAROLCO PICTURES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

ASSETS
<TABLE>
<CAPTION>

DECEMBER 31,
1993 1994
---- ----
ASSETS: (IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents............................. $56,697 $27,336
Restricted cash....................................... 1,255 ---
Accounts receivable, net of allowances
of $2,821 in 1993 and $1,390 in 1994 - Note F....... 17,052 13,835
Accounts receivable, related parties 662 340
Film costs, less accumulated amortization - Note E.... 78,427 89,145
Property and equipment, at cost, less accumulated
depreciation and amortization - Note G................ 19,925 17,413
Other assets.......................................... 14,053 8,788
-------- --------
TOTAL ASSETS........................................ $188,071 $156,857
-------- --------
-------- --------

LIABILITIES AND STOCKHOLDERS' DEFICIENCY

LIABILITIES:
Accounts payable...................................... $11,156 $6,046
Accrued liabilities................................... 9,885 13,968
Accrued residuals and participations.................. 27,987 34,315
Income taxes current and deferred - Note J............ 11,365 15,000
Debt - Notes B and H.................................. 94,580 93,855
Advance collections on contracts...................... 20,012 15,047
Contractual obligations............................... 1,180 1,180
Notes and amounts payable, related
parties - Notes B and F............................... 30,981 41,967
Other liabilities..................................... 1,995 ---
-------- --------

TOTAL LIABILITIES................................... 209,141 221,378
COMMITMENTS AND CONTINGENCIES - Notes B, F and L
STOCKHOLDERS' DEFICIENCY - Notes B, F and I
Preferred stock - $1.00 par value, 10,000,000 shares
authorized:
Series A Convertible Preferred Stock, 82,500
shares authorized and issued ($83,314,000
aggregate liquidation preference in 1993) and
($86,482,000 aggregate liquidation preference in
1994)............................................... 83 88
Common stock - $.01 par value, 650,000,000 shares
authorized, 140,015,109 shares issued and
outstanding in 1993 and 1994, including 2,327,381
shares in treasury in 1993 and 2,373,756 shares
in treasury in 1994................................. 1,400 1,400
Additional paid-in capital............................ 297,931 302,175
Treasury stock........................................ (5,920) (5,920)
Accumulated deficit................................... (314,564) (362,264)
-------- --------
TOTAL STOCKHOLDERS' DEFICIENCY...................... (21,070) (64,521)
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY...... $188,071 156,857
-------- --------
-------- --------
</TABLE>

See notes to consolidated financial statements.

F-2

<PAGE>

CAROLCO PICTURES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

YEAR ENDED DECEMBER 31,
-----------------------
1992 1993 1994
---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<S> <C> <C> <C>
Revenues:
Feature films (including, $42,016
in 1992, $16,633 in 1993 and
$ 11,911 in 1994 from related
parties) - Note F.................... $269,285 $103,180 $53,723
Other - Note K 4,622 5,128 5,556
---------- ---------- -----------
TOTAL REVENUES 273,907 108,308 59,279
Costs and expenses:
Amortization of film costs,
residuals and participations......... 289,786 108,620 64,944
Costs associated with
restructurings - Note B............. 2,626 4,744 ---

Costs associated with disposal of
portion of line of
business - Note D................... --- 2,072 ---
Selling, general and administrative... 33,938 24,634 21,134
Interest (including $5,800 in 1992,
$2,303 in 1993, and $2,293 in 1994
to related parties) - Notes B,
F and H............................. 25,796 23,505 13,052
Other expenses - Note K............... 7,238 --- 33
---------- ---------- -----------
TOTAL COSTS AND EXPENSES............ 359,384 163,575 99,163
---------- ---------- -----------
LOSS FROM CONTINUING OPERATIONS
BEFORE PROVISION FOR INCOME TAXES.. (85,477) (55,267) (39,884)

Provision for income taxes - Note J...... (1,224) (4,555) (3,567)
---------- ---------- -----------
LOSS FROM CONTINUING OPERATIONS..... (86,701) (59,822) (43,451)
Loss from discontinued
operations - Note C.................... (6,232) (4,562) ---
---------- ---------- -----------
LOSS BEFORE EXTRAORDINARY ITEM...... (92,933) (64,384) (43,451)
Extraordinary gain on early
extinguishment of debt - Notes B and L. 4,916 426 ---
---------- ---------- -----------

NET LOSS............................ $(88,017) $(63,958) $ (43,451)
---------- ---------- -----------
---------- ---------- -----------

Per Common Share:
Loss from continuing operations....... $(3.02) $(1.20) $ (0.35)
Loss from discontinued operations..... (.20) (.09) ---
Income from extraordinary item........ .16 .01 ---
---------- ---------- -----------
Net loss.............................. $(3.06) $(1.28) $(0.35)
---------- ---------- -----------
---------- ---------- -----------

Weighted average shares outstanding... 30,087,131 50,497,529 137,676,134
---------- ---------- -----------
---------- ---------- -----------
</TABLE>

See notes to consolidated financial statements.

F-3

<PAGE>

CAROLCO PICTURES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

Year Ended December 31,
-----------------------
1992 1993 1994
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Net cash flow from operating activities:
Net loss from continuing operations................... $(86,701) $(59,822) $(43,451)

Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Amortization of film costs......................... 221,468 75,004 30,029
Write-off (recovery) of development projects....... 16,541 (964) 16,526
Depreciation and amortization...................... 6,292 7,692 3,314
Loss on disposal of or write-down of assets........ 1,303 477 33
(Increase) decrease in receivables................. (7,186) 29,189 3,216
Increase (decrease) in payables, accrued
liabilities, accrued residuals and
participations, income taxes payable
and other assets................................. (48,933) (13,186) 7,608
Increase in film costs and rights.................. (7,383) (29,595) (59,423)
Payments on contractual obligations................ (16,480) --- ---
Increase in contractual obligations................ (523) --- ---
Decrease in advance collections on contracts....... (19,136) (15,127) (4,965)
-------- -------- --------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES....................................... 59,262 (6,332) (47,113)
NET CASH PROVIDED BY (USED IN) DISCONTINUED
OPERATIONS....................................... 65,351 --- ---
-------- -------- --------
NET CASH PROVIDED BY (USED IN) OPERATIONS.......... 124,613 (6,332) (47,113)
Cash flow from investing activities:
Purchase of property and equipment................... (3,913) (1,383) (992)
Retirement of assets................................. 3,125 35 1,942
Investment in LIVE Entertainment Inc................. --- (1,265) ---
(Increase) decrease in minority interest............. (7,274) --- ---
-------- -------- --------
NET CASH (USED IN) PROVIDED BY INVESTING
ACTIVITIES....................................... (8,062) (2,613) 950
</TABLE>

(Continued)

F-4

<PAGE>

CAROLCO PICTURES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

Year Ended December 31,
-----------------------
1992 1993 1994
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Cash flow from financing activities:
Payments on debt.............................................. $(372,666) $(24,592) $(725)

Increase in borrowings from banks and other credit facilities. 166,131 --- ---

Increase (decrease) in notes payable to related parties....... 21,833 2,297 (875)

(Increase) decrease in receivables from related parties....... (7,148) 328 322

Extraordinary gain on extinguishment of debt.................. 4,916 --- ---
Payment of preferred dividends................................ (3,125) (20) ---
Decrease in cash as a result of the deconsolidation of LIVE... --- (11,042) ---

Payment of debt restructuring expenses........................ (2,533) --- ---
Increase in debt acquisition costs............................ (3,714) --- ---
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 (674)

Issuance of 7% Notes.......................................... --- --- 17,500
Exercise of stock options/warrants............................ 10 --- ---
(Increase) decrease in restricted cash........................ 44,903 (1,234) 1,255
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 --- ---
Other......................................................... 136 32 (1)
--------- --------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES......... (111,464) 41,440 16,802
--------- --------- ---------
INCREASE (DECREASE) IN CASH................................. 5,087 32,495 (29,361)
Cash and cash equivalents at beginning of period............ 19,115 24,202 56,697
--------- --------- ---------
Cash and cash equivalents at end of period.................. $24,202 $56,697 27,336

--------- --------- ---------
--------- --------- ---------

Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest (net of amount capitalized)....................... $21,861 $8,345 $8,653
--------- --------- ---------
--------- --------- ---------
Income taxes............................................... $1,484 $660 $600
--------- --------- ---------
--------- --------- ---------
</TABLE>

See notes to consolidated financial statements.

F-5

<PAGE>

SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCIAL ACTIVITIES:

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 Pioneer, Canal+ and RCS (collectively,
the "Strategic Investors"), a total of 360,000 shares of common stock of LIVE
Entertainment Inc. ("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 a $32,000,000 loan
previously extended to Carolco by the Strategic Investors (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.

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)).

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)).

F-6

<PAGE>

Pursuant to the Restructuring, satisfaction of approximately $17,686,000 of
the Strategic Investor Loan, 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. Also pursuant to the Restructuring, the remaining portion of the
loan ($14,514,000) 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 Restructuring, 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 Restructuring, 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' DEFICIENCY
Years Ended December 31, 1992, 1993 and 1994

Preferred Stock
----------------------------------------------------
Series A Series B Series C Series E
----------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C>
BALANCE at December 31, 1991 . . . . . . . . . . . $-- $30 $60 $--
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
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 . . . . . . . . . . . . . -- -- -- --
Exchange and Contribution of
Strategic Investor Securities,
net of costs. . . . . . . . . . . . . . . . . -- (30) (60) (13)
Satisfaction of Strategic
Investor Loan, net of costs . . . . . . . . . -- -- -- --
Other. . . . . . . . . . . . . . . . . . . . . . -- -- -- --
Preferred Dividends. . . . . . . . . . . . . . . -- -- -- --
Net Loss - 1993. . . . . . . . . . . . . . . . . -- -- -- --
------ ------- -------- -------

BALANCE at December 31, 1993 . . . . . . . . . . . $83 $0 $0 $0
Preferred Dividends. . . . . . . . . . . . . . . 5 -- -- --
Net Loss - 1994. . . . . . . . . . . . . . . . . -- -- -- --
------ ------- -------- -------

BALANCE at December 31, 1994 . . . . . . . . . . . $88 $0 $0 $0
------ ------- -------- -------
------ ------- -------- -------

Number
of Additional Retained
Common Common Paid-In Treasury Earnings
Shares Stock Capital Stock Total Total
------ ------ ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE at December 31, 1991 . . . . . . . . . . . 30,624 $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 . . . . . . . . . . . 30,624 $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 . . . . . . . . . . . . . 22,500 225 14,059 -- -- 14,284
Exchange and Contribution of
Strategic Investor Securities,
net of costs. . . . . . . . . . . . . . . . . 72,000 720 50,116 -- -- 50,733
Satisfaction of Strategic
Investor Loan, net of costs . . . . . . . . . 14,891 149 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 . . . . . . . . . . . 140,015 $1,400 $297,931 $(5,920) $(314,564) $(21,070)
Preferred Dividends. . . . . . . . . . . . . . . -- -- 4,244 -- (4,249) 0
Net Loss - 1994. . . . . . . . . . . . . . . . . -- -- -- -- (43,451) (43,451)
-------- ------- --------- -------- ---------- ---------

BALANCE at December 31, 1994 . . . . . . . . . . . 140,015 $1,400 $302,175 $(5,920) $(362,264) $(64,521)
-------- ------- --------- -------- ---------- ---------
-------- ------- --------- -------- ---------- ---------

</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:

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>

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.

CONCENTRATION OF CREDIT RISKS: Financial instruments that potentially
subject the Company to significant concentration of credit risk consist
principally of cash investments and trade accounts receivable. 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.

The Company licenses various rights in its motion pictures to distributors
throughout the world. Concentrations of credit risk with respect to trade
accounts receivable are limited due to the fact that 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. As of December 31, 1994 the
Company had no significant concentration of credit risk.

F-9

<PAGE>

CAROLCO PICTURES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

FINANCIAL INSTRUMENTS:

CASH AND CASH EQUIVALENTS. The cash equivalents of the Company are
generally short-term in nature and the fair market value of such cash
equivalents are equal to their carrying value.

LONG- AND SHORT-TERM DEBT. The carrying amount of the Company's short-term
borrowing under its credit facility (see Note H (2)) approximates its fair
market value at December 31, 1993 and 1994. As a result of the Restructuring in
1993 (see Note B), the Company's long-term debt at December 31, 1993 was
determined to approximate its carrying amount. At December 31, 1994, the
aggregate fair value of the 11.5%/10% Reducing Rate Senior Notes due 2000, the
13%/12% Reducing Rate Senior Subordinated Notes due 1999 and the 13% Senior
Subordinated Notes due December 1, 1996 is approximately $14,819,000 compared
with a carrying value of $58,398,200. This fair market value is based on the
Company's discussions with investment bankers and financial advisors since these
obligations are not widely traded.

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:

Equipment, furniture and leasehold improvements . . . . . . . 5-13 years
Vehicles. . . . . . . . . . . . . . . . . . . . . . . . . . . 5 years
Building. . . . . . . . . . . . . . . . . . . . . . . . . . . 30 years

NET LOSS PER COMMON SHARE: Net loss per share is based on the weighted
average number of common shares outstanding during the period, after appropriate
inclusion in net loss of payment-in-kind dividends of $4,321,103 in 1992,
$833,700 in 1993 and $4,249,000 in 1994. Common equivalent shares, consisting of
outstanding stock options and warrants, the Series A Convertible Preferred Stock
in 1994, and in 1993 and 1992, the Series B Convertible Preferred Stock,
Series C Convertible Exchangeable Preferred Stock, Series D Convertible
Exchangeable Preferred Stock and Series E Convertible Preferred Stock, were
excluded because the effect of their inclusion would be antidilutive. Other
potentially dilutive securities, including the 10% Convertible Subordinated
Debentures due 2006 (in 1993 and 1992); the 5% Payment-In-Kind Convertible
Subordinated Notes due 2002 (in 1994 and 1993); and the 7% Convertible
Subordinated Notes due 2006 (in 1994) were excluded because the effect of their
inclusion would be antidilutive.

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 a consolidated tax return. Deferred
taxes, relating to the differences in accounting for film rights and the related
amortization for financial statement and tax return purposes as well as from
financial statement reserves not currently deductible for tax purposes, have
historically been determined

F-10

<PAGE>

CAROLCO PICTURES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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. Due to the reversal of prior book and tax
differences, as of December 31, 1994, Carolco's deferred tax liability has been
virtually eliminated. However, due to the potential liability arising from the
ongoing examination of Carolco's 1988, 1989, 1990, 1991, 1992 and 1993 federal
income tax returns by the Internal Revenue Service ("IRS") and the 1988 and 1989
state income tax returns by the California Franchise Tax Board ("FTB"), Carolco
has not reduced the amount of its current and deferred income tax liability.
See Note J for a further discussion of these examinations.

On October 18, 1993, Carolco's wholly-owned subsidiary, Carolco
International N.V. ("CINV") was domesticated as a Delaware corporation and its
name was changed to Carolco International Inc. ("CII"). Due to the
domestication of CINV, in future periods, foreign source income of Carolco will
be subject to United States income taxation which could result in a significant
increase in Carolco's effective tax rate.

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 1992 and
1993 financial statements to conform to the 1994 presentation.

RESTRICTED CASH: 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.
Such amounts were paid to Mr. Kassar in 1994.

F-11

<PAGE>

CAROLCO PICTURES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE A - BASIS OF PRESENTATION

The accompanying consolidated financial statements include the accounts of
Carolco Pictures Inc. and its wholly-owned subsidiaries including CII, Carolco
Television Inc. ("CTI") and The Vista Organization, Ltd. ("Vista"); The Vista
Organization Partnership, L.P.; and Carolco Studios Inc. (Delaware) ("CSI")
(collectively, the "Company" or "Carolco"), after elimination of material
intercompany accounts and transactions. Such companies are engaged in a single
business segment, the entertainment industry, and their principal activities
include the production, acquisition and distribution of feature films.

In 1992, the Company consolidated its results of operations with those of
LIVE Entertainment Inc. ("LIVE"). From January 1, 1993 through October 20,
1993, Carolco accounted for its investment in LIVE using the equity method of
accounting. In connection with Carolco's October 20, 1993 financial
restructuring (see Note B), Carolco transferred all of its ownership interest in
LIVE to Pioneer LDCA, Inc. ("Pioneer"), Cinepole Productions B.V. ("Cinepole"),
a wholly-owned subsidiary of Le Studio Canal+ S.A. ("Le Studio") and RCS
International Communications N.V. ("RCS Communications"), an affiliate of RCS
Editori S.p.A. As of December 31, 1993, Carolco owned no shares of LIVE Common
Stock; however, the Company and LIVE had entered into negotiations for a
business combination (see Note C). As a result, at December 31, 1993, the
Company did not restate its statements of operations or statements of cash flows
to reflect its investment in LIVE as a discontinued operation. In October 1994,
the Company and LIVE terminated negotiations for the proposed business
combination. Therefore, the statements of operations and statements of cash
flows for the years ended December 31, 1992, 1993 and 1994 have been restated to
reflect LIVE as a discontinued operation.

NOTE B - RESTRUCTURINGS AND GOING CONCERN ISSUES

1992 RESTRUCTURING

In December 1991, the Company began discussions with Pioneer, Canal+ and
RCS in order to alleviate the Company's liquidity problems. In March 1992, the
Company entered into definitive agreements with Pioneer, Le Studio and RCS to
help alleviate the Company's liquidity problems (the "1992 Restructuring"). In
anticipation of and associated with the 1992 Restructuring, in 1991, the Company
recorded costs 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.

On January 29, 1992, the Company successfully completed a tender offer (the
"Tender Offer") pursuant to which the Company agreed to purchase in excess of a
majority of the then outstanding 14% Senior Notes due June 1, 1993 (the "14%
Notes") for a total of $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, the
Company recognized an extraordinary gain of $4,916,000 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.

1993 RESTRUCTURING

F-12

<PAGE>

CAROLCO PICTURES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE B - RESTRUCTURINGS AND GOING CONCERN ISSUES (CONTINUED)

Company as a going concern. The following is a description 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. $22,496,000 in aggregate principal
amount of 11.5%/10% Reducing Rate Senior Notes due 2000 (the "New Senior Notes")
were issued in exchange for a portion of the Company's outstanding 14% Notes,
plus accrued interest. In addition, $13,431,700 in principal amount of 13%/12%
Reducing Rate Senior Subordinated Notes due 1999 (the "New Senior Subordinated
Notes") were issued in exchange for a portion of the Company's 13% Senior
Subordinated Notes due December 1, 1996 (the "13% Notes"), plus accrued
interest. The exchanges described above are collectively referred to herein as
the "Exchange Offers." In addition, 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 extinguishment of debt of $1,323,000.

(3) PURCHASES OF NEW PREFERRED STOCK AND 5% NOTES FOR CASH. Pioneer, Cinepole
and MGM Holdings Corporation ("MGM Holdings") purchased from the Company 40,000,
12,500 and 30,000 shares, respectively, of Series A Convertible Preferred Stock,
a newly designated series of the Company's series preferred stock ("Series A
Preferred"), in exchange for cash consideration of $40,000,000, $12,500,000 and
$30,000,000, respectively. The Series A Preferred bears an annual dividend rate
of 5%. Dividends are payable when 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 therefore,
in additional shares of Series A Preferred. Each share of Series A Preferred is
convertible at the option of the holder into Common Stock of the Company at $.60
per share.

F-13

<PAGE>

CAROLCO PICTURES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE B - RESTRUCTURINGS AND GOING CONCERN ISSUES (CONTINUED)

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 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 Metro-Goldwyn-Mayer, Inc. ("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 upon certain defaults under the indenture governing the 5%
Notes) 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.

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

(4) EXCHANGE OF 10% DEBENTURES AND SERIES D PREFERRED. 8,000 shares of the
Company's Series D Convertible Exchangeable Preferred Stock (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, plus a cash payment for a portion of accrued but
unpaid dividends. In addition, $14,600,000 in face amount of the Company's 10%
Convertible Subordinated Debentures due 2006 (the "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 Video International Services B.V. ("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 . Carolco transferred to Pioneer,
Cinepole and RCS Communications, 3,885,223, 1,180,030 and 1,180,030 shares,
respectively, of the common stock of LIVE, representing all of the shares of
LIVE common stock held by Carolco 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, Le Studio and RCS (collectively
including their affiliates, the "Strategic Investors"). 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,
respectively, of the Company's Common Stock.

F-14

<PAGE>

CAROLCO PICTURES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE B - RESTRUCTURINGS AND GOING CONCERN ISSUES (CONTINUED)

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

(6) NEW DISTRIBUTION AGREEMENT. Carolco entered into a new distribution
agreement (the "MGM Distribution Agreement") with Metro-Goldywn-Mayer Inc.
("MGM"), an affiliate of MGM Holdings, which became effective on the
December 31, 1993 expiration of the Company's prior distribution agreements with
Tri-Star Pictures Inc. ("Tri-Star"). Under the MGM Distribution Agreement, MGM
will distribute theatrically in domestic territories those Carolco motion
pictures which 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 related to
the initial domestic theatrical release of each picture covered by the
agreement, including the cost of manufacturing 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 Carolco. Except for the first motion picture distributed by MGM under the
MGM Distribution Agreement, Carolco is required to guarantee its obligation to
pay this shortfall with a letter of credit.

In addition to domestic theatrical and non-theatrical (i.e. airlines,
military, etc.) 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 an
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, 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 committed to purchase up to $27,500,000, in
principal amount of the Company's 7% Convertible Subordinated Notes due 2006
(the "7% Notes") on the later of December 30, 1994 or the date upon which
certain conditions are met. In addition, Le Studio and TCI 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 to be
invested pursuant to the

F-15

<PAGE>

CAROLCO PICTURES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE B - RESTRUCTURINGS AND GOING CONCERN ISSUES (CONTINUED)

Standby Agreement would not exceed $47,500,000. See "- Standby Agreement
Funding" for a discussion of further developments with respect to the Standby
Agreement.

As a result of the Restructuring described above, the Company altered its
business strategy to focus on the production and distribution of its "event"
motion pictures. The Company 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 was 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 believed
this arrangement impaired 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.

MOTION PICTURE PRODUCTION

F-16

<PAGE>

CAROLCO PICTURES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE B - RESTRUCTURINGS AND GOING CONCERN ISSUES (CONTINUED)

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
Carolco commenced principal photography of WAGONS EAST, starring John Candy and
Richard Lewis. As a result of the untimely death of Mr. Candy, Carolco entered
into an arrangement with the insurance carrier on the film and an affiliate of
LIVE pursuant to which Carolco recovered substantially all of the costs incurred
by Carolco on the film. In exchange for certain rights in the film, LIVE agreed
to fund completion of the film and engaged Carolco to complete production and
servicing of certain pre-existing distribution agreements. In April 1994,
Carolco received approximately $13,876,000 representing partial payments under
the multi-party arrangement. In February 1995, an additional $1,532,000 was
received.

As of December 31, 1994, Carolco paid a total of $13,231,000 in pre-
production expenses for CRUSADE including capitalized interest and production
overhead and amounts paid to the affiliate of Mr. Schwarzenegger. These amounts
have been included in Amortization of Film Costs, Participations and Residuals
for the year ended December 31, 1994.

In 1994, the Company began pre-production of the motion picture SHOWGIRLS.
Through October 1994, the Company incurred pre-production costs of approximately
$9,626,000 in connection with SHOWGIRLS. Also in 1994, Carolco began
development of the motion picture LOLITA. Prior to December 1, 1994, the
Company had incurred development costs of approximately $3,863,000 in connection
with LOLITA. These amounts were substantially reimbursed upon the sale of these
motion pictures. See "Interim Financing Arrangements" and "- Other Financing
Arrangements" below.

F-17

<PAGE>

CAROLCO PICTURES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE B - RESTRUCTURINGS AND GOING CONCERN ISSUES (CONTINUED)

$80,000,000. Carolco has completed certain financing arrangements in connection
with CUTTHROAT ISLAND. On February 6, 1995, the limited partnership formed by
Carolco to produce and distribute CUTTHROAT ISLAND ("Cutthroat Island LP")
satisfied the conditions necessary for it to draw funds under a production loan
(the "Production Loan") provided by a group of banks led by Berliner Bank AG
(London Branch) and Credit Lyonnais Bank Nederland N.V. ("CLBN"). The
Production Loan provides for financing of up to $60,238,000 in direct negative
costs, including completion bond fees, certain contingencies and other financing
expenses. In February and March 1995, Carolco received approximately
$25,031,000 in proceeds from the Production Loan, representing reimbursement of
a portion of the approximately $80,007,000, including capitalized interest and
overhead, Carolco had spent in 1994 and 1995 to develop and begin production of
CUTTHROAT ISLAND. In addition, through March 1995, $13,126,000 in proceeds from
the Production Loan were provided directly to Cutthroat Island LP. The
Production Loan is collateralized by certain pre-sales of foreign and domestic
licensing rights of CUTTHROAT ISLAND. Initial proceeds from the distribution of
CUTTHROAT ISLAND will be used exclusively to repay the Production Loan. In
addition, pursuant to the Standby Agreement funding (see "- Standby Agreement
Funding" below), the Company received $7,500,000. These funds, together with
the proceeds of the Production Loan, reduced Carolco's contribution to the
negative cost of the film to approximately $47,500,000.

INTERIM FINANCING ARRANGEMENTS

(1) Carolco Production Services Inc., an indirect wholly-owned
subsidiary of Carolco ("CPSI"), and Chargetex 6, S.A., an affiliate of the
French company Chargeurs ("Chargetex"), entered into a Purchase and Sale
Agreement dated as of October 18, 1994 whereby CPSI transferred to Chargetex all
of its rights in the motion picture SHOWGIRLS, which commenced principal
photography on October 23, 1994. The purchase price consisted of (i)
reimbursement of CPSI's and/or Carolco's direct costs incurred in connection
with the development and production of the motion picture through the date the
rights in the picture were transferred to Chargetex and (ii) the assumption by
Chargetex of all of CPSI's and/or Carolco's obligations relating to the
development and production of the motion picture. Approximately $8,898,000 was
paid to Carolco by Chargetex upon closing of the transaction, and an additional
$439,000 was paid in January 1995. CPSI will be entitled to a percentage of the
adjusted gross receipts from the exploitation of the completed motion picture
after Chargetex has recouped certain costs and expenses incurred in connection
with the motion picture plus an additional $10,000,000.

F-18

<PAGE>

CAROLCO PICTURES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE B - RESTRUCTURINGS AND GOING CONCERN ISSUES (CONTINUED)

(2) Pioneer, Pioneer LDC, Inc., an affiliate of Pioneer, and Carolco
entered into an Agreement dated as of October 14, 1994 pursuant to which Carolco
received a prepayment of approximately $6,700,000 from Pioneer arising from the
video distribution in Japan of TERMINATOR 2: JUDGMENT DAY and theatrical, video
and pay television distribution in Japan of CLIFFHANGER. The amounts
from CLIFFHANGER were paid to Carolco pursuant to an agreement entered into by
and among the co-producers of CLIFFHANGER.

On October 14, 1994, Carolco received $987,690 representing the principal
amount of a $1,000,000 bank loan from CLBN, discounted to yield an interest
rate of 5.4375% per annum. As security for such loan, Carolco assigned to
CLBN its right to receive RCS' payment for 7% Notes due in December 1994. RCS
delivered a letter of credit to CLBN to secure its obligation to purchase 7%
Notes.

(4) Carolco and Le Studio Canal+ (U.S.) ("Le Studio U.S.") entered
into an Amendment to the Exclusive Agency Agreement dated as of October 14, 1994
whereby Le Studio U.S. prepaid $2,000,000 of sales commissions that were
anticipated to be due to Carolco in late 1994 in connection with Carolco serving
as the foreign sales agent for the motion picture STARGATE. See Note F for more
a complete discussion of the arrangements with Le Studio U.S. regarding
STARGATE.

STANDBY AGREEMENT FUNDING

In December 1994 and January 1995, the Company consummated the following
transactions with the Strategic Investors in accordance with the Standby
Agreement.

On December 30, 1994, Cinepole purchased $7,500,000 in aggregate principal
amount of 7% Notes. In addition, on December 30, 1994, LSC+ Investments Inc., a
wholly owned subsidiary of Le Studio (U.S.) ("LSC+") and TCI purchased limited
partnership interests in Cutthroat Productions L.P. in exchange for $6,000,000
in accordance with the terms of the Standby Agreement. Pursuant to the
partnership agreement, LSC+, TCI and an affiliate of Carolco are each entitled
to receive a participation in certain revenues generated from the exploitation
of CUTTHROAT ISLAND, following repayment of the Production Loan and the payment
of (or establishment of reserves for) certain third party obligations, as
follows: First, LSC+, TCI and the Carolco affiliate are entitled to receive
approximately 10%, 6% and 84%, respectively, of revenues until LSC+ and TCI
recoup their preferred return (which equals 10% per annum on their initial
capital contributions) plus their initial capital

F-19

<PAGE>

CAROLCO PICTURES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE B - RESTRUCTURINGS AND GOING CONCERN ISSUES (CONTINUED)

contributions. Second, the Carolco affiliate is entitled to receive all
revenues until it recoups a distribution fee equal to 10% of the receipts from
the distribution of the film in certain territories and an overhead
reimbursement fee. Third, LSC+, TCI and the Carolco affiliate are entitled to
receive approximately 10%, 6% and 84%, respectively, of revenues, until LSC+
and TCI have each received an amount equal to their capital contributions.
Thereafter, LSC+, TCI and the Carolco affiliate are entitled to receive
approximately 5%, 3% and 92%, respectively, of remaining revenues.

OTHER FINANCING ARRANGEMENTS

CPSI and Alphatex an affiliate of the French company Chargeurs
("Alphatex"), entered into a Purchase and Sale Agreement dated as of December 1,
1994 whereby CPSI transferred to Alphatex all of its rights in the motion
picture LOLITA. The purchase price consisted of (i) the reimbursement of CPSI's
and/or Carolco's direct costs incurred in connection with the development and
production of the motion picture through the date the rights in the picture were
transferred to Alphatex and (ii) assumption by Alphatex of all of CPSI's and/or
Carolco's obligations relating to the development and production of the motion
picture. On December 2, 1994, approximately $3,826,000 was paid to Carolco by
Alphatex upon closing of the transaction with additional amounts estimated to be
less than $200,000 to be paid as accountings are provided to Alphatex. CPSI
will be entitled to a percentage of adjusted gross receipts from the
exploitation of the completed motion picture after Alphatex has recouped certain
costs and expenses incurred in connection with the motion picture plus an
additional $10,000,000.

Pursuant to certain distribution agreements with Tri-Star, certain payments
were due to the Company or its affiliates from Tri-Star at December 31, 1994.
In February and March of 1995, Tri-Star paid approximately $14,147,000 pursuant
to these distribution agreements.

CURRENT OBLIGATIONS OF THE COMPANY

CII, with Carolco as principal guarantor, has $14,000,000 in principal
amount outstanding under a credit facility with CLBN acting as agent and lender
(the "CLBN Facility") as of the date hereof. The maturity date of the loan
under the CLBN Facility, which is secured by substantially all of Carolco's
assets, is September 30, 1995, provided certain events of default do not occur.
CLBN has agreed to remit to CII all collections from accounts receivable pledged
to CLBN, so long as certain defaults do not occur. No amounts are available for
borrowing under the CLBN Facility. Repayment of the CLBN Facility, without a
replacement facility, would have a severe adverse effect on the operations and
financial viability of Carolco.

F-20

<PAGE>

CAROLCO PICTURES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE B - RESTRUCTURINGS AND GOING CONCERN ISSUES (CONTINUED)

agreements. As of December 31, 1994, the balance due the Guilds pursuant to a
promissory note made in favor of the Guilds (the "Guild Note") was $10,025,000,
including accrued interest at 3-month LIBOR, plus 1% per annum. On January 30,
1995, the Company paid $3,285,000 to the Guilds, representing payment of the
October 1994 installment, plus accrued interest thereon. The balance of the
Guild Note is due in two remaining installments of $3,000,000 each, plus
interest, on October 1, 1995 and October 1, 1996, with an additional $600,000
due on October 1, 1996. The Guild Note is secured by a lien on substantially
all of the Company's assets, which lien is subordinated to the Existing Carolco
Credit Facility.

In addition to the Guild Note, the Company has on-going obligations to the
Guilds, the American Federation of Musicians ("AFM") and the International
Alliance of Theatrical Stage Employees ("IATSE"), for amounts owed under similar
collective bargaining agreements. In February 1995, the Company paid
approximately $3,000,000 to the Guilds, AFM and IATSE representing residual
obligations arising from cash received by the Company in the fourth quarter of
1994. The amount of residual obligations to be paid for each quarter of 1995
will be determined by the amount of cash received by the Company in 1995.

In connection with the production of its motion pictures, the Company
entered into certain contingent compensation agreements with motion picture
talent (actors, directors, producers, writers), and co-production investors,
(collectively, the "Participants") whereby the Company is obligated to pay to
the Participants a share of the Company's receipts from the distribution of its
released motion pictures. At December 31, 1994, the Company had recorded
present and future obligations of approximately $22,400,000 in connection with
various Participants' contingent compensation arrangements. Additional
contingent compensation obligations will be recorded in 1995 based on the film
revenue recognized by the Company in 1995.

The Company has announced that it will not make the interest payments on
the New Senior Notes and New Senior Subordinated Notes when such payments are
due on April 15, 1995. As noted above, such interest payment is approximately
$3,261,000 If the Company does not make either interest payment prior to the
30-day grace period provided in the indenture governing such issue of
indebtedness, the indebtedness under such indentures could be accelerated. The
Company currently has $41,521,500 and $13,431,700 in principal amount
outstanding under the New Senior Notes and the New Senior Subordinated Notes,
respectively. If either of the New Senior Notes or the New Senior Subordinated
Notes were accelerated, it would cause defaults under other debt obligations of
the Company, subject to any applicable grace periods, permitting such
indebtedness to be accelerated as well. If such obligations were accelerated,
the Company would not have sufficient funds to satisfy the obligations unless it
received additional funds, and would be unable to continue to operate as a going
concern.

GOING CONCERN ISSUES

F-21

<PAGE>

CAROLCO PICTURES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE B - RESTRUCTURINGS AND GOING CONCERN ISSUES (CONTINUED)

expenses and scheduled debt service obligations, and to continue to fund its
principal business activity -- the development, production and exploitation of
motion pictures. Therefore, the Company is currently considering a plan which
will allow it to continue to operate as a going concern.

NOTE C - DISCONTINUED OPERATIONS - LIVE

Carolco, LIVE and Carolco Acquisition Corp., a wholly owned subsidiary of
LIVE ("CAC"), entered into an Agreement and Plan of Merger dated as of August
10, 1994 (the "Merger Agreement") providing for a business combination of
Carolco and LIVE. The Merger Agreement provided, among other things, that CAC
would be merged with and into Carolco (the "Merger") with Carolco as the
surviving corporation continuing as a wholly-owned subsidiary of LIVE. On
October 13, 1994, LIVE, CAC and Carolco entered into a Termination Agreement
(the "Termination Agreement") providing for the termination of the Merger
Agreement and the abandonment of the proposed Merger contemplated thereby. The
Termination Agreement also provides for the termination of all rights and
obligations of the parties under the Merger Agreement and the mutual release by
the parties of all claims of any kind or nature, by reason of or with respect to
the Merger Agreement. Costs associated with the proposed merger approximated
$1,767,000 and were charged to expense at December 31, 1994.

Accordingly, the Company's statements of operations for the years ended
December 31, 1992 and 1993 have been restated to show LIVE as a discontinued
operation. LIVE's revenues and operating loss for 1992 were $192,500,000 and
$4,854,000, respectively, and for 1993 were $172,246,000 and $21,177,000,
respectively.

In January 1995, in order to settle disputes between them with respect to
the United States and Canadian video distribution rights to the film CUTTHROAT
ISLAND, LIVE and Carolco agreed that CUTTHROAT ISLAND would not be subject to
the Domestic Video Output Agreement or the German Output Agreement. Pursuant to
a separate agreement, LIVE obtained the video distribution rights to CUTTHROAT
ISLAND in the United States and Canada for a video advance to be paid by LIVE.
In addition, LIVE agreed to certain amendments to the Domestic Video Output
Agreement, whereby LIVE would no longer have certain rights of offset between
prior films distributed pursuant to such agreement. In exchange for the
aforementioned arrangements and resolution, Carolco paid $3,500,000 to LIVE.

F-22

<PAGE>

CAROLCO PICTURES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE D - 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.

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 E - FILM COSTS

<TABLE>
<CAPTION>
DECEMBER 31,
------------
1993 1994
---- ----
(IN THOUSANDS)
<S> <C> <C>
Film costs are comprised of the following:
Released, less amortization . . . . . . . . . . . $57,696 $20,925
In process and development. . . . . . . . . . . . 20,731 68,220
--------- ---------
Total Film Costs . . . . . . . . . . . . . . . $78,427 $89,145
--------- ---------
--------- ---------
</TABLE>

Based on management's estimates of future gross revenues as of December 31,
1994, approximately 20% of unamortized film costs applicable to released films
will be amortized during the three years ending December 31, 1997. The remaining
film costs at December 31, 1994 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, 1992, 1993 and 1994 totaled $3,315,000, $0 and $1,523,000,
respectively.

NOTE F - RELATED PARTY TRANSACTIONS

In connection with the 1992 Restructuring, the Restructuring, the Standby
Agreement Funding and the Interim Financing Arrangements 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 Series A 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-productions of
the Company's pictures. See Note B for a more complete description of these
arrangements.

On January 15, April 15, July 15 and October 15, 1994, an additional
$354,167, $379,427, $384,170 and $388,972, respectively, in aggregate principal
amount of 5% Notes were issued to MGM Holdings, representing the in-kind
quarterly interest payment due on the $30,000,000 aggregate principal amount of
5% Notes outstanding. The in-kind quarterly dividends due on the Series A
Preferred owned

F-23

<PAGE>

CAROLCO PICTURES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE F - RELATED PARTY TRANSACTIONS (CONTINUED)

by MGM Holdings, Pioneer and Cinepole have not been paid since January 1, 1994
due to insufficient surplus. As a result, at December 31, 1994, $5,063,000 has
been accrued to the Series A Preferred.

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

Le Studio, Pioneer and RCS entered into a series of co-production
agreements with respect to the production of CLIFFHANGER. Pursuant to these
co-production agreements, Le Studio, Pioneer and RCS made equity contributions
in the aggregate amount of $16,579,000 bearing interest at 3-month LIBOR plus
1.5% per annum (8.0% at December 31, 1994). As of December 31, 1994, the
Company had advanced a total of $5,704,000 toward the production costs of
CLIFFHANGER. Pioneer, Le Studio, RCS and the Company are each entitled to
receive a participation in certain net revenues generated from the exploitation
of CLIFFHANGER, following recoupment by Pioneer, Le Studio, RCS and the Company
of their investments plus interest and payment of certain third party
obligations and CINV's deferred distribution fees. Participation in such
revenues will be approximately as follows: the Company, 42%; RCS, 5%; Pioneer,
24%; and Le Studio, 29%. As of December 31, 1994, no such participations in the
net revenues of CLIFFHANGER had yet been made. During the year ended December
31, 1994 and pursuant to the Interim Financing Arrangements, CINV had received
approximately $3,419,000 of its deferred distribution fees (See Note B).

In March 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.
Through December 31, 1994, RCS had advanced $7,504,000 representing certain
development and production commitments due pursuant to this agreement. Also, in
July 1992, CINV sold to Le Studio and Pioneer equal participations in Carolco's
remaining 50% interest in the project in return for $2,070,000 from each of Le
Studio and Pioneer. The final participation interest of each of Pioneer and Le
Studio will be equal to a percentage determined by comparing the investment of
each of Pioneer and Le Studio to the final production cost of the project.
Carolco has the right to repurchase, before commencement of principal
photography, the participations sold to Le Studio and Pioneer for the original
purchase price plus interest at 6-month LIBOR plus 1 1/2%. As discussed below,
RCS has agreed to transfer all of its interest in this project back to Carolco.

In June 1990, the Company, through a nominee of CINV, and Le Studio, formed
a partnership (the "Carolco/Le Studio Partnership"). In January 1992, the
Carolco/Le Studio Partnership entered into a co-financing arrangement with Le
Studio and RCS pursuant to which CINV, Le Studio and RCS have each made
co-financing payments equal to one-third of the total production cost of the
motion picture, CHAPLIN. The co-financing payments earn interest at 3-month
LIBOR plus 2% per annum (8.5% at December 31, 1994). CINV, Le Studio 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, 1993 and 1994.
In exchange for their co-financing payments, Le Studio 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 Le Studio and RCS are reduced. As of December 31, 1994, the Company had paid
$6,442,000 to each of Le Studio and RCS representing their

F-24

<PAGE>

CAROLCO PICTURES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE F - RELATED PARTY TRANSACTIONS (CONTINUED)

share of the net receipts of CHAPLIN. At December 31, 1993 and 1994,
respectively, CINV had recorded an obligation of $3,521,000 and $5,445,000,
collectively to Le Studio 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.

LE STUDIO:

In March 1991, Le Studio loaned the Company $5,880,000 pursuant to a
participation loan agreement entered into between the Company and Le Studio, 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. Le Studio will receive 7.64% of Carolco's gross receipts from
TERMINATOR 2: JUDGMENT DAY until Le Studio and the Company have recouped their
investment. Thereafter, Le Studio will receive 3.82% of Carolco's gross
receipts. Le Studio recouped its investment in 1993. During the year ended
December 31, 1994, the Company made no payments to Le Studio under this
agreement. At March 31, 1995, the Company had an obligation of approximately
$9,000 due to Le Studio representing its share of the revenues recognized from
TERMINATOR 2: JUDGMENT DAY through March 31, 1995. There was no corresponding
obligation at December 31, 1993 or 1994.

Also pursuant to an investment agreement entered into in July 1991, the
Company received $8,343,000, from Le Studio 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, Le Studio is to receive 20% of the Carolco's gross
receipts from BASIC INSTINCT until Le Studio has recouped its investment, plus
interest. As of December 31, 1993, Le Studio had recouped its principal and
interest. Thereafter, Le Studio is entitled to 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, Le Studio 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 year ended December 31, 1994,

F-25

<PAGE>

CAROLCO PICTURES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE F - RELATED PARTY TRANSACTIONS (CONTINUED)

the Company made no payments to Le Studio under this agreement. During the years
ended December 31, 1993 and 1994 the Company had recorded a liability of
approximately $995,000 and $1,097,000 respectively to Le Studio 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/Le Studio Partnership entered into a
co-financing arrangement agreement whereby each party agreed to be responsible
for 50% of the costs of the motion picture DARK WIND. The Company and Le Studio
are each entitled to 50% of the net receipts from the film until each has
recouped its investment in the film costs, plus interest. Thereafter, the
Company is entitled to 75% of the net receipts and Le Studio is entitled to 25%
of the net receipts. During the year ended December 31, 1994, the Company made
no payments to Le Studio under this agreement. At December 31, 1994, the
Company owed $247,000 to Le Studio under this agreement based on revenues
recognized through December 31, 1994, and such amount was included in Notes and
Amounts Payable, Related Parties. There was no corresponding amount for the
year ended December 31, 1993.

At December 31, 1993 and 1994, the Company had accounts receivable of
$3,033,000 and $4,172,000, respectively, from Le Studio. The largest amount
owed to the Company by Le Studio since the beginning of 1994 was $4,523,000.
These receivables represent minimum guarantees due to the Company pursuant to
distribution agreements, pursuant to which Le Studio obtained certain rights to
distribute the Company's films for pay and free television in France. In the
years ended December 31, 1993 and 1994, the Company received cash payments of
approximately $420,000 and $250,000, respectively, from Le Studio, 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.), a former indirect subsidiary of Le Studio ("Hexagon"), to provide
the non-exclusive executive producing services for the motion picture STARGATE,
for which the Company received $1,000,000, paid 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 shall have 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. On December 12, 1994, the Company
elected to receive its contingent compensation participation interest using
option (i). Under the terms of his employment agreements, Mr. Kassar is entitled
to receive, as turnaround incentive compensation, 50% of the amounts received by
the Company under the agreement with Hexagon. $800,000 of the $1,000,000 due to
Carolco under the agreement was paid in 1993 and $200,000 was paid in 1994. The
Company in turn paid $400,000 in 1993 and $100,000 in 1994 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). For its services, Carolco is entitled to a sales commission on all
amounts received as a result of the Company's sales agency services. As of
December 31, 1994, Le Studio had paid the Company $2,000,000 in sales
commission. In addition, as of December 31, 1994, the Company had sales
commissions receivable of $736,000. In July 1993, Hexagon was merged into Le
Studio U.S., which assumed all rights and obligations under this agreement.

F-26

<PAGE>

CAROLCO PICTURES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE F - RELATED PARTY TRANSACTIONS (CONTINUED)

In July 1994, Carolco and an affiliate of Le Studio reached an agreement
whereby the Le Studio affiliate will receive the rights in most of French-
speaking Europe to the motion picture WAGONS EAST. Pursuant to the agreements
described in Note B above, in July 1994, Carolco assigned this agreement to an
affiliate of LIVE.

RCS:

At December 31, 1993, the Company had accounts receivable of $880,000, 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. There were no
corresponding accounts receivable at December 31, 1994.

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
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.

PIONEER:

At December 31, 1994, the Company had accounts receivable of approximately
$2,000 ($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 1993
the Company received cash advances of approximately $120,000 from Pioneer,
representing advances related to certain of the Company's motion picture
releases. There were no corresponding amounts for the year ended December 31,
1994.

For the year ended December 31, 1993, the Company paid $117,000 for
consulting services to Pioneer.

MGM

In connection with the production of CUTTHROAT ISLAND, CLBN, an affiliate
of MGM, was one of the lead lenders providing the Production Loan. In addition,
MGM has agreed to distribute CUTTHROAT ISLAND domestically and internationally
pursuant to the distribution agreement described above in Note B.

MANAGEMENT:

F-27

<PAGE>

CAROLCO PICTURES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE F - RELATED PARTY TRANSACTIONS (CONTINUED)

and its directors upon the commencement of their terms as directors as permitted
by Section 145 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 L. 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, 1992, 1993 and 1994, legal expenses paid on behalf of such
directors and former directors and on behalf of Mario F. Kassar, Chairman of the
Board were not significant.

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 Company expensed
approximately $56,000 in interest on such note payable for each of the years
ended December 31, 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.

On January 20, 1994, the Company retained Daniels & Associates ("Daniels")
to act as its financial advisor in connection with the Business Combination of
the Company and LIVE. Michael E. Garstin, a principal in Daniels, is a member of
the Company's Board of Directors and the Supervisory Committee. 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 which was paid in September 1994
and (iii) $450,000 upon closing of the business combination which, due to
termination of the Merger Agreement, will not be paid. In addition, the Company
agreed to pay all reasonable out-of-pocket expenses (including legal fees and
expenses) incurred by Daniels, whether or not the business combination is
consummated. See Note C. Through December 31, 1994, the Company had paid
$125,000 in out-of-pocket expenses.

On January 1, 1995, the Company retained Daniels and Jefferson Capital
Group ("Jefferson") to act as the Company's non-exclusive financial advisors and
agents of the Company and assist the Company in locating capital sources, to
market for sale substantially all of the Company's film library rights, to make
recommendations with respect to any transactions which may result and to
consider a possible restructuring of the Company's capital structure. In
consideration of the services to be provided by Daniels and Jefferson, Carolco
agreed to pay $1,800,000 payable over twelve months at the rate of $150,000 per
month. Carolco is required to make a minimum of six monthly payments under the
agreement, with 60% of all fees paid to Daniels and 40% paid to Jefferson. In
addition, Carolco agreed to pay all reasonable out-of-pocket expenses incurred
by Daniels and Jefferson up to $100,000.

F-28

<PAGE>

CAROLCO PICTURES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE F - 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 $1,407,000 and
$1,572,000 was recorded by the Company at each of December 31, 1993 and 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. Other than WAGONS EAST, no motion
picture commenced principal photography in 1993. CUTTHROAT ISLAND commenced
principal photography in 1994.

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.

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
(approximately 8.1% at December 31, 1994) 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. The largest amount of all indebtness owed to
the Company by Mr. Spinks since the beginning of 1994 was $306,000 and $236,000
was outstanding at December 31, 1994.

Other than as described above, at December 31, 1993 and 1994, respectively,
receivables of $107,000 and $81,000 were due from directors, officers and/or
employees of the Company.

OTHER:

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 2.4% 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, 1993 and 1994, Continental paid to the Company approximately
$118,000, $371,000 and $77,000, respectively, pursuant

F-29

<PAGE>

CAROLCO PICTURES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE F - RELATED PARTY TRANSACTIONS (CONTINUED)

to the agreement. At December 31, 1993 and 1994, Continental owed approximately
$24,000, and $30,000, 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, 1993 and 1994, the
Company paid approximately $173,200, $416,000 and $150,000, respectively, in
legal and accounting fees pursuant to this agreement. At December 31, 1993 and
1994, the Company owed an additional $80,000 and $94,000, respectively, in legal
and accounting fees.

F-30

<PAGE>

CAROLCO PICTURES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE G - PROPERTY AND EQUIPMENT

Property and equipment is comprised of the following:

December 31,
------------
1993 1994
---- ----
(In Thousands)
<S> <C> <C>
Equipment and furniture . . . . . . . . . . . . . . . . $8,217 $7,975
Leasehold improvements . . . . . . . . . . . . . . . . 496 ---
Vehicles . . . . . . . . . . . . . . . . . . . . . . . 141 46
Building . . . . . . . . . . . . . . . . . . . . . . . 22,065 22,191
Land . . . . . . . . . . . . . . . . . . . . . . . . . 1,851 1,851
Aircraft . . . . . . . . . . . . . . . . . . . . . . . 500 ---
--------- ---------
33,270 32,063
Less accumulated depreciation and amortization. . . . . (13,345) (14,650)
--------- ---------
$19,925 $17,413
--------- ---------
--------- ---------
</TABLE>

NOTE H - DEBT

Debt consists of the following:
<TABLE>
<CAPTION>

December 31,
------------------
1993 1994
---- ----
(In Thousands)
<S> <C> <C>
13% Senior subordinated notes (1) . . . . . . . . . $3,445 $3,445
Revolving line of credit -- CLBN (2) . . . . . . . 14,000 14,000
New Senior Notes (3) . . . . . . . . . . . . . . . 41,678 41,521
New Senior Subordinated Notes (4) . . . . . . . . . 13,432 13,432
Loan payable (5) . . . . . . . . . . . . . . . . . 957 ---
Building mortgage (6) . . . . . . . . . . . . . . . 11,701 11,603
Note payable -- Guilds (7) . . . . . . . . . . . . 9,367 9,854
--------- --------
Total debt . . . . . . . . . . . . . . . . . . $94,580 $93,855
--------- --------
--------- --------
<FN>
(1) Pursuant to the 13% Note Indenture, since the Company's consolidated
net worth was less than $33,334,000 on September 30, 1993, the Company was
obligated to offer to purchase $5,000,000 in aggregate principal amount of the
13% Notes on March 31, 1994. Pursuant to the terms of the 13% Note Indenture,
the Company credited a portion of the 13% Notes acquired as part of the
Restructuring (see Note B) against this obligation and was therefore not
required to purchase any additional 13% Notes. As a result of certain amendments
to the 13% Note Indenture resulting from the Restructuring the Company has no
further obligation to offer to purchase the balance of the 13% Notes prior to
maturity in 1996.
</TABLE>

F-31

<PAGE>

CAROLCO PICTURES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE H - DEBT (CONTINUED)

(2) As of December 31, 1994, the Company has outstanding borrowings of
$14,000,000 under a revolving credit agreement provided by a syndicate of banks
with CLBN acting as lender and agent (the "CLBN Facility"). The CLBN Facility
bears interest at 3-month LIBOR plus .5% (7.0% at December 31, 1994) which
interest is payable quarterly. No additional amounts are available to be drawn
under the CLBN Facility. The CLBN Facility matures on September 29, 1995
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, 1993 and 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 through September 1995.

(3) 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. In addition, pursuant to the acquisition of
Vista described in Note B, 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. The New Senior Notes bear interest
at the rate of 11.5% per annum, payable semi-annually on April 15 and October
15. The New Senior Notes are due in October 2000.

(4) 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. The New Senior
Subordinated Notes bear interest at the rate of 13% per annum, payable
semi-annually on April 15 and October 15. (See Item (1) above). The New Senior
Subordinated Notes are due in October 1999.

(5) 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. 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. (See Note K.)

(6) Prior to March 29, 1995 Carolco owned the building housing its
corporate headquarters in Los Angeles, California. In March 1988, Carolco
entered into a $12,000,000 mortgage loan on its headquarters building with
Equitable Life Assurance Society of the United States ("Equitable"). The
mortgage loan had an interest rate of 10% and was payable in monthly
installments beginning March 1990

F-32

<PAGE>

CAROLCO PICTURES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE H - DEBT (CONTINUED)

based upon an assumed 30 year amortization of principal. The mortgage provided
for a balloon payment of the outstanding principal amount (approximately
$11,500,000) on March 1, 1995.

The mortgage loan, which was non-recourse to Carolco, was sold by Equitable
to Dolphinshire, L.P. ("Dolphinshire"), an entity unaffiliated with Carolco, on
March 29, 1995. Immediately thereafter, Carolco transferred the building to
Dolphinshire in full satisfaction of the mortgage loan outstanding. As a
result, the Company recognized a loss of $1,308,000 representing a reduction in
the book value of the building and certain leasehold improvements to the amount
of the remaining mortgage obligation (see Note K). Immediately following the
transfer of ownership to Dolphinshire, Carolco and Dolphinshire entered into a
lease agreement pursuant to which Carolco leased a majority of the office space
in its headquarters building for a term of ten years with two five year options.
Carolco has the right, however, to terminate the lease after five years without
penalty.

(7) 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 (7.5% at December 31, 1994), payable
in cash or additional notes payable. A provision of the note allowed 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. After October 1, 1994, the note is
not subject to any further redemption discounts. On September 29, 1993, the
Company redeemed $3,000,000 of the Guild Note, including accrued interest, at
60% of the balance due. As a result, the Company recorded an extraordinary gain
on early extinguishment of debt of $1,249,000. At December 31, 1994,
$10,025,000 was outstanding under the Guild Note, including accrued interest. On
January 30, 1995, the Company paid $3,285,000 to the Guilds, representing
payment of the October 1, 1994 installment, plus 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 (2) above).

F-33

<PAGE>

CAROLCO PICTURES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE H - DEBT (CONTINUED)

Assuming that none of the Company's debt is accelerated, future expected
annual payments as of December 31, 1994 are as follows:

(In Thousands)
<S> <C>
1995 . . . . . . . . . . . . . . $32,172
1996 . . . . . . . . . . . . . . 6,730
1997 . . . . . . . . . . . . . . ---
1998 . . . . . . . . . . . . . . ---
1999 . . . . . . . . . . . . . . 13,432
Thereafter . . . . . . . . . . . 41,521
-------
$93,855
-------
-------
</TABLE>

NOTE I - STOCKHOLDER'S DEFICIENCY

On June 15, 1990, in exchange for $30,000,000, Le Studio 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 per share of Common Stock, subject to adjustment. Pursuant to the
Restructuring, Le Studio exchanged a portion of the Series B Preferred for
shares for Common Stock of the Company and contributed the balance of the
Series B Preferred and related options and warrants to the Company. (See Note B
- - Financial Restructuring (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. Pursuant to the Restructuring, Pioneer
exchanged a portion of the Series C Preferred for Common Stock of the Company
and contributed the balance of the Series C Preferred and related options and
warrants to the Company. (See Note B - Financial Restructuring (5)).

On November 1, 1991, the Company issued 600,000 shares of Series D
Preferred and $35,000,000 aggregate principal amount of Existing 10% Debentures.
Of the Series D Preferred, 300,000 shares were sold to non-affiliates and
subsequently, in accordance with the provisions of the Series D Preferred, all
but 8,000 shares of such Series D Preferred was converted to Existing 10%
Debentures. Pursuant to the Restructuring, those Existing 10% Debentures and the
remaining 8,000 shares of Series D Preferred were exchanged for 21,900,000 and
600,000 shares, respectively, 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. The remaining 300,000 shares of Series D
Preferred sold by the Company were purchased by Le Studio for $15,000,000 in a
separate, but contemporaneous sale. (See Note B - Financial Restructuring (4)).

F-34

<PAGE>

CAROLCO PICTURES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE I - STOCKHOLDER'S DEFICIENCY (CONTINUED)

Of the $35,000,000 principal amount of Existing 10% Debentures sold
contemporaneously 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 Restructuring, Le Studio, RCS, and Pioneer Electronics exchanged
a portion of the Series D Preferred and Existing 10% Debentures held by them for
Common Stock of the Company and contributed to the Company the balance of their
Series D Preferred and Existing 10% Debentures. (See Note B - Financial
Restructuring (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, 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 October 20, 1993, such accrued interest totaled
approximately $783,000. Pursuant to the Contribution and Exchange Agreement,
described in Note B - Financial Restructuring (5), RCS contributed 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. Pursuant to the Restructuring, Le Studio, RCS and Pioneer each
exchanged a portion of the Series E Preferred for Common Stock of the Company
and contributed to the Company the balance of the Series E Preferred. (See
Note B- Financial Restructuring (5)).

As a result of the Restructuring, 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.

Pursuant to the terms of the Restructuring, Pioneer, Cinepole and MGM
Holdings purchased from Carolco 40,000, 12,500 and 30,000 shares, respectively,
of Series A Preferred, in exchange for cash payments of $40,000,000, 12,500,000
and $30,000,000, respectively. The Series A Preferred bears an annual dividend
rate of 5%. Cumulative dividends are payable when and if declared by Carolco's
Board of Directors, either (a) out of any fund legally available therefore, or
(b) for the first five years after issuance, to the extent legally available
therefore, in additional shares of Series A Preferred equal to 1.25% multiplied
by the liquidation preference of the Series A Preferred for each quarterly
dividend period, at the Company's election. All dividends shall accrue from the
beginning of each quarterly dividend period and shall be payable on the first
day of the next succeeding quarterly dividend period. Accrued but unpaid
dividends will be added to the liquidation preference of the Series A Preferred
on the first day of the next succeeding quarterly dividend period. On December
31, 1994, unpaid dividends totaling $3,982,000 from January 1, 1994, April 1,
1994, July 1, 1994 and October 1, 1994, had been added to the liquidation
preference, resulting in a total liquidation preference of $86,482,000. In
addition, dividends of $1,081,000

F-35

<PAGE>

CAROLCO PICTURES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE I - STOCKHOLDER'S DEFICIENCY (CONTINUED)

payable on January 1, 1995, were accrued at December 31, 1994. However, since
Carolco did not have sufficient "surplus" as defined in the provisions of the
General Corporation Law of the State of Delaware, Carolco was unable to pay such
dividends. Each share of Series A Preferred is convertible at the option of the
holder into Common Stock of Carolco at $.60 per share. As of December 31, 1994,
approximately 144,137,000 shares of Common Stock of Carolco would be issuable
upon conversion of the Series A Preferred. Holders of the Series A Preferred
will be entitled to the same voting rights as such holders would be entitled to
if they had converted their Series A Preferred to Common Stock. The holders of
the Series A Preferred will also be entitled to vote as a class on certain
matters.

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 "non-qualified 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.

Information relating to options under the 1986 Plan is as follows:

NUMBER OF
UNDERLYING AVERAGE
SHARES PRICE
------ -----
<S> <C> <C>
Balance at December 31, 1991 (all outstanding options exercisable) . . . . 573,090 $ 7.67
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . --- ---
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . --- ---
Canceled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (71,500) 7.96
---------
Balance at December 31, 1992 (all outstanding options are exercisable) . . 501,590 7.67
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 390,500 1.25
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . --- ---
Canceled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (438,599) 7.86
---------
Balance at December 31, 1993 (all outstanding options are exercisable) . . 453,491 1.95
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . --- ---
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . --- ---
Canceled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (75,991) 5.43
---------
Balance at December 31, 1994 (all outstanding options are exercisable) 377,500 1.25
---------
---------
</TABLE>
As of December 31, 1993 and 1994, 560,400 shares and 636,391 shares,
respectively, were available under the 1986 Plans for future grants of options.

F-36

<PAGE>

CAROLCO PICTURES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE I - STOCKHOLDER'S DEFICIENCY (CONTINUED)

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 27,500,000 shares,
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 board 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.

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, 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . --- ---
Canceled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . --- ---
Canceled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (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
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,900,000 0.39
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . --- ---
Canceled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (15,188,000) 1.28
-----------

Balance at December 31, 1994 (including 6,812,255 options
exercisable at an average price of $0.48 per share. 18,212,500 0.47
-----------
-----------
</TABLE>

F-37

<PAGE>

CAROLCO PICTURES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE I - STOCKHOLDER'S DEFICIENCY (CONTINUED)

As of December 31, 1993 and 1994, 12,471,500 shares and 11,759,500 shares,
respectively, were available under the 1989 Plan for future grants of options.
As of December 31, 1994, no stock appreciation rights have been granted.

At December 31, 1994, the Company has reserved approximately 30,986,000
shares of its unissued common stock for stock option plans.

At December 31, 1994, the Company had reserved approximately 221,971,000
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 ("Canceled 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
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.

In connection with his 1994 employment agreement, Mr. Kassasr was issued
options to purchase 15,000,000 shares of Carolco Common Stock at $0.40625 per
share and options to purchase 15,000,000 shares of Common Stock were canceled.

NOTE J - 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 had 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 superseded 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-38

<PAGE>

CAROLCO PICTURES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE J - INCOME TAXES (CONTINUED)

The components of pretax income (loss) for the Company are as follows:

YEAR ENDED DECEMBER 31,
-----------------------
1992 1993 1994
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Domestic . . . . . . . . . . . . . . . . . . . . $(86,131) $(39,899) $(24,695)
Foreign . . . . . . . . . . . . . . . . . . . . . 654 (15,368) (15,189)
-------- -------- --------
$(85,477) $(55,267) $(39,884)
-------- -------- --------
-------- -------- --------

The provision (benefit) for income taxes for the Company consists of the following:

YEAR ENDED DECEMBER 31,
--------------------------------
1992 1993 1994
---- ---- ----
(IN THOUSANDS)
Current:
Federal . . . . . . . . . . . . . . . . . $ --- $ --- $ 11
State . . . . . . . . . . . . . . . . . . 114 38 (38)
Foreign . . . . . . . . . . . . . . . . . 1,110 489 (41)
-------- ------ --------
1,224 527 (68)
Deferred:
Federal . . . . . . . . . . . . . . . . . --- 4,028 3,635
State . . . . . . . . . . . . . . . . . . --- --- ---
-------- ------- -------
--- 4,028 3,635
-------- ------- -------
Provision (benefit) for income taxes . . . . $1,224 $4,555 $3,567
-------- ------- -------
-------- ------- -------

</TABLE>

F-39

<PAGE>

CAROLCO PICTURES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE J - INCOME TAXES (CONTINUED)

Components of deferred income taxes for the Company are as follows:

YEAR ENDED DECEMBER 31,
------------------------
1992 1993 1994
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Film rights and other . . . . . . . . . . . . . . . . . . $ --- $4,028 $3,635
Video rights . . . . . . . . . . . . . . . . . . . . . . --- --- ---
Sales returns and other allowances . . . . . . . . . . . --- --- ---
Accelerated depreciation and basis reduction . . . . . . --- --- ---
Accruals not currently deductible for tax
purposes . . . . . . . . . . . . . . . . . . . . . . . --- --- ---
Other . . . . . . . . . . . . . . . . . . . . . . . . . . --- --- ---
-------- -------- --------
$ --- $4,028 $3,635
-------- -------- --------
-------- -------- --------
</TABLE>
A reconciliation of the total effective tax rate to the statutory federal
income tax rate for the Company is as follows:

YEAR ENDED DECEMBER 31,
------------------------
1992 1993 1994
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Statutory income tax rate-benefit . . . . . . . . . . . . 34.0 % 35.0 % 35.0 %
Foreign operations subject to varying income tax rates
and exemptions . . . . . . . . . . . . . . . . . . . . 4.6 .3 ---
Nonutilization of net operating loss . . . . . . . . . . (25.4) (34.9) (32.3)
State income taxes, net of federal tax benefit 1.2 (.1) ---
Foreign withholding tax . . . . . . . . . . . . . . . . . (1.3) (.8) ---
Dividend exclusion . . . . . . . . . . . . . . . . . . . .2 --- ---
Alternative minimum tax . . . . . . . . . . . . . . . . . (13.6) (7.3) (9.1)
Foreign deemed dividend . . . . . . . . . . . . . . . . . (1.2) --- ---
Other . . . . . . . . . . . . . . . . . . . . . . . . . . .1 (.4) (2.5)
-------- -------- --------
(1.4)% (8.2)% (8.9) %
-------- -------- --------
-------- -------- --------
</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, 1994 are as follows (in
thousands):

F-40

<PAGE>

CAROLCO PICTURES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE J - INCOME TAXES (CONTINUED)

<TABLE>
<CAPTION>
<S> <C>
Current and Non-current Deferred Tax Liability:
Film Rights and Other . . . . . . . . . . . . . . . . . . . . $(15,000,000)
Deferred Tax Assets:
Bad Debt and Other Reserves . . . . . . . . . . . . . . . . . 6,215,000
Film Revenue Recognition . . . . . . . . . . . . . . . . . . . 5,178,000
Other Net . . . . . . . . . . . . . . . . . . . . . . . . . . 399,000
Net Operating Tax Loss Carryforward . . . . . . . . . . . . . 72,100,000
--------------
Total Deferred Tax Assets . . . . . . . . . . . . . . . . 83,892,000
Valuation Allowance . . . . . . . . . . . . . . . . . . . . . . . (83,892,000)
--------------
Net Deferred Tax Assets . . . . . . . . . . . . . . . . . 0
--------------
Total Current and Non-current Deferred Tax Liability . . . . . . $(15,000,000)
--------------
--------------

</TABLE>

The provision for income taxes includes foreign taxes withheld (refunded)
at source on certain revenues. Such amounts were $1,111,000, $489,000 and
$(41,000) in 1992, 1993 and 1994, respectively. In addition, the Company has
available U.S. federal net operating loss carryovers of approximately
$206,000,000 and $173,000,000, respectively, for regular tax and Alternative
Minimum Tax return purposes. Such carryovers will expire between the years 1996
and 2009, if not otherwise used to reduce future taxable income. The Company
also has available state net operating loss carryforwards of approximately
$44,438,000 which will expire through 1999. 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 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

F-41

<PAGE>

CAROLCO PICTURES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE J - INCOME TAXES (CONTINUED)

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
$170,000,000 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 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.

The domestic entities of the Company and its predecessors have paid minimum
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. The Company does not believe that such
reorganization 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.

F-42

<PAGE>

CAROLCO PICTURES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE J - INCOME TAXES (CONTINUED)

The Company's tax position for prior taxable years may be adversely
affected by an audit presently being conducted by the Internal Revenue Service
("IRS") for the Company's 1988 through 1993 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 received notices from the IRS regarding proposed adjustments
("Proposed Adjustments") to the Company's income tax returns for the 1988, 1989
and 1990 taxable years. As of March 15, 1995, the Company has responded or is
in the process of preparing responses to all of the Proposed Adjustments by
supplying the IRS with additional facts and technical analysis which will be
considered by the IRS before it makes a decision whether to propose to assess
deficiencies attributable to the Proposed Adjustments. It is anticipated that
the IRS will issue additional proposed adjustments.

Several of the Proposed Adjustments would disallow deductions or increase
income for certain of the Company's taxable years. Many of these Proposed
Adjustments affect the timing of income and deductions, i.e., the Company would
be required to include income in an earlier taxable year than originally
reported or take deductions in a later taxable year than originally reported.
Other Proposed Adjustments would reallocate various items of income and
deductions between Carolco and CINV (which the Company believes is not subject
to federal income taxation), and would include in Carolco's income certain
deemed dividends from CINV (the "Carolco/CINV Adjustments").

The Company believes that certain of the Proposed Adjustments are without
merit. Because the examination is at an early stage, and because many of the
issues dealt with in the Proposed Adjustments are highly complex and unresolved
under the current state of the law, the Company cannot predict with any
reasonable degree of accuracy the actual tax liabilities that may result from
the IRS and FTB examinations. The Company believes its current and non-current
deferred income tax liabiltiy as of December 31, 1994 is adequate to cover any
potential tax liability from such examinations. However, the ultimate tax
liability may be substantially higher or lower.

NOTE K - OTHER INCOME AND OTHER EXPENSES

Other income includes interest income of approximately $1,398,000, $507,000
and $975,000 in 1992, 1993 and 1994, respectively. In addition, other income for
the years ended December 31, 1992, 1993 and 1994 includes $2,419,000, $3,649,000
and $2,304,000, 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, 1992, 1993 and 1994 of $399,000,
$435,000 and $717,000,respectively. Foreign currency exchange gains and losses,
which were not material, have also been included in other income for each of the
years presented.

F-43

<PAGE>

CAROLCO PICTURES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE K - OTHER INCOME AND OTHER EXPENSES (CONTINUED)

Other expenses in 1992 include losses totaling $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.

On February 3, 1994, Carolco sold its aircraft for $1,925,000 and the
remaining loan balance of $900,000, including accrued interest, was paid in
full. (See Note H (5)). Carolco recognized a gain of $1,275,000 in 1994 as a
result of the sale of the aircraft. As a result of the March 1995 sale of the
Company's headquarters building (see Note H (6)) the Company reduced the book
value of the building and certain leasehold improvements to equal the amount of
the remaining mortgage obligation. This resulted in a loss of $1,308,000, which
the Company recorded at December 31, 1994. This loss was combined with the gain
described above and included in "Other Expenses."

NOTE L - COMMITMENTS AND CONTINGENCIES

The Company has employment contracts with 5 of its key officers, with
contract terms to 1997, requiring annual compensation of $3,739,000.

As of March 30, 1995, the Company entered into a lease for its corporate
offices (see Note H (6)). The term of the lease is for 10 years, with an option
to cancel a portion of the lease after 18 months and an option to cancel the
balance of the lease after 5 years, without penalty.

Future minimum lease payments as of December 31, 1994:

(in thousands)
<S> <C>
1995. . . . . . . . . . . $ 785
1996. . . . . . . . . . . 877
1997. . . . . . . . . . . 806
1998. . . . . . . . . . . 806
1999. . . . . . . . . . . 806
Thereafter. . . . . . . . 202
</TABLE>

The Company has received approximately $993,000 at December 31, 1994,
representing deposits on certain films which the Company may not produce. This
amount is included in Accrued Liabilities. Historically, 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 June 1993, the Company entered into a non-exclusive consulting agreement
with Anthony J. Scotti, Chairman of the Company's former subsidiary/affiliate,
LIVE, and Chairman and Chief Executive Officer of All American Communications,
an unaffiliated company, for the period commencing immediately after the
Restructuring and ending twelve months thereafter. This agreement was extended

F-44

<PAGE>

CAROLCO PICTURES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE L - COMMITMENTS AND CONTINGENCIES (CONTINUED)

under the same terms and conditions as the original consulting agreement and
currently terminates on June 30, 1995. Pursuant to the agreement, Mr. Scotti
consults 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 provided by
Mr. Scotti, the Company pays Mr. Scotti $40,000 per month plus reimbursement of
all expenses incurred by Mr. Scotti in connection with the services provided by
him under the agreement. Mr. Scotti is entitled to participate in any and all of
the Company's employee stock option plans during the term of the agreement, and
is 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 1.25 times the market value of the Common Stock at the date of
commencement of the consulting period. In addition, Mr. Scotti is indemnified
from certain liabilities in connection with the performance of his duties under
the agreement. During the years ended December 31, 1993 and 1994, the Company
paid $120,000 and $453,000, respectively, to Mr. Scotti for his services under
this agreement.

In September 1992, the Company retained Mr. Scotti as a consultant to the
Company and its Financial Advisors to assist with the following: 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
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 during the years ended December
31, 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, of which $550,000 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, 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 1992, 1993 and 1994 totaled $80,000, $103,000 and $91,000,
respectively.

F-45

<PAGE>

CAROLCO PICTURES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE L - COMMITMENTS AND CONTINGENCIES (CONTINUED)

CLASS ACTION LITIGATION:

F-46

<PAGE>

CAROLCO PICTURES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE L - COMMITMENTS AND CONTINGENCIES (CONTINUED)

SPIDERMAN LITIGATION:

On April 20, 1993, 21st-Century Film Corporation ("21st") and Menahem
Golan ("Golan") filed an action against Carolco, CINV and Spiderman Productions
Ltd. ("SPL") in Los Angeles County Superior Court alleging 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 Carolco (the "Carolco/21st Agreement") whereby
21st transferred to Carolco rights relating to the comic book character
SPIDERMAN, and Carolco agreed, among other things, to accord credit to Golan as
a producer of the motion picture to be produced by defendants. 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
Carolco and CII could assign the Carolco/21st Agreement to RCS Video Service
Antilles N.V. ("RCS NV") and provided that Carolco and CII remain jointly and
severally liable with RCS NV under the Carolco/21st Agreement. Plaintiffs
alleged that Carolco and the other defendants breached the foregoing agreements
by denying any obligation to accord producer credit to Golan, by assigning the
Carolco/21st Agreement to a party other than RCS NV, and by failing to provide
plaintiffs with a written document showing that Carolco and the other defendants
have assumed the obligations of the Carolco/21st Agreement. Finally, plaintiffs
alleged that Carolco 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.

F-47

<PAGE>

CAROLCO PICTURES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE L - COMMITMENTS AND CONTINGENCIES (CONTINUED)

bankruptcy filings resulted in an automatic stay of the Los Angeles Superior
Court litigation. On July 21, 1994, the Chapter 11 Trustee for 21st and the
defendants in this action stipulated to relief from the automatic stay as a
result of which the litigation resumed.

Viacom and Columbia Tri-Star each have answered Carolco'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 Carolco and its
co-plaintiffs for anticipatory repudiation of contract, specific performance,
breach of the implied covenant of good faith and fair dealing, and declaratory
relief. Columbia Tri-Star is seeking a judicial declaration that Carolco and its
co-plaintiffs are contractually obligated to accord to Columbia Tri-Star the
home video distribution rights in SPIDERMAN 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.

F-48

<PAGE>

CAROLCO PICTURES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE L - COMMITMENTS AND CONTINGENCIES (CONTINUED)

CLIFFHANGER LITIGATION:

On October 27, 1993, Gene P. Hines and James R. Zatolokin filed an action
in Los Angeles Superior Court against Michael Anthony France, Jr. ("France"),
one of the writers for the motion picture CLIFFHANGER. The plaintiffs alleged
various causes of action against France based on the theory that the
plaintiffs have legal rights in some of the literary material contributed by
France to the CLIFFHANGER screenplay.

OTHER LITIGATION

On July 13, 1992, 20th Century Fox ("Fox") filed a lawsuit in Los Angeles
County Superior Court, against the Company and CINV, 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

F-49

<PAGE>

CAROLCO PICTURES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE L - COMMITMENTS AND CONTINGENCIES (CONTINUED)

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.

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 M - GEOGRAPHICAL INFORMATION

The Company's operations are principally motion picture production and
leasing. In 1994, the Company had three customers accounting for 10% or more of
its consolidated revenues: Pioneer (21% or $11,215,000), ABC/Capital Cities (15%
or $8,250,000) and Tri-Star (12% or $6,500,000). In 1993, the Company had
three customers accounting for 10% or more of the Company's consolidated
revenues: LIVE Home Video Inc. (10% or $10,331,000), Hermes Synchron (11% or
$10,975,000) and Showtime (18% or $18,975,000). In 1992, the Company had one
customer accounting for 10% or more of the Company's consolidated revenues: Tri-
Star (15% or $40,336,000).

F-50

<PAGE>

CAROLCO PICTURES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE M - GEOGRAPHICAL INFORMATION (CONTINUED)

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

YEAR ENDED DECEMBER 31,
-----------------------
1992 1993 1994
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
Domestic:
Sales to affiliated customers. . . . . . . . . . . $ --- $9,130 $ 11,911
Sales to unaffiliated customers. . . . . . . . . . 90,856 39,207 47,574
Foreign:
Europe (2) . . . . . . . . . . . . . . . . . . . . 121,721 40,663 ---
Asia (2) . . . . . . . . . . . . . . . . . . . . . 38,365 15,211 ---
Other. . . . . . . . . . . . . . . . . . . . . . . 22,965 4,097 (206)
---------- --------- ---------
TOTAL REVENUES . . . . . . . . . . . . . . . . $273,907 $108,308 $59,279
---------- --------- ---------
---------- --------- ---------
Operating profit (loss)(1)
Domestic . . . . . . . . . . . . . . . . . . . . . . $(17,645) $5,567 $9,529
Foreign:
Europe . . . . . . . . . . . . . . . . . . . . . . (12,966) (3,191) ---
Asia . . . . . . . . . . . . . . . . . . . . . . . 19,048 1,905 ---
Other. . . . . . . . . . . . . . . . . . . . . . . (4,316) (4,593) (15,194)
---------- --------- ---------
TOTAL OPERATING PROFIT (LOSS). . . . . . . . . (15,879) (312) (5,665)
Selling, general and administrative expenses . . . . . 33,938 24,634 21,134
Interest and other expense . . . . . . . . . . . . . . 33,034 23,505 13,085
Costs associated with restructurings and disposal of
a portion of a line of business. . . . . . . . . . . 2,626 6,816 ---
---------- --------- ---------
LOSS FROM CONTINUING OPERATIONS BEFORE
PROVISION FOR INCOME TAXES,. . . . . . . . . . . . $(85,477) $(55,267) $(39,884)
---------- --------- ---------
---------- --------- ---------

Domestic . . . . . . . . . . . . . . . . . . . . . . $(86,131) $(39,899) $(24,695)
Foreign. . . . . . . . . . . . . . . . . . . . . . . 654 (15,368) (15,189)
---------- --------- ---------
LOSS FROM CONTINUING OPERATIONS BEFORE
PROVISION FOR INCOME TAXES . . . . . . . . . . . . $(85,477) $(55,267) $(39,884)
---------- --------- ---------
---------- --------- ---------

Identifiable assets:
Domestic . . . . . . . . . . . . . . . . . . . . . . $70,496 $180,224 $104,445
Foreign:
Europe . . . . . . . . . . . . . . . . . . . . . . 155,413 275 ---
Asia . . . . . . . . . . . . . . . . . . . . . . . 6,220 2,765 ---
South America. . . . . . . . . . . . . . . . . . . 3,749 1,210 ---
Other. . . . . . . . . . . . . . . . . . . . . . . 5,053 3,597 52,412
---------- --------- ---------
TOTAL . . . . . . . . . . . . . . . . . . . . . $240,931 $188,071 $156,857
---------- --------- ---------
---------- --------- ---------

<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.

(2) In 1992, sales to affiliated customers in Europe and Asia were $15,092,000
and $27,991,000, respectively. In 1993, sales to affiliated customers in Europe
and Asia were $7,657,000 and $9,079,000, respectively.
</TABLE>

F-51

<PAGE>

CAROLCO PICTURES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE N- SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

Certain quarterly financial information is presented below. Amounts for
1993 have been restated to reflect LIVE as a discontinued operation. See Note
C.

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 . . . . . . . . (6,418) (11,613) (10,614) (26,622) (55,267)
Loss from continuing operations. . . . . . . (6,418) (11,793) (10,808) (30,803) (59,822)
Gain (loss) from extraordinary items . . . . --- --- 1,799 (1,373) 426
Net loss . . . . . . . . . . . . . . . . . . (6,781) (13,457) (11,189) (32,531) (63,958)
Preferred dividends paid or accrued. . . . . --- --- --- (834) (834)
Net loss attributable to Common Stock. . . . (6,781) (13,457) (11,189) (33,365) (64,792)
Net loss per common share:
Continuing operations. . . . . . . . . . . (.21) (.41) (.38) (.27) (1.20)
Net loss . . . . . . . . . . . . . . . . . (.23) (.47) (.39) (.28) (1.28)

FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER YEAR
------- ------- ------- ------- ----
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

1994:
Total revenue. . . . . . . . . . . . . . . . $23,003 $11,034 $19,228 $6,014 $59,279
Gross profit (loss). . . . . . . . . . . . . 6,957 (14,548) 2,040 (114) (5,665)
Loss before provision for income taxes . . . (2,284) (21,144) (8,183) (8,273) (39,884)
Net loss . . . . . . . . . . . . . . . . . . (2,031) (21,191) (8,306) (11,923) (43,451)
Preferred dividends paid or declared . . . . (1,045) (1,061) (1,061) (1,082) (4,249)
Net loss attributable to Common Stock. . . . (3,076) (22,252) (9,367) (13,005) (47,700)
Net loss per common share. . . . . . . . . . (.02) (.16) (.07) (.09) (.35)

</TABLE>

F-52

<PAGE>

CAROLCO PICTURES INC. AND SUBSIDIARIES
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS

COLUMN A COLUMN B COLUMN C - ADDITIONS COLUMN D COLUMN E
- -------- -------- -------------------- -------- --------
BALANCE AT CHARGED TO CHARGED BALANCE
----------
BEGINNING COSTS AND TO OTHER AT END
---------
OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
--------- -------- -------- ---------- ---------
DESCRIPTION (IN THOUSANDS)
- -----------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1992
Reserves and allowance deducted from asset
accounts:
Allowance for uncollectible accounts . . . . . $2,473 $ 414 $- $66 $2,821
Allowance for film costs in excess of net
realizable value . . . . . . . . . . . . . . 20,489 391(1) - 2,397(2) 18,483
---------- ------------ ----------- ------------ ---------
$22,962 $805 $- $2,463 $21,304
---------- ------------ ----------- ------------ ---------
---------- ------------ ----------- ------------ ---------

Year Ended December 31, 1993
Reserves and allowance deducted from asset
accounts:
Allowance for uncollectible accounts . . . . . $2,821 $383 $- $1,814(3) $1,390
Allowance for film costs in excess of net
realizable value . . . . . . . . . . . . . . 18,483 2,429(1) - 528(2) 20,384
---------- ------------ ----------- ------------ ---------
$21,304 $2,812 $- $ 2,342 $21,774
---------- ------------ ----------- ------------ ---------
---------- ------------ ----------- ------------ ---------

Year Ended December 31, 1994
Reserves and allowances deducted from asset
accounts:
Allowance for uncollectible accounts . . . . . $1,390 $1,913 $- $1,913(3) $1,390
Allowance for film costs in excess of net
realizable value . . . . . . . . . . . . . . 20,384 16,526(1) --- 23,722(2) 13,188
---------- ------------ ----------- ------------ ---------
$21,774 $18,439 $ --- $25,635(3) $14,578
---------- ------------ ----------- ------------ ---------
---------- ------------ ----------- ------------ ---------

<FN>
______
(1) Write off of film costs to amortization of film costs.

(2) Represents write off of film costs against amounts previously reserved.

(3) Represents write off of accounts receivable against amounts previously
reserved.

</TABLE>

F-53

<PAGE>

EXHIBIT INDEX

SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------ ----------- ----

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) . . . . . . . . . . . . . .

2.3 Agreement and Plan of Merger dated as of August 10, 1994
among Carolco Pictures Inc., LIVE Entertainment Inc. and
Carolco Acquisition Corp. (including certain exhibits
thereto). Incorporated by reference to Exhibit 2.1 to
Carolco's Current Report on Form 8-K under the Securities
Exchange Act of 1934 dated August 10, 1994 . . . . . . . . .

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 . . . . . . . . . . . . . . . . . . . . . .

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 . . . . . . . . . . . . . . . . . . . . . .

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. . . . . .

4.1 Indenture dated as of October 20, 1993 between Carolco
Pictures Inc. and American Stock Transfer & Trust Company,
as Trustee, relating to Carolco'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. . . . . . . . . . . . . . .

4.2 Indenture dated as of October 20, 1993 between Carolco
Pictures Inc. and American Stock Transfer & Trust Company,
as Trustee, relating to Carolco'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. . . . . .

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 Carolco'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. . . . . . . . . . . . . . .

4.4 Indenture dated as of October 20, 1993 between Carolco
Pictures Inc. and First Trust of California, as Trustee,
relating to Carolco'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. . . . . .

E-1

<PAGE>

4.5 Indenture, dated as of October 14, 1994, by and between
Carolco Pictures Inc. and American Stock Transfer & Trust
Company, a trust company organized and existing under the
laws of New York. Incorporated by reference to Exhibit
99.ANN to Canal+ S.A.'s Schedule 13D (Amendment No.11) under
the Securities Exchange Act of 1934 filed with the
Commission on February 8, 1995 . . . . . . . . . . . . . . .

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 . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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+. . . . . . . . . . . .

E-2

<PAGE>

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+. . .

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 . . . . . . . . . . . . . . . . . . . .

E-3

<PAGE>

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 . . . . . . . . . . . . . . . . . . . . . . .

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 . . . . . . . . . . . . . . . . . . . .

E-4

<PAGE>

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 . . . . . . . . . . . . . . . . . . .

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+ . . . . . . . . . .

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) . . .

E-5

<PAGE>

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). . . . . . . . . .

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. . . . . . . . . . . . . . . . . . .

E-6

<PAGE>

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). . . . . . . . . . . . . . .

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). . . . . . . . . . . . . . .

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<PAGE>

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)+. . .

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). . .

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<PAGE>

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. . . . . . . . . . . . . . . . . . . . . . . . .

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). . . . . . . . . . . . . . . . . . . . . . . .

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<PAGE>

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. . . . . . . . . .

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). .

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<PAGE>

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)+.

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) .

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<PAGE>

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 . . . . . . . . . . . . . . .

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. Incorporated by reference to Exhibit
10.121 to Carolco's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993. . . . . . . . . . . . .

10.122 Retainer Letter with Daniels & Associates dated as of
January 20, 1994. Incorporated by reference to Exhibit
10.122 to Carolco's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993. . . . . . . . . . . . .

10.123 Termination Agreement dated as of October 13, 1994 by and
among LIVE Entertainment Inc., Carolco Acquisition Corp. and
Carolco Pictures Inc. Incorporated by reference to Exhibit
10.1 to Carolco's current report on Form 8-K dated October
13, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . .

10.124 Waiver, Assignment and Acknowledgment Agreement dated as of
October 14, 1994 by and between Carolco Pictures Inc. and
RCS Video International Services B.V. Incorporated by
reference to Exhibit 10.2 to Carolco's current report on
Form 8-K dated October 13, 1994. . . . . . . . . . . . . . .

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<PAGE>

10.125 Employment Agreement between Carolco Pictures Inc. and Mario
F. Kassar for the services of Mario F. Kassar, dated as of
August 10. 1994. Incorporated by reference to Exhibit 5 to
Mario F. Kassar and New Carolco Investments B.V.'s Schedule
13D (Amendment No. 14) under the Securities Exchange Act of
1934 filed with the Commission on August 16, 1994. . . . . .

10.126 Stock Option Agreement of Mario F. Kassar dated as of August
10, 1994. Incorporated by reference to Exhibit 8 to Mario F.
Kassar and New Carolco Investments B.V.'s Schedule 13D
(Amendment No. 14) under the Securities Exchange Act of 1934
filed with the Commission on August 16, 1994 . . . . . . . .

10.127 Form of Second Amendment to Inducement Agreement dated as of
August 19, 1994, among New Carolco Investments B.V.,
Clorenda Corporation A.V.V., Mario F. Kassar, Le Studio
Canal+, Pioneer LDCA, Inc. and RCS Video International
Services B.V. Incorporated by reference to Exhibit 9 to
Mario F. Kassar and New Carolco Investments B.V.'s Schedule
13D (Amendment No. 14) under the Securities Exchange Act of
1934 filed with the Commission on August 16, 1994. . . . . .

10.128 Letter Agreement between Carolco Pictures Inc. and Karen A.
Taylor for the services of Karen A. Taylor effective October
28, 1994. Filed herewith. . . . . . . . . . . . . . . . . .

10.129 Letter Agreement between Carolco Pictures Inc. and Robert W.
Goldsmith for the services of Robert W. Goldsmith effective
October 28, 1994. Filed herewith. . . . . . . . . . . . . .

10.130 Amendment to the Employment Agreement between Carolco
Pictures Inc. and Mario F. Kassar dated as of November 15,
1994. Filed herewith. . . . . . . . . . . . . . . . . . . .

10.131 Letter Agreement between Carolco Pictures Inc. and Karen A.
Taylor for the services of Karen A. Taylor effective January
3, 1995. Filed herewith . . . . . . . . . . . . . . . . . .

10.132 Retainer Agreement with Daniels & Associates, L.P. and
Jefferson Capital Group, Ltd. dated as of January 1, 1995.
Filed herewith . . . . . . . . . . . . . . . . . . . . . . .

10.133 Purchase, Sale and Leaseback Agreement between Carolco
Pictures Inc. and Dolphinshire L.P. dated as of March 29,
1995. Filed herewith. . . . . . . . . . . . . . . . . . . .

10.134 Amended and Restated Agreement of Limited Partnership of
Cutthroat Productions L.P. dated December 18, 1995 by and
between Cutthroat Management Inc., Tele-Communications, Inc.
and LSC+ Investments Inc. Filed herewith. . . . . . . . . .

10.135 Letter Agreement between RCS Video International Services
B.V. and Cutthroat Management Inc. dated January 9, 1995.
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 LLP. Filed herewith . . . . . . . .

27 Financial Data Schedule. Filed herewith . . . . . . . . . .

___________

+ Confidential treatment requested

E-13

<PAGE>
EXHIBIT 10.128

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

Effective Date: October 28, 1994

Ms. Karen A. Taylor
23244 Sherwood Place
Valencia, California 91354

Re: EMPLOYMENT AGREEMENT

Dear Ms. Taylor:

When executed by you ("Employee") and by a duly authorized representative
of us, CAROLCO PICTURES INC. ("Employer"), this letter agreement will set forth
amendments to that certain Employment Agreement dated as of March 20, 1991,
between Employee and Employer, as amended by that certain letter agreement dated
as of May 20, 1992 and that certain letter agreement dated as of November 1,
1993 (the "Agreement")

Paragraph 1.3 of the Agreement is hereby deleted and replaced in its
entirety as follows:

1.3 TERM/EXCLUSIVITY. The term of Employment shall commence on the
effective date hereof and shall continue until the earlier of September 20,
1996, or the occurrence of any other event of termination as provided below (the
"Term"). The Services shall be rendered on a full-time basis during normal
working hours and all Services of Employee shall be exclusive to Employer and
its affiliates.

Paragraph 2.1 of the Agreement is hereby deleted and replaced in its
entirety as follows:

2.1 BASE COMPENSATION. In full consideration for the Services to be
rendered by Employee pursuant hereto and in complete discharge of Employer's
salary obligations hereunder, Employer shall pay to Employee and Employee shall
accept a fixed salary of One Hundred Forty-Five Thousand Dollars ($145,000)
during the first year of the Term; One Hundred Sixty Thousand Dollars ($160,000)
during second year of the Term; at a rate per annum of One Hundred Sixty
Thousand Dollars ($160,000) during the third year of the Term until November 1,
1993; at a rate per annum of Two Hundred Thousand Dollars ($200,000) for the
remainder of the third year of the Term; Two Hundred Twenty-Five Thousand
Dollars ($225,000) during the fourth year of the Term; Two Hundred Forty
Thousand Dollars ($240,000) during the fifth year of the Term and at a rate per
annum of Two Hundred Fifty-Five Thousand Dollars ($255,000) during the final
sixth months of the Term. Such salary shall be payable in equal installments,
not less frequently than twice per month, unless otherwise agreed by the parties
in writing. Such amounts shall be subject to such deductions for taxes, social
security and other withholdings as
<PAGE>

Karen A. Taylor
Employment Agreement Amendment
As of October 28, 1994
page 2

may be required by law.

A new Paragraph 2.7 shall be added which shall read in its entirety as
follows:

2.8 SIGNING BONUS. As an inducement to Employee to extend the original
Term until September 20, 1996, Employer shall pay Employee a Signing Bonus of
One Hundred Twenty Thousand Dollars ($120,000) immediately upon the signing of
this Amendment.

Paragraph 3.5 shall be deleted and of no further force or effect.

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 with the foregoing by signing below where
indicated.

Very truly yours,

CAROLCO PICTURES INC.

By: /s/ Lynwood Spinks
--------------------------
Its: Executive Vice President
--------------------------

Agreed and Accepted:

/s/ Karen A. Taylor
- -------------------
Karen A. Taylor

<PAGE>
EXHIBIT 10.129

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

Effective Date: October 28, 1994

Mr. Robert W. Goldsmith
17822 Oakrock Court
Granada Hills, California 91344

Re: EMPLOYMENT AGREEMENT

Dear Mr. Goldsmith:

When executed by you ("Employee") and by a duly authorized representative
of us, CAROLCO PICTURES INC. ("Employer"), this letter agreement will set forth
amendments to that certain Employment Agreement dated April 1, 1991, between
Employee and Employer, as amended by that certain Letter Agreement dated
November 2, 1992 (the "Agreement").

Paragraph 1.3 of the Agreement is hereby deleted and replaced in its
entirety as follows:

1.3 TERM/EXCLUSIVITY. The term of employment shall commence on the
effective date hereof and shall continue until the earlier of September 30,
1996, or the occurrence of any other event of termination as provided below (the
"Term"). The Services shall be rendered on a full-time basis during normal
working hours and all Services of Employee shall be exclusive to Employer and
its affiliates.

Paragraph 2.1 of the Agreement is hereby deleted and replaced in its
entirety as follows:

2.1 BASE COMPENSATION. In full consideration for the Services to be
rendered by Employee pursuant hereto and in complete discharge of Employer's
salary obligations hereunder, Employer shall pay to Employee and Employee shall
accept a fixed salary of One Hundred Eighty-Five Thousand Dollars ($185,000)
during the first year of the Term; Two Hundred Five Thousand Dollars ($205,000)
during the second year of the Term; Two Hundred Twenty-Five Thousand Dollars
($225,000) during the third year of the Term; Two Hundred Forty-Five Thousand
Dollars ($245,000) during the fourth year of the Term; Two Hundred Sixty-Five
Thousand Dollars ($265,000) during the fifth year of the Term and Two Hundred
Eighty-Five Thousand Dollars ($285,000) during the final six months of the Term.
Such salary shall be payable in equal payments, not less frequently than twice
per month, unless otherwise agreed to by the parties in writing. Such amounts
shall be subject to such deductions for taxes, social security and other
withholdings as may be required by law.

A new paragraph 2.9 shall be added which shall read in its entirety as
follows:
<PAGE>

Robert W. Goldsmith
Employment Agreement Amendment
As of October 28, 1994
page 2

2.9 SIGNING BONUS. As an inducement to Employee to extend the original
Term until March 31, 1996, Employer shall pay to Employee a Signing Bonus of One
Hundred Thirty-Two Thousand, Five Hundred Dollars ($132,500) immediately upon
the signing of this Amendment.

The last sentence of Paragraph 3.4(b) shall be deleted.

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 with the foregoing by signing below where
indicated.

Very truly yours,

CAROLCO PICTURES INC.

By: /s/ Lynwood Spinks
---------------------------
Its: Executive Vice President
--------------------------
Agreed and Accepted

/s/ Robert W. Goldsmith
- -----------------------
Robert W. Goldsmith

<PAGE>
EXHIBIT 10.130

CAROLCO PICTURES INC.
8800 Sunset Boulevard
Los Angeles, California 90069

EFFECTIVE DATE: As of November 15, 1994

Mr. Mario Kassar
8800 Sunset Boulevard
Los Angeles, California 90069

RE: EMPLOYMENT AGREEMENT

Dear Mr. Kassar:

Reference is made to that certain employment agreement entered into as of
August 10, 1994 (the "Agreement") between you, as "Employee," and Carolco
Pictures Inc, as "Employer." In consideration of the mutual covenants contained
herein, the receipt and sufficiency of which are hereby acknowledged, Employer
and Employee agree to amend the Agreement as follows:

The following sentence shall be added at the end of the second paragraph of
subparagraph 1.6.4 (C):

Notwithstanding the foregoing, the sale of the Company's rights and
interest in the motion picture currently entitled LOLITA shall be
governed by clause (ii) of this subparagraph.

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: /s/ Robert W. Goldsmith

Its: Senior Vice President

AGREED AND ACCEPTED

/s/ Mario Kassar
MARIO KASSAR

<PAGE>
EXHIBIT 10.131

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

Effective Date: January 3, 1995

Ms. Karen A. Taylor
23244 Sherwood Place
Valencia, California 91354

Re: Employment Agreement
--------------------

Dear Ms. Taylor:

Reference is made to that certain employment agreement dated as of 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
letter agreement with an effective date of November 1, 1993, and the letter
agreement with an effective date of October 28, 1994 (the "Employment
Agreement").

When executed by Employee and by a duly authorized representative of
Employer, this letter agreement will set forth amendments to the Employment
Agreement.

Paragraph 1.1 of the Employment Agreement shall be amended by adding the
following at the end of such paragraph:

"Notwithstanding the foregoing, upon the resignation of the Executive Vice
President and Chief Financial Officer of Employer, Employer may request and
Employee may agree to serve as the Acting Chief Financial Officer of Employer
until Employer shall name a replacement Chief Financial Officer."

Section 2 of the Employment Agreement shall be amended by adding a new
Paragraph 2.8 which shall read in its entirety as follows:

"2.8 COMPENSATION FOR SERVING AS ACTING CHIEF FINANCIAL OFFICER. Employee
shall be entitled to no additional compensation under this Agreement for serving
as the Acting Chief Financial Officer of Employer."

Paragraph 3.1 of the Employment Agreement shall be amended by adding the
following at the end of such Paragraph:

"Notwithstanding the foregoing, Employer's sole remedy in the event of a
Material Breach by Employee while she is serving as Acting Chief Financial
Officer of Employer, which would not have been a Material Breach had she not
been so serving, shall be to cause her to cease serving as Acting Chief
Financial Officer of Employer and resume serving as Senior Vice President of

<PAGE>

Karen A. Taylor
Carolco Pictures Inc.
As of January 3, 1994
Page 2

Finance of Employer."

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

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

Very truly yours,

CAROLCO PICTURES INC.

By: /s/ Lynwood Spinks
-------------------------
Its: Executive Vice President
-------------------------

Agreed and Accepted:

/s/ Karen A. Taylor
- -------------------
Karen A. Taylor

<PAGE>
EXHIBIT 10.132

Daniels & Associates Jefferson Capital Group, Ltd.
767 Fifth Avenue One James Center, Ste. 1400
48th Floor 901 East Cary Street
New York, NY 10053 Richmond, VA 23219

January 1, 1995

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

Attn: Robert W. Goldsmith
Senior Vice President

Gentlemen:

We are pleased to set forth the terms of the retention of Daniels &
Associates, L.P. and Jefferson Capital Group, Ltd. (collectively, the "Financial
Advisors") by Carolco Pictures Inc. (collectively with its affiliates, the
"Company"). The Financial Advisors will assist the Company in connection with
the activities enumerated in paragraph 1 below (collectively, the
"Transaction"). This Agreement shall supersede any and all prior agreements or
arrangements between the Company and the Financial Advisors, except for any
indemnification agreements.

1. In connection with their activities hereunder, the Financial Advisors
will, among other things, (a) review and familiarize themselves with the
business, operations, properties, financial condition and prospects of the
Company and its subsidiaries; (b) review the Company's capital structure; (c)
make specific recommendations to the Company with respect to a transaction or
series of transactions necessary to restructure the Company's capital structure
and its operations to more appropriately reflect the Company's financial
condition and future prospects; (d) assist the Company in an analysis of the
value of the Company and it subsidiaries under differing financial scenarios;
(e) assist in the structuring and placing of debt and equity securities of the
Company to the extent requested by the Company; (f) assist in structuring and
placing an appropriate working capital facility; (g) assist in analyzing the
possible sale of all or substantially all of the Company's film library rights
(in a single transaction or series of related transactions) or the sale of other
assets of the Company; (h) assist in structuring the securities and/or other
types of considerations which may be offered to holders ("Holders") of the
Company's outstanding debt and equity securities including the amounts
outstanding under: (i) the existing Carolco Credit Facility with Credit
Lyonnais Bank Nederland N.V.; (ii) the 11.5%/10% Reducing Rate Senior Notes due
2000; (iii) the 13%/12% Reducing Rate Senior Subordinated Notes due 1999; (iv)
the 13% Senior Subordinated Notes due December 1, 1996; (v) the note payable to
the Guilds; (vi) the Series A Convertible Preferred Stock; (vii) the 7%
Convertible Subordinated Notes due 2006; (viii) the 5% Payment-in-Kind
Convertible Subordinated Notes due 2002; and (ix) the common stock of the
Company (collectively, the "Securities") in any Exchange Transaction (as defined
below) proposed by the Company and in preparing the required documentation
relating thereto; (i) to the extent consistent with applicable securities laws,
as outlined by the Company's legal advisors, including, without limitation,
Section 3(a)(9) of the Securities Act
<PAGE>

Page 2

(as defined below), assist the Company in its communications with the Holders
and their representatives and in the negotiation of a plan of financial
restructuring proposed by the Company; and (j) to the extent consistent with
applicable securities laws, as outlined by the Company's legal advisors,
including, without limitation, Section 3(a)(9) of the Securities Act, assist the
Company in effecting any Exchange Transaction and financing proposed by the
Company. As used herein, the term "Exchange Transaction" shall mean,
collectively, one or more exchanges and/or purchases of securities by the
Company with or from Holders of the Securities in compliance with the Securities
Act of 1933, as amended, including any applicable exemption therefrom (such act
and the rules and regulations promulgated thereunder being hereinafter
collectively referred to as the "Securities Act"), on which the Financial
Advisors have rendered advice. The Financial Advisors acknowledge that they
will be non-exclusive financial advisors and agents of the Company in connection
with the activities described in paragraphs (a) through (j) above during the
term hereof.

2. In connection with the Financial Advisors' activities on the Company's
behalf, the Company will cooperate with the Financial Advisors and provide them
with all information and data concerning the Company and the Transaction (the
"Information") which the Financial Advisors deem appropriate and will provide
the Financial Advisors and any prospective financing sources with access to the
Company's officers, directors, employees, independent accountants and legal
counsel. The Financial Advisors agree to use such Information only in
connection with their agreement herein, unless otherwise agreed to by the
Company in writing. The Financial Advisors agree that such Information will be
subject to a separate confidentiality agreement acceptable to the Company. The
Company represents and warrants that to the best of its knowledge all
Information (a) made available to the Financial Advisors by the Company, or (b)
contained in any memorandum, offering document or solicitation statement
prepared by the Company with respect to the Transaction (the "Memorandum") will,
at all times during the period of the engagement of the Financial Advisors
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 the Financial Advisors 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 reasonable. The Company
acknowledges and agrees that in rendering their services hereunder, the
Financial Advisors will be using and relying on the Information (and information
available from public sources and other sources deemed reliable by the Financial
Advisors) without independent verification thereof by the Financial Advisors or
independent appraisal by the Financial Advisors of any of the Company's assets.
The Financial Advisors do not assume responsibility for the accuracy or
completeness of the Information or any other information regarding the Company,
or any Transaction. Any advice rendered by the Financial Advisors pursuant to
this Agreement may not be disclosed publicly without the Financial Advisors'
prior written consent unless required by law, rule or regulation. The Financial
Advisors acknowledge that the relationship created pursuant to this Agreement
between the Company and the Financial Advisors will constitute a related party
transaction required to be publicly disclosed by the Company in accordance with
Federal securities law. The Financial Advisors further acknowledge 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>

Page 3

3. In consideration of our services pursuant to this Agreement, the
Financial Advisors shall be entitled to receive, and the Company agrees to pay
the Financial Advisors a fixed fee of $1,800,000, payable over twelve months at
the rate of $150,000 per month on the 15th day of each month. All fees due
under this paragraph 3 shall be paid 60% to Daniels & Associates and 40% to
Jefferson Capital Group, Ltd.

4. In addition to the fees described in paragraph 3 above, the Company
agrees to promptly reimburse the Financial Advisors, upon request from time to
time, for all out-of-pocket expenses incurred by the Financial Advisors
(including reasonable fees and disbursements of counsel, and of other
consultants and advisors retained by the Financial Advisors, provided the
retention of such other consultants and advisors had been approved in advance by
the Company) in connection with the matters contemplated by this Agreement. The
Financial Advisors will supply to the Company, upon request for reimbursement,
documentation supporting such expenses as the Company may reasonably request.
Notwithstanding the foregoing, the Company's obligation to reimburse the
Financial Advisors pursuant to this paragraph 4 shall not exceed $100,000.

5. The Company agrees to indemnify the Financial Advisors in accordance
with the indemnification provisions in Schedule I (the "Indemnification
Provision") attached to this Agreement, which Indemnification Provisions are
incorporated herein and made a part hereof.

6. Either party hereto may terminate this Agreement at any time upon
written notice. Neither termination of this Agreement nor completion of the
assignment contemplated hereby shall affect: (i) any compensation to which the
Financial Advisors are entitled pursuant to paragraph 3 hereof, (ii) the
reimbursement of expenses incurred by the Financial Advisors up to the date of
termination or completion of the assignment contemplated hereby, as the case may
be, (iii) the provisions of paragraphs 4-6, inclusive, of this Agreement, and
(iv) the attached Indemnification Provisions which are incorporated herein, all
of which shall remain operative and in full force and effect. Notwithstanding
the foregoing, (i) in the event the Financial Advisors terminate this Agreement
at any time on or before twelve months from the date of this Agreement or the
Company terminates this Agreement at any time after six months from the date of
this Agreement, the Company's obligation to make the payments set forth in
paragraph 3 shall cease immediately and (ii) in the event the Company terminates
this Agreement at any time on or before six months from the date of this
Agreement, the Company's obligation to make the payments set forth in paragraph
3 shall be limited to $900,000.

8. The validity and interpretation of this Agreement shall be governed by
the laws of the State of New York applicable to agreements made and to be fully
performed therein.

9. The benefits of this Agreement shall inure to the respective
successors and assigns of the parties hereto and of the indemnified parties
hereunder and their successors and assigns and representatives, 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, this Agreement may not be assigned by any party hereto without
the express written consent of the other parties.
<PAGE>

Page 4

10. For the convenience of the parties, any number of counterparts of this
Agreement may be executed by the parties hereto. Each such counterpart shall
be, and shall be deemed to be, an original instrument, but all such counterparts
taken together shall constitute one and the same Agreement. This Agreement may
not be modified or amended except in writing signed by the parties hereto.

If the foregoing correctly sets forth our Agreement, please sign this
enclosed copy of this letter in the space provided and return it to us.

Sincerely yours,

DANIELS & ASSOCIATES, L.P.
By: Daniels Partners, Inc., its general partner

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

JEFFERSON CAPITAL GROUP, LTD.

By: /s/ R. Timothy O'Donnell
-----------------------------
R. Timothy O'Donnell
President

CONFIRMED AND AGREED TO THIS 19th DAY OF JANUARY , 1995

CAROLCO PICTURES INC.

By: /s/ Robert W. Goldsmith
---------------------------
Robert W. Goldsmith
Senior Vice President
<PAGE>

SCHEDULE I

THE INDEMNIFICATION PROVISIONS

The Company (as such term is defined in the Agreement) agrees to indemnify and
hold harmless the Financial Advisors against any and all claims, damages,
actions, proceedings, investigations, demands, liabilities, damages, judgments,
awards, assessments, losses and costs, including fees and expenses, arising out
of or in connection with any investigation or the services rendered by the
Financial Advisors under this Agreement, and will reimburse the Financial
Advisors for all such fees and expenses including the reasonable fees of counsel
as they are incurred by the Financial Advisors in connection with pending or
threatened litigation whether or not the Financial Advisors are a party. The
Company will not, however, be responsible for any claims, liabilities, losses,
damages or expenses that are determined by final judgment of a court of
competent jurisdiction to result primarily from the Financial Advisors' gross
negligence, willful misconduct or bad faith. The Company also agrees that the
Financial Advisors shall have no liability for claims, liabilities, damages,
losses or expenses, including legal fees, incurred by the Company unless they
are determined by final judgment of a court of competent jurisdiction to result
primarily from the Financial Advisors' gross negligence, willful misconduct or
bad faith.

In the event that the foregoing indemnity is unavailable to the Financial
Advisors, then the Company shall contribute to amounts paid or payable by the
Financial Advisors with respect of such losses, claims, damages, costs,
judgments, fines, liabilities or amounts paid in settlement in the proportion
that the Company's interest bears to the Financial Advisors' interest in the
matters contemplated by this Agreement (if the Financial Advisors' engagement
concerns an acquisition, divestiture or financing, the Company's interest shall
be deemed to be an amount equal to the proposed or actual consideration to be
paid or received by the Company and the Financial Advisors' interest shall be
deemed to be an amount equal to the fees actually paid to it in connection with
such engagement). If, however, the allocation provided by the immediately
preceding sentence is not permitted by applicable law, or otherwise, then the
Company shall contribute to such amount paid or payable by it in such proportion
as is appropriate to reflect not only such relative interests but also the
relative fault of the Company on the one hand and the Financial Advisors on the
other hand in connection with the matters as to which such losses, claims,
damages, costs, judgments, fines, liabilities or amounts paid in settlement
relate and other equitable considerations.

In case any action shall be brought against the Financial Advisors with
respect to which indemnity may be sought against the Company under this
Agreement, the Financial Advisors shall promptly notify the Company in writing
and the Company shall, if requested by the Financial Advisors, assume the
defense thereof, including the employment of counsel and payment of all fees and
expenses related thereto. The Financial Advisors 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 the Financial
Advisors, 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 the Financial Advisors and the Company, and the Financial
Advisors 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 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
<PAGE>

Schedule I
Page 2

such action effected without the written consent of the Company, and the Company
agrees to indemnify and hold harmless the Financial Advisors from and against
any loss or liability by reason of settlement of any action effected with the
consent of the Company.

<PAGE>

EXHIBIT 10.133

AMENDED AND RESTATED

AGREEMENT OF LIMITED PARTNERSHIP

OF
CUTTHROAT PRODUCTIONS L.P.,
A CALIFORNI LIMITED PARTNERSHIP

This AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP (the
"Agreement") is entered into and shall be effective as of the 18th day of
December, 1994, by and between Cutthroat Management Inc., a California
corporation or its Permitted Assigns ("CMI") as the General Partner, and Tele-
Communications, Inc., a Delaware corporation or its Permitted Assigns ("TCI")
and LSC+ Investments Inc., a California corporation or its Permitted Assigns
("LSC+") as the Limited Partners, pursuant to the provisions of the California
Revised Uniform Limited Partnership Act.

WHEREAS, CMI, as the general partner, and Carolco Pictures Inc. ("CPI"), a
Delaware corporation, as the limited partner, formed a limited partnership (the
"Partnership") by filing a Certificate of Limited Partnership with the
Secretary of State of the State of California on Septemberr 22, 1994; and,

WHEREAS, CPI is withdrawing as a Limited Partner of the Partnership and
TCI and LSC+ are being admittd to the Partnership as Limited Partners;

NOW, THEREFORE, the parties hereto and CPI agree as follows:

Section 1
THE PARTNERSHIP

1.1 Formation. The Partnershp has been formed as a limited
partnership pursuant to the provisions of the Act and upon the terms and
conditions set forth iin this Agreement.

1.2 Name. The name of the Partnership shall be Cutthroat
Productions L.P., and all business of the Partnership shall be conducted in
such name or, in the discretion of the General Partner, under any other name,
provided that the General Partner may change the name of the Partnership only
Business Days advance written notice to the Limited Partners.

1.3 Purpose. This Partnership has been formed in accordance with
the Co-Production Agreemen as defined in Section 1.11 for the purpose of (a)
engaging in the business of financing, producing and exploiting the Qualifyiing
Film, (b) managing, protecting and conserving the assets of the Partnership,

(c) making such additional investments and engaging in such additional business
endeavors as the Partners may unanimously agree, and (d) engaging in any and
all activities related or incidental thereto.

1
<PAGE>

1.4 Withdrawal of CPI. Upon the execution hereof, CPI, as the
original LimitedPartner, shall withdraw from the Partnership and shall,
concurrently therewith, receive a return of its capital contribution too the
Partnership in the amount of $100.

1.5 Principal Executive Offices. The principal executive offices of
th Partnership shall be at 8800 Sunset Boulevard, Los Angeles, California
90069. The General Partner may change the principal executive offices of the
Partnership to any other place within or without the State of California upon
ten (10) Business Days addvance written notice to the Limited Partners;
provided, however, that changing the principal executive offices of the
Partnership to a place outside the United States of America shall require the
consent of the Limited Partners, which consent shall notplace outside the
United States of America shall require the consent of the Limited Partners,
which consent shall not be unreasonably withheld.

1.6 Term. The term of the Partnership shall commence on the date
the certificate of limited partnership described in Section 15621 of the Act
(the te of California in accordance with the Act and shall continue until the
winding up and liquidation of the Partnership and its business is completed
following a liquidating event, as provided in Section 12.1 hereof. Prior to
the time that the Certificate is filed, no Person shall represent to third
parties the existence of the Partnership or hold itself out as a Partner.
Nothstanding anything to the contrary contained herein, neither the
bankruptcy, insolvency, dissolution or cessation of existence of the Limited
Partners or any of them, nor the occurrence of any of the events set forth in
California Corporations Code Section 15642(c) and 15642(d) shall result in the
dissolution of the Partnership prior to the Completion Date (as defined
below).

1.7 Filings; Agent for Service of Process.

(a) The General Partner shall cause the Certificate to be
filed in the office of the Secretary of State of California in accordance with
the provisions of the Act. The General Partner shall take any and all other
actions reasonably necessary to perfect and maintain the status of the
Partnership as a limited partnership under the laws of California. The
General Partner shall cause amendments to the Certificate to be filed
whenever required by the Act. Such amendments may be executed by the
General Partner or by any Person designated in the amendment as a new
General Partner.

(b) The General Partner shall execute and cause to be filed
original or amended Certificates and shall take any and all other actions as
may be reasonably necessary to perfect and maintain the status of the
Partnership as a limited partnership or similar type of entity under the
laws of any other states or jurisdictions in which the Partnership engages
in business.

2
<PAGE>

(c) The registered agent for service of process on the
Partnership shall be Cutthroat Management Inc. or any successor as appointed by
the General Partner in accordance with the Act. The registered office of the
Partnership in the state of California is located at 8800 Sunset Boulevard, Los
Angeles, California 90069.

(d) Upon the dissolution of the Partnership, the General
Partner (or, in the event there is no remaining General Partner, any Person
elected pursuant to Section 12.2 hereof) shall promptly execute and cause to be
filed certificates of dissolution in accordance with the Act and the laws of
any other states or jurisdictions in which the Partnership has filed
certificates.

1.8 Title to Property. All real and personal property owned by the
Partnership shall be owned by the Partnership as an entity and no Partner shall
have any ownership interest in such property in its individual name or right,
and each Partner's interest in the Partnership shall be personal property for
all purposes. The Partnership shall hold all of its real and personal
property, including, without limitation, the copyright in and to the Qualifying
Film and the screenplay for the Qualifying Film, in the name of the Partnership
and not in the name of any Partner.

1.9 Payments of Partner Obligations. The Partnership's credit and
assets shall be used solely for the benefit of the Partnership, and no asset of
the Partnership shall be transferred or encumbered for or in payment of any
individual obligation of any Partner.

1.10 Independent Activities; Transactions with Affiliates.

(a) The General Partner and any of its Affiliates (other than
the Limited Partners) shall be required to devote such time to the affairs of
the Partnership as may be reasonably necessary or appropriate to fulfil the
purposes of the Partnership and manage and operate the Partnership, and each
such Person, to the extent not otherwise directed by the General Partner, shall
be free to serve any other Person or enterprise in any capacity that it may deem
appropriate in its discretion.

(b) Insofar as permitted by applicable law, the General Partner
(acting on its own behalf) and the Limited Partners (each acting on its own
behalf) and each of their Affiliates may, notwithstanding this Agreement, engage
in whatever activities they choose, whether the same are competitive with the
Partnership or otherwise, without having or incurring any obligation to offer
any interest in such activities to the Partnship or any Partner and neither this
Agreement nor any activity undertaken pursuant hereto shall prevent any Partner
or its Affiliates from engaging in such activities, or require any Partner to
permit the Partnership or any Partner or its Affiliates to participate in any
such activities, and as a material part of the consideration for the execution
of this Agreement by each Partner, each Partner hereby waives,

<PAGE>

relinquishes, and renounces any such right or claim of participation.

(c) To the extent permitted by applicable law and except as
otherwise provided in this Agreement, the General Partner, when acting on behalf

of the Partnership, is hereby authorized to purchase property from, sell
property to, or otherwise deal with any Partner, acting on its own behalf, or
any Affiliate of any Partner, provided that all Partners consent thereto. The
Partners hereby expressly agree that the agreements listed on Exhibit D hereto
meet the terms set forth in this clause (c).

1.11 Definitions. In this Agreement and the recitals hereto the
following expressions shall have the meanings set opposite them. Terms not
defined herein shall have the meaning set forth in the Co-Production Agreement
(defined below).

ACT shall mean the California Revised Uniform Limited Partnership Act, as
it may be amended from time to time.

ADDITIONAL CAPITAL CONTRIBUTION shall mean, with respect to a Partner, any
contributions made by such Partner which are agreed to be credited to its
Capital Account as additional capital contributions pursuant to Section 2.3
hereof.

ADJUSTED CAPITAL ACCOUNT DEFICIT shall mean, with respect to any Limited
Partner, the balance, if any, in such Limited Partner's Capital Account as of
the end of the relevant fiscal year, after giving effect to the following
adjustments:

(i) Credit to such Capital Account any amounts which such Limited
Partner is obligated to restore pursuant to any provision of this Agreement or
is deemed to be obligated to restore pursuant to the penultimate sentences of
Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5); and

(ii) Debit to such Capital Account the items described in Regulations
Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), and 1.704-
1(b)(2)(ii)(d)(6).

The foregoing definition of Adjusted Capital Account Deficit is intended
to comply with the provisions of Regulations Section 1.704-1(b)(2)(ii)(d) and
shall be interpreted consistently therewith.

ADJUSTED INITIAL CAPITAL CONTRIBUTION shall mean, with respect to a
Limited Partner, the amount of such Limited Partner's Initial Capital
Contribution, reduced by the cumulative amount of distributions made to such
Limited Partner pursuant to Section 4.1(d) hereof and increased by the
amount of any return of such

<PAGE>

distributions required to be made by the Limited Partners pursuant to
Section 4.4 hereof, if any.

AFFILIATE shall have the meaning given to such term in Rule 12b-2 under
the Securities Exchange Act of 1934, as amended, and the rules and regulations
of the United States Securities and Exchange Commission (or any successor
organization) promulgated thereunder; provided, however, that, for the purposes
of this Agreement Credit Lyonnais Bank Nederland N.V. and Credit Lyonnais S.A.
shall not be deemed to be "Affiliates" of the Partnership or any Partners.

AGREEMENT shall mean this Limited Partnership Agreement. by the
Partnership, including, without limitation, any insurance recoveries with
respect to the Qualifying Film. Available C Cash shall not be reduced by
depreciation, amortization, cost recovery deductions, or similar allowances, but
shall be increased by any reductions of reserves previously established.

BUDGETED NEGATIVE COST shall have the meaning set forth in the
Co-Production Agreement.

BUSINESS DAY shall mean any day other than Saturday, Sunday or any day
other than a day on ich commercial banks in Los Angeles, California are
authorized by law to be closed for business.

CAPITAL ACCOUNT shall mean, with respect to any Partner, the Capital
Account maintained for such Partner in accordance with the following provisions:

(i) To each Partner's Capital Account there shall be credited such
Partner's Capital Contributions, such Partner's distributive share of Profits
and any items in the nature of income or gain which are specially allocated
pursuant to Section 3.3 or Section 3.4 hereof, and the amount of any Partnership
liabilities assumed by such Partner or which are secured by any property
distributed to such Partner.

(ii) To each Partner's Capital Account there shall be debited
the amount of cash and the Gross Asset Value of any property distributed to such
Partner pursuant to any provision of this Agreement (except for Sections 4.1(e)
and (f)), such Partner's distributive share of Losses and any items in the
nature of expenses or losses which are specially allocated pursuant to Section
3.3 or Section 3.4 hereof, and the amount of any liabilities of such Partner
assumed by the Partnership or which are secured by any property contributed by
such Partner to the Partnership.

<PAGE>

(iii) In the event all or a portion of a Partnership interest is
transferred in accordance with the terms of this Agreement, the transferee shall
succeed to the Capital Account of the transferor to the extent it relates to the
transferred Partnership interest.

(iv) In determining the amount of any liability for purposes of
subsection (i) and (ii) immediately above, there shall be taken into account
Code Section 752(c) and any other applicable provisions of such Code and
Regulations issued thereunder.

<PAGE>
EXHIBIT 10.134

AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
CUTTHROAT PRODUCTIONS L.P.,
A CALIFORNIA LIMITED PARTNERSHIP

WHEREAS, CMI, as the general partner, and Carolco Pictures Inc. ("CPI"), a
Delaware corporation, as the limited partner, formed a limited partnership (the
"Partnership") by filing a Certificate of Limited Partnership with the Secretary
of State of the State of California on September 22, 1994; and,

WHEREAS, CPI is withdrawing as a Limited Partner of the Partnership and TCI
and LSC+ are being admitted to the Partnership as Limited Partners;

NOW, THEREFORE, the parties hereto and CPI agree as follows:

Section 1
THE PARTNERSHIP

1.1 Formation. The Partnership has been formed as a limited
partnership pursuant to the provisions of the Act and upon the terms and
conditions set forth in this Agreement.

1.2 Name. The name of the Partnership shall be Cutthroat Productions
L.P., and all business of the Partnership shall be conducted in such name or, in
the discretion of the General Partner, under any other name, provided that the
General Partner may change the name of the Partnership only upon ten (10)
Business Days advance written notice to the Limited Partners.

1.3 Purpose. This Partnership has been formed in accordance with the
Co-Production Agreement as defined in Section 1.11 for the purpose of (a)
engaging in the business of financing, producing and exploiting the Qualifying
Film, (b) managing, protecting and conserving the assets of the Partnership, (c)
making such additional investments and engaging in such additional business
endeavors as the Partners may unanimously agree, and (d) engaging in any and all
activities related or incidental thereto.

<PAGE>

1.4 Withdrawal of CPI. Upon the execution hereof, CPI, as the
original Limited Partner, shall withdraw from the Partnership and shall,
concurrently therewith, receive a return of its capital contribution to the
Partnership in the amount of $100.

1.5 Principal Executive Offices. The principal executive offices of
the Partnership shall be at 8800 Sunset Boulevard, Los Angeles, California
90069. The General Partner may change the principal executive offices of the
Partnership to any other place within or without the State of California upon
ten (10) Business Days advance written notice to the Limited Partners; provided,
however, that changing the principal executive offices of the Partnership to a
place outside the United States of America shall require the consent of the
Limited Partners, which consent shall not be unreasonably withheld.

1.6 Term. The term of the Partnership shall commence on the date the
certificate of limited partnership described in Section 15621 of the Act (the
"Certificate") was filed in the office of the Secretary of State of California
in accordance with the Act and shall continue until the winding up and
liquidation of the Partnership and its business is completed following a
liquidating event, as provided in Section 12.1 hereof. Prior to the time that
the Certificate is filed, no Person shall represent to third parties the
existence of the Partnership or hold itself out as a Partner. Notwithstanding
anything to the contrary contained herein, neither the bankruptcy, insolvency,
dissolution or cessation of existence of the Limited Partners or any of them,
nor the occurrence of any of the events set forth in California Corporations
Code Section 15642(c) and 15642(d) shall result in the dissolution of the
Partnership prior to the Completion Date (as defined below).

1.7 Filings; Agent for Service of Process.

(a) The General Partner shall cause the Certificate to be filed
in the office of the Secretary of State of California in accordance with the
provisions of the Act. The General Partner shall take any and all other actions
reasonably necessary to perfect and maintain the status of the Partnership as a
limited partnership under the laws of California. The General Partner shall
cause amendments to the Certificate to be filed whenever required by the Act.
Such amendments may be executed by the General Partner or by any Person
designated in the amendment as a new General Partner.

(b) The General Partner shall execute and cause to be filed
original or amended Certificates and shall take any and all other actions as may
be reasonably necessary to perfect and maintain the status of the Partnership as
a limited partnership or similar type of entity under the laws of any other
states or jurisdictions in which the Partnership engages in business.

<PAGE>

(d) Upon the dissolution of the Partnership, the General
Partner (or, in the event there is no remaining General Partner, any Person
elected pursuant to Section 12.2 hereof) shall promptly execute and cause to be
filed certificates of dissolution in accordance with the Act and the laws of any
other states or jurisdictions in which the Partnership has filed certificates.

1.8 Title to Property. All real and personal property owned by the
Partnership shall be owned by the Partnership as an entity and no Partner shall
have any ownership interest in such property in its individual name or right,
and each Partner's interest in the Partnership shall be personal property for
all purposes. The Partnership shall hold all of its real and personal property,
including, without limitation, the copyright in and to the Qualifying Film and
the screenplay for the Qualifying Film, in the name of the Partnership and not
in the name of any Partner.

1.10 Independent Activities; Transactions with Affiliates.
(a) The General Partner and any of its Affiliates (other than
the Limited Partners) shall be required to devote such time to the affairs of
the Partnership as may be reasonably necessary or appropriate to fulfil the
purposes of the Partnership and manage and operate the Partnership, and each
such Person, to the extent not otherwise directed by the General Partner, shall
be free to serve any other Person or enterprise in any capacity that it may deem
appropriate in its discretion.

(b) Insofar as permitted by applicable law, the General Partner
(acting on its own behalf) and the Limited Partners (each acting on its own
behalf) and each of their Affiliates may, notwithstanding this Agreement, engage
in whatever activities they choose, whether the same are competitive with the
Partnership or otherwise, without having or incurring any obligation to offer
any interest in such activities to the Partnership or any Partner and neither
this Agreement nor any activity undertaken pursuant hereto shall prevent any
Partner or its Affiliates from engaging in such activities, or require any
Partner to permit the Partnership or any Partner or its Affiliates to
participate in any such activities, and as a material part of the consideration
for the execution of this Agreement by each Partner, each Partner hereby waives,

<PAGE>

relinquishes, and renounces any such right or claim of participation.

(c) To the extent permitted by applicable law and except as
otherwise provided in this Agreement, the General Partner, when acting on behalf
of the Partnership, is hereby authorized to purchase property from, sell
property to, or otherwise deal with any Partner, acting on its own behalf, or
any Affiliate of any Partner, provided that all Partners consent thereto. The
Partners hereby expressly agree that the agreements listed on Exhibit D hereto
meet the terms set forth in this clause (c).

ACT shall mean the California Revised Uniform Limited Partnership Act, as
it may be amended from time to time.

(ii) Debit to such Capital Account the items described in Regulations
Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), and 1.704-
1(b)(2)(ii)(d)(6).

The foregoing definition of Adjusted Capital Account Deficit is intended to
comply with the provisions of Regulations Section 1.704-1(b)(2)(ii)(d) and shall
be interpreted consistently therewith.

ADJUSTED INITIAL CAPITAL CONTRIBUTION shall mean, with respect to a Limited
Partner, the amount of such Limited Partner's Initial Capital Contribution,
reduced by the cumulative amount of distributions made to such Limited Partner
pursuant to Section 4.1(d) hereof and increased by the amount of any return of
such

<PAGE>

distributions required to be made by the Limited Partners pursuant to
Section 4.4 hereof, if any.

AFFILIATE shall have the meaning given to such term in Rule 12b-2 under the
Securities Exchange Act of 1934, as amended, and the rules and regulations of
the United States Securities and Exchange Commission (or any successor
organization) promulgated thereunder; provided, however, that, for the purposes
of this Agreement Credit Lyonnais Bank Nederland N.V. and Credit Lyonnais S.A.
shall not be deemed to be "Affiliates" of the Partnership or any Partners.

AGREEMENT shall mean this Limited Partnership Agreement.

AVAILABLE CASH shall mean the gross cash proceeds received by the
Partnership, including, without limitation, any insurance recoveries with
respect to the Qualifying Film. Available Cash shall not be reduced by
depreciation, amortization, cost recovery deductions, or similar allowances, but
shall be increased by any reductions of reserves previously established.

BUDGETED NEGATIVE COST shall have the meaning set forth in the Co-
Production Agreement.

BUSINESS DAY shall mean any day other than Saturday, Sunday or any day
other than a day on which commercial banks in Los Angeles, California are
authorized by law to be closed for business.

CAPITAL ACCOUNT shall mean, with respect to any Partner, the Capital
Account maintained for such Partner in accordance with the following provisions:

<PAGE>

The foregoing provisions and the other provisions of this Agreement
relating to the maintenance of Capital Accounts are intended to comply with
Regulations Section 1.704-1(b), and shall be interpreted and applied in a manner
consistent with such Regulations. In the event the General Partner shall
determine that it is prudent to modify the manner in which the Capital Accounts,
or any debits or credits thereto (including, without limitation, debits or
credits relating to liabilities which are secured by contributed or distributed
property or which are assumed by the Partnership or any Partner), are computed
in order to comply with such Regulations, the General Partner may make such
modification, provided that it is not likely to have a material effect on the
amounts distributable to any Partner pursuant to Section 4 hereof or upon the
dissolution of the Partnership. The General Partner also shall (i) make any
adjustments that are necessary or appropriate to maintain equality between the
Capital Accounts of the Partners and the amount of Partnership capital reflected
on the Partnership's balance sheet, as computed for book purposes, in accordance
with Regulations Section 1.704-1(b)(2)(iv)(g), and (ii) make any appropriate
modifications in the event that unanticipated events might otherwise cause this
Agreement not to comply with Regulations Section 1.704-1(b). None of the
foregoing actions shall be taken without prior consultation with the Limited
Partners.

CAPITAL CONTRIBUTIONS shall mean, with respect to a Partner, the amount of
money and the initial Gross Asset Value of any property (other than money)
contributed by such Partner to the Partnership, being the Initial Capital
Contribution and the Additional Capital Contributions.

CDI shall mean Cutthroat Distribution Inc., a California corporation.

CMI PERCENTAGE shall have the meaning set forth on Exhibit C.

CODE shall mean the Internal Revenue Code of 1986, as amended from time to
time (or any corresponding provisions of succeeding law).

<PAGE>

COMPLETION DATE shall mean the later to occur of (i) the date upon which
the Qualifying Film has been completed and delivered to CDI by the Partnership,
or (ii) the date of the repayment by the Partnership of all of its obligations
to a syndicate of lenders of which Berliner Bank AG (London Branch) is the
administrative agent.

CO-PRODUCTION AGREEMENT shall mean that certain Co-Production Financing
Commitment Agreement among Carolco Pictures Inc., TCI and Le Studio Canal+ S.A.
dated as of August 19, 1993.

DEPRECIATION shall mean, for each fiscal year, an amount equal to the
depreciation, amortization, or other cost recovery deduction allowable with
respect to an asset for such fiscal year, except that if the Gross Asset Value
of an asset differs from its adjusted basis for United States income tax
purposes at the beginning of such fiscal year, Depreciation shall be an amount
which bears the same ratio to such beginning Gross Asset Value as the United
States income tax depreciation, amortization, or other cost recovery deduction
for such fiscal year bears to such beginning adjusted tax basis; provided,
however, that if the adjusted basis for United States income tax purposes of an
asset at the beginning of such fiscal year is zero, Depreciation shall be
determined with reference to such beginning Gross Asset Value using any
reasonable method selected by the General Partner in consultation with the
Limited Partners.

DISTRIBUTION AGREEMENT shall mean that certain Distribution Agreement
between the Partnership and CDI with respect to the Qualifying Film, attached as
Exhibit E hereto.

GENERAL PARTNER shall mean CMI, or any other entity which has replaced CMI
as general partner in accordance with Section 12.1(a) hereof.

GROSS ASSET VALUE shall mean, with respect to any asset, the asset's
adjusted basis for United States income tax purposes, except as follows:

(i) The initial Gross Asset Value of any asset contributed by a
Partner to the Partnership shall be the gross fair market value of such asset,
as determined by the contributing Partner and the General Partner, provided
that, if the contributing Partner is the General Partner, the determination of
the fair market value of a contributed asset shall require the consent of the
Limited Partners, which consent may not be unreasonably withheld;

(ii) The Gross Asset Value of all Partnership assets shall be adjusted
to equal their respective gross fair market values, as determined by the General
Partner, as of the following times: (a) the acquisition of an additional
Partnership interest by any new or existing Partner in exchange for more than a
de minimis capital contribution; (b) the distribution by the Partnership to a
Partner

<PAGE>

of more than a de minimis amount of property as consideration for a
Partnership interest; and (c) the liquidation of the Partnership within the
meaning of Regulations Section 1.704-(b)(2)(ii)(g); provided, however, that the
determination of the gross fair market value of a Partnership asset shall
require the consent of the Limited Partners, which consent may not be
unreasonably withheld, and provided further that adjustments pursuant to clauses
(a) and (b) above shall be made only if the General Partner reasonably
determines that such adjustments are necessary or appropriate to reflect the
relative economic interests of the Partners in the Partnership and only after
prior consultation with the Limited Partners;

(iii) The Gross Asset Value of any Partnership asset distributed to any
Partner shall be adjusted to equal the gross fair market value of such asset on
the date of distribution as determined by the distributee and the General
Partner; provided that, if the distributee is the General Partner, the
determination of the fair market value of the distributed asset shall require
the consent of the Limited Partners, which consent may not be unreasonably
withheld; and

(iv) The Gross Asset Values of Partnership assets shall be increased
(or decreased) to reflect any adjustments to the adjusted basis of such assets
pursuant to Code Section 734(b) or Code Section 743(b), but only to the extent
that such adjustments are taken into account in determining Capital Accounts
pursuant to Regulations Section 1.704-1(b)(2)(iv)(m) and clause (vi) of the
definition of Profits and Losses and Section 3.3(g) herein; provided, however,
that Gross Asset Values shall not be adjusted pursuant to this clause (iv) to
the extent the General Partner determines that an adjustment pursuant to clause
(ii) of this definition of Gross Asset Value is necessary or appropriate in
connection with a transaction that would otherwise result in an adjustment
pursuant to this clause (iv).

If the Gross Asset Value of an asset has been determined or adjusted
pursuant to clauses (i), (ii) or (iv) of this definition of Gross Asset Value,
such Gross Asset Value shall thereafter be adjusted by the Depreciation taken
into account with respect to such asset for purposes of computing Profits and
Losses.

INITIAL CAPITAL CONTRIBUTION shall mean, with respect to a Partner, the sum
of the amounts for such Partner referred to in Sections 2.1 and 2.2 hereof.

LSC+ PERCENTAGE shall have the meaning set forth on Exhibit C.

LIMITED PARTNERS shall mean LSC+ and TCI, and any other entity which has
become party to this Agreement in accordance with Section 10 hereto, and in the
singular any one of the Limited Partners.

<PAGE>

NONRECOURSE DEDUCTIONS has the meaning set forth in Regulations Section
1.704-2(b)(1) and shall be determined in accordance with Regulations Section
1.704-2(c).

NONRECOURSE LIABILITY has the meaning set forth in Regulations Section
1.704-2(b)(3).

PARTNER shall mean a partner being either the General Partner or a Limited
Partner.

PARTNERS shall mean the General Partner and the Limited Partners.

PARTNERSHIP shall mean the limited partnership established by this
Agreement.

PARTNER NONRECOURSE DEBT has the meaning as set forth in Regulations
Section 1.704-2(b)(4).

PARTNER NONRECOURSE DEBT MINIMUM GAIN shall mean an amount, with respect to
each Partner Nonrecourse Debt, equal to the Partnership Minimum Gain that would
result if such Partner Nonrecourse Debt were treated as a Nonrecourse Liability,
determined in accordance with Regulations Section 1.704-2(i)(3).

PARTNER NONRECOURSE DEDUCTIONS has the meaning set forth in Regulations
Sections 1.704-2(i)(l) and 1.704-2(i)(2).

PARTNERSHIP MINIMUM GAIN has the meaning set forth in Regulations Sections
1.704-2(b)(2) and 1.704-2(d).

PERMITTED ASSIGN shall mean an assignee permitted under Section 10.

PERMITTED ENCUMBERANCE shall have the meaning set forth in Schedule 2
attached hereto.

PERSON shall mean and include any individual, partnership, joint venture,
corporation, trust, unincorporated organization or government, or any department
or agency thereof.

PREFERRED RETURN shall mean, with respect to a Limited Partner, a sum equal
to 10% per annum, determined on the basis of a year of 365 or 366 days, as the
case may be, for the actual number of days in the period for which the Preferred
Return is being determined, cumulative but not compounded, of the average daily
balance of the Adjusted Initial Capital Contribution of such Limited Partner for
the period to which the Preferred Return relates, commencing on the date of the
first advance by such Limited Partner of its Initial Capital Contribution.

<PAGE>

PRODUCTION FINANCING LOAN shall mean the production financing loan for the
Qualifying Film provided to the Partnership by a syndicate of lenders of which
Berliner Bank AG (London Branch) is the administrative agent.

PROFITS AND LOSSES shall mean, for each fiscal year, an amount equal to the
Partnership's taxable income or loss for such fiscal year, determined in
accordance with Code Section 703(a) (for this purpose, all items of income,
gain, loss, or deduction required to be stated separately pursuant to Code
Section 703(a)(1) shall be included in taxable income of loss), with the
following adjustments:

(i) Any income of the Partnership that is exempt from United States
income tax and not otherwise taken into account in computing Profits or Losses
shall be added to such taxable income or loss;

(ii) Any expenditures of the Partnership described in Code Section
705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant to
Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account
in computing Profits or Losses shall be subtracted from such taxable income or
loss;

(iii) In the event the Gross Asset Value of any Partnership asset is
adjusted pursuant to clauses (ii) or (iii) of the definition of Gross Asset
Value herein, the amount of such adjustment shall be taken into account as gain
or loss from the disposition of such asset for purposes of computing Profits or
Losses;

(iv) Gain or loss resulting from any disposition of Partnership
property with respect to which gain or loss is recognized for United States
income tax purposes shall be computed by reference to the Gross Asset Value of
the property disposed of, notwithstanding that the adjusted tax basis of such
property differs from its Gross Asset Value;

(v) In lieu of the depreciation, amortization, and other cost
recovery deductions taken into account in computing such taxable income or loss,
there shall be taken into account Depreciation for such fiscal year, computed in
accordance with the definition of Depreciation herein;

(vi) To the extent an adjustment to the adjusted tax basis of any
Partnership asset pursuant to Code Section 734(b) or Code Section 743(b) is
required pursuant to Regulations Section 1.704-(b)(2)(iv)(m)(4) to be taken into
account in determining Capital Accounts as a result of a distribution other than
in liquidation of a Partner's Partnership interest, the amount of such
adjustment shall be treated as an item of gain (if the adjustment increases the
basis of the asset) or loss (if the adjustment decreases the basis of the asset)
from the disposition of the asset and shall be

<PAGE>

taken into account for purposes of computing Profits or Losses; and,

(vii) Notwithstanding any other provision of this definition of Profits
and Losses, any items which are specially allocated pursuant to Sections 3.3 or
3.4 hereof shall not be taken into account in computing Profits or Losses.

The amounts of the items of Partnership income, gain, loss or deduction
available to be specially allocated pursuant to Sections 3.3 or 3.4 hereof shall
be determined by applying rules analogous to those set forth in clauses (i)
through (vi) above.

QUALIFYING FILM shall mean the motion picture being produced by the
Partnership which is presently titled "Cutthroat Island".

REGULATIONS shall mean Income Tax Regulations, including Temporary
Regulations, promulgated under the Code, as such regulations may be amended from
time to time (including corresponding provisions of succeeding regulations).

SUBSIDIARY shall mean, with respect to any Person, any corporation more
than 50% of the total combined voting power of all classes of the voting
securities of which shall be, at the time as of which any determination is being
made, owned by such Person either directly or indirectly through Subsidiaries.

TCI PERCENTAGE shall have the meaning set forth in Exhibit C.

Section 2
PARTNER'S CAPITAL CONTRIBUTIONS

2.1 General Partner. The name, address and Initial Capital
Contribution of the General Partner is as follows:

Names and Address Initial Capital Contribution
- ----------------- ----------------------------

Cutthroat Management Inc. The assets set forth on
8800 Sunset Boulevard Exhibit A and the amount of
Los Angeles, CA 90069 cash to be contributed by the
Telecopier No. (310) 652-1343 General Partner in accordance
Attention: General Counsel with Schedule 1 attached
hereto.

2.2 Limited Partners. The name, address, and Initial Capital
Contribution of each of the Limited Partners is as follows:

<PAGE>

Name and Address Initial Capital Contribution
- ---------------- ----------------------------

Tele-Communications, Inc. $100.00 and the amount of cash
5619 ETDC Parkway to be contributed by TCI in
Englewood, Colorado 80111 accordance with Schedule 1
Telecopier No. (303) 488-3245 attached hereto.
Attention: General Counsel

LSC+ Investments Inc. $100.00 and the amount of cash
301 North Canon, Suite 228 to be contributed by LSC+ in
Beverly Hills, California 90210 accordance with Schedule 1
Telecopier No. (310) 246-9772 attached hereto.
Attention: General Counsel

Notwithstanding anything herein, the maximum Initial Capital
Contribution by TCI shall be $2,181,818 and the maximum Initial Capital
Contribution by LSC+ shall be $3,818,182.

Timing of Contribution of Initial Capital Contribution. TCI and
LSC+ shall contribute their respective Initial Capital Contributions to the
Partnership's production account as follows: on the date hereof, TCI and LSC+
shall each contribute $100.00, and on December 30, 1994, TCI and LSC+ shall
contribute the amounts set forth on Schedule 1. Beginning on the second Monday
after December 30, 1994 and on each Monday every two weeks thereafter, CMI will
notify TCI and LSC+ of the amount that each is obligated to contribute for the
anticipated expenses for the two week period beginning on the subsequent Monday,
in each instance in accordance with Schedule 1 attached hereto. TCI and LSC+
will contribute the amounts set forth in such notice by wire transfer of
immediately available funds two Business Days after such notification period.
Such procedure shall continue with respect to each of TCI and LSC+ until the
earlier of (i) the date on which such Limited Partner's Initial Capital
Contribution is contributed in its entirety to the Partnership or (ii) until all
of the expenses of the Qualifying Film have been paid.

2.3 Additional Capital Contributions. No Limited Partner shall
be obligated to make Additional Capital Contributions. The General Partner may
contribute from time to time such additional money or other property as the
General Partner may determine, in the exercise of its good faith business
judgment, to be necessary to effect the purposes of the Partnership, and each
Limited Partner may contribute from time to time such additional money or other
property as the Partners may unanimously agree, which contributions shall be
deemed to be Additional Capital Contributions and shall be credited to each such
Partner's Capital Account.

2.4 Other Matters.

(a) Except as otherwise provided in this Agreement, no Partner shall
demand or receive a return of its Capital

<PAGE>

Contributions or withdraw from the Partnership without the consent of all
Partners. Under circumstances requiring a return of any Capital Contributions,
no Partner shall have the right to receive property other than cash except as
may be specifically provided herein.

(b) No Partner shall receive any interest, salary, or drawing with
respect to its Capital Contributions or its Capital Account or for services
rendered on behalf of the Partnership or otherwise in its capacity as a Partner,
except as agreed to in writing by the Partners.

(c) The Limited Partners shall not be liable for the debts,
liabilities, contracts or any other obligations of the Partnership. Except as
otherwise provided in Section 4.4 hereof or elsewhere in this Agreement, any
other agreements among the Partners or mandatory provisions of applicable state
law, a Limited Partner shall be liable only to make its Initial Capital
Contributions and shall not be required to lend any funds to the Partnership or,
after its Initial Capital Contribution has been made, to make any Additional
Capital Contributions to the Partnership.

(d) The General Partner shall have no personal liability for the
repayment of any Capital Contributions of any Limited Partner. The foregoing
sentence is not intended to limit or negate any rights or remedies of the
Limited Partners with respect to the General Partner.

2.5 Conditions Precedent. The Limited Partners shall not be obligated to
fund their respective Initial Capital Contributions (other than their respective
initial contributions of $100) until (x) the Limited Partners have received a
notice that the Qualifying Film is a "Qualifying Film," as defined in the Co-
Production Agreement, and (y) the conditions set forth in Paragraphs 2(a) and
2(b) of the Co-Production Agreement have been satisfied. Notwithstanding
anything herein to the contrary, TCI and LSC+ shall be Limited Partners of the
Partnership irrespective of whether or not either or both of TCI and LSC+ make
any or all of their respective Initial Capital Contributions.

Section 3
ALLOCATIONS

3.1 Profits. After giving effect to the special allocations set forth in
Sections 3.3 and 3.4 hereof, Profits for any fiscal year shall be allocated in
the following order and priority:

(a) First, the CMI Percentage to the General Partner, the TCI
Percentage to TCI and the LSC+ Percentage to LSC+ in an amount equal to the
excess, if any, of (i) the cumulative Losses

<PAGE>

allocated pursuant to Section 3.2(a)(iii) hereof for all prior fiscal years,
over (ii) the cumulative Profits allocated pursuant to this Section 3.1(a) for
all prior fiscal years.

(b) Next, the CMI Percentage to the General Partner, the TCI
Percentage to TCI and the LSC+ Percentage to LSC+ until TCI and LSC+ each have
been allocated an amount equal to the excess of:

(i) the sum of (x) such Partner's Preferred Return calculated
through the last day of such fiscal year, (y) an amount equal to
such Partner's Initial Capital Contributions and (z) the
cumulative Losses allocated to such Partner pursuant to Section
3.2(a)(ii) for all prior fiscal years, over

(ii) the cumulative Profits allocated to such Partner pursuant to
this Section 3.1(b) for all prior fiscal years.

(c) Thereafter, one-half of the TCI Percentage to TCI, one-half of
the LSC+ Percentage to LSC+ and the balance to the General Partner.

3.2 (a) Losses. After giving effect to the special allocations set forth
in Section 3.3 and 3.4 hereof, Losses for any fiscal year shall be allocated in
the following order and priority:

(i) First, one-half of the TCI Percentage to TCI, one-half of the
LSC+ Percentage to LSC+, and the balance to the General Partner in an
amount equal to the excess, if any, of (x) the cumulative Profits
allocated pursuant to Section 3.1(c) hereof for all prior fiscal
years, over (y) the cumulative Losses allocated pursuant to this
Section 3.2(a)(i) for all prior fiscal years.

(ii) Next, the CMI Percentage to the General Partner, the TCI
Percentage to TCI and the LSC+ Percentage to LSC+ in an amount equal
to the excess, if any, of (x) the cumulative Profits allocated
pursuant to Section 3.1(b) hereof for all prior fiscal years, over
(y) the cumulative Losses allocated pursuant to this Section
3.2(a)(ii) for all prior fiscal years.

(iii) The balance, if any, the CMI Percentage to the General Partner,
the TCI Percentage to TCI and the LSC+ Percentage to LSC+.

(b) Limitation on Losses. Losses or items thereof allocated pursuant
to Section 3.2(a) above shall not exceed the maximum amount of Losses that can
be so allocated without causing

<PAGE>

any Limited Partner to have an Adjusted Capital Account Deficit at the end of
any fiscal year. In the event that some but not all of the Limited Partners
would have Adjusted Capital Account Deficits as a consequence of an allocation
of Losses pursuant to Section 3.2(a) hereof, the limitation set forth in this
Section 3.2(b) shall be applied on a Limited Partner by Limited Partner basis so
as to allocate the maximum permissible Losses to each Limited Partner under
Regulations Section 1.704-1(b)(2)(ii)(d). All Losses in excess of the
limitations set forth in this Section 3.2(b) shall be allocated to the General
Partner.

(c) Proviso. Notwithstanding anything to the contrary, as may be
necessary, upon sales or other dispositions of Partnership assets and generally
while the Partnership is winding up following dissolution, Profits and Losses
shall be allocated so that, as nearly as possible after such allocations, the
Capital Account balances of the Partners shall be positive and equal to the
amounts which would be distributable to each such Partner pursuant to the
provisions of Section 4.

3.3 Special Allocations. The following special allocations shall be made
in the following order:

(a) Minimum Gain Chargeback. Except as otherwise provided in
Regulations Section 1.704-2(f), notwithstanding any other provision of Section
3, if there is a net decrease in Partnership Minimum Gain during any fiscal
year, each Partner shall be specially allocated items of Partnership income and
gain for such fiscal year (and, if necessary, subsequent fiscal years) in an
amount equal to such Partner's share of the net decrease in Partnership Minimum
Gain, determined in accordance with Regulations Section 1.704-2(g). Allocations
pursuant to the previous sentence shall be made in proportion to the respective
amounts required to be allocated to each Partner pursuant thereto. The items to
be so allocated shall be determined in accordance with Regulations Sections
1.704-2(f)(6) and 1.704-2(j)(2). This Section 3.3(a) is intended to comply with
the minimum gain chargeback requirement in Regulations Section 1.704-2(f) and
shall be interpreted consistently therewith.

(b) Partner Minimum Gain Chargeback. Except as otherwise provided in
Regulations Section 1.704-2(i)(4), notwithstanding any other provision of this
Section 3, if there is a net decrease in Partner Nonrecourse Debt Minimum Gain
attributable to a Partner Nonrecourse Debt during any fiscal year, each Partner
who has a share of the Partner Nonrecourse Debt Minimum Gain attributable to
such Partner Nonrecourse Debt, determined in accordance with Regulations Section
1.704-2(i)(5), shall be specially allocated items of Partnership income and gain
for such fiscal year (and, if necessary, subsequent fiscal years) in an amount
equal to such Partner's share of the net decrease in Partner Nonrecourse Debt
Minimum Gain attributable to such Partner

<PAGE>

Nonrecourse Debt, determined in accordance with Regulations Section 1.704-
2(i)(4). Allocations pursuant to the previous sentence shall be made in
proportion to the respective amounts required to be allocated to each Partner
pursuant thereto. The items to be so allocated shall be determined in
accordance with Regulations Sections 1.704-2(i)(4) and 1.704-2(j)(2). This
Section 3.3(b) is intended to comply with the minimum gain chargeback
requirement in Regulations Section 1.704-2(i)(4) and shall be interpreted
consistently therewith.

(c) Qualified Income Offset. In the event any Limited Partner
unexpectedly receives any adjustments, allocations, or distributions described
in Regulations Section 1.704-1(b)(2)(ii)(d)(4), Section 1.704-1
(b)(2)(ii)(d)(5), or Section 1.704-1(b)(2)(ii)(d)(6), items of Partnership
income and gain shall be specially allocated to each such Limited Partner in an
amount and manner sufficient to eliminate, to the extent required by such
Regulations, the Adjusted Capital Account Deficit of such Limited Partner as
quickly as possible, provided that an allocation pursuant to this Section 3.3(c)
shall be made only if and to the extent that such Limited Partner would have an
Adjusted Capital Account Deficit after all other allocations provided for in
this Section 3 have been tentatively made as if this Section 3.3(c) were not in
this Agreement.

(d) Gross Income Allocation. In the event any Limited Partner has a
deficit Capital Account at the end of any fiscal year which is in excess of the
sum of (i) the amount such Limited Partner is obligated to restore pursuant to
any provision of this Agreement, and (ii) the amount such Limited Partner is
deemed to be obligated to restore pursuant to the penultimate sentences of
Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5), each such Limited Partner
shall be specially allocated items of Partnership income and gain in the amount
of such excess as quickly as possible, provided that an allocation pursuant to
this Section 3.3(d) shall be made only if and to the extent that such Limited
Partner would have a deficit Capital Account in excess of such sum after all
other allocations provided for in this Section 3 have been made as if Section
3.3(c) hereof and this Section 3.3(d) were not in this Agreement.

(e) Nonrecourse Deductions. Nonrecourse Deductions for any fiscal
year shall be specially allocated among the Partners as follows: the LSC+
Percentage to LSC+, the TCI Percentage to TCI and the CMI Percentage to the
General Partner.

(f) Partner Nonrecourse Deductions. Any Partner Nonrecourse
Deductions for any fiscal year shall be specially allocated to the Partner who
bears the economic risk of loss with respect to the Partner Nonrecourse Debt to
which such Partner Nonrecourse Deductions are attributable in accordance with
Regulations Section 1.704-2(i)(1).

<PAGE>

(g) Section 754 Adjustments. To the extent an adjustment to the
adjusted tax basis of any Partnership asset pursuant to Code Sections 734(b) or
743(b) is required pursuant to Regulations Sections 1.704-1(b)(2)(iv)(m)(2) or
1.704-1(b)(2)(iv)(m)(4) to be taken into account in determining Capital Accounts
as the result of a distribution to a Partner in complete liquidation of its
Partnership interest, the amount of such adjustment to Capital Accounts shall be
treated as an item of gain (if the adjustment increases the basis of the asset)
or loss (if the adjustment decreases such basis) and such gain or loss shall be
specially allocated to the Partners in accordance with their interests in the
Partnership in the event that Regulations Section 1.704-1(b)(2)(iv)(m)(2)
applies, or to the Partner to whom such distribution was made in the event that
Regulations Section 1.704-1(b)(2)(iv)(m)(4) applies.

3.4 Curative Allocations. The Allocations set forth in Sections 3.2(b),
3.3(a), 3.3(b), 3.3(c), 3.3(d), 3.3(e), 3.3(f), and 3.3(g) hereof (the
"Regulatory Allocations") are intended to comply with certain requirements of
the Regulations. It is the intent of the Partners that, to the extent possible,
all Regulatory Allocations shall be offset either with other Regulatory
Allocations or with special allocations of other items of Partnership income,
gain, loss, or deduction pursuant to this Section 3.4. Therefore,
notwithstanding any other provision of this Section 3 (other than the Regulatory
Allocations), the General Partner shall make such offsetting special allocations
of Partnership income, gain, loss, or deduction in whatever manner it determines
appropriate so that, after such offsetting allocations are made, each Partner's
Capital Account balance is, to the extent possible, equal to the Capital Account
balance such Partner would have had if the Regulatory Allocations were not part
of the Agreement and all Partnership items were allocated pursuant to Section
3.1 and 3.2(a). In exercising its discretion under this Section 3.4, the
General Partner (i) shall take into account future Regulatory Allocations under
Section 3.3(a) and 3.3(b) that, although not yet made, are likely to offset
other Regulatory Allocations previously made under Section 3.3(e) and 3.3(f) and
(ii) shall (subject to Sections 3.3(b) and 3.3(c)) first offset the effect of
any allocations made under Section 3.2(b). Notwithstanding the foregoing,
allocations pursuant to this Section 3.4 shall be made with respect to
allocations under Section 3.3(g) only to the extent that the General Partner
determines that such allocations pursuant to Section 3.3(g) will otherwise be
inconsistent with the economic agreement among the Partners.

3.5 Other Allocation Rules.

(a) For purposes of determining the Profits, Losses, or any other
items allocable to any period, Profits, Losses, and any such other items shall
be determined on a daily, monthly, or other basis, as determined by the General
Partner using any

<PAGE>

permissible method under Code Section 706 and the Regulations thereunder.

(b) The Partners are aware of the income tax consequences of the
allocations made by this Section 3 and hereby agree to be bound by the
provisions of this Section 3 in reporting their shares of Partnership income and
loss for income tax purposes.

(c) Solely for purposes of determining a Partner's proportionate
share of the "excess nonrecourse liabilities" of the Partnership within the
meaning of Regulations Section 1.752-3(a)(3), the Partner's interests in
Partnership profits shall be deemed to be the CMI Percentage to the General
Partner, the LSC+ Percentage to LSC+ and the TCI Percentage to TCI.

3.6 Tax Allocations.

(a) In accordance with Code Section 704(c) and the regulations
thereunder, income, gain, loss, and deduction with respect to any property
contributed to the capital of the Partnership shall, solely for tax purposes, be
allocated among the Partners so as to take account of any variation between the
adjusted basis of such property to the Partnership for United States income tax
purposes and its initial Gross Asset Value.

(b) In the event the Gross Asset Value of any Partnership
asset is adjusted pursuant to clause (ii) of the definition of Gross Asset
Value, subsequent allocations of income, gain, loss, and deduction with respect
to such asset (as computed for tax purposes) shall take account of any variation
between the adjusted basis of such asset for United States income tax purposes
and its Gross Asset Value in accordance with the principles of Code Section
704(c), the regulations thereunder, and Regulations Section 1.704-1(b)(4)(i).

(c) If any gain (as computed for tax purposes) on the sale or other
disposition of Partnership property shall constitute recapture of depreciation
under Section 291, 1245 or 1250 of the Code or any similar provision, such gain
shall (to the extent reasonably feasible) be divided among the Partners in
proportion to the depreciation deductions previously claimed by them giving rise
to such recapture, provided that this Section 3.6(c) shall not effect the amount
of gain otherwise allocable to a Partner.

(d) Any elections or other decisions relating to such allocations
shall be made by the General Partner in any manner that reasonably reflects the
purpose and intention of this Agreement. Allocations pursuant to this Section
3.6 are solely for purposes of United States, state, and local taxes and shall
not affect, or in any way be taken into account in computing, any Partner's
Capital

<PAGE>

Account or share of Profits, Losses, other items, or distributions pursuant to
any provision of this Agreement.

Section 4
DISTRIBUTIONS, EXPENSES AND RESERVES

4.1 Distributions, Expenses and Reserves. Except as otherwise provided
in Section 4.2 hereof, Available Cash shall be utilized as follows.

(a) First, to repay all production bank financing used to finance
the Qualifying Film pursuant to the budget approved by the completion guarantor
for the Qualifying Film (but not any financing used to fund amounts in excess of
said approved budget) which are used to produce the Qualifying Film, including
repayment of principal, interest, fees, costs and expenses associated therewith.

(b) Next,

(i) to create a reserve in an amount equal to the sum of (x)
residuals due to all applicable talent guilds, (y)
participations and (z) deferments (to the extent not funded
as part of the negative cost), each determined on a
proportionate accrual basis. As between the General Partner
and the Limited Partners, the General Partner will bear
sole responsibility for paying the ultimate amount of such
residuals, participations and deferments in the event that
Partnership assets are not available therefor;

(ii) to pay all other third party (other than Carolco Pictures
Inc. or its Affiliates) distribution expenses incurred by
the Partnership; and

(iii) to pay or establish reasonable reserves for any other third
party (other than Carolco Pictures Inc. or its Affiliates)
expenses incurred by the Partnership, including but not
limited to accounting fees, tax return preparation expenses
and legal fees.

(c) Next, the TCI Percentage to TCI, the LSC+ Percentage to LSC+ and
the CMI Percentage to the General Partner, PARI PASSU, until TCI and LSC+ have
each received, pursuant to this

<PAGE>

Section 4.1.(c), an amount equal to their respective Preferred Return.

(d) Next, the TCI Percentage to TCI, the LSC+ Percentage to LSC+ and
the CMI Percentage to the General Partner, PARI PASSU, until TCI and LSC+ have
each received, pursuant to this Section 4.1.(d), an amount equal to their
respective Initial Capital Contributions (plus any amounts returned to the
Partnership pursuant to Section 4.4, below).

(e) Next, to the General Partner until the General Partner has
received, pursuant to this Section 4.1.(e), a distribution fee equal to 10% of
the "Gross Receipts," as defined in the Co-Production Agreement, from domestic
exploitation of the Qualifying Film (excluding Gross Receipts derived from (i)
domestic theatrical distribution of the Qualifying Film by MGM, (ii) domestic
pay TV distribution of the Qualifying Film by Encore Media Corp. or its
Affiliates, and (iii) pre-theatrical pay-per-view exploitation of the Qualifying
Film by TCI, or its Affiliates, in the continental United States and Hawaii) and
10% of the Gross Receipts derived from distribution of the Qualifying Film in
all foreign territories (excluding Gross Receipts derived from exploitation of
the Qualifying Film pursuant to the Agreements set forth on the attached Exhibit
B) all retroactive to the first dollars of such Gross Receipts, as provided in
the Co-Production Agreement.

(f) Next, to the General Partner until the General Partner has
received, pursuant to this Section 4.1.(f), an amount as an overhead
reimbursement fee equal to 7.5% of the Budgeted Negative Cost of the Qualifying
Film, but in no event greater than $5,000,000, as provided in the Co-Production
Agreement.

(g) Next, the TCI Percentage to TCI, the LSC+ Percentage to LSC+ and
the CMI Percentage to the General Partner, PARI PASSU, until TCI and LSC+ have
each received, pursuant to this Section 4.1.(g), an amount equal to an
additional 100% of their respective Initial Capital Contributions.

(h) Thereafter, one-half of the TCI Percentage to TCI, one-half of
the LSC+ Percentage to LSC+ and the balance to the General Partner.

Notwithstanding the foregoing, the Partners acknowledge and agree that any
insurance recoveries with respect to the Qualifying Film will, subject to the
applicable provisions of the completion bond guarantee and the Production
Financing Loan with respect to the Qualifying Film, be distributed first to
reimburse CMI to the extent of any funding of production costs in excess of the
Budgeted Negative Cost of the Qualifying Film and thereafter will be used to
fund remaining production costs in excess of the Budgeted Negative

<PAGE>

Cost of the Qualifying Film, as provided in the Co-Production Agreement.

Notwithstanding anything to the contrary contained herein, the Partnership
will pay all amounts due under the Production Financing Loan prior to making any
distributions to the Partners in respect of their Partnership interests.

4.2 Amounts Withheld. All amounts withheld pursuant to any provision of
any tax law and tax treaties of any country with respect to any payment,
distribution, or allocation to the Partners shall be treated as amounts
distributed to the Partners pursuant to this Section 4 or Section 12.2(c) for
all purposes under this Agreement. Such amounts shall be treated as a
distribution to such Partners on whose account the tax law required such
withholding. The General Partner is authorized to withhold from distributions,
or with respect to allocations, to the Partners and to pay over to national
government, United States, state, or local government any amounts required to be
so withheld pursuant to the Code or any provisions of any other national
government, United States, state, or local law, or laws of any other
jurisdictions and shall allocate any such amounts to the Partners with respect
to which such amount was withheld.

4.3 The intended economic agreement among the Partners is that the
aggregate of all distributions, including liquidating distributions pursuant to
Section 12.2, shall be made in accordance with Section 4.1 hereof.

4.4 In the event that distributions are made to TCI or LSC+ pursuant to
Section 4 herein with respect to proceeds received by the Partnership and such
proceeds subsequently are forfeited or otherwise repaid by the Partnership, then
CMI, TCI and LSC+ each agree to pay to the Partnership the amount of
distributions received by each of them with respect to such forfeited or repaid
proceeds. The foregoing payment obligations shall be borne by CMI, TCI and LSC+
in proportion to and in the reverse order of the most recent distributions
received by each of them from the Partnership.

4.5 Distributions to Partners. The Partnership shall separately account
and make the distributions to Partners as set forth above with respect to
Available Cash received during (i) each quarterly period ending March 31, June
30, September 30 and December 31 for the three year period commencing on the
date of the initial domestic release of the Qualifying Film, (ii) each
semi-annual period ending June 30 and December 31 for the next five years, and
(iii) each annual period ending December 31 thereafter.

<PAGE>

Section 5
MANAGEMENT

5.1 Authority of the General Partner. Subject to the limitations and
restrictions set forth in this Agreement (including, without limitation, those
set forth in this Section 5 and in the Co-Production Agreement), the General
Partner shall conduct the business and affairs of the Partnership and in so
doing may exercise all rights and powers without any further consent of the
Limited Partners being required, including, without limitation:

(a) Acquire by purchase, lease, or otherwise any real or personal
property which may be necessary or appropriate for the accomplishment of the
purposes of the Partnership;

(b) Operate, maintain, finance, improve, construct, own, grant
options with respect to, sell, convey, assign, mortgage, and lease any real
estate and any personal property necessary or appropriate for the accomplishment
of the purposes of the Partnership;

(c) Execute any and all agreements, contracts, documents,
certifications, and instruments necessary or appropriate in connection with the
management, maintenance, and operation of property, or in connection with
managing the affairs of the Partnership, including, without limitation, the
Distribution Agreement and executing amendments to this Agreement and the
Certificate in accordance with the terms of this Agreement, both as General
Partner and, if required, as attorney-in-fact for the Limited Partners pursuant
to any power of attorney granted by the Limited Partners to the General Partner;

(d) Borrow in the ordinary course of the Partnership's business and
issue evidences of indebtedness related thereto;

(e) Grant a Permitted Encumbrance;

(f) Prepay in whole or in part, refinance, recast, increase, modify,
or extend any liabilities affecting the property and in connection therewith
execute any extensions or renewals of encumbrances on any or all of the property
of the Partnership;

(g) Care for and distribute funds to the Partners by way of cash,
income, return of capital, or otherwise, all in accordance with the provisions
of this Agreement, and perform all matters in furtherance of the objectives of
the Partnership or this Agreement;

(h) Contract on behalf of the Partnership for the employment and
services of employees and/or independent contractors, such as lawyers and
accountants, and delegate to such

<PAGE>

Persons the duty to manage or supervise any of the assets or operations of the
Partnership;

(i) Engage in any kind of activity and perform and carry out
contracts of any kind (including contracts of insurance covering risks to
property and General Partner liability) necessary or appropriate for, or in
connection with, the accomplishment of the purposes of the Partnership, as may
be lawfully carried on or performed by a partnership under the laws of each
state in which the Partnership is then formed or qualified;

(j) Make any and all elections for United States, state, and local
tax purposes including, without limitation, any election, if permitted by
applicable law: (i) to adjust the basis of property pursuant to Code Sections
754, 734(b) and 743(b), or comparable provisions of state or local law, in
connection with transfers of Partnership interests and Partnership
distributions; (ii) with the unanimous consent of the Limited Partners, to
extend the statute of limitations for assessment of tax deficiencies against the
Partners with respect to adjustments to the Partnership's United States, state,
or local tax returns; and (iii) to the extent provided in Code Sections 6221
through 6231, to represent the Partnership and the Partners before taxing
authorities or courts of competent jurisdiction in tax matters affecting the
Partnership and the Partners in their capacities as Partners, and to file any
tax returns and execute any agreements or other documents relating to or
affecting such tax matters, including agreements or other documents that bind
the Partners with respect to such tax matters or otherwise affect the rights of
the Partnership and the Partners; provided, however, that the General Partner
shall take such actions only after consultation with the Limited Partners. The
General Partner is specifically authorized to act as the "Tax Matters Partner"
under the Code and in any similar capacity under state or local law;

(k) Take, or refrain from taking, in accordance with the terms of
this Agreement, all actions, not expressly proscribed or limited by this
Agreement, as may be necessary or appropriate to accomplish the purposes of the
Partnership;

(l) Subject to Section 5.3.(a)(iv), below, institute, prosecute,
defend, settle, compromise, and dismiss lawsuits or other judicial or
administrative proceedings brought on or in behalf of, or against, the
Partnership in connection with activities arising out of, connected with, or
incidental to this Agreement, and to engage counsel or others in connection
therewith; and,

(m) On behalf of the Partnership, vote (or execute written consents
with respect to) all shares of stock of any Subsidiary of the Partnership in all
matters submitted to a vote (or written consent) of the stockholders of such
Subsidiary;

<PAGE>

provided, however, that, prior to the Completion Date, any such voting of such
shares (or execution of written consents) by the General Partner must be
unanimously approved by the directors and a majority of the holders of the
preferred stock of the General Partner.

Notwithstanding anything to the contrary in this Agreement, the General
Partner shall have the authority to enter into and deliver the Production
Financing Loan and all agreements and documents required thereunder and entered
into pursuant thereto.

In the event more than one Person is a general partner, the rights and
powers of the General Partner hereunder shall be exercised by them in such
manner as they may agree. In the absence of an agreement among the General
Partners, no General Partner shall exercise any of such rights and powers
without the unanimous consent of all General Partners.

5.2 Right to Rely on the General Partner.

(a) Any Person dealing with the Partnership may rely (without duty
of further inquiry) upon a certificate signed by any General Partner as to:

(i) The identity of any General Partner or any Limited Partner;

(ii) The existence or nonexistence of any fact or facts which
constitute a condition precedent to acts by any General Partner or which are in
any other manner germane to the affairs of the Partnership;

(iii) The Persons who are authorized to execute and deliver any
instrument or document of the Partnership; or

(iv) Any act or failure to act by the Partnership or any other
matter whatsoever involving the Partnership or any Partner.

(b) The signature of the General Partner shall be necessary and
sufficient to convey title to any real property owned by the Partnership or to
execute any promissory notes, trust deeds, mortgages, or other instruments of
hypothecation, and all of the Partners agree that a copy of this Agreement may
be shown to the appropriate parties in order to confirm the same, and further
agree that the signature of any General Partner shall be sufficient to execute
any "statement of partnership" or other documents necessary to effectuate this
or any other provision of this Agreement. All of the Partners do hereby appoint
the General Partner as their attorney-in-fact for the execution of any or all of
the documents described in this Section 5.2(b).

24
<PAGE>

(c) Each Limited Partner hereby makes, constitutes and appoints the
General Partner and each successor to the General Partner, with full power of
substitution and resubstitution, its true and lawful attorney-in-fact for it
and in its name, place and stead and for its use and benefit, to sign, execute,
certify, acknowledge, swear to, file and record copyright instruments of
transfer and confirmation rights necessary to exploit, in whole or in part, or
to protect, the Qualifying Film which it deems necessary or appropriate. Each
Limited partner authorizes each such attorney-in-fact to take any further action
which such attorney-in-fact shall consider necessary or advisable in connection
with any of the foregoing, hereby giving each such attorney-in-fact full power
and authority to do and perform each and every act or thing whatsoever requisite
or advisable to be done in connection with the foregoing as fully as such
Limited Partner might or could do personally, and hereby ratifying and
confirming all that any such attorney-in-fact shall lawfully do or cause to be
done by virtue thereof or hereof. The power of attorney granted pursuant to
this Section 5.2(c):

(i) Is a special power of attorney coupled with an interest and
is irrevocable;

(ii) May be exercised by any such attorney-in-fact by listing
the Limited Partners executing any agreement, certificate, instrument or other
document with the single signature of any such attorney-in-fact acting as
attorney-in-fact for such Limited Partners; and,

(iii) Shall survive the bankruptcy, insolvency, dissolution or
cessation of existence of a Limited Partner and shall survive the delivery of an
assignment by a Limited Partner of the whole or a portion of its interests in
this Agreement.

5.3 Restrictions on Authority of the General Partner.

(a) The General Partner shall not have the authority to, and
covenants and agrees that it shall not, do any of the following acts without the
unanimous consent of the Limited Partners:

(i) Cause or permit the Partnership to engage in any activity
that is not consistent with the purpose of the Partnership as set forth in
Section 1.3 hereof;

(ii) Do any act in contravention of this Agreement;

(iii) Do any act which would make it impossible to carry on the
ordinary business of the Partnership, except as otherwise provided in this
Agreement;

<PAGE>

(iv) Confess a judgment against the Partnership in an amount in
excess of, or enter into any settlement agreement with respect to any claim
against the Partnership which requires the Partnership to make a payment in
excess of, $100,000;

(v) Possess property, or assign rights in specific property,
for other than a Partnership purpose;

(vi) Perform any act that would subject any Limited Partner to
liability as a general partner in any jurisdiction;

(vii) Cause the Partnership to voluntarily take any action that
would cause a bankruptcy of the Partnership or effect an assignment of
Partnership assets for the benefit of creditors of the Partnership or consent to
the appointment of a trustee or receiver for the Partnership;

(viii) Cause the Partnership to acquire any equity or debt
securities of the General Partner or any of its Affiliates (other than CDI), or
otherwise make loans to the General Partner or any of its Affiliates;

(ix) Cause a change in the nature of the Partnership's
business;

(x) Other than pursuant to Section 10 hereof or the
Co-Production Agreement, cause the Partnership to admit any additional Limited
Partners;

(xi) Sell or otherwise dispose of all or substantially all of
the property, except for a liquidating sale of property in connection with the
dissolution of the Partnership;

(xii) Commingle Partnership funds with the funds of the General
Partner or its Affiliates or any other Person or entity;

(xiii) Loan any Partnership funds for any purpose;

(xiv) Subject to Section 5.1.(d) hereof, borrow, on behalf of
the Partnership, any funds in excess of $50,000, except in connection with the
Production Financing Loan or advances made by the General Partner or its
Affiliates, to the extent such advances are allowed to be repaid pursuant to the
Production Financing Loan;

(xv) Mortgage or otherwise encumber any or all of the property
of the Partnership, including, without limitation, the Qualifying Film other
than pursuant to a Permitted Encumbrance;

<PAGE>

(xvi) Take any action requiring the approval of the Limited
Partners hereunder without first obtaining such approval; or,

(xvii) Voluntarily resign or withdraw as the General Partner of
the Partnership prior to the Completion Date.

5.4 Duties and Obligations of the General Partner.

(a) The General Partner shall cause the Partnership to conduct its
business and operations separate and apart from that of the General Partner or
any of its Affiliates, including, without limitation, (i) segregating
Partnership assets and not allowing funds or other assets of the Partnership to
be commingled with the funds or other assets of, held by, or registered in the
name of, the General Partner or any of its Affiliates, (ii) maintaining books
and financial records of the Partnership separate from the books and financial
records of the General Partner and its Affiliates, and observing all Partnership
procedures and formalities, including, without limitation, maintaining minutes
of Partnership meetings and acting on behalf of the Partnership only pursuant to
due authorization of the Partners, (iii) causing the Partnership to pay its
liabilities from assets of the Partnership, and (iv) causing the Partnership to
conduct its dealings with third parties in its own name and as a separate and
independent entity.

(b) The General Partner shall take all actions which may be
necessary or appropriate (i) for the continuation of the Partnership's valid
existence as a limited partnership under the laws of the State of California and
of each other jurisdiction in which such existence is necessary to protect the
limited liability of the Limited Partners or to enable the Partnership to
conduct the business in which it is engaged, and (ii) for the accomplishment of
the Partnership's purposes, including the acquisition, development, maintenance,
preservation, and operation of property in accordance with the provisions of
this Agreement and applicable laws and regulations.

(c) The General Partner shall obtain "errors and omissions," as that
term is commonly understood in the motion picture industry, insurance for the
Qualifying Film, shall add the Limited Partners as additional insureds
thereunder, and shall also obtain such other insurance policies for the
Qualifying Film as the General Partner shall deem reasonable and prudent.

(d) The General Partner shall take such actions as may be necessary
or appropriate to comply with Paragraph 2.(a)(v) of the Co-Production Agreement,
subject to the limitations therein and in the Production Financing Loan.

(e) Each Limited Partner shall be entitled to receive credit for the
Qualifying Film in accordance with the terms of the

<PAGE>

Co-Production Agreement. The wording, size, placement and position and all
other characteristics of such credit will be determined after good faith
negotiations among the Partners within the customary motion picture parameters
for credits accorded to financing entities, subject to the "MGM Distribution
Agreement," as defined in the Co-Production Agreement, or other applicable
distribution agreement.

(f) The General Partner shall provide each Limited Partner with
copies of all material pleadings and other material documents served on or
otherwise provided to the General Partner on behalf of the Partnership.

5.5 Indemnification of the General Partner.

The Partnership, its receiver, or its trustee (in the case of its
receiver or trustee, to the extent of Partnership property) shall indemnify,
save harmless, and pay all judgments and claims against the General Partner or
any officers or directors of the General Partner relating to any liability or
damage incurred by reason of any act performed or omitted to be performed by the
General Partner, officer, or director in connection with the business of the
Partnership, including attorneys' fees incurred by the General Partner, officer,
or director in connection with the defense of any action based on any such act
or omission, which attorneys' fees may be paid as incurred, except to the extent
that any such act or omission constitutes willful misconduct or gross
negligence.

5.6 Additional Funding. In the event that any third party contemplates
"Additional Funding," as defined in the Co-Production Agreement, for any portion
of the "Equity Deficit," as defined in the Co-Production Agreement, for the
Qualifying Film, the terms of such third party's investment shall be subject to
the approval of the Limited Partners, which approval shall not be unreasonably
withheld. The Limited Partners acknowledge and agree that, except as provided
in the "Standby Purchase and Investment Agreement," as defined in the
Co-Production Agreement, in no event will any such potential or actual third
party investment in the Qualifying Film alter any of the rights and obligations
of the Limited Partners under this Agreement or the Co-Production Agreement,
including the Limited Partners' funding obligations hereunder.

Section 6
ROLE AND POWERS OF LIMITED PARTNERS

6.1 Rights and Powers. The Limited Partners shall not have any right or
power to take part in the management or control of the Partnership or its
business and affairs or to act for or bind the Partnership in any way, nor shall
the Limited Partners have, prior

<PAGE>

to the Completion Date, any right or power to remove, or effect, approve or
consent to the resignation or withdrawal of, CMI as the General Partner of the
Partnership.

6.2 Voting Rights. The Limited Partners shall have the right to vote on
the matters specifically reserved for their vote or approval or which require
their consent as set forth in this Agreement.

6.3 Procedure for Consent. In any circumstances requiring the approval
or consent of the Limited Partners as specified in this Agreement, such approval
or consent shall, except as expressly provided to the contrary in this
Agreement, be given or withheld in the sole and absolute discretion of the
Limited Partners and, if given, shall be conveyed in writing to the General
Partner not later than seven (7) Business Days after such approval or consent
was requested by the General Partner. If the General Partner receives the
necessary approval or consent of the Limited Partners to such action, the
General Partner shall be authorized and empowered to implement such action
without further authorization by the Limited Partners.

Section 7
REPRESENTATIONS AND WARRANTIES

Each Partner hereby represents and warrants that:

7.1 In General. As of the date hereof, each of Partners hereby makes
each of the representations and warranties applicable to such Partner as set
forth in Section 7.2 hereof, and such warranties and representations shall
survive the execution of this Agreement.

7.2 Representations and Warranties. Each Partner hereby represents and
warrants that such Partner has the corporate or partnership power and authority
to execute and deliver this Agreement and to perform its obligations hereunder
and the execution, delivery, and performance of this Agreement has been duly
authorized by all necessary corporate or partnership action. This Agreement
constitutes the legal, valid, and binding obligation of such Partner.

Section 8
ACCOUNTING, BOOKS AND RECORDS

8.1 Accounting, Books and Records. The Partnership shall maintain at its
principal place of business separate books of account for the Partnership which
shall show a true and accurate record of all costs and expenses incurred, all
charges made, all

<PAGE>

credits made and received, and all income derived in connection with the conduct
of the Partnership and the operation of its business in accordance with
generally accepted accounting principles consistently applied and, to the extent
inconsistent therewith, in accordance with this Agreement. The Partnership shall
use the accrual method of accounting for tax purposes and shall keep its books
and records accordingly. The fiscal year of the Partnership shall be the 12
month period ending December 31.

8.2 Reports.

(a) In General. The General Partner shall be responsible for the
preparation of financial reports of the Partnership and the coordination of
financial matters of the Partnership with the Partnership's accountants.

(b) Reports. The General Partner will account to the Limited
Partners with respect to the income and expenses of the Partnership at the end
of each (a) quarterly period ending March 31, June 30, September 30, and
December 31 for the three year period commencing on the date of the initial
theatrical release of the Qualifying Film, (b) each semi-annual period ending
June 30 and December 31 for the next five years, and (c) each annual period
ending December 31 thereafter. Such reports shall be delivered to the Limited
Partners within 60 days following the end of the reporting period.

8.3 Tax Information. All necessary tax information shall be delivered to
each Partner promptly after the end of each fiscal year of the Partnership;
provided, however, that the Partnership shall deliver actual or estimated tax
information to each Partner by the March 15 following the end of each such
fiscal year.

8.4 Negative Cost Audit. Upon request of either Limited Partner, CMI
will permit an independent certified public accountant designated by the
requesting Limited Partner to make an examination, at the requesting Limited
Partner's expense, of the books and records of the Partnership which evidence
the negative cost of the Qualifying Film. Only one such examination shall be
allowed.

8.5 Collection Accountant. At either Limited Partner's election which
can be made at any time after the release date of the Qualifying Film, CMI
agrees to employ an independent certified public accountant mutually agreed upon
by the General Partner and the Limited Partners to monitor the receipts to and
disbursements from the collection account of the Partnership; provided, however,
that CMI's obligation shall be conditioned upon the payment by the electing
Limited Partner of all fees and expenses of such accountant, and provided
further that CMI shall retain sole control over the collection and disbursement
of all such Available Cash, subject to the terms hereof.

<PAGE>

8.6 Segregated Accounts. The Partnership's production account for the
Qualifying Film will be segregated from the General Partner's and its
Affiliates' bank accounts and will be segregated from the collection account of
the Partnership.

8.7 Accountings and Audit Rights for Distribution of the Qualifying Film.
The General Partner shall cause CDI to account and provide audit rights to the
Partnership as provided in Paragraph 5(h) of the Co-Production Agreement.

8.8 Additional Audit Rights. The Limited Partners shall have the audit
rights set forth in the last sentence of Paragraph 5(h)(iii) of the
Co-Production Agreement and the last sentence of Paragraph 5(k) of the
Co-Production Agreement. In addition, the Limited Partners shall have the right
to audit the books and records of the Partnership and the General Partner,
including, without limitation, with respect to the distributions, expenses and
reserves as set forth in Section 4 of this Agreement. If such audit reveals an
underpayment of greater than 5% to either of the Limited Partners, the General
Partner shall bear the costs of such audit.

Section 9
AMENDMENTS; MEETINGS

9.1 Amendments.

Amendments to this Agreement may be proposed by any Partner.
Following any such proposal made prior to the Completion Date, provided that the
General Partner shall have consented to such proposal, the directors of the
General Partner shall have unanimously approved the General Partner's consent to
such proposal, the majority of the holders of the General Partner's preferred
stock shall have approved the General Partner's consent to such proposal, and
counsel for the General Partner shall have approved of such proposal in writing
as to form, the General Partner shall submit to the Limited Partners a verbatim
statement of any proposed amendment and the General Partner shall include in any
such submission confirmation of the General Partner's consent to the proposed
amendment. From and after the Completion Date, the General Partner shall submit
to the Limited Partners a verbatim statement of any amendment proposed by any
Partner, regardless of whether the General Partner shall have consented to such
amendment, providing that counsel for the General Partner shall have approved of
the same in writing as to form, and the General Partner shall include in any
such submission a recommendation as to the proposed amendment. The General
Partner shall seek the written vote of the Partners on any proposed amendment
submitted to the Limited Partners or shall call a meeting to vote thereon and to
transact any other business that it may deem appropriate. A proposed

<PAGE>

amendment shall be adopted and be effective as an amendment hereto if it
receives the unanimous vote of the Partners.

9.2 Meetings of the Partners.

(a) Meetings of the Partners may be called by the General Partner
and shall be called upon the written request of any Limited Partner. The call
shall state the nature of the business to be transacted. Notice of any such
meeting shall be given to all Partners not less than ten (10) business days or
more than thirty (30) days prior to the date of such meeting. Partners may vote
in person or by proxy at such meeting. Whenever the vote or consent of Partners
is permitted or required under this Agreement, such vote or consent may be given
at a meeting of Partners. Except as otherwise expressly provided in this
Agreement, the unanimous vote of the Partners shall control.

(b) Each meeting of Partners shall be conducted by the General
Partner or such other Person as the General Partner may appoint pursuant to such
rules for the conduct of the meeting as the General Partner or such other Person
deems appropriate.

9.3 Unanimous Consent. Notwithstanding anything to the contrary in
Sections 9.1 and 9.2 hereof, the Partnership may take any action contemplated
under this Agreement if approved by the unanimous written consent of the
Partners.

Section 10
ASSIGNMENTS AND ADMISSIONS OF ADDITIONAL PARTNERS

10.1 Notwithstanding Section 10.2 and 10.3 below or anything else herein
to the contrary, prior to the Completion Date, no Limited Partner (other than
CPI pursuant hereto) may resign or withdraw as a Limited Partner, no Person
shall be admitted as a general partner or limited partner of the Partnership,
and no Partner shall transfer its interest in the Partnership to any other
Partner, without the unanimous approval by the Partners.

10.2 CMI may not assign its rights or delegate its obligations under this
Agreement to any Person unless (a) such assignment or delegation is consented
and agreed to in writing by TCI and LSC+ (which consent may be withheld for any
reason or for no reason) (b) such assignment or delegation is to an Affiliate of
CMI other than Pioneer, LSC+, RCS, MGM and TCI and each of their respective
Affiliates other than Carolco Pictures Inc. and its Subsidiaries (such Affiliate
of CMI is referred to as a "CMI Affiliate"), any Person purchasing all or
substantially all the assets of CMI (and such assignment is part of such
purchase) or the successor of CMI in a merger or consolidation (and such
assignment occurs as a result of such merger or consolidation), or (c) such an
assignment of rights is in the ordinary course of business or in

<PAGE>

connection with a financial or tax-advantaged transaction whereby CMI or a CMI
Affiliate substantially or effectively continues to control the production
and/or distribution of the Qualifying Film. Neither TCI nor LSC+ may assign its
rights or delegate its obligations under this Agreement to any Person (and no
such Person shall become a substituted Limited Partner) unless (x) such
assignment or delegation is consented and agreed to in writing by CMI (which
consent may be withheld for any reason or for no reason) or (y) such assignment
or delegation is to an Affiliate of TCI or LSC+, a Person purchasing all or
substantially all of the assets of TCI or LSC+ or the successor of TCI or LSC+
in a merger or consolidation. Notwithstanding any assignment by CMI pursuant to
clause (y) or (z) of the first sentence hereof or by TCI or LSC+ pursuant to
clause (y) of the immediately preceding sentence, the assignor shall remain
secondarily responsible hereunder. Any purported assignment in violation of the
provisions of this Section shall be null and void AB INITIO. Subject to the
foregoing, this Agreement shall inure to the benefit of and be binding upon the
successors and assigns of each party.

10.3 Conditions to Permitted Assignment. A permitted assignment under
Section 10.2, above, shall not result in the assignee being admitted as a
Partner unless and until the following conditions are satisfied:

(a) Except in the case of an assignment involuntarily effected by
operation of law, the assignor and assignee shall execute and deliver to the
Partnership such documents and instruments of conveyance as may be necessary or
appropriate in the opinion of counsel for the General Partner to effect such
assignment and the assignee shall become a party to this Agreement as a partner
and shall execute such documents and instruments as the General Partner may
reasonably determine to be necessary or appropriate to confirm such assignee as
a Partner in the Partnership and such assignee's agreement to be bound by the
terms and conditions hereof. In the case of an assignment involuntarily
effected by operation of law, such assignment shall be confirmed by presentation
to the Partnership of legal evidence of such assignment, in form and substance
satisfactory to counsel for the General Partner. In all cases, the Partnership
shall be reimbursed by the assignor and/or assignee for all costs and expenses
reasonably incurred by the Partnership in connection with such assignment.

(b) Except in the case of an assignment involuntarily effected by
operation of law, the assignor shall furnish to the Partnership an opinion of
counsel, which counsel and opinion shall be reasonably satisfactory to the
General Partner, that the assignment will not cause the Partnership to terminate
for United States income tax purposes.

<PAGE>

(c) The assignor and assignee shall furnish the Partnership with the
assignee's taxpayer identification number, sufficient information to determine
the assignee's initial tax basis in the interest assigned, and any other
information reasonably necessary to permit the Partnership to file all required
United States and state tax returns and other legally required information
statements or returns. Without limiting the generality of the foregoing, the
Partnership shall not be required to make any distribution otherwise provided
for in this Agreement with respect to any assignee until it has received such
information.

(d) Except in the case of an assignment involuntarily effected by
operation of law, either (a) such interest shall be registered under the
Securities Act of 1933, as amended, and any applicable state securities laws, or
(b) the assignor shall provide an opinion of counsel, which opinion and counsel
shall be reasonably satisfactory to the General Partner, to the effect that such
assignment is exempt from all applicable registration requirements and that such
assignment will not violate any applicable laws regulating the assignment of
securities.

Section 11
GENERAL PARTNER

11.1 Covenant to Act as General Partner. Except as otherwise permitted by
this Agreement, the General Partner hereby covenants and agrees to carry out the
duties of a general partner hereunder until the Partnership is dissolved and
liquidated pursuant to Section 12 hereof.

11.2 Termination of Status as General Partner.

(a) The General Partner shall cease to be a general partner upon the
first to occur of (i) the bankruptcy of the General Partner, following the
Completion Date; (ii) the transfer of the General Partner's entire interest as a
general partner, following the Completion Date; (iii) the involuntary transfer
by operation of law of such General Partner's entire interest as a general
partner following the Completion Date, or (iv) the vote of a majority of the
Limited Partners to approve a request by such General Partner to retire
following the Completion Date. In the event a Person ceases to be a general
partner without having transferred its entire interest as a general partner,
such Person shall be entitled only to allocations under Section 3 and
distributions under Section 4 with respect to its interest in accordance with
this Agreement and shall have no other rights under this Agreement.

(b) It is the intention of the Partners that the Partnership
dissolve as a result of the cessation of any Person's status as a general
partner unless the Limited Partners with 90

<PAGE>

days thereafter unanimously agree to designate a substitute general partner
therefor.

Section 12
DISSOLUTION AND WINDING UP

12.1 The Partnership shall dissolve and terminate upon the occurrence of
one of the following:

(a) the cessation of the General Partner as General Partner for any
reason (including Section 15642(a) of the Act) unless the Limited Partners
within 90 days thereafter unanimously agree to designate a substitute general
partner therefor;

(b) the unanimous decision of all Partners to dissolve the
Partnership;

(d) the issuance of a judicial decree of dissolution by any court of
competent jurisdiction; or,

(e) the acquisition by one Partner of the interests of all Partners
in the Partnership.

12.2 The General Partner (or, in the event there is no remaining General
Partner, any Person elected by all of the Limited Partners) (the "Liquidating
Partner") shall be responsible for overseeing the winding up and dissolution of
the Partnership, shall take full account of the Partnership's liabilities and
property, shall cause the Partnership property to be liquidated as promptly as
is consistent with obtaining the fair value thereof unless the Partners
unanimously consent to distributions of all or any part of the property in kind,
and shall cause the property or the proceeds therefrom, to the extent sufficient
therefor, to be applied and distributed in the following order:

(a) First to the costs and expenses of the winding up;

(b) Second, to the payment and discharge of all of the Partnership's
debts and liabilities including setting up of any reserves which the Liquidating
Partner may deem reasonably necessary for any contingent or unforeseen
liabilities or obligations of the Partnership or of the Partners arising out of
or in connection with the Partnership. Such reserve shall be held by it for the
purpose of disbursing such reserves in payment of any of the aforementioned
contingencies, and, at the expiration of such period as the Liquidating Partner
shall deem advisable, to distribute the balance thereafter remaining in the
manner hereinafter provided; and

<PAGE>

12.3 Compliance with Certain Requirements of the Regulations; Deficit
Capital Accounts.

In the event the Partnership is "liquidated" within the meaning of
Regulations Section 1.704-1(b)(2)(ii)(g), (a) distributions shall be made
pursuant to this Section 12 to the Partners who have positive Capital Accounts
in compliance with Regulations Section 1.704-1(b)(2)(ii)(b)(2), and (b) if any
General Partner's Capital Account has a deficit balance (after giving effect to
all contributions, distributions, and allocations for all fiscal years,
including the year during which such liquidation occurs), such General Partner
shall contribute to the capital of the Partnership the amount necessary to
restore such deficit balance to zero in compliance with Regulations Section
1.704-1(b)(2)(ii)(b)(3). If any Limited Partner has a deficit balance in its
Capital Account (after giving effect to all contributions, distributions, and
allocations for all fiscal years, including the fiscal year during which such
liquidation occurs), then such Limited Partner shall have no obligation (other
that as set forth within this Agreement) to make any contribution to the capital
of the Partnership with respect to such deficit, and such deficit shall not be
considered a debt owed to the Partnership or to any other Person for any purpose
whatsoever.

12.4 Notwithstanding any other provision of this Section 12 in the event
the Partnership is liquidated within the meaning of Regulations Section
1.704-1(b)(2)(ii)(g) but no event described in Section 12.1 has occurred, the
Partnership's property shall not be liquidated, the Partnership's liabilities
shall not be paid or discharged, and the Partnership's affairs shall not be
wound up. Instead, solely for United States income tax purposes, the
Partnership shall be deemed to have distributed the Partnership's property in
kind to the Partners, who shall be deemed to have assumed and taken subject to
all Partnership liabilities, all in accordance with their respective Capital
Accounts, and if any General Partner's Capital Account has a deficit balance
(after giving effect to all contributions, distributions, and allocations for
all fiscal years, including the fiscal year during which such liquidation
occurs), such General Partner shall contribute to the capital of the Partnership
the amount necessary to restore such deficit balance to zero in compliance with
Regulations Section 1.704-1(b)(2)(ii)(b)(3). Immediately thereafter, the
Partners shall be deemed to have recontributed such property in kind to the
Partnership, which shall be deemed to have assumed and taken subject to all such
liabilities. For any purposes other than United States income taxation, the
properties and liabilities of the Partnership shall be deemed not to have been
distributed.

<PAGE>

12.5 Each of the Partners shall be furnished with a statement prepared by
the Liquidating Partner (certified by the Partnership's accountants) which shall
set forth the assets and liabilities of the Partnership as at the date of
completion of the winding up.

12.6 The Liquidating Partner is hereby appointed as the true and lawful
attorney of the Partnership and each of the Partners with full powers of
substitution.

(a) to make, execute, sign, acknowledge and file all documents and
all forms for the liquidation of the Partnership as may be required by law.

(b) to execute such documents and instruments as may be necessary or
advisable to liquidate the Partnership's business and to distribute its
property, income and interests as provided herein.

12.7 Notwithstanding anything to the contrary contained in this Agreement,
prior to the Completion Date, the consent of the General Partner and the Limited
Partners shall be required for the initiation of any voluntary bankruptcy
proceedings for the Partnership or any other event of voluntary dissolution of
the Partnership.

<PAGE>

Section 13
MISCELLANEOUS

13.1 No Warranties. None of the parties hereto has made any express or
implied representation, warranty, guarantee or agreement as to the total amount
of proceeds which will be derived from the distribution and exploitation of any
Qualifying Film, or that any Qualifying Film will be favorably received by
exhibitors or by the public, or will be distributed or exploited continuously.
In no event shall any party incur any liability based upon any claim by a party
that another party has failed to realize receipts or revenue which should or
could have been realized.

13.2 No Third Party Beneficiary. Nothing in this Agreement, express or
implied, is intended or shall be construed to confer upon any Person other than
the parties hereto any right, remedy or claim, legal or equitable, under or by
reason of this Agreement or any provision hereof, this Agreement and all of its
provisions being intended to be and being for the sole and exclusive benefit of
the parties hereto.

13.3 Waivers and Modifications. No waiver, modification, alteration or
amendment of any provision hereof or of any right or remedy hereunder shall be
effective unless in writing signed by the party against whom such waiver,
modification, alteration or amendment is asserted, and then only to the extent
set forth in such writing. No delay in the exercise of any right or remedy
shall operate as a waiver thereof, nor shall any single or partial exercise
thereof preclude other or further exercise thereof or the exercise of any other
right or remedy.

13.4 Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of California, regardless of the laws
that might otherwise govern under applicable principles of conflicts of laws
thereof. The procedural law of the State of California shall apply to the
extent necessary to effect the arbitration or adjudication of disputes
concerning this Agreement.

13.5 Descriptive Headings. The descriptive headings of the several
Sections of this Agreement are inserted for convenience only and do not
constitute a part of this Agreement.

13.6 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, and it shall not be
necessary in making proof of this Agreement, to produce or account for more than
one such counterpart.

13.7 Notice. All communications provided for hereunder shall be sent by
certified mail, return receipt requested, courier service or telecopy as
follows:

<PAGE>

If to CMI:

Cutthroat Management Inc.
8800 Sunset Boulevard
Los Angeles, California 90069
Telecopier No.: (310) 652-1343
Attn: General Counsel

With a copy to:

Gipson Hoffman & Pancione
1901 Avenue of the Stars
Suite 1100
Los Angeles, CA 90067
Telecopier No.: (310) 556-8945
Attn: Lawrence Barnett, Esq.

If to TCI:

5619 DTC Parkway
Englewood, Colorado 80111
Telecopier No.: (303) 488-3245
Attention: General Counsel

With a copy to:

Kenneth Ziffren, Esq.
Ziffren Brittenham & Branca
2121 Avenue of the Stars, Suite 3200
Los Angeles, CA 90067
Telecopier No.: (310) 553-7068

If to LSC+:

LSC+ Investments Inc.
301 North Canon, Suite 228
Beverly Hills, California 90210
Attention: General Counsel
Telecopier No.: (310) 246-9772

With a copy to:

Jonathan Wohl
Coudert Freres
52, Avenue des Champs-Elysees
75008 Paris
France
Telecopier No.: (331) 43-59-66-55

Notices shall be effective upon receipt.

<PAGE>

13.8 Arbitration and Jurisdiction.

13.8.1 Arbitration. Except as otherwise expressly provided
herein, any controversy or claim arising out of or relating to this Agreement or
any alleged breach thereof shall be settled by binding arbitration in accordance
with the rules of the American Film Marketing Association ("AFMA") as then in
effect, and judgment upon the award rendered by the arbitrator shall be final
and may be entered in any court having jurisdiction. Each party hereto agrees
to submit to such arbitration. Notice of the demand for arbitration shall be
filed in writing with the other party to this Agreement and with AFMA. In no
event shall the demand for arbitration be made after the date when institution
of legal or equitable proceedings based on such claim, dispute or other matter
in question would be barred by the applicable statute of limitations. This
agreement to arbitrate shall be specifically enforceable under the prevailing
arbitration law. The party desiring arbitration shall serve notice upon the
other party, together with designation of the first party's arbitrator. If the
person designated by the first party as arbitrator is acceptable to the second
party, the second party shall so notify the first party within 10 days; if not
acceptable, the second party shall designate its own arbitrator in a notice to
the first party within the same 10-day period. The two arbitrators so named, if
such is the case, shall within 10 days thereafter appoint a third arbitrator,
and such third arbitrator shall proceed forthwith to hear and determine the
matter.

13.8.2 Jurisdiction. Subject to Section 13.8.1, each of the
parties hereby expressly (a) consents to the exclusive personal jurisdiction of
all courts ("Applicable Courts") located in Los Angeles, California, U.S.A. with
respect to any action, proceeding or other matter arising out of or in any way
related to this Agreement or any of the transactions contemplated hereby
("Applicable Action"), (b) agrees that any such action, proceeding or other
matter (other than the arbitration set forth above) shall be brought exclusively
in, and that exclusive venue shall be proper in, any of the courts located in
Los Angeles, California, U.S.A., (c) hereby irrevocably waives and agrees not to
assert (by way of motion, as a defense or otherwise) in any Applicable Action
brought in the Applicable Court any claim (i) that it is not subject personally
to the jurisdiction of such Court, (ii) that the Applicable Action is brought in
an inconvenient forum, (iii) that the venue of the Applicable Action is
improper, or (iv) that this Agreement or its subject matter may not for any
other reason be enforced in such Court, (d) hereby irrevocably consents to
service of process of such Court in the same manner as any other Notice is
served hereunder, and when so accomplished shall have the same force and effect
as if personally served in Los Angeles, California, U.S.A., on a resident
thereof, and (e) irrevocably agrees that final judgment (including the
exhaustion of all rights to appellate review) in any Applicable Action
("Judgment") shall be conclusive and may be enforced in any other jurisdiction
(i) by action, suit or proceeding on the Judgment, a certified and true copy of
which shall be absolutely conclusive evidence of the fact and of the amount of
any liability under or pursuant to the

<PAGE>

Judgment, or (ii) in any other manner not prevented by any applicable law.

13.8.3 Remedies. The parties hereto shall not be entitled to any
preliminary or final injunctive relief to prevent any breach, loss or impairment
of the provisions of this Agreement except that the Limited Partners, and each
of them, shall be entitled to injunctive relief to prevent, curtail or compel
any action or inaction of the General Partner which would cause the Limited
Partners to be liable for any obligation of the Partnership. Notwithstanding
Section 13.8.1, the Limited Partners shall be entitled to pursue such injunctive
relief in court. Subject to the limitations set forth in this Section 13.8.3,
the parties shall be entitled to all other forms of relief in equity or at law,
provided that the Limited Partners shall not petition a court for the
appointment of a receiver for the Partnership without the consent of the General
Partner.

13.9 Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction or other authority
to be invalid, void or unenforceable, (i) the remainder of the terms,
provisions, covenants and restrictions of this Agreement shall remain in full
force and effect and shall in no way be affected, impaired or invalidated and
(ii) to the fullest extent possible, the provisions of this Agreement
(including, without limitation, all portions of any Section of this Agreement
containing any such provision held to be invalid, illegal or unenforceable that
are not themselves invalid, illegal or unenforceable) shall be construed so as
to give effect to the intent manifested by the provision held invalid, illegal
or unenforceable.

13.10 Further Assurances. Each party shall use its best efforts to cause
all of the conditions to its and the other parties' obligations hereunder to be
timely satisfied. The parties hereto shall do and perform or cause to be done
and performed all such further acts and things and shall execute and deliver all
such other agreements, certificates, instruments or documents as any other party
may reasonably request from time to time in order to carry out the intent and
purposes of this Agreement and the consummation of the transactions contemplated
hereby. No Partner shall voluntarily undertake any course of action
inconsistent with satisfaction of any requirement applicable to it set forth in
this Agreement and each shall promptly do all such acts and take all such
measures as may be appropriate to enable any party to perform as early as
practicable the obligations herein and therein required to be performed by it.

13.11 Attorneys' Fees. In any action, suit or proceedings (including
arbitration) brought by any party with respect to this Agreement, its subject
matter or the actions, statements or conduct of the parties hereunder, the
prevailing party shall be entitled to recover from the other party all costs and
expenses incurred in connection therewith, including but not limited to
attorneys' fees, attorneys' costs and court costs.

<PAGE>

13.12 Variation of Pronouns. All pronouns and any variations thereof shall
be deemed to refer to masculine, feminine, or neuter, singular or plural, as the
identity of the person or persons may require.

13.13 Waiver of Action for Partition; No Bill For Partnership Accounting.
Each Partner irrevocably waives any right that it may have to maintain any
action for partition with respect to any of the Partnership property. To the
fullest extent permitted by law, each Partner covenants that it will not (except
with the consent of the General Partner) file a bill for Partnership accounting.

13.14 Sole and Absolute Discretion. Except as otherwise provided in this
Agreement, all actions which the General Partner may take and all determinations
which the General Partner may make pursuant to this Agreement may be taken and
made at the sole and absolute discretion of the General Partner.

13.15 Intention of the Parties. It is the intention of the parties hereto
that the economic substance reflected in this Agreement is substantially the
same as that set forth in the Co-Production Agreement.

13.16 Amendment and Restatement of Agreement. CPI hereby agrees and
consents to this Agreement.

//
//

<PAGE>
//
//

IN WITNESS WHEREOF, the parties have entered into this Agreement of Limited
Partnership as of the day first above set forth.

GENERAL PARTNER:
Cutthroat Management Inc.
By: /s/ Robert W. Goldsmith
-------------------------
Title: Corporate Secretary
------------------------

LIMITED PARTNERS:
Tele-Communications, Inc.
By: /s/ Adam Singer
---------------------------
Title: Executive Vice President
--------------------------

LSC+ Investments Inc.
By: /s/ Michael Meltzer
-----------------------------
Title: Executive Vice President
--------------------------

Carolco Pictures Inc.
By: /s/ Robert W. Goldsmith
----------------------------
Title: Senior Vice President
--------------------------

<PAGE>
EXHIBIT 10.135

January 9, 1995

RCS Video International Services B.V.
Museumplein II
1071 DJ Amsterdam
Netherlands

RE: PARTICIPATION INTEREST

This letter will confirm our agreement that RCS Video International
Services B.V. ("RCS") will purchase from the undersigned, Cutthroat Management
Inc. ("CMI") a participation interest as provided below. Capitalized terms not
defined herein shall have the respective meanings assigned to such terms in the
Agreement of Limited Partnership of Cutthroat Productions, L.P. ("Cutthroat
L.P.") entered into as of December 18, 1994 among CMI, Tele-Communications Inc.
and LSC+ Investments Inc. attached hereto as Exhibit "A" (the "Partnership
Agreement").

1. PARTICIPATION INTEREST. The "Participation Interest" shall mean the
right to receive from CMI amounts equal to the RCS Percentage (defined below)
times the amount of any distribution made to TCI or LSC+ pursuant to Section 4.1
of the Partnership Agreement ("LP Distribution"). "RCS Percentage" equals
$1,500,000 divided by an amount equal to the aggregate of TCI's and LSC+'s
Initial Capital Contributions and Additional Capital Contributions. Based on
the foregoing calculation, it is understood that as of the date hereof and until
Additional Capital Contributions are made by TCI or LSC+, the RCS Percentage
shall equal 25%.

2. PURCHASE. The purchase price to be paid to CMI by RCS for the
Participation Interest shall be $1,500,000 (the "Purchase Price"). The closing
for the purchase of the Participation Interest shall take place on January 10,
1995 and will consist of the payment by RCS of an amount equal to the Purchase
Price in immediately available funds by wire transfer as CMI may direct.

<PAGE>

RCS Video International Services B.V.
January 9, 1995
Page 2

3. PARTICIPATION INTEREST PAYMENT DATES. Subject to CMI's receipt of the
Purchase Price as provided above, CMI will pay to RCS the amount due under
paragraph 1 of this letter within three business days after an LP Distribution
in immediately available funds by wire transfer as RCS may direct.

4. ASSIGNMENT RIGHTS. CMI may assign its rights or delegate its
obligations under this letter agreement to any Person if (x) such assignment or
delegation is consented and agreed to in writing by RCS or (y) such assignment
or delegation is to a transferee of CMI's interest as General Partner. Subject
to the foregoing, this letter agreement shall inure to the benefit of and be
binding upon the successors and assigns of each party.

5. NATURE OF OBLIGATION. The Participation Interest represents solely
the right to receive the specified payments from the specified sources of CMI if
and when (if ever) available and is not an absolute payment obligation. RCS has
no rights as General Partner and no right or interest in Cutthroat L.P.

6. MISCELLANEOUS.

(a) This letter agreement will be governed by and construed in
accordance with the laws of the State of California applicable to contracts
entered into and fully performed therein.

(b) This letter agreement contains the entire understanding of the
parties relating to the subject matter hereof and supersedes any prior
understanding or agreements of the parties.

<PAGE>

RCS Video International Services B.V.
January 9, 1995
Page 3

(c) This letter agreement may be executed in counterparts, each of
which when so executed shall be deemed an original, but all such counterparts
together shall constitute but one and the same instrument.

Cutthroat Management Inc.

By: /s/ Robert W. Goldsmith
---------------------------
Its: Corporate Secretary
---------------------------

Agreed and accepted:

RCS Video International Services B.V.

By: /s/ Luigi Predieri
----------------------------------
Its: Managing Director
----------------------------------

<PAGE>

EXHIBIT 11.1

CAROLCO PICTURES INC.
COMPUTATION OF EARNINGS PER COMMON SHARE

Year Ended December 31, Qtr. Ended 12/31/94
----------------------- -------------------
1992 1993 1994
---- ---- ----
<S> <C> <C> <C> <C>
Weighted average shares
outstanding. . . . . . . . . . . . . . . . . 30,623,569 52,202,174 140,015,109 140,015,109
Less Treasury shares . . . . . . . . . . . . (536,438) (1,704,645) (2,338,975) (2,373,756)
------------ ------------ ------------ ------------

Total. . . . . . . . . . . . . . . . . . . 30,087,131 50,497,529 137,676,134 137,641,353
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------

Loss from continuing operations. . . . . . . $(86,701,000) $(59,822,000) $(43,451,000) $(11,923,000)
Preferred Dividends. . . . . . . . . . . . . (4,321,103) (833,700) (4,249,000) (1,082,000)
------------ ------------ ------------ ------------
Loss from continuing operations
attributable to common shares . . . . . $(91,022,103) $(60,655,700) $(47,700,000) $(13,005,000)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------

Loss from continuing operations per
common share . . . . . . . . . . . . . . . $(3.02) $(1.20) $(0.35) $(0.09)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------

Income (loss) from discontinued
operations . . . . . . . . . . . . . . . . . $(6,232,000) $(4,562,000) $0 $0
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------

Income (loss) from discontinued
operations per common share. . . . . . . .. $(0.20) $(.09) $0.00 $0.00
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------

Income (loss) from extraordinary items . . . $4,916,000 $426,000 $0 $0
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------

Income (loss) per common share from
extraordinary items. . . . . . . . . . . . $0.16 $0.01 $0.00 $(0.00)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------

Net loss . . . . . . . . . . . . . . . . . . $(88,017,000) $(63,958,000) $(43,451,000) $(11,923,000)
Preferred dividends. . . . . . . . . . . . . (4,321,103) (833,700) (4,249,000) (1,082,000)
------------ ------------ ------------ ------------
Net loss attributable to common shares . . . $(92,338,103) $(64,791,700) $(47,700,000) $(13,005,000)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------

Net loss per common share. . . . . . . . . . $(3.06) $(1.28) $(0.35) $(0.09)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------

</TABLE>

<PAGE>
EXHIBIT 21.1

CAROLCO PICTURES INC.

LIST OF SUBSIDIARIES

Carolco International Inc., a Delaware 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
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
Medieval Films Inc., a California corporation
Cutthroat Productions Inc., a California corporation
Wagons East Productions Inc., a California corporation
Cutthroat Management Inc., a California corporation
Cutthroat Distribution 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 Picture 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 April 10, 1995 with respect to the consolidated
financial statements and schedule included in the Annual Report (Form 10-K) of
Carolco Pictures Inc. for the year ended December 31, 1994.

/s/ Ernst & Young

Los Angeles, California
April 10, 1995

<PAGE>
<ARTICLE> 5
<CIK> 0000801441
<NAME> CAROLCO PICTURES INC
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 27,336
<SECURITIES> 0
<RECEIVABLES> 15,225
<ALLOWANCES> 1,390
<INVENTORY> 89,145
<CURRENT-ASSETS> 0
<PP&E> 32,063
<DEPRECIATION> 14,650
<TOTAL-ASSETS> 156,857
<CURRENT-LIABILITIES> 0
<BONDS> 61,682
<COMMON> 1,400
0
88
<OTHER-SE> (66,009)
<TOTAL-LIABILITY-AND-EQUITY> 156,857
<SALES> 53,723
<TOTAL-REVENUES> 59,279
<CGS> 64,944
<TOTAL-COSTS> 64,944
<OTHER-EXPENSES> 19,254
<LOSS-PROVISION> 1,913
<INTEREST-EXPENSE> 13,052
<INCOME-PRETAX> (39,884)
<INCOME-TAX> 3,567
<INCOME-CONTINUING> (43,451)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (43,451)
<EPS-PRIMARY> (.35)
<EPS-DILUTED> (.35)

</TABLE>